Manufacturers are always trying to reduce their
manufacturing costs. One way that has become popular is to require their
suppliers to stock and maintain an inventory at or near their customer’s
manufacturing site. This has been
the standard operating procedure for the automotive industry for more than a
decade. More and more manufacturers
are looking to this model to save by pushing the inventory carrying costs back
to their suppliers.
So suppliers are asked to provide a managed inventory in satellite
locations wherever the customer asks. The request is viewed by the
supplier as the entry barrier in order to sell to the manufacturer. The
challenge for the supplier
is managing that inventory when it is out of the normal warehouse flow.
Inventory must be accurately reported so replenishment is accurate, but also to
comply with SOX reporting. Revenue can only be recognized when the
material is consumed by the manufacturer. So a rigid process is necessary
to mitigate any SOX risk and satisfy the customer.
Suppliers need a standard process that can stand up to audit.
Implementing a standard process saves time while implementing. Using standards with warehouse providers also allows for cost containment for the warehouse operations whether paid for by the manufacturer or the supplier. It also makes builds SOX compliance into the process.
Below is a standard process flow using ANSI x12 EDI message. The process starts with the customer/ manufacturer forecasts. This is usually the weak link in the process, since accurate forecasting rarely occurs. Based on the forecast, the warehouse is stocked with material to support the customer manufacturing production schedule.
When material is shipped to the
warehouse an advanced ship notice is sent to the warehouse letting them know to expect
shipment: how many parts, part number, pack slip number, and other identification.
Smart suppliers will incorporate the customer bar code requirement in this
process so that the customers’ part number will also be visible and can be read
with bar code scanners. The material arrives at the warehouse, and the
bar code is scanned, and the receipt
message is sent to the supplier. This closes their stocking order and
moves the material into a warehouse location and is now considered
available.
The warehouse provider needs to
have a good communication channel with the customer. This could be view
into the material requirements program (MRP) of the customer, EDI message with
delivery requirements or simply and email with order information. The
warehouse then picks packs and ships the material to the customer. As the
material is shipping the labels are again scanned and the shipping information
is sent to the supplier along with a unique shipping identifier.
This message creates the billing, and decreases inventory, triggering replenishment depending on the minimum parameters set. The customer usually receives an invoice with the part number quantity, and the unique shipment number.
The final step is the inventory position message from the warehouse to the supplier. This is to compare the inventory position in the order management system of the supplier to that of the warehouse. The reconciliation of the two locations is necessary for audit control and the satisfy SOX requirements.
