Case Study: Vendor Managed Inventory
Riding the Demand Curve to Success
Demand Driven Inventory (DDI) is our optimized Vendor Managed Inventory (VMI) process. The goal is to reduce out-of-stocks and materials exposure, minimize expediting expenses, and better manage manufacturing workflows. DDI requires working together in close partnership to set safety stock levels and track daily changes in inventory levels—both receipts and unit movement.
DDI provides optimized responsiveness to changing demand, complete flexibility, and lowers the risk of stock outages and leftover obsolete product. At the same time, it enables us to manage production lines more efficiently, yielding lower overall costs.
The heart of DDI is to minimize inventory at each point of the supply chain and manufacturing process. Our process is based on KANBAN, a scheduling system that helps determine what to produce, when to produce it, and how much to produce. Product builds occur only when sales demand indicates a need to replenish stock. Materials, in turn, are procured only when the need to build dictates.
Enercon manages manufacturing, shipments and re-orders based on up-to-date consumption data and a level of safety stocks (i.e., number of weeks of supply) agreed on with the customer. DDI can benefit any customer that orders on a regular basis, as opposed to those that order once per year. This case study describes the experience of one of our customers, and summarizes the benefits received.
- Enercon was integrally involved in the original designs, which included multiple PCBs.
- Enercon builds the PCBs and completes the integration of all components into the finished medical instrument.
Before using DDI, this customer issued purchase orders for product manufacture based on their forecast of demand. However, fluctuations in the demand curve left them with excess inventory at some times, while at other times, a lack of inventory meant they could fulfill orders only partially or not at all…leading to significant lost revenue.
They incurred substantial costs expediting product as well. We often had to build products immediately and ship them overnight—not just within the U.S., but internationally, too.
At Enercon, workflow planning suffered, leading to inefficiencies and challenges meeting all customers’ needs.
- Once the customer agreed to have Enercon manage the inventory process with DDI, we worked together to facilitate daily monitoring of inventory–both receipts and usage—using automated reporting technology to minimize labor costs.
- A supply agreement set ground rules and expectations, including minimum and maximum safety stocks.
- We worked to anticipate consumption on a longer-term basis and purchase more efficiently, yielding greater leverage on pricing.
- Leaving the materials in their most basic, flexible form (e.g., rolled steel sheet rather than formed product enclosures) lowered customer’s exposure to materials. Unused raw components could be used for other customers or returned to the supplier with nominal or no restocking costs.
- Customer funds tied up in inventory dropped by 50%.
- Stock outages, formerly a monthly occurrence, have been eliminated.
- Costs for expedited shipping dropped from $40,000 per year to zero.
- Customer reduced labor costs to manage inventory by 50%.
- Enercon reduced labor costs to manage inventory by 75%.