Grayling marries 3PL, software to create streamlined inventory model
By David Hannon -- Purchasing, 3/12/2009 2:00:00 AM
There were just too many black holes.
That, in a nutshell, was the problem with Grayling Industries' inventory model
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two years ago. It wasn't that Grayling's supply chain was too complicated. The Alpharetta, Ga.-based manufacturer of flexible packaging and asbestos abatement equipment has four warehouses and one manufacturing site. The problem was that materials being shipped from its suppliers to its warehouses and then to its customs broker and eventually to its manufacturing site in Juarez, Mexico were not being closely tracked. Without visibility into its inventory levels, the company's purchasing and supply chain team was left to build inventories higher than it needed to as a way of ensuring that its production lines would keep running smoothly.
"The suppliers would keep the inventory at our warehouse in Georgia and we had no visibility of the inventory they carried for us," says Mario Mora, supply chain director. "We had no control of how much they would produce. It was up to them when to replace it so sometimes we had overflow of inventory."
And when product was shipped from the warehouse to the customs broker at the Mexican border, it was often off the radar for a couple days there as well, except for a less-than-reliable report from the customs broker. "We really could not control any of it and it was very confusing," says Mora.
But recognizing the problem is the first step towards fixing it and in late 2007, Mora and Carlos Rubio, director of finance and administration, took the next step of creating a solution. Almost immediately, Mora and Rubio began designing a vendor-managed inventory model that would provide visibility into the company's inventory but not burden its internal resources. And from the outset, the two had Grayling's third-party logistics provider playing a central role in that strategy.
Over the years Grayling had developed a very close relationship with its 3PL, Prologistics, which had been lining up the freight for shipments across the border to Grayling's manufacturing site in Mexico. The El Paso, Texas-based 3PL had been providing a small amount of warehouse space in El Paso for shipments heading to Mexico. But given Prologistics' location and expertise, Mora and Rubio felt the 3PL could provide more than its existing service.
So in early 2008, Rubio approached Prologistics with a proposition: Grayling would find the right software to provide inventory visibility if Prologistics would be willing to expand its warehousing function and host Grayling's vendor-managed inventory program at its El Paso warehouse. And while it would mean taking on a new area, "The president of the 3PL agreed telling us this would be a new area for them, but they were willing to work with us on it," Rubio says.
The key to the project working well was the software. It had to be user-friendly but cost-effective. After some investigation, Grayling zeroed in on an inventory and warehouse management system from SmartTurn Software for several reasons. First, it was web-based and that was a major selling point because it would allow the project to get up and running quickly at minimal cost to Grayling and its 3PL. Also, the SmartTurn system integrated easily with Grayling's existing MRP system. It was also deemed user-friendly so training would be quick. And most importantly, its functionality would allow Grayling to get the inventory visibility it needed to streamline its production.
With the right software and 3PL in place, the next step was selecting the supplier to start a vendor-managed inventory program with. Since Grayling has one plastics supplier that accounts for close to 60% of its total spend, it made sense to start there to get the biggest bang for the buck on the project. With the supplier's cooperation, Rubio and Mora set up the racking and inventory themselves at Prologistics' warehouse in El Paso and the project was ready.
In the current system, the supplier ships its product to the El Paso warehouse, where a min/max inventory system only issues a purchase order when inventory levels hit a pre-determined point. This helps avoid over-ordering and excess inventory piling up. An invoice is only issued when the inventory is pulled.
Of course, moving to a different process requires a certain amount of change management. In fact, even Mora admits that he was "unsure about learning a new system, but once we got into it I realized that the visibility and reporting capabilities were going to make this extremely helpful for our company."
The results of the program are dramatic and having a direct impact to Grayling's bottom line: Most notably, a 50% reduction in inventory. "Now we can see what day the product was shipped and when we pulled it out of inventory so we can track our inventory turns and costs much more closely," Mora says.
"We don't carry that inventory on our books," says Rubio, the finance expert, pointing out that Grayling gets 60 days' free inventory in the model. "And we don't have any downtime on the line as a result of inventory snags. We know what we have in inventory and can pull when we need it. In addition, the warehouse is closer to the manufacturing plant so the order leadtimes are shorter."
And the improved visibility allows better freight load planning to reduce total freight costs. Rubio says companies considering moving to a consignment inventory model should involve their 3PL "because they are also managing the freight, which makes the process a bit less confusing."
Rubio says that the decision to implement this inventory system came at perhaps the perfect time, given the struggles of many companies to adjust inventories to current demand. "When the economy slowed down our ordering slowed down," he says. "But with this system we were able to slow down our purchase orders and spread them out more as demand warranted. Without this VMI system we would have been stuck with thousands of dollars worth of inventory we would have to write off at the end of the year. That would be a major hit for us."
But it wasn't just Grayling that reaped the benefits of this new system. The 3PL, Prologistics, used the project as a chance to expand its services to customers. "This new capability has helped us win new customers," says Carol Runnels, president of Prologistics
From here, Grayling plans to move some of its other major suppliers onto the system. In fact, two more suppliers would cover about 90% of the company's total spend.
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