Industrial Manufacturing – Reducing Working Capital and Improving Sales Service Levels

Posted on: April 20, 2011 | By: SuperUser Account | Microsoft Dynamics AX/365

Industrial manufacturing continues to get more and more competitive. Our clients want to reduce working capital costs while improving sales service levels. A tough putt, you say? Indeed. But some of our clients have been up for this challenge, particularly in more make to stock environments. Over the years, we have worked with clients to achieve these seemingly conflicting goals by moving from a “push” to a “pull” philosophy.

As today’s manufacturing companies know, reducing working capital usually means reducing inventory, whether it be raw materials, work in process or finished goods. Implementing consignment inventories on the supplier side can also free up material-based inventory working capital cost, but of course there are costs to consignment inventory beyond just the material cost (warehouse space, labor managing and moving, clutter, etc.). Clearly, it is best to reduce the material inventory altogether versus just transferring who owns it. We have also seen opportunities to reduce WIP inventory by focusing on the throughput versus efficiency measures, the latter which encourage the efficiencies of larger batch sizes but which oftentimes result in suboptimal WIP levels and less flexible scheduling.

This should not imply that sales service levels should be ignored. Right-sized sales levels means happier customers. It means less of a chance of your customer trying out the competition. This is real value and must be included in the design and implementation of a high-performing pull system.

While the implementation of this philosophy is easier said than done, it is achievable. It requires that all people in the organization buy into the concept. It requires a good ERP system for tracking and measurement. It requires good planning and scheduling people and supporting systems. It requires supportive top down leadership. But, it can be achieved.

If you would like to discuss this philosophy further, please feel free to call us at (312) 345-8817.

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