Mark Twain had a famous quote: “the stories of my death have been greatly exaggerated”. This also applies to manufacturing in the United States. We have heard that we are no longer competitive in this global economy. It is true that some Carolina industries that prospered in the past — textiles and furniture — have been significantly affected. We have been told that we can’t compete with the low labor cost countries.

Never underestimate the creativity and work ethic of Americans. Manufacturing has led the economy out of recession.

We at Falcon Metal have seen how our customers remain “world competitive” by using technology and working smart. For example, we have a customer in South Carolina that is a world leader in developing products and services to support the smart electric grid. Also, we hear that a number of major multi-national companies are bringing back manufacturing jobs. A furniture company in Lincolnton, NC, that closed its manufacturing facility in 2005 is re-opening and adding 130 jobs.

Yes, manufacturing’s “death” is greatly exaggerated. Falcon Metal is committed to do whatever we can to support US manufacturing.

Purchasing Class “C” production components in today’s original equipment manufacturer (OEM) market is a challenge. Usually less than 5% of the total spend, these parts represent a high number of low-value items.

It can be difficult for Purchasing departments to manage these items. They must meet their company’s goals, ensure the parts are at the point-of-use when required, deal with obsolete parts, and be responsible for sourcing new items. Between inflationary pressures on products and fluctuating production schedules, trying to reduce inventory levels – and lower carrying costs – can be problematic.

Examining the OEM’s Class “C” production components reveals another roadblock. The majority of these parts are custom-designed to specification.  This customization can be in the design of the part, or it could be a standard part with special plating.  These parts are supplied by both domestic and import manufacturers. Importing parts can cost less, but longer lead-times and dealing with any quality issues can be more difficult.  Domestic parts can cost more, and may have shorter lead-times.  

Companies can reduce their on-hand inventory investment by implementing a Vendor Managed Inventory (VMI) Solution. These programs can include consigned inventory on high-usage parts, blanket purchase orders with scheduled releases, and scheduled service visits by the supplier. Some companies are able to leverage product price through bulk purchases on high-moving items.

To guarantee an effective VMI solution, it is critical for the OEM customer to select a supplier that is focused on managing inventory beyond relying solely on forecasts and visual bin inspections.  

At Falcon Metal, our knowledgeable and experienced Account Managers are our customers’ one point-of-contact. From ordering, quoting, working directly with the service person to purchasing our stocking inventory, our Account Managers do it all. This unique model results in a very successful VMI solution in both the customer’s facility and our warehouse. We conduct scheduled accountability meetings with our customers to review our performance, our commitments, and to identify continuous improvement opportunities.

Class “C” components play a large part in any manufacturing process.  To better understand their importance we should start with what is defined as a “C” component. Purchasing staffs typically stratify their procurement costs based on the dollar value of the product.  “A” and “B” items represent raw materials and other large value products typically the 20% of the parts that are 80% of the purchases.  “C” components are the opposite-the large number of relatively low value components that are required to produce the end product.

“C” components tend to be low $ value.  They are typically low cost and/or low volume.

These components can have significant impact on the manufacturing process.  Downtime is the enemy of any manufacturing facility.  Studies have shown that 80%+ of production downtime is related to inexpensive components (C items).

Many companies try to manage these parts as they do any other component.  The cost of a purchase order is high in relation to the value of the purchase.  Typically, the company does not have the same leverage with “C” sources so they have difficulty receiving parts when they need them.

Managing these parts is typically not a core competency of major manufacturers.  Their cost to purchase and manage is high in relation to the purchase value.  Turning these products over to a Vendor Managed Inventory (VMI) program such as Falcon Metal’s can have significant impact.  A VMI program can reduce production downtime and reduce the customer’s Total Procurement Cost (TPC).  That would allow them to focus resources on their major purchases.

VMI has many definitions.  Many define it as  “vendor managed inventory” but the definition is broader.  In today’s business world it is outsourcing non-core functions to an organization that is a core competency.  The objective is to improve productivity, speed to market by eliminating activities and reducing procurement cost.

VMI has been used effectively in large multi product manufacturing and service companies.  Typically, as much as 70% of their cost of goods is represented by purchased products.  Those products fall into the 80/20 rule.  Most companies effectively manage the 20% of the products that yield 80% of the total spend.  It is the balance of the products that cause problems (stock outs).

VMI has many benefits.  It improves the supply chain process.  It fully supports lean production processes.  It reduces procurement cost, which includes inventory investment, non-value activity and most importantly reduces downtime.  It helps optimize the supply chain.

For a company to implement a VMI program, it must be committed to meaningful change.  They must establish clear objectives then find a partner who has demonstrated the ability to implement programs for similar companies.

You have heard time and again that we operate in a Global Economy. Our competition is no longer local. With the advances in communications and transportation, our major competition could be literally around the globe. The companies that survive will need to be viewed as “World Class”.

Lean principles emanate from the famed Toyota Motor System that was developed over 40 years ago. The system starts with identifying customer needs. Based on numerous surveys, customers require the highest quality with the shortest lead time and the lowest delivered cost.

Lean can be defined as “a continuous improvement strategy for identifying and eliminating non-value added activities (waste) with the involvement of all employees”. A key question to ask when viewing an activity “Is the customer willing to pay for this?” If you answer no, you have identified waste that needs to be eliminated.

The lean concept was first implemented in manufacturing but has been expanded to all types of industries. There are a number of “tools” that can be used to help achieve your goals. We will discuss them in further posts.

You are probably familiar with the Pareto Principle commonly known as the 80/20 rule. Simply stated, 20% of any measurable statistic yields 80% of the overall results. For example, 20% of your customers generate 80% of your revenues.

Given the degree of concentration on virtually any area of your life, it is critical that you focus your attention on the “vital few” that matter. This is where you will achieve the most benefit. We are constantly being challenged to maintain this focus.

Falcon Metal’s core competency is in managing Class C production components; they are the large number of low value items that remain critical to meeting your production plans. The Falcon Bar Code Inventory System (FBIS) provides a cost effective solution in managing C production components.

The ISM (Institute of Supply Management) reported the results of its semi-annual survey of members that manufacturing is forecasted to grow by 5.7% in 2010. That tells us that the US economy is on the way back to recovery.

I participated in a webinar offered by one of the industrial distribution publications. An industry consultant provided the results of a survey he conducted of the industrial distribution channel. It indicated that most companies dealt with the effects of the 2009 recession by making steep cuts in their staffs and inventory levels to maintain cash flow. He questioned whether they would be ready for a rebound in US manufacturing in 2010.

There is no doubt that this last year has been a real challenge for all of us. A wise man once told me that “there is a beginning and end to everything.” The US economy is vibrant and will emerge from this recession. We all need to examine whether our supply chain is ready to support us.