August 2013 Newsletter
Demand Driven Inventory (DDI) Process
We hope that you all are enjoying the summer weather, and have squeezed in some 'Rest &
Relaxation' time with your family and friends.
As you may recall, with our 'Do You Know...Enercon' series of newsletters in late 2012, our goal
was to provide customers with an overview of our electronic design, contract manufacturing, and
value-added services. If you have missed any of these newsletters, you can still see them on our
website NEWS page:
http://www.enercontechnologies.com/blog
In our recent customer satisfaction survey, some respondents indicated that they were not familiar
with our optimized Vendor Managed Inventory (VMI) process here at Enercon. As everyone may
have a different definition of VMI, and due to our unique approach, we have coined our VMI process
as 'Demand Driven Inventory' (DDI). In this newsletter, we will attempt to give you a better
understanding of this truly beneficial approach to managing orders and inventory levels.
DEMAND DRIVEN INVENTORY (DDI) DEFINED
What it is:
Demand-Driven Inventory (DDI) is the Enercon optimized VMI (Vendor-Managed Inventory) process,
developed expressly to:
1) Reduce inventory levels
2) Eliminate product out-of-stock conditions
3) Reduce excessive material purchase exposure
4) Reduce money spent on expediting materials
5) Better manage manufacturing workflows
Traditional Ordering Approach
With traditional MRP (materials requirements planning) systems, our customers load their forecasts to
generate purchase orders. These purchase orders are then sent to Enercon for a defined amount of
product to be delivered within an established lead-time.
Unfortunately, any forecast becomes inaccurate almost as soon as it is entered. In order to manage
the proper inventory levels, purchase orders must be continuously updated to match the actual
demand (consumption) of the product. Although time-consuming, if purchase order updates are not
maintained, inventory imbalances (too much product or too little product) will eventually occur.
How DDI works:
The goal of DDI is to continuously maintain the 'right-size' inventory at each point of the supply chain
and manufacturing process. We developed DDI using a process based on 'kanban', a lean
manufacturing scheduling technique that helps determine what to produce, when to produce it, and
how much to produce.
With DDI, product builds occur only when demand (i.e. product consumption by our customers)
indicates a need to replenish stock. New raw materials, in turn, are procured from Enercon suppliers
as necessary to build product to replenish safety stocks. Enercon manages production, shipments,
and re-orders based on up-to-date current consumption data, while comparing this to levels of safety
stock (i.e., number of weeks of supply of product) agreed to with the customer.
DETAILS OF THE PROCESS
DDI Applicability:
DDI can benefit any customer that has a regular demand for products, as opposed to those that order
once per year.
Process:
Set safety stock levels and track daily changes in inventory levels-both receipts and unit movement.
Establish a supply agreement that sets ground rules and expectations, including minimum and
maximum safety stock levels.
Benefits:
- Instant responsiveness to changing product demand
- Lowest possible risk of stock outages and leftover obsolete product for the customer
- Minimized value-added manufacturing steps until the demand dictates more finished product
- Production lines managed more efficiently, yielding savings that reduce overall costs
REAL WORLD RESULTS
Our example customer issued purchase orders for product manufacture based upon their forecast of
demand. However, fluctuations in their demand 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. Enercon 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.
Upon implementation of DDI:
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 information technology to minimize labor costs at both the customer and at Enercon.
We worked to anticipate consumption on a longer-term basis and could therefore 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.
DDI Benefit Summary:
- Customer reduced product inventory levels 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%.
See more details about this case study on our website:
http://www.enercontechnologies.com/case-studies/demand-driven-inventory
CONTACT US TODAY!
To learn more about how Enercon can apply DDI to your production needs, feel free to call or e-mail
me with your questions (contact information below).
And, as always, if you are in the early concept phase of a new program, need a production outsource
manufacturing partner solution, or are currently anywhere in between, we can quickly jump in and
help you out.
Give us a call for a no-obligation project review.
Sincerely,
Larry Bell
Vice President of Sales & Marketing
Enercon Technologies
lbell@enercontechnologies.com
207-657-7000 Office
617-513-2112 Mobile