Supplier Consignment Inventory Tracking Drives Improved Cash Flow and Reduced Inventory Valuation
At a Glance
ERP from the Plex Manufacturing Cloud brings EaglePicher Technologies the ability to track supplier consignment inventory through an automated process.
Accurate consignment tracking enables this energy/electronic device manufacturer to reduce its inventory valuation requirements, increase net income, and improve cash flow.
Plex simplifies reporting, streamlines internal processes, and eliminates the need for double data entry.
EaglePicher Technologies achieves reduction in inventory valuation of $350,000 within the first 18 months.
Successful manufacturers are always on the lookout for ways to more efficiently and effectively track their supplier inventory. EaglePicher Technologies (EPT) is one such company.
When the company realized that there are solid business benefits to having a well-structured automated supplier consignment inventory system, EPT’s leadership approached Plex Systems, the company that had been providing its manufacturing cloud ERP software solution for several years. The companies discussed the potential for establishing an automated supplier consignment inventory system at EPT. Plex Cloud ERP includes a function that could be customized to meet EPT’s specific needs, so work began immediately.
Consignment inventory is inventory that is in the possession of the customer but is still owned by the supplier. What a supplier consignment model means for companies that employ this is that they do not have to pay for inventory they receive from their suppliers when that inventory arrives in their warehouses; they pay for it only after that inventory goes into production. EPT has always been required to utilize a supplier consignment process on products for the U.S. government, a key customer of its aerospace and defense products, so for those products they had been utilizing a manual supplier consignment process. All non-consignment customers paid when EPT received its inventory.
“The process of updating inventory data has been greatly simplified.”
EaglePicher Technologies launched its new automated consignment system with Plex, and the company soon realized all of the benefits it had hoped for. By only paying for inventory when it is consumed, the company’s inventory valuation requirements are reduced, which in turn increases net income on its balance sheet and improves its cash flow.
But the benefits do not end there. Because the new supplier consignment inventory model integrated perfectly with EPT’s existing production, sales, and financial systems, it also simplified reporting, streamlined internal processes, and eliminated the need for double data entry.
On the Road to Improvement
EaglePicher Technologies elected to launch the application in its Commercial Power Division, which manufactures batteries, chargers, electronics and energetic devices for several industries — primarily aerospace and defense but also the medical, industrial, and consumer industries.
The supplier consignment implementation and launch were completed within less than nine months. The implementation team consisted of one full-time business application employee, four process champions, and one Plex project manager.
At the time of the supplier consignment inventory launch, the company had already implemented Plex production, sales, and financial functions, and the new inventory function integrated perfectly with those. Other “traditional” accounting/ERP or inventory systems can’t take complete advantage of a supplier consignment system. If managers attempt to implement such a system, they typically have to track the consignment data manually, double their data- entry activities, and introduce complications to their tracking of production and inventory data that create additional room for error. By utilizing Plex, not only did EPT avoid these consequences, it created additional advantages for its end users with only minor adjustments to the users’ processes.
The purchase order and inventory tracking processes are a few examples.
“This project was critical in helping EaglePicher establish even better relationships with its customer base.”
When an EPT employee establishes a purchase order, he or she has the option to establish it as “Consignment” or “Regular.” Inventory that has been established as a Consignment Purchase is treated differently, but in a manner that is seamless to the user. When such inventory arrives, the user automatically views on the receiving screen how much inventory is in the warehouse and how much is being received. The data on this screen is automatically updated, in real time, as production consumes the inventory.
Inventory that has not yet been issued to the floor is automatically flagged in the system to ensure that it does not receive attention from Payables. The flags automatically disappear when the inventory is issued to the floor to be consumed in production.
The process of updating inventory data has been greatly simplified, with no need for re-entry of data that has already been updated at some other point in the production or inventory cycles. The data is much more accurate, as it is now being updated in real time, and the need for physical inventories has been completely eliminated.
Users can quickly and easily generate new reports that show the value of all supplier consignment inventory in the company’s warehouse and the value of all consignment inventory that is owned by the supplier in the EPT warehouse.
Because there is no longer a need to financially account for inventory not yet issued to the floor, EPT’s Job Cost Activity Report is greatly simplified. For instance, there might be 100 units in the warehouse but only 10 being consumed; only those 10 needed to be accounted for in this report, making it a much more streamlined summary for inventory management.
“The supplier consignment inventory project was critical in helping EPT establish even better relationships with its customer base,” explained Dan Mullins, senior IT project manager, who served as EPT’s lead on the implementation team.
“With Plex Systems, there is always flexibility to expand and enhance what we have.”
“We achieved greater customer satisfaction by housing within one source much of the information we need to address questions, reconcile inventory and provide timely feedback in customer and financial audits.”
The most significant benefit to EPT of its new supplier consignment inventory model has been the achievement of its original goal: improved cash flow resulting from lowered total value of inventory. The new model has allowed the company to extend its Accounts Payable Aging and automatically raise net income on its balance sheet. And it has reduced the amount of capital that has to be tied up in inventory. This capital can now be used for other business purposes.
In terms of specific financial returns, EPT logged nearly $1 million in consignment activity attributable to this project within the first nine months of the project’s launch, and the implementation team achieved a reduction in inventory valuation of $350,000 within the first 18 months.
“Following the success of this supplier consignment inventory system, we’ve also launched several other Plex projects including proposals, project management, sales quotes, RFQs and key metrics,” said Mullins.
“At EaglePicher Technologies, we are constantly looking for new systems improvements, and with Plex Systems, there is always flexibility to expand and enhance what we have.”