Local inventories – the unexplored area of business logistics.
Local inventories are stocks held close to the end user. Everything needed for the day-to-day activities to run smoothly should be available here. In a local inventory everything from medical gloves, lubricating oils and spare parts, to paper, pens and toner for printers, are stored. Every department normally has its own inventory. It is often quite small but on the other hand it is not uncommon to have several inventories in one department, leading to large volumes in total. The local inventory is important but often too small to allow for the assignment of one person managing it full time. Instead it is being managed as a sideline. Different persons are involved in fetching things from the inventory and making sure it is being replenished again. As a result shortages may arise or some items might be ordered in too large numbers with a high risk of being scrapped at a later stage. Also the range of similar, often totally interchangeable, items, tend to become too wide, and more time than necessary is spent on administration of the local inventory.
What gets least attention costs the most!
According to surveys local inventories account for 70-80% of total purchasing costs, but only for about 10% of the inventory value. In the local inventories the so called indirect materials are stored, things that are necessary for the operation but that is not directly adding to the product that is being produced and sold. Traditionally there has been a focus on the direct materials because of their high inventory value and since shortages often hold back production and deliveries. This is one of the most developed areas of business logistics.
But the indirect materials still receive little attention. The local inventories are normally not included in the ERP or purchasing systems because the management of these inventories is a decentralized task which differs from other tasks within inventory management. The user must be able to place orders and manage the inventory in the easiest possible fashion, in a way that renders cost and quality control. Dairecto’s solutions for management of local inventories fulfill these requirements.
Inventory management with the Provider concept
The Provider system can be used separately or in addition to a current purchasing or ERP system. With Provider the deliveries to the local inventory as well as storage and inventory maintenance, are simplified and made more effective. At the same time the quality of order placements and availability of the items improve. The visual principle which the system is based on, makes it applicable in all sorts of operations. Orders placed with the system are sent via an existing main business communication system or directly to the supplier.
The Provider system s based on a barcode solution which permits fast order and inventory management of the local inventories using only one system for all goods. Order points are used and the system optimizes the ordering quantities so that cost of tied up capital and risk of stockouts is minimized. An appreciated feature is the possibility of tracking the availability of an item in another local inventory.
High degree of adaptability
Receipts of goods can be registered in the system with or without the bar code reader. The system also manages shelf locations. Stock records are saved and can be followed up with the statistics function. The Provider concept is based on the definition of one base stock for each local inventory. The base stock consists of frequently used items that are replenished on a regular basis. These items are easily ordered with the barcodes. The seldom ordered items are selected via the Provider search function. All data about the different local inventories are stored in the system. The system produces automatic updating of the item master. Changes of items which concern one or more local inventories automatically generate an update of the system and new bar codes to be printed.
If the local inventories are of different sizes or have different needs, the system can be adapted in three levels. In the basic level you work with an electronic template containing the frequently ordered items. The next level contains barcodes and barcode reader which are used in the ordering process. In the most advanced level you register every withdrawal in the local inventory. By this working method the system automatically generates ordering proposals when the balance is down to a previously determined ordering point.
A proven track record
The concept has proven to create major improvements of the profitability. Provider is used by more than 200 customers with the following average outcome :
· Reduction of assortment by 35%.
· Reduction of tied up capital by 50 %.
· Reduction of administrative costs by 60%.
Moreover the number of emergency orders and shortages did decrease and follow up improved. In addition to this the staff is very pleased because of the user friendliness of the system.