Buyers find creative solutions to inventory challenges
By William Atkinson -- Purchasing, 1/14/2010 2:00:00 AM
There was a time when suppliers were falling all over themselves to provide any and all products, materials, and other supplies that customers wanted. Such is not the case today in many instances, though, as suppliers cutting back continue to create headaches for procurement professionals. In some cases, leadtimes are being stretched significantly. In other cases, some suppliers are permanently eliminating products that they once sold, creating new challenges for buyers at manufacturers.
Valspar, a Minneapolis-based manufacturer of paint and coatings for residential, commercial, and industrial applications, is experiencing the former challenge. In tough economic times, companies often don't buy as much inventory from suppliers as they once did, so low supplier inventory levels are not much of a problem. However, for a company like Valspar, where business is brisk, low supplier inventory levels can present a challenge.
"It seems like everyone is trying to watch inventory so closely that it is creating a ripple effect through the supply chain," reports Douglas Gwin, materials manager for Valspar's powder coatings division in Kansas City, Missouri. "A lot of our suppliers aren't carrying much inventory anymore. This ends up creating longer leadtimes for us to get inventory from our suppliers."
While this may not cause much of a problem for some companies, given that they may not even need much inventory, that is not the case with Valspar, where business has been picking up recently. "We are very busy right now," reports Gwin. To address this challenge, Valspar has adopted a number of initiatives.
One is to engage in more forecasting. In the past, the company didn't make this a priority, because it wasn't necessary, and the company didn't want to end up inadvertently providing suppliers with inaccurate information. "However, these days, given the low inventory levels suppliers are carrying, we need to do more forecasting," he states.
The company is also starting to focus more attention on, and business with, suppliers that do more in the way of domestic sourcing, and less with suppliers that do more international sourcing. Suppliers that source domestically are usually able to provide inventory more quickly than those that source internationally. "We are also finding that the suppliers that source domestically are treating us better in terms of meeting our needs," states Gwin.
Third, while Valspar has used some consigned inventory in the past for some of its production materials, it is doing even more of this these days. "As a result, someone is carrying inventory; it's just not us," he explains.
Finally, the company is communicating more frequently and at a more detailed level with suppliers. The more communication that takes place, Gwin believes, the better information suppliers have and the more responsive they can be.
Brady Industries, a Las Vegas-based full-line janitorial and sanitation wholesale distribution company, is experiencing a different challenge and that is trying to find supplies that are simply no longer being offered by some suppliers.
"We have a number of suppliers that are discontinuing items, which makes it difficult for me to fill customer needs," reports June Weedon, senior vice president of procurement. In their efforts to cut back on expenses, these suppliers are discontinuing items that they feel may only have a demand limited to Las Vegas or other narrow markets. Before the economic downturn, they could rationize producing these limited-demand items. However, since there is no nationwide demand, they are discontinuing these lines.
According to Weedon, this doesn't seem to be just a one-time problem. She sees it as a long-term trend. "In my career, I have never seen things this bad," she reports. "I believe suppliers are making long-term decisions to rationalize SKUs."
An example: One of Brady's customers is one of the largest gaming conglomerates in the world, and it is in the process of opening the single largest project ever. However, Weedon is having trouble obtaining certain supplies to fill their needs. "We just had a situation where a supplier took an order and then filled only part of it, explaining that it was no longer selling some of the supplies that were part of our order," she states. She needed 3,000 units of one of the items for this particular project. What upsets her most is that she had been working with this particular supplier for almost 25 years, but they didn't even call her to report that they were discontinuing the items.
Fortunately, while she has had long-term relationships with certain suppliers, Weedon has never taken her eye off other suppliers and has continued to do some business with alternate suppliers in order to maintain relationships with them. "I could never leave myself in a position where anyone was a sole source for anything," she explains. As such, when this crisis hit, she was able to respond quickly. She is now working with another supplier in the industry and arranging for them to manufacture this item for her. The supplier is willing to do this, because she will give them a standing blanket order for roughly 7,000 a month of this item, to meet her current needs, as well as the needs of the specific gaming project that is opening.
As the sourcing landscape has been changing, Weedon has also been reassessing import sourcing strategies. Brady Industries has traditionally done a lot of importing, primarily from Australia, China, Indonesia, India and Pakistan. However, there have occasionally been some problems. "I can be in the room with a supplier from a non-English-speaking country discussing a product that I need, and they are nodding their heads as if they understand," she states. "Then, when I get the sample, I wonder if we were even in the same room."
As a result, Weedon has begun transitioning more back to domestic sources. In addition, she has found that it tends to be the domestic suppliers who are more willing to create special products for the company.
Domestic pricing has also become more attractive. While, at one time, there was as much as a 20% price spread between international and domestic pricing, Weedon is now finding that domestic pricing is coming down to the point where the spread isn't that significant. "The small spread that remains is not worth the unreliable supply," she says.
While procurement professionals have always had an interest in managing costs, in the current economic environment, the emphasis seems to be shifting back more to service and reliability.
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