An MD&DI September 1998 Column
Robert L. Kass, vice president and general manager of Choice Logistics (New York City), discusses strategic inventory stocking.
What are the optimum number of strategic inventory stocking locations that will allow a medical parts manufacturer to meet customer response time goals?
Because each company has its own unique stocking strategy and delivery requirements, there is no universal solution to location questions. Determining the appropriate number of stocking locations requires integrating information about the geographic distribution of the manufacturer's customer base. This should be done using mapping techniques and transportation information to ensure that the plan on paper can be adapted to real-time service goals. Site-specific realities such as rush-hour gridlock or international border control must also be taken into account during this planning.
One key consideration is each customer's delivery requirements. Just a few years ago, suppliers often promised next-day delivery of parts. However, increasing competition and concern over quality of service have pushed many manufacturers to guarantee that replacement parts and a technician will arrive within hours of a call. Most response times fall into four categories: 12 hours, 24 hours, 48 hours, and overnight.
The 12-hour category requires that parts be stored close to the customer's site. In some cases, a manufacturer must build a stocking location to accommodate this delivery requirement. The 24-hour delivery category is the norm. Delivery requirements are similar to the 12-hour option, but parts can be stored in various stocking locations in the vicinity of multiple clients so that inventory can be shared among many sites. The 48-hour delivery category allows a manufacturer to maintain central stocking locations that can take advantage of next-flight air delivery; however, it's important to consider the availability of flights. If parts are needed frequently, it may be less expensive to store them in locations closer to the customer. Finally, when overnight delivery is promised, the company should decide how late in the day it will accept orders for overnight delivery before selecting stocking locations.
Stocking and delivery of critical parts can be further refined by compiling a history of parts turnover rates. Under- or overstocking parts is often a problem unless companies have a real-time inventory utilization system.
After the number of stocking locations needed to accommodate delivery requirements is determined, the manufacturer must decide whether its network of locations is consistent with future product and expansion plans.
A manufacturer can choose to determine stocking locations and delivery processes on its own, or it can outsource its critical-parts logistics. Third-party logistics specialists can often amortize costs over a larger base. However, the decision to outsource can have an immediate and significant effect on service and costs. A manufacturer should seek a provider that understands its business and has a proven record of customer commitment and quality service.
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