These days, everyone has at least heard of Lean Manufacturing, the production method developed by Toyota in the last century. This method was revolutionary in the way it went against every founding principles of mass production. Instead of trying to produce in vast quantities to reduce unit cost as much as possible, this method shed light on the importance of flexibility, short production delays and minimum inventory levels.
If Lean Manufacturing has since proved its worth in the manufacturing field, many still don’t know that this method can apply wonderfully to other businesses such as service industries or distribution.
In this series of texts, we will present the different aspects of Lean Distribution and the way a modern Enterprise Resource Planning (ERP) system can help to successfully implement such a method.
Just in Time : everything, right now
While conducting an analysis workshop on procurement with a customer, she told us that her number one selection criteria, when requesting quotes from vendors, was delays, way before prices : response delay first and most importantly, delivery delay or lead times.
This is where the importance for a distributor to operate according to the Just in Time method comes into play. In order to implement such a practice, it is necessary to reorganize the supply chain to operate in a Pull system mode. The basic idea is to always keep the right amount of inventory immediately available, all along the supply chain pipeline.
Instead of pushing the production from the manufacturer, who will then push it towards the distributor and then the wholesaler all the way to the customer; in a pull system mode, it is the customer demand at the end of the line that pulls the material flow. The customer demand is immediately filled, which then triggers a replenishment process all along the supply chain.
A well configured ERP system allows you to make sure that each inventory item is kept in stock according to its own minimum level and that every customer demand triggers a re-evaluation of the procurement needs. If the customer demand brings the inventory level below the predefined minimum level, a procurement requisition will be automatically created. With a properly configured ERP system, we can make sure that no item ever falls through the cracks!
Understanding the past to build the future
Another corner stone of the Just in Time method is creating demand forecasts that are as accurate as possible. This is how you can manage to establish the minimum inventory levels required to avoid stockouts.
Every scientific demand forecasting method relies on accurate historical data in order to establish future projections. A modern ERP system records all the inventory transactions and allows you to organize this information in order to extract the 3 essential characteristics of demand : Level, trend and seasonality. We can then later on compare the accuracy of the forecasts with the actual recorded demand in the ERP system to always further refine the forecasting models.
Don’t let your customers turn themselves towards your competition because of out-of-stock items; make sure that when it comes to inventory, you always keep the right amount at the right time.