Inventory - Good or bad?

[Fulcrum]

Title says it all.

Backstory:
I stopped in at my parents shop today and was asked about trying to fix one of their saws. One look at it told me that he's better off replacing parts than working a temporary fix. He had ordered repair parts of a local company and was told 6-8 weeks for delivery. These are wear parts and should be a common replacement item. Local distributors refuse to carry parts and only order when minimum quantities are reached. I go direct to the manufacturer and have parts going on the truck tomorrow. Distributor just lost a large markup sale for not being reasonable.

Being as I'm in the service industry myself, I don't understand this line of thinking. Why are more and more companies refusing to stock replacement parts that are critical to the operation of equipment?

[Owen]

Title says it all.

Backstory:
I stopped in at my parents shop today and was asked about trying to fix one of their saws. One look at it told me that he's better off replacing parts than working a temporary fix. He had ordered repair parts of a local company and was told 6-8 weeks for delivery. These are wear parts and should be a common replacement item. Local distributors refuse to carry parts and only order when minimum quantities are reached. I go direct to the manufacturer and have parts going on the truck tomorrow. Distributor just lost a large markup sale for not being reasonable.

Being as I'm in the service industry myself, I don't understand this line of thinking. Why are more and more companies refusing to stock replacement parts that are critical to the operation of equipment?

im assuming because people usually don't like paying upfront.

[nealrm]

I am surprised about the 6 to 8 week turn around time. They should be able to get at least the same turn around by going to the manufacture as you did.

There are several very good reasons not to stock replacement parts. First is that it cost money to stock the parts. They have to purchase the part and have it sit on a shelf until someone needs it. That whole time they are losing money. It also cost money to have the space required for a part. That is space that has to be covered, maintained, heated and cooled, etc. The part also needs to be inventoried. It is also possible that that part would take space from other items that sell quicker or make a better profit. Last the part might either disappear or get damaged. In short, that "huge" markup might not even cover the carry cost for the item.

[Brian Altenhofel]

I am surprised about the 6 to 8 week turn around time. They should be able to get at least the same turn around by going to the manufacture as you did.

There are several very good reasons not to stock replacement parts. First is that it cost money to stock the parts. They have to purchase the part and have it sit on a shelf until someone needs it. That whole time they are losing money. It also cost money to have the space required for a part. That is space that has to be covered, maintained, heated and cooled, etc. The part also needs to be inventoried. It is also possible that that part would take space from other items that sell quicker or make a better profit. Last the part might either disappear or get damaged. In short, that "huge" markup might not even cover the carry cost for the item.

Plus the cost to insure the inventory.

If they don't have enough volume to do JIT restocking, then there's no reason to stock it. If the manufacturer's minimums are higher than the volume an average distributor can expect to turnover within a week or two, then the manufacturer is setting the distributors for failure in that area.

[Fulcrum]

I am surprised about the 6 to 8 week turn around time. They should be able to get at least the same turn around by going to the manufacture as you did.

They should but they don't. Even my own vendors run 2-3 weeks for machine parts. When we're talking about a "machine down" situation, the parts distributor needs to have repair items in the maintenance guy's hands within 48-72 hours.



There are several very good reasons not to stock replacement parts. First is that it cost money to stock the parts. They have to purchase the part and have it sit on a shelf until someone needs it. That whole time they are losing money. It also cost money to have the space required for a part. That is space that has to be covered, maintained, heated and cooled, etc. The part also needs to be inventoried. It is also possible that that part would take space from other items that sell quicker or make a better profit. Last the part might either disappear or get damaged. In short, that "huge" markup might not even cover the carry cost for the item.

The "bean counter" argument, as I like to call it. Every point you made is valid to a certain point. Where this stance falls apart is when everyone inside the distribution chain (steel supplier, manufacturer, 1-3 distributors) operates using these exact principles. Now we add in the single piece run that the make to order philosophy demands and not a single person within that chain even wants to do the job. Add in castings or electroplating and you can see how deliveries get pushed out beyond unacceptable. It's the service part of this service industry that's been lost. Maybe this is just a Canada thing, but it seems to be getting worse rather than better.


If they don't have enough volume to do JIT restocking, then there's no reason to stock it
With a true JIT system, there is no stock. It turns into a make to order system based upon a pull type of structure. For the most part, this is why it takes a few weeks to get a new vehicle from a dealer even though the one you test drove fit your needs perfectly. Customer places order with retailer -> retailer orders from distributor(s) -> distributor orders from manufacturer -> manufacturer orders material and won't schedule the job until material is in house. Work only gets performed when the last step in the chain starts the chain that pulls it.


If the manufacturer's minimums are higher than the volume an average distributor can expect to turnover within a week or two, then the manufacturer is setting the distributors for failure in that area.

This is the end result. The larger the ownership structure of a company, the more convoluted its thinking gets. Rather than taking the long term approach with quality service, the focus gets shifted to ever increasing profits every consecutive quarter. It worked, for the most part, in Japan because everyone within the chain shared ownership in each of the links. Slightly off the main topic but applying to this point, I learned this week that as a part of a bankruptcy settlement, suppliers of a certain large company are going to receive stock-in-lieu of cash for payment of inventory (I believe that Benjamin Graham or Warren Buffet cautioned against this).

[nealrm]

They should but they don't. Even my own vendors run 2-3 weeks for machine parts. When we're talking about a "machine down" situation, the parts distributor needs to have repair items in the maintenance guy's hands within 48-72 hours.
Then why don't you keep wear parts on hand??? Then when one breaks, you replace it and order another.


The "bean counter" argument, as I like to call it.
No, it's called being a smart business person. They are in business to make money just like you. Do you go out of your way to lose money in your business just to make things easier for someone else??



With a true JIT system, there is no stock.
Only theoretically, with such an assumption you also have to assume zero delivery and zero production time. Since neither of those are possible, using a theoretically perfect JIT system as an example for real life is pointless.


It turns into a make to order system based upon a pull type of structure.
No it doesn't, not in real life. That would apply to only a theoretically perfect JIT system. Of course in such a system all production and delivery would be completed instantaneously, so you would get your part the instant you ordered it.


For the most part, this is why it takes a few weeks to get a new vehicle from a dealer even though the one you test drove fit your needs perfectly. Customer places order with retailer -> retailer orders from distributor(s) -> distributor orders from manufacturer -> manufacturer orders material and won't schedule the job until material is in house. Work only gets performed when the last step in the chain starts the chain that pulls it.
No that is completely wrong. You do not understand JIT systems. First JIT has decrease both production and distribution time greatly and reduced cost. It's the main reason why Japanese companies managed to complete with US producers. It's why I can order a computer part from Amazon and get it the next day. In a real JIT system you produce to replace a part that was just used. So that car you ordered would be replaced by the one at the distributor, the one at the distributor would be replaced by the one at the manufacture, and the manufacture would build one to replace it. Assuming they followed a JIT system, they would use the last parts in house to make that car and request replacements from their suppliers.

The simple true is that 99.999999% of JIT systems have inventory both in transit and in-stock. Car manufacturers typically have about 5 hours worth of production on hand during the summer and 3-5 days in the winter. Their suppliers typically have the same. So your wait for that car has zero to do with your order having to go up the supply chain. FYI - It takes only about half a day to make a car. Part made by a supplier will be on a finished car within 2 days.

[Fulcrum]

Then why don't you keep wear parts on hand??? Then when one breaks, you replace it and order another.

I do. Consumables I keep an amount that equals 1 or 2 pieces more than lead time+delivery. The problem comes when, for example, a machine crashes and loses a spindle/blows a motor/bends a rail. More often than not machines end up sitting for at least 1 week and usually closer to 2 weeks. This is where the timing numbers I gave earlier come from. The longest I saw a machine down was for 6 weeks waiting on a simple way cover after 1 melted due to a fire (now that was a big fireball). $100/hour x 24hours x 6weeks adds up fast.


No, it's called being a smart business person. They are in business to make money just like you. Do you go out of your way to lose money in your business just to make things easier for someone else??

Depends. If I only turn those dollars over 12 times a year rather than 13 times, I'll take that minor loss to ensure that I'm the first guy to get called. If every sale is profitable than am I really losing money by keeping inventory?


Only theoretically, with such an assumption you also have to assume zero delivery and zero production time. Since neither of those are possible, using a theoretically perfect JIT system as an example for real life is pointless.

No it doesn't, not in real life. That would apply to only a theoretically perfect JIT system. Of course in such a system all production and delivery would be completed instantaneously, so you would get your part the instant you ordered it.

This really is the heart of the debate. We have to debate from the theoretical because the North American version, that we see, doesn't really resemble the Japanese version. Someone, somewhere, has to wait at some point. In a true JIT system it's the end buyer. Pre-orders and statistical analysis will reduce the amount of time a machine sits.


No that is completely wrong. You do not understand JIT systems. First JIT has decrease both production and distribution time greatly and reduced cost. It's the main reason why Japanese companies managed to complete with US producers.

I think I've been around manufacturing for most of my life and have seen, heard, and experienced most of these systems. I'm in the service industry myself and am seeing the manufacturing leaders, in the sawmilling industry, put these systems into play - even with consumable items.

We're going to disagree here. It sounds like you're mixing up good manufacturing habits (which JIT forces manufacturers to find) with what JIT truly is. Was it truly the JIT philosophy that reduced Pratt & Whitney's manufacturing time or was it studying the process and travel patterns that exposed flaws that allowed for better procedures and routing to be implemented?

Japanese companies could compete due to more reasons than just their JIT system. Part of it was exchange rates. Part of it was the gas crisis in the 1970's that scared the public so badly that they were willing to buy poor quality vehicles in an effort to reduce fuel usage.

I also believe that a big part of it was also the mentality of the North American manufacturers due to having become an industrial powerhouse during WW2 and afterwards rebuilding Europe and Japan. Attitudes were "we've always done it this way and made a profit, we don't need to change". FYI, this attitude is still quite prevalent within the general manufacturing community.


It's why I can order a computer part from Amazon and get it the next day. In a real JIT system you produce to replace a part that was just used. So that car you ordered would be replaced by the one at the distributor, the one at the distributor would be replaced by the one at the manufacture, and the manufacture would build one to replace it. Assuming they followed a JIT system, they would use the last parts in house to make that car and request replacements from their suppliers.

It's because someone, somewhere decided that they will forego some potential profit, and take on some warehousing/inventory costs, in order to deliver product that fast. Look at how many people we have coming on here who think that they need a fulfillment company in order to sell their product.


The simple true is that 99.999999% of JIT systems have inventory both in transit and in-stock. Car manufacturers typically have about 5 hours worth of production on hand during the summer and 3-5 days in the winter. Their suppliers typically have the same.

You're right that they do. If you were to remove the presales and the forecasting (forecasting is a four letter word in the JIT world) the physical size of the North American continent will expose the inefficiencies that exist in this system. Inventory is viewed as waste during kanban (JIT's method of finding the inefficiencies) events and every effort is made to reduce it to zero as this is the ultimate goal.


So your wait for that car has zero to do with your order having to go up the supply chain. FYI - It takes only about half a day to make a car. Part made by a supplier will be on a finished car within 2 days.

Maybe the US car sales system is different than we have here in Canada, but there is a minimum wait of 30-45 days to get a new vehicle. Outside of farming communities, the only vehicles on the lot are demos. Even getting repair parts is starting to get difficult for some mechanics because the JIT systems do not allow for sales outside of their statistical analysis.

It may only take half a day to make a car, but as soon as there is a slight variation in what is needed than the system's inefficiencies start to become apparent.

[turboguy]

I haven't ordered a car that was built for me after I ordered it for some time but would say that the 30-45 days sounds about right. I may be doing just that once the 2017 pick ups come out. Here they tend to do a lot of the accessory items as packages which gives cars in stock more uniformity. In other words you can't order side rails on a pickup as an item it comes with a group that may include the side rails, heated seats, side view mirror turn signals, heated seats, and a performance entertainment package. Keeping option packages down to a few lets them shuffle new cars or trucks among dealerships. Doing that lets them get a car to a customer pretty quick.

One exception from the packages is that my wife got the bug for a corvette a few weeks ago. The package almost nothing but do have a hundred or more ways to customize a car. The prices are horrible on a lot of things. If you want a black piece of vinyl added to the hood that should cost about 3 bucks it is 2 grand. For $ 650.00 they will paint the brakes orange. That is a lot of money for a little orange paint and actually makes the cars look worse. I do think she got a shot of antibiotics that cured the bug for a vette however.

[nealrm]

I don't think that the inventory or production control methods have anything to do with why there is a 45 day wait for you to get a new custom car. I think the reason is that there are 45 days worth of orders that are before yours. It has nothing to do with JIT, it only has to do with your place in line to get the parts.

I also think the problem is that you are confusing JIT and make to order. In a make to order system, the trigger to start production is the customer order. The key point is that there is not a product for the customer to purchase. It has to be made. So the production queue is empty in it's normal state.

In a JIT system, the main goal is to get the product to the next station just in time, so the is no wait time between delivery and use. This include the purchasing of the final product by the customer. In a perfect system, product is supplied to a retailer just when the customer purchases a product. That follows through the complete assembly line, all the way back to the raw materials. Everything is supplied just when it is needed.


"Inventory is viewed as waste during kanban (JIT's method of finding the inefficiencies) events and every effort is made to reduce it to zero as this is the ultimate goal." This statement is what makes me think that your understanding of a JIT/kanban system is not correct. Kanban translates to card or visual signal. It is the mean is signalling the prior station that additional product is need. The lowest number of kanban possible is one. Zero would mean that there is no signal to product more parts.

You also mentioned that statistical analysis as being used in JIT systems. In typical JIT systems statistical analysis is not used. In a kanban system, the number of kanbans is adjusted up or down to compensate for delivery time only. Longer delivery times means more kanbans in the system, shorter delivery times mean few kanbans. In cases where the process are next to each other, the kanban become a single empty stop to place a part between the two processes.

Also, kanban system are extreme good with handling variation. If fact they are designed to switch between multiple different parts with little or no downtime. I personally helped setup and manage lines that produced over a dozen different parts off the same line and that changed between different parts on a per container basis. (about 6 to 12 parts)

I have spent a great deal of time in manufacturing plants and have seen many system that are called JIT and/or kanban system. Just calling them kanban system doesn't mean that are really kanban systems. It was not uncommon for a plant to modify old style manufacturing practices by reducing production run quantities and calling it JIT. Those systems did use statistical analysis to control production amounts and did have issues with demand variations.

[Bobjob]

I consider the chucks I sell to be long term investments and the parts to be shorter term. My customers don't always see it that way. Many customers wait till it's broke and assume what they are using is "standard" only to find out their's is somewhat custom. Many keep a spare on the shelf, and I try to position my business so they don't have to with most parts (I want to be their shelf). They typically are upset to hear these parts come from Germany and there will be a 6-7 working week lead-time. They blow a gasket when the Germans are on Holiday or off two weeks for Christmas, adding usually three more weeks to a lead-time.

The thing that usually gets them is the output shaft. While there is a "factory standard" many do not use it, they have custom output shaft dimensions. I do stock a couple different output shaft options to try and help, but it only goes so far. In my 22 years here I believe I've only had about five customers retrofit their machine to accept something that I stock. I also keep a blank shaft they can fabricate to the dimensions they need, but it is expensive and I really only keep it around for situations where money is no object (which are rare).