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MMP Case Study

 

Powerful web-based inventory management system helps reduce inventory levels drastically

 

The Situation

SemiCon, an assembly-based manufacturer of high technology equipment, utilizes thousands of highly specialized components to build its various models. The company was using an MRP-based system to manage its parts inventory of over 100,000 SKUs. While service levels at key customers were declining, working capital in the form of inventory was growing rapidly. Certain parts that were needed were unavailable and others that were not needed were available in excess. This disparity was aggravated by the fact that demand for certain models and replacement parts for certain customers were unknown and highly variable. In other words, the inventory situation was bad and getting worse rapidly.

 

The Approach

It was evident to Confida that SemiCon needed a fresh new approach to inventory management - an approach not based on an "MRP philosophy" which was designed for stable, low growth environments. A new scientific approach, a combination of operations research, statistical engineering and practical "do-it-fix-it" was needed and Confida collaborated with researchers from leading universities to come up with a solution. Our approach was based on the philosophy that inventory items with differing characteristics should be managed differently. The inventory items should be segmented based on hard economics - according to how important it is to manage them versus how feasible it is to manage them. This "real-world" shine was put onto a highly structured ROP (reorder point) based lean inventory management process to arrive at a new way to manage the inventory problem.

 

The Solution

This new approach, based on our proprietary reorder point lean inventory management concepts, was so successful in a limited run of 200 parts that SemiCon decided to use it for their entire assembly operations. We decided that it would be best to develop a web-based system that incorporated the new methodology and loaded the entire parts inventory. In six months, SemiCon decreased its inventory requirements by 55% while maintaining service at previously prescribed levels. This was a dramatic improvement in working capital requirements that had far-reaching financial implications for the company. Due to its amazing success, we later extended the system we developed at SemiCon into a full-fledged turnkey solution for inventory optimization. This solution, the Material Management Portal (MMP), is a highly structured ROP (reorder point) based lean inventory management system designed to help manufacturers better manage inventory and service levels.