Materials, Planning and Logistics (MP&L) professionals are consistently battling the conceptual versus the reality to best manage inventory storage. As Prussian General Helmuth von Moltke the Elder directly outlined, “no plan ever survives contact with the enemy.” This analogy, although extreme, hits too close to home for those that face demanding, daily battles to keep plants operating. Unfortunately, far too many MP&L professionals, including myself, have army crawled into our fair share of trailers to grab, and then run, that one critical part to the production line to avoid downtime.
The cold reality is that rarely, if ever, do our inventory models work perfectly, as they simply can’t consider every scenario. Thus, change in the physical world requires us to quickly adapt our plans. Professionals that make ongoing micro adjustments more quickly improve not only their part flow, but also daily job flow. Further, continuously adjusting inventory storage locations to best align with our ever-changing real-world environment can lower inventory costs.
Below is a seven-step practical process for assessing, determining, and maintaining inventory storage locations that optimize purchase part flow and costs.
7 Steps to Optimize Inventory Storage Locations
1. Outline Current State
Inventory management is an ongoing cycle. Whether you are launching a new greenfield manufacturing plant and/or managing multisite global operations, you’ll want to establish a current state baseline. The following specific datapoints are critical to putting a fence around the inventory optimization opportunity:
- Total Cost of Inventory
- Number of Part Numbers
- Number of Inventory Turns
- Type of Inventory (e.g., are parts Purchased, Modified and/or Custom)
- Type of Control (e.g., is inventory directed spend and/or controllable)
For existing operations, outline the current state of inventory management successes and/or failures to help better focus your efforts in areas that maximize results. Ask where existing downtime occurs and where material handling bottlenecks arise. Answers to these simple questions will help pinpoint potential purchase part categories that present the most opportunities to rework storage locations and routes.
2. Outline a Plan For Every Part (PFEP)
Create a PFEP with the part data mentioned below. Digging a layer deeper will provide you and your team with the supporting data from which to make educated, information-based decisions. Further, this enhanced data foundation will empower more micro adjustments to storage locations and a host of other inventory metrics as change inevitably occurs. The following 14 data fields are crucial to establishing a solid inventory data foundation:
- Part Number
- Part Weight
- Part Cost
- Part Category (e.g., ABC)
- Annual Volume
- Minimum Inventory Level
- Lead Time
- Material Handling Requirements e.g., people or forklift
- Standard Pack Quantity
- Packaging Type
- Packaging Size (e.g., L x W x H)
- Packaging Weight
- Manufacturing Process Step
- Manufacturing Usage Location
3. Determine Space Parameters
Map the height of inventory storage space available, current racks’ dimensions, and the weight capacity of the racks. Calculate the total square feet available for inventory storage. The current state square footage both dedicated and utilized for inventory is a critical key performance indicator (KPI) for MP&L. Precious, freed up floor space can be utilized for new revenue generating activities. Here’s a great formula to help determine the required space needed for inventory:
Maximum Storage Square Feet Needed = Pull Signals x Packaging Size
4. Minimize Time Waste
As a general lean supply chain rule, the goal is to minimize the distance and the time traveled from receiving a purchased part to presenting it to the production line operator for assembly into the product. Time equals money in the form of man hours so the more time reduced handling parts the more cost is avoided and/or reduced. A formula to help inform part storage decisions is below.
Part Material Handling Cost = (Time part traveled from receiving to storage to use at site + Time to handle part) x Pull Signals x Average Hourly Labor Rate
More material handling time and labor cost leads to more waste, thus optimization opportunities exist. Keep in mind you won’t be able to optimize every part’s flow completely, as there are always unique, unavoidable constraints within every plant.
5. Tailor for Unique Constraints
Many best practices outlined in supply chain textbooks leave out the real-world considerations that must be considered to realize best practice outcomes. As an example, an automotive interior headliner supplier has a 20 x 30-foot elevated mezzanine, located within the footprint of their purchased parts supermarket. This major asset needs to be considered, and worked around, when mapping out the optimal inventory storage locations.
Another example is the wooden shipping containers that are required to package the supplier’s service parts. These large heavy packages need to be stored as close to the end of the production use site as possible to prevent material handling safety issues. This unique set of requirements resulted in storing service part packaging outside the purchase part warehouse to mitigate the distance traveled, and to locate inventory closest to the use site.
6. Relocate Part Storage Locations
Small inventory adjustments can make near immediate bottom line business impacts. Ensure you follow through with implementing your analysis in the near term by starting small; it’s better to analyze and relocate a small number of parts and to see results than attempting to analyze thousands of parts and not act.
As a quick tip, when starting off on your part storage location adjustment journey, leave enough time to properly update the digital information flows and the physical flows. It’s best to print and gather your revised part storage location shelf labels, make the physical change, and then quickly follow up with the associated updates to your software.
Also, as you and your team make changes, conduct physical cycle counts at the old locations for a given period to double check that change takes hold. It can be humbling at times just how much of our day-to-day plant tasks can become engrained habits and it wouldn’t be uncommon for inventory to wind up at an old location because of prior routines.
7. Adjust to Maintain
As I mentioned earlier, change causes change. Transition from daily inventory firefighting to maintain production to proactively managing inventory to optimize value flow. Placing your data into a collaborative productivity environment such as Supply Performance SystemTM software will enable multiple professionals to view and edit inventory data in real time. These live updates facilitate more inventory agility.
To further accelerate your time to results, many MP&L leaders are automating the downloading and manipulating of ERP and supplier data to form real-time, actionable inventory KPIs, and automation is allowing teams to spend more time acting on information to drive better business outcomes.
As example both the inventory space and time utilization calculations and ongoing changes to potentially 50+ variables can be automatically maintained and updated with software. Again, change causes change so if you find yourself continuously expediting parts and/or storing extra buffer stock you may want to reevaluate how and where you store your parts.
Again, Change Causes Change
We need to reframe how we think about inventory, from static fixed assets to dynamic value flows. To maximize our inventory management success, we need to break the process down into smaller tasks. Our approaches to how we think about, and ultimately decide, where to store our purchased parts inventory are core tasks worth mastering.
You’d be hard pressed to find metrics other than inventory costs that, with small adjustments to variables such as storage location, can so quickly free up vital cash flow. As your company, product lifecycle, volumes and plants evolve, so should where you store your purchased parts to maximize supply chain performance.