The customer has a large number of SKUs and a wide range of optimal inventory levels. In order to fulfill their sales commitments to their customers, they require a short inventory replenishment lead time from EP (one to two weeks) and the flexibility to adjust order mix right up until those orders are placed. Once the replenishment order is placed, spikes or last minute sales orders on their end can further affect the accuracy from EP producing to the correct inventory demand levels..
OVERCOMING THE CHALLENGE
The amount of flexibility required coupled with the difficulty in maximizing the run size efficiency made managing this problem simply with more inventories expensive and problematic. It was determined that the first point in time when actual demand was known was when the customer’s order fulfillment system recognized their customer’s PO. This was a full one to two weeks before they expressed the demand to EP for replenishment which was based on when the parts actually shipped to their customer. Monitoring this on a daily basis is nearly impossible and relies on constant communication and often decisions are made based on out of date information.
EP determined that if we had access to the customer’s ERP system directly and could see PO Activity real time, an algorithm could be developed to constantly massage and optimize replenishment order mix. In addition this would occur much sooner in the fulfillment cycle and allow for far more flexibility for last minute changes or adjustments to the extrusion run sequence.
With the help from the customer’s IT department, EP was able to develop a nightly report that pulled the customer’s sales demand in 24 hour increments and automatically send a data file to EP. While not quite in real time, this 24 hour window of information was far more accurate and timely than the previous manual methods and allowed sufficient time for EP to maximize replenishment order mix. This resulted in a reduction of stock outs to nearly zero while actually reducing the total inventory required. The solution virtually eliminated the need for human intervention and freed up time in both the customer’s procurement department and EP’s customer service group.