Why Manufacturers with Excess Inventory are Still Expediting Orders

The Buyer’s Dilemma

Purchasing has a challenging role in manufacturing organizations. No one wants lack of inventory to block manufacturing and push out deliveries. So there is a lot of pressure to maintain more than adequate stock. Meanwhile, the financial department and the general managers are insisting that there is no need to overbuy – just follow the MRP plan. MRP knows exactly what is required for each product, has current inventory levels and knows the forecasted demand.  So the MRP can provide each department – including purchasing –  what they need to do to provide material just in time to manufacturing.

Why “Just-in-Time” is often Too Much or Too Late

Just-in-time is great in theory, but in practice it too often does not deliver the expected results. While the MRP plans are usually complete and accurate when orders are first released to manufacturing, priorities often change as the orders progress through the manufacturing process. Purchasing takes heat for late deliveries, but often the changes have nothing to do with purchasing. Whether it’s new customer orders taking precedence, cancelled orders, design changes, equipment failures, or yield shortcomings, the original plans change and all teams start to scramble to adjust.

Purchasing can be negatively affected in a number of ways. Most apparent is when new production priorities mean different parts will be needed, but this is often not realized until it’s too late for a regular order to accommodate the need. To reduce stock-outs, buyers start paying expedite fees to try to keep up with the new demand plan, and are caught with escalating parts costs and late deliveries. More subtly, what happens over time is that the parts that were originally ordered are no longer needed right away – and in cases of cancelled order or design change, the parts may not be needed at all. These factors contribute to stock rooms full of the wrong parts. So ironically, buyers find themselves expediting orders even while the CFO complains of high inventory carrying costs.

How To Keep Production and Finance Happy while Reducing Inventory 

Buyers shouldn’t blame the just-in-time philosophy for these woes. It’s the right strategy, as long as the purchasing plans can adapt quickly to the changing circumstances on the shop floor. To do this, the whole plant needs to be able to re-evaluate priorities on an ongoing basis – even day to day. Shops that can re-calculate their critical path when circumstances change can achieve real-time supply chain visibility, and provide proper guidance to all departments – including purchasing. 

Dynamic adaptation ensures that purchasing isn’t expediting orders based on out-of-date priorities, or ordering parts that are just going to sit in stock or later wait half-completed as WIP awaiting some other resource that is needed to drive the product to completion. Manufacturing operations software can help companies with this. By following a strategy of continuous re-prioritization even after orders are released to manufacturing, shops will drive down inventory carrying costs while improving on-time delivery and optimizing the supply chain.