Putting out the bins

Putting out the binsWith margins being squeezed, taking the cost out of a customer’s supply chain isn’t easy, so how does Arrow-Jermyn’s David Blacklock do it? “It is all about bin sizing.” Richard Wilson reports
David Blacklock has an interesting job at distributor Arrow-Jermyn. He is the man who can tell the company’s customers how they can reduce some of the cost in their supply chain.
Important information for many manufacturers, and something they might pay highly for, but it is not unknown for Blacklock to pass on some of that information even before Arrow-Jermyn is assured of winning the component supply contract.
“There is a bit of a science to this,” says Blacklock, who is technical and enhanced services director at Arrow-Jermyn. “The aim is to remove waste and therefore reduce cost for the customer. The danger is it could mushroom.”
Why is a customer’s inventory, the cost of components and assemblies held in the supply chain, so important to the manufacturers and distributors? “Margins are being squeezed,” says Blacklock. “Customers want us to take some of the cost out of their businesses.” Servicing the customer… The diagram shows how the three elements of stock-holding (either in the bin at the factory or in Arrow’s buffer stock, dubbed SMART), on-line ordering and sales forecasts combine in a stock replenishment cycle that can be tuned to minimise cost in the supply chain. It starts from Arrow’s warehouse, the PDC, in the top right-hand corner and moves across to the customer’s (partner’s) factory stockholding, called the hub.
The cost of inventory is the main question manufacturers are asking Arrow-Jermyn. “Around 95 per cent of customers have an issue with inventory,” says Blacklock. “There is too much and they want to reduce it.”
Which is where Blacklock and his stocking calculations come in.
The reason Blacklock knows the numbers is simple. He and his team at Arrow-Jermyn has taken the trouble to do the sums. What he has done is taken traditional Kan Ban analysis, which defines a manufacturing customer’s inventory as a series of component bins typically held in the factory store, and calculated the optimum size of each individual component bin. “It is all about bin sizing,” says Blacklock. “Smaller the bin, the lower the inventory cost, but there is a corresponding increase in the cost of administering orders and product receipt processes.”
“As an engineer I realised that with two cost curves, one rising and the other falling, there must be a crossover point, an optimum bin size for each component,” he adds.
So Blacklock and his team will calculate the optimum bin size for various components for its customers. Bin size is dependent on a number of parameters such as product cost, manufacturers lead times, usage, customer forecasts. But it is also affected by the customer’s own inventory and ordering policy, so that the “golden number” truly varies from customer to customer, even for the same part.
The reason Arrow-Jermyn and Blacklock are prepared to go to all this trouble is that it will give their sales staff valuable information about how individual customers can reduce the cost of inventory and ordering process in their supply chain. In many cases it can mean the difference between winning or losing a multi-million pound supply contract with a big manufacturer.
Which is one reason why Blacklock will even consider giving some major customers some of the magic numbers even before the supply contracts have been signed – a clear indication of how important a sales tool these figures are.
But the numbers are also important toArrow-Jermyn in another way. They reduce cost for the customer, but significantly they also enable the distributor to reduce cost in its own portion of the supply chain.
There is of course the cost of processing orders and invoices which applies to the distributor as much as to the customer. This can be reduced by on-line ordering and EDI (electronic data interchange) ordering and invoicing.
But the benefits of EDI come into their own when on-line ordering is combined with an optimised KanBan system and direct entry barcoding of components and products.
There is also an inventory cost to the distributor. In simplistic terms, when you reduce the inventory levels at the customer to an optimum, in the interest of cost saving, the danger is stock holding at the distributor increases to accommodate fast and short term changes in a customer’s ordering demands.
Blacklock’s department has created the idea of a buffer stock on some key products at Arrow-Jermyn’s Bedford warehouse. This is like a virtual stock which is assigned to particular customers. Once the customer empties one of say two component bins at the factory a replacement order is sent to the distributor and replacement goods dispatched from the buffer stock. The buffer helps the distributor to efficiently meet the fast ordering cycles required when customer stock holdings are at a minimum.
But buffer stock can be expensive. According to Blacklock, Arrow-Jermyn currently holds around ?9m worth of stock assigned across 250 customers. That is the distributor’s liability so the numbers must be right.
Blacklock calculates the size of buffer stock for each component and customer based on product lead-times and longer term production forecasts which Arrow-Jermyn requires of its customers.
Kan Ban, bar-codes, EDI ordering, stock buffers and bin size – these are all the elements needed to reduce the inventory costs for many of today’s electronics manufacturers. But none of that is of any real use without Blacklock’s magic numbers, as he proudly points out: “The maths must come first.”

Leave a Reply

Your email address will not be published. Required fields are marked *