Three Competitive Advantages to Inventory Stocking
Inventory stocking is a great opportunity for manufacturers to smooth the transition between customer order entry and shipping. Any chance to improve the customer experience will increase the chances the customer stays with you for the long-term.
Manufacturers often stock their own inventory on site. But by stocking at the casting level, they can free up valuable shelf space and gain three unique competitive advantages.
- Reduced Lead Times
With inventory at the ready, foundries can process and ship products the same week. Agreements are set up between the manufacturer and foundry partner to have a minimum and maximum level of inventory stocked. Then, the manufacturer sets the pull program based on their expected demand. One common program is for the manufacturer to submit a blanket purchase order at the beginning of the year, then issue releases throughout the year, slowly depleting the inventory. Another program is a standard kanban pull program, where 20 pieces, for example, are pulled at a time, then automatically replenished by the foundry once shipped.
One Stainless Foundry & Engineering (SF&E) manufacturing partner historically struggled with on-time delivery because their customer demands were all over the board. Within 6 months of launching an inventory stocking program, their on-time delivery rate went from 84% to 98%.
- Minimal Carrying Costs
The difference in carrying costs between a manufacturer that stocks their own inventory and a manufacturer that stocks at the casting level is about value over time. When manufacturers carry six months of castings at their facility, they have made an upfront investment that takes months to recoup in sales. When stocking at the casting level, every month manufacturers are paying for castings that are immediately sold and turned into cash. And in some cases, manufacturers can charge a premium for products that can be delivered faster than their end customer is expecting.
- Mitigating Bad Forecasting
Stocking programs managed by a foundry partner mitigate the pitfalls of bad forecasting, and, in some cases, eliminate the need for it altogether. When buying large orders of castings off of a forecast, there is always the possibility that manufacturers have to deal with overstock and overruns, another factor that leads to the carrying costs mentioned above. A foundry partner will control the inventory levels to balance with customer demand and historical needs. It no longer matters if the manufacturer’s sales forecasting is good or bad because the impact on casting purchase orders is minimal.
Is inventory stocking right for you?
SF&E offers inventory stocking programs for finished goods to its manufacturing partners. Most of our manufacturers who participate in this program place four orders per year or more. We work with our customers to analyze their expected need and recommend a minimum and maximum quantity of stock. In about 8-12 weeks SF&E can be flush with inventory.
Once an inventory stocking program is in operation, SF&E leads a quarterly review process to analyze inventory turns. We look for instances throughout the previous quarter where the customer was overconsuming and also where they were under-consuming. Stock and pull quantities are adjusted so manufacturers continue to reap the lead time, carrying cost, and forecasting benefits of the program.
Inventory stocking at the casting level is key to enhancing the end customer experience, provides visibility to future demand, and helps foundry partners like SF&E to balance loads and capacities to serve you best.