Just-In-time to Just-In-Case Inventory Management

Our customers were greatly affected by the global pandemic of 2020 and the subsequent container issues. And frankly, so were we.

But we’re not ones to sit idly by and let things unfold organically because that would be disastrous for us and for our customers. Besides, we stand firm in our conviction that with the right strategies we have the power to turn uncertainty into opportunity.

Here’s the story behind the small yet mighty team of MES supply chain experts who took several unorthodox approaches to overcome a global supply chain crisis to achieve unprecedented success.

(P.S. It’s also the story of how you can, too.)

Covid

Since the start of the pandemic in early 2020, supply chain issues have become ubiquitous. But, says MES Supply Chain Analyst/Planner Daniel Teynor, they don’t have to become an organization’s undoing.

“First there was COVID. Then there were container issues. This was followed by shutdowns in China and then in India. For the past 2-1/2 years, all we’ve known is chaos,” he says. “This perfect storm of events has meant that all the rules of the past no longer apply. So, being who we are at MES, we came up with new rules informed by data.”

All during Covid, focus was on the shortages, shutdowns and limitations. For almost 18 months, MES’s planning team and country supply chain teams were focused on rigorously identifying the bottlenecks and limited number of escalated part deliveries. All data was shared weekly with all sourcing and supply chain team members. Team members were empowered to make decisions on the fly negotiating with suppliers about what to produce, working with shippers on which routes to use for shipping based on quick availability. In many cases, MES’s sourcing teams also helped suppliers buy materials, paid advance for goods to help stranded suppliers, provide quality inspection help if supplier’s quality teams were down for Covid. In short, all hands-on deck operated autonomously in moving the focused part list through the system to keep customer assembly lines moving.

MES’s On-Time Delivery (OTD) for full year of 2021 ended up just below 96%. While this is a very high metric for most companies, it was the lowest full year on record for MES.

Post-Covid – Spring’ 2021 – Just-In-Case Inventory

As soon as vaccinations were available and Chinese lockdown strategy was clear to the business community at large, many industries and companies started to discuss moving from Just-In-Time (JIT) to Just-In-Case strategy. This involved building large amounts of inventory to keep up with rising demand and volatility.

However, as suppliers around the world were trying to work through raw material, labor shortages, container shortages and exorbitant costs hindered the supply at large.

All through this chaos, our focus was to continue building extra weeks of inventory regardless of the part demand history or forecast.

Post-Covid – Spring’ 2022 – Shrink

Earlier this year though, MES started to have canceled orders. This was unique to them. Over ten years prior to Covid, MES’s On-Order quantity was barely 5-7 days as MES ships Just-In-Time to customers. However, canceled orders were almost 30+ days of sales. This was a rare occurrence.

Given this data combined with economic data about inflation and slowing, growth raised concerns to supply chain and sales team with MES management concerned about slowdown being real and canceled orders never coming back! They made several calls to customers to see how they viewed the outcome for the second half of 2022 and 2023 and answers were mixed.

At that time, MES CEO Hiten Shah challenged the team to start getting defensive on inventory management. Shah further challenged the sourcing and planning team to lower MES’s total supply chain on hand by 16% – and to do it in less than 8 weeks. He also asked the team to reduce the overall float of inventory (On-hand, In-transit and On-order) quantity by more than 25%.

“To overcome supply chain issues, we came up with new rules informed by data.”

Because the traditional rules of supply chain were no longer working, our team did several really remarkable things to ditch the status quo. As a result, we’ve helped our customers and ourselves overcome obstacles, thwart challenges, and leverage opportunities.

Developing and rallying around a New Metric

As an organization, we manage literally thousands of SKUs for hundreds of global customers across a wide variety of industries. What we do is akin to what financial advisors do when managing investment portfolios. That means that even the slightest dip in our portfolio has both large and small implications. So, it’s essential for us to proactively manage the highs and lows.

“For some of our customers, things went really low really quickly. Even though there’s been no official recession, the potential for an economic downturn caused them to drop demand in a hot hurry. We’d never seen anything like it,” explains Daniel. “What that meant for us was a significant lag time in the supply chain and, ultimately, inventory piling up in our warehouses. This wasn’t good for our customers and it was good for us, either.”

To balance the portfolio, so to speak, MES’s planners created a new metric to gauge the health of the supply chain more accurately. They call it Financial Days of Saleable Inventory or FDSI for short. Difference in using FDSI was a simple but huge change to base inventory decision on past usage instead of future forecast provided by customers or utilizing MES’s analytics tools. Inventory turns and On-hand days are not uncommonly used in inventory management but comprehensively build FDSI metric which includes:
FDSI1 – On-Hand

FDSI2 – On-Hand Plus In-Transit

FDSI3 – On-Order quantity

MES developed a simple Power BI portal to get this information in front of planners so they can see which parts are running high or low.

With this metric, it doesn’t matter the price or the quantity of the part, so every part is judged on the same metric. That way, MES planners can quickly see how many days of inventory is in the total portfolio or any portion of it.

“We talk with our team in China and India all day every day and then they work with our overseas suppliers,” says Daniel. “So, with this metric we can see when it makes sense to hit the gas on production and when it makes sense to hit the brakes.”

Systemizing Notifications

MES planners didn’t stop there. They also tweaked the settings in the MRP / SAP database. Doing this added another layer to the feedback loop, helping ensure that nothing was missed.

“By fine tuning our database, we’ve been able to get more specific and targeted with our settings,” says Daniel, “helping us further reduce our inventory and free up assets.”

Reviewing Inventory

Our supply chain analysts also pivoted inventory management to fast-track inventory auditing.

Typically, our team waits until year-end to review inventory and scrap excess. Under MES’s new rules of inventory management, the team conducts an ongoing audit with an intentional eye toward projected customer use, which helps MES avoid unnecessary tax as a cost.

Further, this new process enables us to more accurately forecast inventory across the entire supply chain, from planner to coordinator to shipping. Plus, we have the added benefit of performing in-depth tracking and reporting on shipping containers. Overall, we’re more efficient at planning and we carry less excess inventory – all without sacrificing customer service.

Value-Added

The key to making all these tools, techniques, and tactics work is having a network of trusted professionals dedicated to open and transparent communication. It also means having a commitment to offering our customers a best-in-class, value-added, and agile supply chain solution.

This exercise, which earnestly started in May 2022 has reduced the overall float by more than 25% already and once customers postponed orders are fulfilled, it will have reduced the FDSI1 and 2 by almost 30% (much higher than 16% originally intended). The On-Time delivery has stayed around 96%, so all of these improvements have come keeping service levels and customer satisfaction levels the same. Remarkable feat by any team in any business environment. But at still inflated shipping costs, raw material costs, reducing efficiency which this speed and efficacy is a tribute to sourcing teams, supply chain, finance, sales and inventory planning teams working very closely together and well supported by MES’s management team.

At MES, we’re proud to say that’s who we are and what we do.

“Our customers have every right to be more demanding than ever,” says Daniel, “and we’re up to the challenge, thanks to the new rules of supply chain that we’ve created. Now, we an exacting level of detail that lets us supply customers what they need when they need it, even in a world marked by constant supply chain disruptions.”