Manage your small-parts inventory better

Manage your small-parts inventory better Trust your vendor and save time and money

By Jim Poe

April 1, 2011

By trusting your vendors to deliver small parts in a regularly scheduled manner to your facility, you are learning a valuable lesson about the nuts and bolts of efficient supply chain management

Figure 1 Having your vendor deliver small parts directly to where they are needed, usually near assembly, can streamline and reduce the cost of your parts procurement process—even if the purchasing department doesn’t want to believe it.

How many times do you run out of the basic parts you need to make your product? When you do run out, how many people must get involved to solve the problem?

The level of disruption that can result when your plant suddenly runs out of a nut or bolt is amazing. That disruption turns into waste, as several people must leave their normal responsibilities to solve this one problem:

1. An employee or the computer reports that your plant is out of a certain bolt.
2. The report goes to the purchasing department, which writes a purchase order and sends it to the supplier.
3. The supplier receives the order, processes it, and ships the bolts.
4. Your employees receive the bolts and count them to compare to the original purchase order.
5. The bolts are moved to the production area, where someone counts them again while putting them in the tool crib.
6. The bolts are removed as required from the tool crib, finally reaching the people who need them.

What an effort to get a simple bolt into your factory! Look at how many people must touch the process, even with a computer network to assist them. Some factories follow this procedure for every small part that comes to the facility—imagine the labor it takes to keep track of it all.

There is a better way to get nuts and bolts to the factory floor (see Figure 1).

The first thing your plant needs to do is stop this process. Of course, you must be prepared to implement a different process to ensure you don't run out of bolts—you still need to produce product, after all. But you must eliminate the inefficient process first.

The basis for the new process must be trust. You need to trust your supplier; if you don't, find one that you can trust. You also need to trust the employees. Having nuts and bolts lying around should not tempt thievery, but even if it does, the cost of the stolen parts will be far less than the labor-hours your employees spent getting nuts and bolts into your plant and on the production floor.

The biggest hurdle in this process may be your accounting department employees, as they love paperwork to cover every move they and every supplier make. Changing the process may upset your computer system, as you won't have receiving paperwork, but the resulting cost savings will be worth the effort.

The New Process

The process described here works best if you single-source all your small parts. It is equally suited to small and large production facilities, as only the volume of the transactions would differ.

While you may pay a few more cents for some parts, in the long run you will reduce your overall costs. Again, be sure to pick a vendor you trust, as that is the basis for the entire process. And make sure that your supplier is familiar with the safety requirements for each workcell so that he complies with your safety rules while in your facility.

1. Determine which nuts and bolts you need for each workcell in the plant.
2. Identify how many of each nut and bolt each workcell typically uses on a daily basis. There will be exceptions, but don't try to address them at setup; leave the exceptions for a later time.
3. Work with your supplier to set up a frequency for the delivery of parts—perhaps once or twice a week, or more frequently depending on usage. For this example, let's use a delivery frequency of once a week.
4. Set up a small container in each workcell for each part. Each container should be sized for the number of pieces to be used that week plus a few more, and labeled by part number.
5. Working with the production people and your usage histories, determine the number of each part you would like to have on hand at all times.
6. If the delivery day is Wednesday of each week, have the supplier come in each Monday to review usage and determine how many parts he needs to deliver on Wednesday to replenish each bin.
7. Have the supplier come in on Wednesday to replenish all of your bins to the levels you previously agreed on.
8. Pay the supplier for the parts he delivered Wednesday.

Time and Cost Savings

With the new process, the supplier is responsible for tracking and replenishing inventory. As a result, your employees no longer need to count parts and enter quantities into a computer. The purchasing and receiving departments also are removed from the process. The tool crib becomes a nonissue, as the parts never enter it.

In addition to eliminating the labor involved in those original steps, the new process quickly shows you which parts you are not using. You will visually see the unused parts, and if they are standard parts, your supplier might be willing to take them back and give you a credit.

By bringing in parts for a very specific time, you typically will have fewer parts on hand, meaning less of your money is tied up in inventory.

Overall this process works very well, and you can use it for many regularly needed purchased parts. Of course, there are always exceptions. When you see an unusual production run coming, simply change the size of the bin in the workcell and let the supplier know it is a short-term process.

Suppliers typically do not increase their pricing to cover their labor in the process. Instead, they see the situation as you trusting them to supply all your nuts and bolts.