Stock Reduction Case Study
Reducing stock frees up cash which could be better spent elsewhere. Rather than give a list of tips of how to improve, this article demonstrates a real-life example of how stock was significantly reduced.
It focuses on mechanical seals, an engineering component which (in my layman terms) stops things from leaking.
The Application
A chemical manufacturer with multiple process plant where the mechanical seals supplied largely from one supplier. There was a long-term relationship with the supplier, and no intention of switching away from them for many reasons.
The Problem
- Stock levels reached £160,000
- Large diversity of seals purchased and stocked
- Use of (expensive) exotic materials
Mechanical seals are indirect goods which don’t directly add value to customers. Having such a high value of capital tied up in the stock was an inefficient use of the company’s resources.
Similarly, there was a disconnect between the seals used across the plant and what was kept in stock, meaning some applications were left without access to critical parts but others had a surplus of availability.
Additionally, the supplier had little knowledge of what we kept in stock and why, meaning we were underutilising their ability to support us.
The Solution
I formed a cross-functional team including a Reliability Engineer and the Stores Manager and two Sales Engineers from the supplier. Together, we listed all the applications on site and the specification of their seals.
We listed all the different types of seals and looked to see if any could be consolidated. From that, we compared the stocked items to the quantity of seals installed on site.
We also compared it to the items that the supplier regularly stocked at their premises. From this, we were able to build a list of what was readily available from them and how many we needed to keep in stock to cover the quantity of installed units on plant.
For seals with exotic elements we reviewed the options for stocking only the rare parts. In future, we would ship these parts to the supplier for them to make a complete unit using the additional, common parts. This would then be urgently shipped back to site for installation.
The Outcome
We had a list of all mechanical seal applications on site and an accurate Bill of Materials for spare parts.
We were also utilising the supplier much more effectively, with access to their extensive stock of parts.
The major outcome was we reduced the stockholding by £43,555 or 28%.
Hopefully, this has given insight into practical ways to reduce inventory in challenging areas. If you have any questions, feel free to give me a call on 07588 071975
