How to Create a Lean VMI System (Part III)
(click here to begin this article series at Part I)
I’m sure anyone who has ever led a project can appreciate project obstacles. I have never been involved with any project, big or small, that didn’t have at least a few small obstacles. Sometimes the obstacles come in the form of technology, sometimes people, sometimes missed expectations and sometimes project funding gets in the way of immediate success. When it comes to project management, navigating issues just comes with the territory and it was no different with this lean VMI project.
Our first obstacle was presented by the company Controller at our packaging supplier. You see, we included two supplier reps on our project team. These reps were on the sales-side of our supplier’s business, and they were committed to supporting our Lean efforts. Our diaper business represented a large portion of their business revenue. So, when we mapped out our plan to shift all of our packaging inventory to their location, they bought into it. The problem, however, was that they weren’t the final decision makers. I had to present our project to the supplier’s company executives. This presentation went very well, and I was able to convince the supplier’s executive team of it’s merits, but even so, I still had one staunch holdout. The packaging supplier’s company Controller was opposed and heavily dug in.
Although the supplier had available warehouse space, the Controller was not willing to move our inventory onto his financial books. I could understand his stance. Inventory affects cash flow and ties up money that could be used to make capital investments. I had no chance of convincing him of making a wholesale change, but what about a pilot project? What if we just transferred the inventory for just one of our processes to the supplier? Would he go for that idea? Well, the good news is that he did.
We transferred our packaging from just one of our processes to our supplier’s warehouse. This represented less than 5% of the packaging inventory, but it was still a big win for us! Along with this inventory transfer, we established an electronic Kanban system whereas when the inventory level of any label hit 3 weeks of on-hand inventory, the supplier could produce 7 weeks of packaging, thus increasing the total weeks on-hand to 10 weeks. We provided the supplier with our sales data and the inventory min/max levels and production order quantities, and they built the Kanban system into their ERP system.
Not only did we establish this electronic Kanban system, we accepted liability for any slow moving and obsolete inventory. In this way, the supplier’s Controller didn’t need to worry about taking an inventory loss. Also, our blanket PO established a nice commitment from us to our supplier. This commitment meant that they could better plan their factory capacity needs and level-load their processes over time.
Next, we established a daily Milk Run. In other words, our supplier delivered our packaging to our plant every day. The truth is, is that they had a company owned truck coming to us every day anyway, so our daily Milk Run cost them nothing additional. The other nice thing about this Milk Run was that our supplier was only 5 miles away from our diaper plant.
Here is how the system worked:
- Our Production Planner (Lexi) would send out a daily email with our production schedule a day in advance. So, on Tuesday, Lexi would email our Wednesday production schedule. This schedule included the required packaging quantity by item number.
- The supplier would pick this inventory and load it on a baker’s cart. This cart was labeled “Line 22 Packaging” and was then loaded on the supplier’s truck.
- When the truck hit our dock, we would just simply wheel the cart over to Line 22 and the empty cart from the day before was returned via the same truck, to the supplier and the process repeated.
- On the production line (Line 22), the operators ran-out the packaging. In other words, the supplier was sending us exact quantities and so there were no packaging returns.
The coolest thing about this project was the win that we provided our supplier. While on the surface, it seemed like we were “sticking it to them” but in truth, they experienced a BIG WIN! Previously, to the VMI, the supplier would complain that our ordering patterns would force to many changeovers onto their packaging printing presses. However, our new system allowed them to manage their own print runs. For example, if they wanted to produce all the SKUS of Wal-Mart packaging at one time, they could do that now, provided that they didn’t produce more than 10 weeks’ worth of any one item. This was huge for them. Once this benefit was realized, the supplier just couldn’t wait to move the rest of the inventory to their site and set up the same Kanban and Milk Run system for all the other packaging items that we purchased from them.
This Lean VMI project allowed our supplier to experience a big win and we experienced many significant benefits as well. These included:
- We went from 12 months of inventory to 24-30 hours.
- Total inventory liability was reduced from 12 months to a max of 10 weeks.
- Obsolete packaging was reduced from over $1M to less than $20k annually.
- We didn’t need to transfer packaging back and forth from the warehouse anymore.
- Blanket PO reduced transactional costs.
- Converted 150,000 square feet from storage into production space, supporting our growth.
Does your plant have a significant amount of raw material inventory? Consider implementing a Lean VMI system including a supplier Kanban and a daily milk run.
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