Liberty Electronics Reduces Excess & Obsolete Inventory With Six Sigma
Liberty Electronics specializes in manufacturing electronic wiring harnesses, cable assemblies, complete cabinet and panel assemblies and electro-mechanical assemblies and has been in business for 26 years. Employing 220 employees, they are located in Franklin, PA.
Liberty Electronics has accumulated $2.5M – $3M of excess or obsolete inventory during the past 23 years. They wanted to ensure that any new obsolete or excess inventory did not exceed 0.5% of the annual material cost of sales and maximize revenue by using, selling or returning their excess material by 22 August 2011, so they asked for assistance from Operations Strategy Consulting (OSC).
After working with Liberty Electronics’ executive team, Megan Burns, of OSC, developed a customized Lean Six Sigma Black Belt training and coaching program for the company. The project team, lead by VP of Operations Scott Anderson, followed the DMADV (Define, Measure, analyze, Design, Verify) methodology to baseline the excess or obsolete inventory problem. As the team documented the process’ current state it began identifying some key drivers to the inventory problem as well as breakdowns in the process. The team discovered one of the key drivers was estimators and procurement did not have visibility to existing excess material that could be used to fulfill potential new orders.
Once the team clearly understood the root causes to the problem it then designed a new process. Some of the changes involved working closely with the Information Technology (IT) group to modify the materials resource planning (MRP) system. Other changes addressed how buyers could see and transfer material among different programs.
In the first five months of the new process, Liberty Electronics’ MRP system automatically converted and used $200,000 of excess inventory instead of directing the buyer to order new material. Additionally, buyers have transferred and used over $500,000 of excess inventory using stock status instead of ordering new material. Liberty Electronics met its project goal of limiting additional excess material to less than 0.5% of the material cost of sales. A year after the improvements were implemented, the company’s excess material generation has actually averaged negative 4% of material cost of sales.
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