Inventory Approaches

Inventory Approaches

Brief Description

        The company that I chose to investigate for this week’s discussion is an automotive company, more specifically the Service Parts Division of that company. The department that I am most familiar with is Packaging, and this is where I will focus my attention as it pertains to inventory. We have an internal unitized packaging processing center where we have implemented a Vendor Managed Inventory process. The inventory includes the corrugated packaging supplies, along with label stock, polybags and other miscellaneous packaging components. The plant has very limited storage space, therefore, Vendor Managed Inventory is the best solution for our needs.

Impact & Audit Procedures

        The advantages to using a Vendor Managed Inventory (VMI) process is that it reduces the time and resources needed to track inventory levels, and decide when re-orders need to take place. It also eliminates the need to write a purchase order every time more material is ordered. (Effective Inventory Management, 2011). The additional advantage to our operation is the result of limited warehouse space at our processing center. The materials have to be delivered as they are needed, which our vendor does on an hourly basis. We signal our orders to them automatically by using a sequence report. This report tells the processing center which parts are on-site and in que to be unitized. It then aligns those parts to their corresponding packaging specifications and triggers the order for the packaging components from our vendor in the exact quantities that are required. This approach has proved to reduce obsolescence and scrapping costs because we only order the exact quantity that is needed for the number of parts that we have to package. We do not carry inventory of packaging components that we do not use.

        The contract that has been set up with our vendor requires them to directly buy the packaging components from the suppliers that we have on contract for those components. In some cases it may be the vendor themselves, in other cases it may not be. Our purchasing department has shopped these components around and has found the best price, the vendor then buys the components at our price and gets paid a set amount per piece when they are delivered to our facility.  

        An example of an audit procedure would be checking that the correct component was delivered and in the correct quantity. The component numbers are stamped onto the corrugated cartons, and labels, so it is easy to visually match the carton number with the carton listed on the packaging specification. As for the quantity, if you have 50 parts to package, and run out of cartons before you have packaged all of the parts, then you can determine that the order was short. There is a vendor representative on site, so any issues can immediately be brought to her attention. Occasionally it is found that a part will not fit into the specified carton, and it will have to be returned to the vendor and replaced with a different size. The returns are sent back on the same truck that makes deliveries. The new cartons that will be replacing them can be delivered within two hours. There are also a few common cartons that are kept in limited quantities on site, to be used in case of shortages or fit issues.