Originally published on Manufacturing.net Wednesday, 04/10/2013 by Joel Hans, Managing Editor of Manufacturing.net

Remember the 1983 Wendy’s commercial that had an actor that said “Parts is Parts"?

What is Inventory Velocity?

While inventory velocity is not a new term, it is always good to begin such topics with a clear and simple definition. Inventory velocity is the speed at which the inventory is cycled in a given period for each item. Inventory velocity is the underlying measure to improve Inventory turns, which accountants define as follows:

Starbucks has found a hit with their seasonal pumpkin spice lattes. I should know.  My discriminating and highly opinionated thirteen-year-old daughter Priscilla loves them. She likes the pumpkin spice lattes so much that she convinced a small platoon of girls to join her at the end of the first half day at the Starbucks just a short walk from their middle school.

Introduction

Companies that use ERP and MRP systems are constantly looking for solutions to increase inventory turns, streamline the procurement process and improve supply chain agility. Many of these companies assume that the only way to reduce cost, lower risk or increase flexibility is to improve forecast accuracy. But various factors including customer demand variations, changing market conditions and questionable sales projections make it exponentially difficult to improve forecasting. One solution that most of these companies often don’t contemplate is moving away from a forecast based or MRP replenishment methodology to Electronic Kanban (eKanban) for high consumption items.

Have you ever taken the time to evaluate the current-state of your material procurement process?  If you have, there’s a good chance that you found the process to be executed by people in departmental silos trying to manage several complex and interrelated processes.   You probably also recognized  the large amount of analysis work required to make the right purchase decisions and the almost exclusive reliance on email, phone and fax to communicate and track individual purchase orders from release through to receipt of materials.  If you haven’t taken the time evaluate your current-state material procurement process, you should.  You might be surprised at what you find.

While manual shop floor kanban systems are common practice within manufacturing plants,manual supplier kanban systems are much rarer. One of the primary reasons for this is the difficulty faced when trying to scale a manual visual kanban system beyond the four walls of the plant. However, the operational and financial benefits of supplier kanban are so great that manufacturing firms are now looking to electronic supplier kanban systems (a.k.a. supplier ekanban) as the answer to their supplier kanban needs. The following list was compiled from feedback by Ultriva customers over the past 12 years of implementing successful supplier ekanban programs.

In today’s environment streamlining the supply chain is a high priority for most manufacturing companies.  Purchased parts are typically 60% or more of the manufacturing cost.  This puts tremendous pressure on materials and supply chain executives to drive these costs down, while at the same time improve on-time delivery.  A proven approach to achieve those goals is to improve supply chain collaboration.

We all understand how difficult it is to change the wheels on a moving bus. If you've heard that analogy applied before, it was probably to justify why business transformation or a change in process is so difficult.

For many years, Information Technology (IT) executives in manufacturing firms have been looking to their Enterprise Resource Planning (ERP) systems to help improve the operational and financial performance of their organizations.  And why not, they’ve spent hundreds of thousands to millions of dollars on software licensing, a year or more implementing these systems and more than a few sleepless nights applying patches and updates from their ERP vendors.  However, most of their efforts have been disproportionately focused on back office processes due to the inherent shortcomings of ERP systems to address the business requirements of manufacturing processes inside the four walls of the plant.