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This is where we sit down, grab a cup of coffee and discuss your inventory challenges. With many large OEM's, we have seen a lot.
Now that we have an understanding of your goals, it is time to get things mapped out and organized. Identifying which Lippert Services will fit with your goals.
The partnership has begun, and the time has come to bring those ideas and plans to life. This is where we really begin to set up the processes that will allow our teamwork to flourish.
Additive manufacturing (also known as 3D printing) has been dropping in costs as the technology has been developing, which is resulting in more companies adopting the technology into their business. Unlike other manufacturing methods that excel at making products in bulk, 3D printing is great at producing products that do not need to be mass produced.
There are multiple 3D printing methods used, but the most commonly used is fused deposition modeling (FDM). FDM is a method of 3D printing were computer-aided design files are used to direct a mobile nozzle to distribute material, layer by layer until the product is complete. FDM usually uses thermal plastics and polymers or metals, but new developments allow the printing of concrete and even human tissue. Many industries are taking advantage of 3D printing and the trucking industry is no exception.
As stated by Truck Parts & Service magazine, many businesses in the trucking industry currently use 3D printing as a proof of concept for engineering purposes. This allows engineers to drastically cut time spent on testing new products or ideas; instead of needing to make a mold for each part or item they would like to test, they can 3D print it instead. While 3D printing is being used to assess the viability of newly designed parts or ideas, usage of printing in the trucking and supply chain industries has potential far beyond testing purposes. 3D printing could be used to create replacement parts for trucks or other heavy machinery.
Utilizing 3D printing to create aftermarket replacement parts increase cost-savings by keeping older equipment running longer, as parts become more difficult to source. Instead of needing to invest large amounts of cash to replace older equipment, new parts could be printed to keep the equipment running, regardless of the supply on the market. This allows supply chain and inventory management companies to potentially offer products that they do not currently have on hand. Inventory management businesses may even opt to not carry low demand parts that are easily printed as they could offer the product without needing to sacrifice any storage/warehouse space.
While additive manufacturing has a lot to offer to numerous industries, the technology has its own sets of issues and challenges. Will the printed replacement parts be of the same quality as their machined counterparts? 3D printing should be avoided for any truck or machinery parts that affect safety until research is done to understand whether they will retain the same integrity/quality as parts manufactured through other means. Air bubbles can result when 3d printing, often caused by incorrect printer calibration or humidity (which can affect the filament). Another current challenge faced by 3D printing is the printing speed. Although printing speed has increased greatly since the technology was invented, larger parts could take several hours to complete. Printing speed can be increased often at the expense of quality. Patents may also be an issue for businesses looking to make aftermarket replacement parts.
Additive manufacturing has the potential to extend heavy machinery’s life span by providing replacement parts that are no longer available. It can also offer customizable parts that are not otherwise available, such as custom nozzles or O-rings designed specifically to a company’s specifications. The limitless uses for 3D printing will push all industries to innovate, and the trucking and supply chain industries have a lot to gain from the technology.
Common practice among the on-highway trucking, construction, mining, forestry, agriculture, crane, and heavy-machinery based industries is to scrap slow-moving inventory, but by doing this companies risk damaging their customer’s loyalty.
The main reason older obsolete inventory is scrapped is to make room for newer and faster-moving inventory. Large heavy-machinery parts for older equipment is often scrapped because they require a significant amount of warehouse space to house. When a business scraps inventory they are sacrificing long-term customer satisfaction to improve their short-term goal of inventory reduction. Scrapping parts can create distrust between the customer and the original manufacturer. When parts are scrapped, a company is decreasing the supply of available replacement parts. This results in increased prices and lead time since the OEM will need to manufacture the parts on an as-needed basis.
Increased lead time results in increased downtime for the customer, which may affect their bottom line. Airports and trucking companies keep track of their equipment’s downtime. “Vehicle off Road” (VOR) and “Aircraft on Ground” (AOR) are metrics that are used by trucking companies and airlines to track their equipment’s efficiency. Downtime is a loss of revenue for these companies as broken equipment offers them nothing. Downtime to construction companies can be even more detrimental; when necessary equipment for the current step is not operational, progress for the whole project could come to a halt until the equipment is repaired or replaced. If a construction company is on a strict schedule, equipment downtime could incur penalties (depending on their contract) if it results in a delay of project completion.
When a business attempts to minimize downtime and they need a replacement part for their equipment, they will be forced to make a difficult decision. Do they pay for the more expensive OEM replacement part that could take 2 weeks before it arrives, or do they buy an after-market part that can arrive in a few days but may void their warranty? Heavy machinery is a large investment for many businesses and if a business has trouble ordering parts for it after only 5 to 6 years of owning it, they may factor that into their decision on future equipment purchases.
Selling your slow-moving and excess inventory to Lippert allows you to keep the inventory available to your customer while simultaneously meeting short-term inventory reduction goals such as: freeing up capital, providing cash flow, lowering operating costs, freeing up warehouse space, improving margins/profitability, and reducing taxes. This minimums risk of long-term negative effects that result from inventory reduction by reducing future conflict between your supply chain and demand chain. With the inventory still available to your customers, their products will have a longer lifespan which can increase their satisfaction and loyalty. Why scrap obsolete inventory when Lippert’s model provides more cash flow and provides resources for long-term success?
In every industry, the goal is to continue growing. Stagnation or lack of growth is often viewed almost as badly as regressing. With growth being such a vital metric that businesses live or die by, inventory should be viewed as a potential limiting factor to growth. When reviewing inventory and conducting inventory audits the focus is on the hot ticket items and fast movers. Why pay for storage of slow-moving or obsolete inventory when those resources could be utilized to store faster-moving inventory? The first question when looking at auditing your inventory is how to identify slow-moving inventory to then replace it with faster-moving inventory. Below are 4 ways of identifying slow-moving inventory:
1. Inventory Turnover
Turnover rate measures how quickly products are moving from the warehouse or storage to your customers. A high turnover rate means that demand for the product is high – it is not held or stored very long before it is sold. A low turnover rate means that a product is being stored for a long period of time before being sold. In a nutshell, inventory turnover shows how much a company has sold and replenished inventory over a specified length of time.
Investopedia states that the formula for identifying inventory turnover is as follows:
Inventory Turnover = Sales / Average Inventory
Low turnover indicates excess inventory, while high turnover may indicate strong sales or insufficient inventory.
2. Holding Costs
Holding costs is the total cost it takes to store your inventory. Warehousing costs are often the first cost that comes to mind, but other costs should be considered such as depreciation, insurance, staffing, and any other costs associated with the inventory. Continuing to use capital towards supporting inventory should only continue if the gross profit is greater than the holding cost of the inventory. Inefficiencies may still exist, even if a profit is being made. If other higher-demanded inventory exists, resources should be used to support the faster inventory and no new resources should be invested into the older inventory.
3. Days Sales of Inventory (DSI)
Days Sales of inventory is described by Investopedia as “a financial ratio that indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales.” Investopedia gives the following formula for DSI:
DSI = (Average Inventory / Cost of Goods Sold) * 365 Days
As DSI is the inverse of Inventory Turnover, a high DSI value means lower turnover and a low DSI value indicates higher turnover. DSI will give you an average number of days it takes for a company to sell the inventory being measured.
Forecasting is a technique that uses past data to make estimates of the direction of future trends for a business. Forecasting can be used to discover patterns or predict future inventory turnover. Using forecasting to predict the demand and turnover rate is helpful for a business in discovering future products that may become slow-moving or estimate the usable life-span of their inventory.
Once slow-moving and obsolete inventory is identified, the next question is what should be done with it? Often companies will scrap their slow-moving inventory so they can get a small sum of capital as they bring in larger quantities of faster-moving or new inventory. For heavy equipment/highway truck manufacturers (or any industry where your inventory consists of spare parts for your previous products), scrapping can create distrust with your customers. As parts are scrapped, the supply of spare parts is diminished; which increases the price of remaining spare parts. For more information on the negative effects caused by scrapping inventory, check out our article “How Scrapping Inventory Can Damage Brand Loyalty.”
Lippert Enterprises provides an alternative to scrapping inventory that keeps brand loyalty and inventory availability high, while simultaneously accomplishing a company’s inventory reduction goals. Selling your inventory to Lippert provides your business immediate capital (more than what scrapping would provide) while keeping the inventory available to your customers.
Call your Lippert Partner Services Associate to help you determine what Flexible Inventory Solutions will help you manage your inventory, deliver far greater access to parts and improve brand loyalty.
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