You May Have It, But We Can See It
New software module gives parts distributor an accurate picture of inventory it consigns to suppliers.
It’s hard enough keeping track of thousands of products on your own turf. For companies that consign components and materials to their suppliers, maintaining an accurate picture of those items outside their four walls poses an even greater challenge.
A few years back, the best picture Daimler-Chrysler’s Mopar Parts Group could get of its consignment inventory was only about 60 percent accurate, says Jerry Quell, senior manager of inventory and planning at Mopar in Centerline, Mich. Today that picture is 98 percent accurate.
Mopar made the improvement with help from a new consignment inventory application from SeeCommerce, Palo Alto, Calif.
Mopar is the brand name for all Chrysler Group parts and accessories, and the Mopar Parts Group is the pipeline for distributing those products to Chrysler, Dodge, and Jeep dealerships around the world. The dealerships sell these parts to customers, and wholesale them to third parties.
Mopar’s infrastructure includes 17 distribution centers in the United States, six in Canada, one in Mexico, and others located throughout the world. The company controls 280,000 parts numbers and 1.9 million SKUs. More than 3,000 suppliers, including Chrysler-owned manufacturing plants, build repair kits and parts for Mopar. Of those, 17 are “consignment suppliers”—they receive components from other Mopar vendors and incorporate them into products they build for Mopar.
“Suppliers B, C, D, and E would send components to supplier A, then A would produce the final part,” Quell explains. Mopar owns the components, but Supplier A stores them at its production site.
Although it doesn’t handle them directly, Mopar must maintain accurate, auditable records on its consignment inventory and report on it monthly. The Sarbanes-Oxley Act of 2002, which established new federal standards for corporate accountability, makes this more urgent than ever.
But “having an accurate inventory at those consignment suppliers was always a problem for us,” Quell says.
That’s because each supplier uses its own information systems for manufacturing, warehouse management, and related functions, and in the past, data in those systems wasn’t available to the applications that Mopar used to manage its business, Quell says.
Manual processes also promoted inaccuracies. “We would send components from Supplier B to Supplier A. Then A would get a packing slip and mark it: ‘I received this amount,'” Quell explains. “Next that packing slip went in the mail, and we would process a receipt in the mainframe.”
If Supplier A used some of the components while the slip was in the mail, though, the number entered in the mainframe system would be greater than the actual number of components on hand.
Mopar began using SeeCommerce’s SeeChain suite in 2000 to manage demand forecasting, on-premise inventory, and supplier relationships. SeeCommerce hosts the system for Mopar, and users access it via a web browser.
SeeChain draws together data from Mopar’s proprietary management systems and uses the information to watch out for a large variety of anomalies and problems, as defined by the user.
“I’ve got 24 different forecast measurements, close to 30 inventory measurements, and 36 different supplier measurements,” Quell says.
When the system identifies a process that’s not running as expected, users employ tools within SeeChain to pinpoint the root cause and fix the problem. If the organization isn’t meeting service-level targets, for instance, users can drill down through layers of data to view performance for a specific product, customer, or market region, says Parviz Hooman, senior vice president of research and development at SeeCommerce.
Users also collaborate on problems through SeeChain. A messaging process called “annotation” allows people to trade information and save all the communications about a particular topic. This creates a body of knowledge that users can call on in the future.
“If this problem happens again, they now have a history they can use to find out what caused the problem the last time,” Hooman says. They can also see what action was taken, whether or not it fixed the problem, and who was involved in its resolution.
Managers who focus on specific areas can “subscribe” to annotations about that topic, Quell says. Whenever an annotation on that topic is made, the manager automatically receives it in an e-mail, “so they can know what’s going on if a crisis comes up,” he says.
In 2002, officials at Mopar asked SeeCommerce to create a new module that would apply the principles of SeeChain to consignment inventory. The new solution has been in full operation at Mopar since February 2003.
Since then, SeeCommerce has added the new module to the latest version of SeeChain, and it has started marketing the function to other customers that use consignment inventory.
Suppliers Get Involved
The consignment inventory module marks a departure for Mopar because, while the other SeeChain applications required input only from the company’s own management systems and employees, this one requires consignment suppliers to stay actively involved.
Once a week, each consignment vendor sends Mopar an electronic data interchange (EDI) 846 transaction. This provides a picture of all the consigned inventory the vendor is holding, listed by part number. The data comes from the vendor’s inventory system. SeeChain then compares these figures with data about consignment inventory in Mopar’s own systems, to see if they match.
If SeeChain finds a discrepancy, it issues a “red alert report” and instructs the consignment supplier to research the problem. Mopar gives the supplier a week to report back, creating a transaction to put things back in line, or explain why they’re out of line. Like Mopar’s employees, suppliers use a web browser to interact with the system.
Researching the problem, the supplier might discover, for example, that employees failed to acknowledge the receipt of some goods, the supplier used some components without recording that fact, or Supplier B received fewer parts than Supplier A claimed to have shipped. Whatever the cause, the supplier recommends a solution, and SeeChain triggers an approval process to allow that adjustment.
A more accurate picture of consignment inventory has helped improve Mopar’s operations.
“Accuracy turns into better availability and more timely shipments,” Quell says. “You know what you have, what you don’t have, and what you’re short on” and there’s less need to spend money on expedited shipments.
Requiring the 17 consignment suppliers to use the SeeChain consignment module has also injected a stronger sense of discipline into their relationships with Mopar. “They all had different business processes and different ways of doing things. Now they all follow standard procedures,” says Quell.
Mopar is using the new module mainly to acquire better data about consignment inventory. Other companies, however, could use the consignment inventory module to help maintain inventory at optimal levels.
Managing Consigned Inventory
If a supplier doesn’t have enough consigned components, it might not be able to build parts fast enough to satisfy customer demand, Hooman says. If it has too many, the owner of those components might get stuck with the excess as certain parts become obsolete.
The new SeeChain module “creates a platform that can show how that consigned inventory is being managed” and, if inventory levels drift too high or low, help pinpoint the cause, he says.
Mopar plans to migrate from its current hosted version of SeeChain to a version that will run in its own facility, Quell says. The company originally chose the hosted version because Chrysler has strict procedures for implementing another company’s software on site.
“When we originally did this in 2000, we were looking for a quick payback. To avoid a lengthy, bureaucratic process for bringing it in-house, we had SeeCommerce host it,” Quell says.
Now that the software has proven itself, the company wants to open it to more users, including those who don’t have Internet access.
The company might also work with SeeCommerce on a module for measuring the performance of carriers and logistics providers. “We have that capability today, but not in what I’ll call a convenient, SeeCommerce-like package,” Quell says.
“Once you get used to it, you get spoiled,” he says of SeeChain. “When you are forced to go back to ad-hoc reporting and various other ways to extract data, you can see the difference.”