Whether your business is cars, computers, or corn flakes, it's generally safe to build inventory based on yesterday's demands. That is, of course, if today's demand is the same as yesterday's.
At Deluxe Corp., our primary product is checks -- paper checks. And consumers are writing fewer of them as they move to payment alternatives (plastic, electronic and online banking). In a mature business, basing inventories on yesterday's demands creates excess and risks the possibility of large obsolete write-offs.
Confident the demand for paper checks wasn't likely to reverse itself, we created a team to find ways to reduce and better manage our inventory levels. In effect, we needed to convert the structure of our supply chain from consumption/replenishment to demand planning. By definition, demand planning is a lean practice. But it would be another year before Deluxe went lean in an official sense, and 12 to 18 more months before we began implementing lean practices throughout our manufacturing facilities. Although our initial efforts were successful in lowering inventories, once we had rolled out lean concepts, our supply chain was able to borrow from them to reduce inventories even further.
|Lawrence J. Mosner, chairman and CEO, Deluxe Corp.|
We couldn't have been more pleased with the results. We reduced inventory and manufacturing costs while improving our accuracy rate, in-stock rate and product-cycle times. Ultimately, our supply-chain organization not only had less inventory sitting on shelves, but also and more importantly providing the manufacturing facilities with the right product in the right quantity in the right place at the right time.
While the need to manage inventory was, and is, crucial to our mature business, we knew that if less inventory resulted in out-of-stock orders and delayed shipments, our clients and customers would be dissatisfied, offsetting any financial benefits. However, lower inventory did not jeopardize delivery, and in fact, during this same time, we actually improved customer satisfaction.
Given its scope, this endeavor required an enormous number of hours from employees all across the organization, in both planning and execution. But when the plan came together, the benefits were -- and continue to be -- considerable. Serendipity provided an unexpected bonus in the form of:
Employees with a higher degree of engagement because of a more challenging and stimulating work environment.
At A Glance
- The knowledge and confidence to apply these same concepts to non-manufacturing areas of the company.
- Awards for manufacturing excellence from organizations in some of the cities in which we have facilities.
We appreciate the external validation for our lean manufacturing efforts. However, the real value from transforming our supply chain to a demand planning structure lies in an improved ability to manage our business efficiently and effectively as we serve our small-business customers and financial-institution clients.
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Cost Reduction Essential To Competition, by Donna Covington, vice president/customer services, Lexmark International Inc.