Point-of-use logistics

by Bill Gaw

The relocation of materials from the stockroom to their point of use in the production area is not a new concept. The auto industry has done it from its beginning and most industries have had point-of-use success with low-cost hardware.

Material handling and inventory storage are two of manufacturing's high cost, non-value-added activities. The elimination of the stock room, as it is known today, should be a strategic objective of all manufacturers.

Point-of-use logistics that focus on getting the right materials to the right place at the right time and at the right price must replace beating-up on suppliers for price reduction alone.

Companies will never achieve their full growth and profit potential as long as business leaders continue to talk about value-added supplier partnerships while continuing to treat their suppliers as adversaries.

Most business leaders underestimate the depth and breadth of business skills required to initiate and nurture an effective supply chain management program.

Usually, these leaders hold suppliers at arm's length and struggle to keep any economic gains to themselves. In fact, organizations often try to weaken a supplier to ensure control of profits.

This is ridiculous. It is the first obstacle a business must overcome for successful implementation of point-of-use logistics. Without a strong supply chain management team, there can be no point-of-use logistics.

Management in pursuit of point-of-use logistics must understand the value of supply chain management and be advocates of:
• business and information integrity;
• day-to-day supplier communication and cooperation;
• free exchange of business and technical information;
• responsive win-win decision-making; and,
• supplier profit sharing.

A top-down commitment and investment is required to develop a dynamic team of supply chain management professionals.

A point-of-use logistics success story
A manufacturer of electronic component test equipment was in need of additional  factory floor space to build a new multi-function tester. In lieu of leasing additional space, they decided to convert their existing stockroom space into a tester production area.

It was agreed that none of the new tester parts would enter the down-sized stockroom and all common parts would be relocated to their production areas as point-of-use inventory. The key to making this project a success would be the creation of a powerful supply chain management team and the development of a supplier support network that would provided timely and innovative point-of-use parts and logistical support.

High communications integrity, real-time scheduling, visual materials control, flexibility, responsiveness, superior quality, special materials transportation/kiting racks and a positive continuous improvement mindset were some of the characteristics of the developed relationship.

Three years after the start of the project, this product line represented more than 50 percent of the company's revenue and more than 80 percent of its profits. At the start of the project, it took 23 days to build the tester; today, they build it in three days.

The average profit margin for prior testers was 32 percent, and the multi-functional tester generated at profit margin of 55 percent. Most of the credit goes to their supply chain management team and the powerful supplier support network that it helped develop.

Value-added supplier partnerships
In today's competitive business environment, many manufacturing companies are turning to value-added supplier partnerships to achieve the material availability performance required for successful point-of-use logistics.

When a company forms a supplier partnership that performs one of the links in the supply-chain, both stand to benefit from the other's success. The power of supplier partnerships is undeniable.

To a great extent, they have the best of both worlds: the coordination and scale associated with large companies and the flexibility, creativity and low overhead usually found in small companies.

Suppliers have knowledge and insight that aren't burdened with guidelines from a distant headquarters. They don't have long forms to fill out and weekly reports to render and can act promptly, without having to consult a thick manual of standard operation procedures.

In an increasing number of industries, value-added suppliers are proving to be fiercely competitive, delivering high quality, competitively priced materials to precise buyer schedule requirements.

An excellent way of establishing the partnership relationship is to treat each other as an extension of one's business. The value-added supplier should look to his partner for services such as special procurement help on capital equipment and training needs and maybe some process engineering or quality engineering assistance.

Bill Gaw’s manufacturing experience spans more than 35 years. During those years, Bill has held positions as a shop expeditor, production planner, buyer, manufacturing manager, director and president. Bill has participated in four successful financial turnarounds. For additional information, click here: Good Manufacturing Practices.

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