Back in 1981, I was hired as an Inventory Control Analyst (Construction Supplies Scheduler) by the largest public utility supplying electric and natural gas to Arizona located in Phoenix. My initial duties involved the scheduling of all of the electrical transformers and natural gas supplies necessary for repair and new construction the utility was involved in.
The company was using a computerized standard Reorder Point mainframe software system called MMIS (Materials Management Information System). Yes, my job was to "Set em and Forget em" then deal with the aftermath (stock outs, inflated inventory) of thousands of parts, much like the manual standard reorder points I discussed in a past blog.
Our customer service goal that we strived for was 95 percent. I was doing fairly well with my parts hovering around that goal so when one of the analysts responsible for the scheduling of the overhead and underground cable was tracking in at 80 percent, my boss, the Inventory Control Manager ,invited me into his office and assigned the cable scheduling to me.
He explained to me that although there are only 26 different cable part numbers, these were critical parts. A stock out on cable meant that union workers went home until the cable came in. He also noted that although we only use, at most, about $300,000 worth of cable per month, we have to maintain about $3,500,000 of cable inventory on hand to achieve the 95 percent customer service goal. I thought to myself that this is typical when you use classic reorder points that falsely assume steady continuous demand. That's over ten times the actual inventory dollars that you need.
It was in May of my second year of employment with the company and my boss asked me if I could get the customer service level back up to at least 95 percent by the end of the year. Being the cocky young puppy I was back in those days, I replied that "I don't see any problem with 100 percent service level and an on hand inventory dollar reduction of at least a million dollars". To which he replied, "You're on! I'll bet you a steak dinner on January 2 nd that you can't do both." I felt that to be a pretty safe bet.
I realized that what I had to do with those 26 part numbers was to take them off of the standard reorder points and time phase them using a TPOP (Time Phased Order Point). Time phasing is what standard reorder points are lacking. TPOP has the capability to signal when reschedules are required to grind down your projected available to zero which indicates an exact match of supply and demand above safety stock. Ollie Wight in his book, Production and Inventory Management in the Computer Age describes TPOP as "simply the MRP logic used for independent demand items."
Please see below how I manually set up these 26 overhead and underground cables on TPOP. I obtained history from MMIS which had up to ten years of past history including seasonality. This was a very good source that I used as input for my forecasting of Gross Requirements. I would monitor the history of these and every two or three weeks I would readjust my forecast to current history.
The first month of June, inventory dollars rose from $3,500,000 to $3,750,000 but because of the rescheduling capability of TPOP, I was able to get the customer service level up to 100 percent. I was able to maintain the 100 percent customer service level every month through December of that year.
Every month after June, inventory dollars did fall dramatically. At the end of November, I was well on my way to enjoying that steak since inventory dollars had dropped by about $2,000,000. By the end of December of that year the inventory dollars plummeted from $3,500,000 in June to around $487,000. That's over a $3,000,000 reduction of unnecessary inventory.
The additional drop in inventory dollars was helped along by an ice storm that hit the El Paso, Texas area in early December. The utility company in El Paso had called up my boss stating that they were in an emergency situation with lots of power lines down and they didn't have enough overhead cable in stock to repair all of the downed lines. They wondered if we could help them out with a loan of cable.
With my manual time phased dashboard capability, I had a complete view of the on hand cable I could relinquish immediately and was able to work with my cable suppliers to redirect cable commitment from my purchase orders to the El Paso utility's requirements. The Inventory Control Manager of the El Paso utility expressed awe and appreciation that we could cover their total emergency needs with on hand inventory and purchase order adjustments.
On the morning of January 2 nd of the following year, my boss walked into my cubicle and said: "John the warehouse supervisor over at the cable storage facility called me and he was very shook up". I replied: "What's he got to be shook up about? He's got all the cable he needs with 100 percent customer service level." He then walked out of my cubicle saying nothing more except "Give him a call".
Confused, I got right on the phone and called John at the warehouse. I asked him what was he so shook up about. He said: "Ray, it's the craziest darn thing I have ever seen. I have all of the vendor's cable delivery trucks lined up on one side of the road leading to the warehouse and on the other side of the road I have all of the crew's construction trucks awaiting cable. We have hardly any cable in the storage lot and I have guys on forklifts on the road transferring spools of cable directly from the delivery trucks to the construction crew trucks." He did admit, however, that he had all of the cable he needed.
I went over to see this spectacle and sure enough, three or four forklifts were busy transferring the large spools of cable from flatbed delivery trucks to the construction crew's trucks. It filled me with a great sense of accomplishment to see the fruits of my cubicle efforts in action.
Later that day, my boss took me to a great steakhouse for lunch and as the waiter was walking over to our table, he asked me how I would like my Rib-Eye? I answered: "medium-well please".
Originally posted by Ray Karaffa at http://blog.kinaxis.com/2011/12/tpop-medium-well-please/