Category Archives: Manufacturing

Is MRO Inventory Bogging You Down? Maybe You Need a Bit of Xtivity? Part II

Yesterday, we finished Part I by asking What is Xtivity?

Simply put, Xtivity is a solution for your MRO Inventory Optimization Needs and only your MRO Inventory Optimization Needs. If your organization is regularly managing tens of millions of dollars of inventory, or more, you probably know that MRO Inventory is costing you Millions and your current ERP/MRP/CPG Inventory Management systems aren’t helping you curb these costs while making sure that the part is always there when you need it. (Because, in the MRO world, unlike the CPG world or back-office world, availability always trumps cost savings. If you’re a retailer and you are out of stock on 2% of your catalog, no big deal, especially when the average stockout rate is 8%, and if your supply cabinet runs out of toner when the CFO wants to print out 500 pages of financial reports, you can just send a low-wage employee to the local office supply store to pick up a replacement. It’s annoying, but the most it’s going to cost the organization is an hour of someone’s time and maybe a 20% markup on a $50 cartridge. Big whopping deal, NOT! But if it costs 1 Million a day to run the production line and the company’s entire factory workforce sits idle for three days while your repair technician waits for a part to be express shipped to the Brazil factory from a supplier in China, a single stock-out can be the difference between the organization turning a big profit and suffering a big loss for the quarter.)

Accepting this reality and realizing that traditional ERP/MRP/CPG Inventory Management systems weren’t going to solve this problem (which is typically solved by the average company by significantly overstocking a critical replacement part in multiple locations), ten years ago, Xtivity formed to do something about it and nine years ago launched one of the first SaaS solutions to address the issue.

The xIO Software-as-a-Service platform is a 100% web-based MRO Inventory Optimization Solution that can plug into your current inventory management and procurement solutions, suck in your inventory (related) data, pass it through a number of proprietary and statistical models and algorithms, developed by Dr. Stephen Pearce (formerly of Texas A&M and author of Strategic MRO: A Roadmap for Transforming Assets into Competitive Advantage) and refined over the last decade for optimal performance across all of the major MRO industries (including Pharmaceutical, Oil & Gas, Automotive, Power Generation, Pulp & Paper, Automotive, Food Manufacturing, and Transportation), and output, on a monthly basis (or any other regular interval that makes sense from an operational perspective) the optimal order point, order quantity, and average lead time required for each MRO inventory item (by location) — taking the client’s business rules into account. The net result is increased part and material availability and fill rate, accurate lead time calculations, and cash-flow savings from reduced inventory across the board. Based on this information, the xIO solution then generates reports that recommend the suggested changes to future orders and calculates the expected savings both in inventory carrying costs and year-over-year cash outlays for MRO inventory.

But it doesn’t stop there. For each individual item it creates a detailed inventory report that shows the trend over the last 36 months, the projected trend, the expected savings from the initial change to the order frequency, and the expected MRO inventory savings over time. All of the data that go into the summary reports and report by inventory category (defined by inventory velocity) can be drilled into and all of the data (and reports) can be exported to Excel (if desired). And once the suggested changes are accepted, the Xtivity solution can push the new order points, order quantities, and lead times back into your inventory management solution which will take over the ordering, tracking, and classic inventory management functions.

Xtivity, which is well known in the reliability, maintenance improvement, and big MRO space, if not in the broader supply chain management space as a whole, has become so good in its niche that they are at the point where their average client sees a ROI in 90 days or less and 10x ROI over time. Plus, 99.99% of clients can use their solution out of the box. They support so many inventory systems and data formats (in addition to being SAP and Maximo certified) that they only had to do a custom data conversion project for 2 out of the last 1,000 global companies (of a solution that supports, and supports users in, 6 languages) that have tried their platform.

When Xtivity says xIO is a true SaaS solution with no hardware, software, or integration requirements that plugs the MRO optimization hole with virtually no effort (beyond an inventory manager reviewing the order point, order frequency, and lead time recommendations and approving them for push-back into the inventory management system), Xtivity means it. The entire application has been streamlined to not only optimize MRO inventory management and free up as much cash as possible without increasing operational risk, but to minimize the amount of effort required to get results. This is important because you generally don’t generate business value by wasting time on software support, you generate value by implementing and maintaining better (MRO) inventory management policies. And the Xtivity solution allows you to focus on operations, not software, and thus get a quick return. It fills its niche very well. So if you are looking to improve your MRO inventory management, and potentially free up Millions of dollars in cash-flow, check out the Xtivity xIO solution, it’s easy to try and very easy to use.  (For more information on Xtivity, they can be contacted at optimize@xtivity.com.)

Is MRO Inventory Bogging You Down? Maybe You Need a Bit of Xtivity? Part I

Inventory optimization is tough, but maintenance, repair, and operations inventory management is even tougher because the parts just sit there until they are needed — and sometimes, either due to proper maintenance or just good luck, the critical part you are stockpiling for your production line sits on the shelf three times longer than expected while other times the critical part has to be replaced twice as often as the vendor who sold you the machine told you it would have to be.

The last thing you want to do is get the stock levels wrong because inventory is expensive. In addition to the capital that is tied up in the inventory, there are the facility storage costs (which include rent, overhead expenses for services like security, and property taxes) and the possession costs that include, but are not limited to, clerical costs (to track the inventory), insurance (to insure the inventory as a whole), theft (as the insurance policy will have a deductible and a maximum claim), taxes (when the organization takes possession), deterioration (as some inventory will get damaged or spoil), depreciation (as most components decrease in value over time), and obsolescence (if the inventory cannot be used in time). Having inventory sit idle is very costly.

To make matters worse, many of these parts are very expensive and often have no residual value if unused. Whereas unpopular consumer packaged goods can often be sold at fire-sale prices which will allow you to recover some of their cost, this is not always so with MRO. This is because the parts are typically only useable within a particular machine on your production line and by the time you shut it down, chances are that the supplier is no longer selling the machine and most of the suppliers’ other customers are no longer using the machine as well. In addition, many MRO parts and supplies, especially in the chemical, pharmaceutical, and high-tech industries, have specific storage requirements (cool, dry, etc.) and this makes the storage cost even pricier than for regular (consumer) goods.

With typical inventory carrying cost eating up approximately 25% to 40% of a company’s annual inventory investment, the last thing you want is too much inventory, especially since certain MRO categories with special storage requirements and a high risk of obsolescence can have amortized inventory carrying costs that are close to the total value of the inventory! Unless you like having millions tied up in inventory, you need to make sure that you optimize your MRO inventory to the best of your ability. If you can’t do that, don’t rely on creativity — that won’t be enough because just one wrong JIT (Just in Time) decision can bring your entire production line down for days and cost you Millions of dollars. If you don’t have a suitable platform and the expertise in house, don’t rely on creativity. Apply a little Xtivity instead.

Pre-Package vs. Post-Package? Or How About No Package?

Amazon wants to pre-package goods and ship them to a location near you in anticipation of your upcoming order (as per our recent post on how anticipatory demand planning is good, but anticipatory shipping?) It’s an interesting idea, but the shipping companies are going to have to upgrade their systems to make it work (as per our recent post).

However, if you’re talking about the Food & Beverage Industry, as per this recent article over on Inbound Logistics on Packaging Postponement: A Game Changer for F&B Companies, by positioning product packaging further downstream in the supply chain and closer to the consumer, food manufacturers can take advantage of different selling opportunities. If the product is selling better in a certain retail location, major restaurant chain, or even through a set of strategically-deployed vending machines, you want to get it where it’s selling best in the quantity that can sell. This will generally require the right packaging, since a vending machine portion will generally be smaller than a store portion which will be smaller than a restaurant portion as the restaurant will order in bulk to prepare in bulk.

Packaging is a conundrum. But do you even need packaging at all? (At least at the individual product level.)

Let’s consider the Amazon situation. Do they even have to package the products they are shipping in bulk at all? While it’s true that they are not a traditional store where you can walk in and pick up the item, this doesn’t mean that you can’t walk in to a “store” and pick up the item. Nor does it mean that you need packaging to affix a shipping label.

Consider Amazon’s expanding Locker service. If a good is placed in a locker, it doesn’t need a package. Neither does any good placed in any neighbouring locker. All of the goods going to the lockers can be shipped in a single “package”, and then put in the appropriate lockers. But the “package” doesn’t have to be a package — it can be a reusable shipping container. Then there’s no packaging, no waste, and shipping is on its way to becoming a sustainable business.

Basically, Amazon can re-invent the mail-order model developed by Sears, Roebuck & Co. where “mail-order” is replaced by “e-mail order” and “counter pickup” is replaced by “locker pickup” and bring back the “reusable crate”, only this time it’s probably a “eco-friendly heavy-duty plastic crate” that will last much longer.

And while you might think that this concept cannot be translated to Food & Beverage, challenge that notion. The Bulk Barn‘s entire business model is built on bulk, package-free, purchases. And all of the food and beverage products they sell can be shipped in reusable containers. (Now, I know it doesn’t work for liquids in the current business model*, but it works fine for most dry goods.)

What’s the point? You can package when, where, and how you want, but first think about whether you even have to package at all, and, if you do, if you can use re-usable shipping containers. Environmentally friendly and cost-effective, it will save you money and image points on an ongoing basis.

* But even then, we can bring back the classic milk delivery model where you return the reusable models, but update it such that you pay a high deposit each time you buy a reusable bottle, which is waived each time you return a reusable bottle, just like the eco-conscious micro-breweries are doing.

You Can Have Your Google Chauffeur. I’ll Choose Good Ol’ Alfred Every Day of the Week!

For those of you who thought the doctor was needlessly calling #badwolf last Sunday in response to the automotive industry’s push for autonomous automobiles, SI would like to point out this recent BBC News article stating that Toyota is to recall 1.9 Million Prius hybrids.

Why is Toyota recalling 1.9 Million Prius hybrids? A software fault that may cause the vehicle to slow down suddenly. To date it has identified more than 400 reports of the problem, with the bulk of them occurring in (the heavily congested streets and highways of) Japan and North America. According to Toyota in limited cases, the hybrid system might shut down and the vehicle will stop, perhaps while being driven.

In other words, all a hacker has to do to cause multiple fatal multi-car pileups is hack the OnStar network and send a signal to all Prius’ vehicles to execute that specific part of the code. They don’t even have to break the OS and figure out how to craft a small virus that will hijack the control system or execute a dangerous set of commands — the hacker just has to send a signal telling the OS to execute the set of commands already there.

Now, presumably, this would (hopefully) result in the brake lights being triggered and the outcome may not be as deadly as it would be otherwise, but what about the other 99 Million Plus lines of code. How many similarly dangerous, untested, and, as-yet, unexecuted code sequences are also in the Prius? And every other electronically controlled car on the road?

They’ve yet to release a personal OS that isn’t riddled with more holes than there are potholes in Canada’s winter roads*1! I’m all for technological advance, but until we figure out how to write more bullet-proof, and secure, operating systems, let’s keep the OS out of the car and on the desktop where it belongs.

Now if you’ll excuse me, I have to go help LOLCat tell some meddling kids to get off my lawn!


*1 A slice of swiss cheese is quite solid in comparison!

You CAN NOT Protect Your Supply Chain Against Disruption Without Visibility!

A recent article on protecting your supply chain against disruption had some very good ideas for protecting your supply chain against disruption, but all were useless without visibility as most of them could not be carried out effectively without visibility. How critical is good visibility? Let’s review the suggestions.

Perform a supply chain vulnerability audit.

How can you assess vulnerability without a good supply chain map? Without visibility, how can you see beyond the first tier to find sole-source arrangements in the sub-tiers that are putting your entire supply chain at risk.

Do a rigorous “what-if” analysis.

If you don’t have a good map, you can’t analyze what would happen if you changed a supplier, changed a distribution lane, shifted production, etc.

Implement a strategic supply chain plan.

How can you judge the value of the plan if you can’t fully analyze the effects of its implementation and the chances of the mitigations it contains succeeding in the effect of a disruption? And, as per above, you need visibility for a full and proper analysis.

Create a balance between supply chain network efficiency and operations resilience.

The only way to determine if a plan is balanced is to do extensive what-if analyses that consider various perturbations of, and disruptions to, the normal scenario and see if the chain remains operational. These models can only be built with extensive visibility.

Design long-term strategies.

This also requires significant what-if analysis and detailed supply chain data, which in turn requires extensive supply chain visibility.

However, if you have good supply chain visibility, you can do all of this, and more, and truly secure your supply chain against significant disruption. And then you will have resiliency too. To find out more about the ROI of Supply Chain Resiliency, download the SI Illumination, sponsored by Resilinc.