BM5820 Inventory Management: ICA 2

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Introduction

Damage to the threads in the holes of various details is a common phenomenon that can occur both during the manufacture of a part and during its operation. Thus, a simple and effective method of thread restoration using wire thread inserts comes to the rescue. According to Wright and Duffy (2019), this method had practical and commercial applications over 80 years ago. The use of this method was stimulated by the active use of aluminum in aircraft construction (Hadfield & Witthauer, 2020). Since this material does not hold threads well, this automatically led to the invention and use of inserts.

Because the method of thread restoration using threaded inserts is widespread, many manufacturers of these inserts have emerged. A comprehensive offering of inserts, tools, and application technology is commonly referred to as a system with the addition of the manufacturer’s distinctive brand name. Heli-Coil is one of the leaders in offering this category of goods. Stanley Engineered Fastening (n.d.) notes that Heli-Coil inserts appeared in the 1930s and are being successfully developed today. Heli-Coil thread inserts are characterized by high wear resistance, low thread friction within tight tolerances, high surface quality, and corrosion and heat resistance. Heli-Coil systems allow to create ultra-strong threaded connections that can handle high loads in low-strength metals, as well as in plastic and wood (Stanley Engineered Fastening, n.d.). The use of spring inserts opens up new design possibilities, gives freedom in the choice of material and size of fasteners.

Inventory Placement Strategy

Inventories are among the assets that require significant capital investment. Therefore, they represent the greatest variable that determines the policy of the enterprise, but at the same time is determined by the plans of the leaders of the enterprise. The state of stocks directly impacts the financial condition of the enterprise, its competitiveness, and financial results. It is impossible to ensure a high level of product quality and the reliability of its supply to consumers without creating the optimal size of stocks of finished products and production stocks.

Since Heli-Coil sells threaded inserts in various sizes and materials, the product range includes several dozen items. Thus, with a chaotic organization of sales, several goods are in short supply, many goods are in surplus, which significantly reduces the company’s profit. Moreover, it leads to overstocking of warehouses and an outflow of customers who do not find the goods they need. Thus, in this case, it seems appropriate to use the ABC / XYZ analysis method, which allows to determine unprofitable or low-profit groups of goods, timely improve and optimize the range and purposefully develop trade. Aktunc et al. (2019) assert that the ABC method is based on the following principle: reliable control of 20% of positions allows 80% control of the system. In the course of ABC analysis, the products will be grouped in such a way as to understand which of them are included in this 20%. In turn, XYZ analysis allows dividing the entire assortment into groups depending on sales stability. Thus, ABC analysis allows to study the product range for its profitability for the seller, and XYZ analysis makes it possible to check the saleability of both individual products and product groups.

It is noteworthy that using ABC / XYZ analysis for inventory management, including Heli-Coil, has some advantages and disadvantages. According to Aktunc et al. (2019), this strategy is relatively simple. There are CRM systems that automatically calculate the specified indicators. If configured correctly, all that remains is to click a button to export the data in the required format. Moreover, this strategy provides quick results and quick implementation of management decisions. If carried out regularly, comparison with previous periods makes it possible to track the life cycle stages of goods. However, as any other strategy, ABC / XYZ analysis has its drawbacks, including the need for stability in the market. If some unforeseen situations occur, such as sharp inflation or political unrest, the analysis data may be inaccurate (Aktunc et al., 2019). Thus, when implementing a strategy such as ABC / XYZ analysis of a company, it is worth considering its limitations.

Inventory Identification (SKU)

The quantity of SKUs is the number of stand-alone goods that differ in their properties. Fichtinger et al. (2019) note that for a store supplier, each SKU is an object of inventory management. They analyze, replenish, return, sell inventory, examine the turnover of warehouse stocks by product groups and by assortment for each SKU item. Thus, based on the ABC / XYZ analysis, Heli-Coil threaded inserts can be grouped into categories such as main assortment; goods that generate high income, but with less stability; products sold consistently, but in small volumes; as well as products with the lowest volume of revenue, the demand of which cannot be predicted. The first category of goods provides the primary income with a stable sale, so they should always be in stock. It is noteworthy that the required stock is easy to predict since the sales volumes hardly change from month to month.

As for the second group of goods, for this item, it is necessary to create a permanent stock based on the average sales volume since these goods are also in demand. The third category of goods brings high income, but sales stability is already lower. For these goods in the warehouse, it is necessary to create additional reserves in case of increased demand in specific periods. The reserve is essential since these are important groups for the company, which bring in a significant part of the income. Particular attention should be paid to the product of the fourth category, which brings the lowest revenue, while demand cannot be predicted. This includes goods that have already ceased to be in demand. Accordingly, stocks in this category are usually not created and are made to order. It is noteworthy that new items can also fall into this group since they are not in demand because customers do not yet know about them. Thus, a properly built inventory planning system can save a company huge funds, and contrariwise, mistakes or unclear management of the balances for each SKU can freeze a lot of money on the warehouse balances.

Inventory System Failures

Current conditions present enterprises with the task of continuous improvement to gain a competitive advantage or get an opportunity to stay in business. One of the options for obtaining benefits is to reduce costs. At the same time, as practice shows, significant reserves lie in the inventory management system and supply chain management. The efficiency of inventory management, in turn, depends on how well the work on material flow management is organized. According to Attaran (2020), one of the technologies for eliminating or reducing potential inventory problems suitable for Heli-Coil may be the redistribution of scarce material resources. This will reduce the cost of placing additional orders, prevent a shortage of resources, and reduce the cost of storing additional stocks due to taking operational measures to manage the material flow.

Inventory control is an integral part of warehouse and supply chain management, and IoT technology can also provide benefits in this area. Wheelus and Zhu (2020) affirm that with advanced IoT sensors that automatically track and analyze positions and stock levels, supply chain professionals can create an accurate and up-to-date monitoring system. IoT inventory management systems automatically reconcile their inventory accounts with records, making time-consuming manual calculations unnecessary and improving consistency and reliability.

Another technology could be RFID tags, which can reduce the manual labor associated with inventory. For example, smart shelves can automatically report their content, and employees can quickly take stock using mobile handheld readers. According to Shenoy and Rosas (2018), improving the inventory process allows inventory analysis to be performed more frequently and with greater accuracy. Furthermore, cloud solutions are the right technology to optimize inventory management processes. One of these is the automated cloud-based system ABM Inventory for enterprise inventory management. Muller (2019) notes that the system’s goal is to balance the guaranteed availability of the product that the customer wants and the maintenance of a minimum stock in the warehouse. This reduces over-stock by 30-60% and decreases lost sales, and free up working capitalas by diminishing out-of-stock. Thus, since ABM Inventory allows for the supply of the required quantity of each SKU in all storage points based on demand, this technology is suitable for Heli-Coil.

Conclusion

Thus, Heli-Coil is one of the fastest-growing companies in the threaded insert market, which creates the need for adequate inventory management to improve its competitive advantage. Currently, the inventory management process is severe and complicated to implement element in the management system of any company and represents the implementation of measures to optimize inventory. Since Heli-Coil’s product range is so extensive, it appears that an appropriate inventory placement strategy for this company is ABC / XYZ analysis to optimize inventory. In this regard, it is possible to single out such SKUs as the main assortment; goods that generate high income, but with less stability; products sold consistently, but in small volumes; as well as products with the lowest volume of revenue, the demand of which cannot be predicted. In turn, introducing technologies such as the redistribution of scarce material resources, IoT, RFID tags, and the cloud-based ABM Inventory system will help the company eliminate or reduce potential inventory problems.

Reflection

The formation of specific sizes of commodity stocks allows to provide a stable assortment, implement a particular pricing policy, and ensure the constant expansion of the circle of buyers. All this ultimately contributes to achieving the goals facing the enterprise – stabilization of the market position, maintaining competitiveness, and obtaining the necessary profit. In this regard, cycle counting is of particular importance for Heli-Coil. This is important because Heli-Coil products have a wide variety of turnover and stability characteristics. Thus, such merchandises are distinguished as goods with a high level of demand and high stability, high saleability and insufficient or low stability, constant frequency and low selling level, with spontaneous demand, and new ones.

According to Kelly (2019), the optimal inventory management cycle consists of: assessing the role of inventory in implementing a company’s strategy, monitoring inventory status, ABC / XYZ analyzes of inventory items and forecasting inventory requirements. Moreover, this can be supplemented by determining the stock level, calculating the optimal order size for replenishing the stock, agreeing on delivery terms, developing an inventory management algorithm, and placing stocks in the supply chain. In general, the above description of the inventory management cycle procedures allows to correctly organize inventory management in the company and provide adequate support for implementing the company’s strategy.

References

Aktunc, E.A., Basaran, M., Ari, G., Irican, M. & Gungor, S. (2019). Inventory control through ABC/XYZ analysis. In: F. Calisir, E. Cevikcan & H. Camgoz Akdag (eds.). Industrial engineering in the big data era (pp. 175-187). Springer.

Attaran, M. (2020). Digital technology enablers and their implications for supply chain management. Supply Chain Forum: An International Journal, 21(3), 158-172. Web.

Fichtinger, J., Chan, C. & Yates, N. (2019). A joint network design and multi-echelon inventory optimisation approach for supply chain segmentation. International Journal of Production Economics, 209, 103-111. Web.

Hadfield, C. & Witthauer, J. (2020). Today’s technician: Basic automotive service and systems, classroom manual and shop manual. Cengage Learning.

Kelly, R. (2019). Optimizing your supply-chain performance: How to assess and improve your company’s strategy and execution capabilities. Taylor & Francis.

Muller, M. (2019). Essentials of inventory management. HarperCollins Leadership.

Shenoy, D. & Rosas, R. (2018). Problems & Solutions in inventory management. Springer International Publishing.

Stanley Engineered Fastening. (n.d.). Heli-Coil wire insert systems [PDF document]. Web.

Wheelus, C. &Zhu, X. (2020). IoT network security: Threats, risks, and a data-driven defense framework. IoT, 1(2), 259-285. Web.

Wright, G. & Duffy, O. C. (2019). Fundamentals of medium/heavy duty commercial vehicle systems. Jones & Bartlett Learning, LLC.

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