An example of Vendor Managed Inventory in action

Background:

This Paragon customer manufactures emergency communications systems for use in a range of high integrity applications. They have an extensive product portfolio, with over 100 different product types. Batch volumes are usually small, typically 25 to 100 off, but with a high degree of component commonality.

Working to very short lead-times with quick turnarounds required when switching pick and place equipment over to differing products, the customer requires a high degree of flexibility. In order to operate under these time pressures, maintain quality levels and achieve lower attrition levels all IC’s, where appropriate, are required in a reeled format.

In order to achieve all of the above objectives, in late 2005 a contract was awarded to Paragon to implement and manage a line side store at the customers manufacturing facility.

Solution:

As part of its Total Component ManagementTM range of services, the Paragon line side store service enables this customer to have over 700 parts available, on-site, as ‘consigned stock’ but are only invoiced when they use them.

The line side store is controlled by setting min/max levels for the specific factory location on the Paragon ERP system. In addition a forecast build plan is provided to Paragon, and loaded on to their computer system. Paragons’ replenishment program runs daily, and identifies when stock is likely to fall below the minimum threshold, or where an unusual increase in build forecast necessitates extra stock being required.

Each week a consignment of stock is delivered to the customer’s assembly line, the stock is labelled with the customer’s part number, quantity, and the stores and/or machine location at the customer’s site.

Where the demand is relatively low, Paragon prepares custom reels of as little as 100 devices, to save the additional cost and liability of buying in the manufacturers full reels. In addition reels are sometimes split, so that for example 2500 devices are held on the customers site, and 2500 at Paragon, this provides a safety stock in case a reel is lost or damaged, without over committing on low run rate parts.

The system is supported by buffer stocks held in the Paragon warehouse plus protected inventory at Paragon’s suppliers. Contractually the customer is advised of the levels of stocks committed on their behalf, the run rate expectations and consequences should a part no longer be required.

Each week the customer advises Paragon which PCA’s have been manufactured. Given this information, the Paragon system, which contains full details of all the customers BoMs, calculates the components used, amends the stock accordingly, including an allowance for wastage, and invoices the customer appropriately. This saves the complication of invoicing several thousand line items each month. A periodic stock check is performed to ensure all stock levels are accurate, and invoice adjustments can be made as appropriate.

The customer can check stock levels of parts held in the line side store via the Paragon website, using the password protected ‘Customer Zone’.

Benefits :

The key benefits to the customer are:

• Stock reduction – all stock belongs to Paragon

• Stock availability – ‘instant’ access to required components

• Improved cash Flow – only paying for stock as it is used.

• One prime supplier for all electronics

• Reduced number of purchase transactions

• Purchase ledger transactions reduced (single invoice per board)

• Invoice queries eliminated

• Production system unaffected, still have the same line side stock

• Reduced handling – one consolidated incoming shipment per week Ends