CPE Inventory Optimization Project

July 30, 2008 Javier Sanchez

Inventory Optimization Report

Points of Discussion

Definition of the Problem

Root Causes Current Process Map Improvement Opportunities Suggestions for opportunities found Financial Benefits

Problem Definition
Shipping costs in May increased $61k due to excessive overnight shipments of CPE Stock requirement analysis is manual, time consuming, and cumbersome Suspect we may retain excessive stock in some products (See Annex # 2 for Details)

Root Causes
Shipping costs in May increased $61k due to excessive overnight shipments of CPE

Stock-out due to:

> Delay in approving PO > Delay from Vendor in getting the PO in their system > Delay in normal vendor shipping time frame

Re-Stocking analysis is manual, time consuming, and cumbersome

Systems provide pieces of data that must be manually manipulated in

Excel to obtain: > Field shipment orders > Stock replenishment quantity

Suspect we may retain excessive stock

Lack of generally accepted stocking methodology to manage stock

Current Process High Level

RICH PICTURE OF INVENTORY SYSTEM (System # 1 )

Start

Sales

Sales Person enter info. on MSS

Information Systems

Inventory Inventory Gets the report Of products needed for two week period

Inventory depletes stock from Warehouse Using the Replenishment System

Inv. Package the Product

Sub- System 2

Sub System #3

Field Tech. Change MSS Equipment from Available to In Service

Sites Receive Orders To install equipment

Market Sites enters equipment into MSS as equipment Available

Market Sites Receive equipment

Distribution to different sites

Inv. Ships the product to Market Site

Field Tech. Goes and Install Equipment

Field Tech. Deletes Equipment From MSS.

Nuvox Bills the customer Nuvox Bank

Current Process
INVENTORY HANDLING PROCESS
Inventory goes to MSS and pull Reports in order to find what's needed to be shipped to market sites CPE Summary Report is sent to warehouse Electronically Warehouse verifies report with current inventory (Manually) Warehouse prepares material to be shipped Warehouse ships the product/s to market sites Market sites receive equipment and enter it into the system Request of installation is needed and Market site assigns serial # to customer PO and change the classifications Field Technician return to the system and delete part from the system.

Non Value activities Chance for Improvement

End

Market site installs equipment

Non Value, but not affecting the process

Not Installed Report (NIR)

TSP Schedule Drillable Report

Installed YTD Report (IR) Supplier receives POs and send back a confirmation email with delivery time

Cleaning Reports

Warehouse creates POs of inventory that will be shipped.

Financial receives POs electronically

Yes POs approved? No

Warehouse receives confirmation electronically

Warehouse fax the POs to Supplier

Supplier prepares and sends equipment

Warehouse receives equipment and store it

End

Combine all TSP Reports into one Called Total TSP

Delay Process

Warehouse keeps copies of open POs

Confirmation notice is store on the corresponding Open PO

Conbine Total TSP into NIR

Warehouse attached closes the PO with the receiver from supplier.

Combine IR into NIR

Rename NIR to CPE Summary Report

.1

.5

40

.5

.25

50.35hours/ 6.3 Days

.5

.25

40

.1

.25

40

160

261.72 hours/32.71 Days

NVA= 3 TNVA=3 VA=0 TVA=0

NVA= 0 TNVA=3 VA=.1 TVA=.1

NVA= .5 TNVA=3.5 VA=0 TVA=.1

NVA= 1.75 TNVA=5.25 VA=.75 TVA=.85

NVA= .25 TNVA=5.5 VA=0 TVA=.85

NVA= 40 TNVA=45.5 VA=0 TVA=.85

NVA= .1 TNVA=45.6 VA=0 TVA=.85

NVA= 0 TNVA=45.6 VA=.25 TVA=1.1

NVA= 40 TNVA=85.6 VA=0 TVA=1.1

NVA= 160 TNVA=245.6 VA=0 TVA=1.1

NVA= 1.5 TNVA=247.1 VA=.5 TVA=1.6

Improvement Opportunities

Less Regimented PO approval process Automatic re-stocking analysis Utilize bar code scanners to integrate with inventory system Decrease supplier lead time

Improvement Actions

Develop fully automated daily report to provide re-stock amounts and field shipping details.
Field Shipping detail:
> > > > > > > Order # CLLI TSP Date Market Equipment Part Number Quantity

Re-Stock Amounts

. Develop process to incorporate scanning devices to place inventory data into inventory system.

Enhance CPE approval process.

Provide Harold with unilateral authority to replenish stock to system-driven stock level Generate daily/weekly reports to advise executive management of capital commitment Special capital purchase circumstances, such as TitleMax, will be handled ICB

Pursue new vendor supply strategy to reduce lead time to delivery.

Vendor retain 2 months of stock on hand Commit to next day shipping Will probably have to guarantee payment for on hand stocked items

New Process
Sub-System # 3

Start

Inv. Goes to the System and gets a report of what is needed to ship for the market sites

Inv. Open the R.S. model 100004-LGXX and goes to the Data Base Sheet.

On the Data Base, update what is going to be shipped as out of stock.

Verify each product on the updatable demand sheet

No Does the product says order Now Save the document and exit.

Yes

Create a PO for what is indicated to order on the Updatable Demand Sheet

Fax PO to Vendor And notify Financial of purchases made.

NOTES: RECONCILIATION AND DEMAND MUST BE MONITORED ON A DAILY BASES

Update R.S on Data Base Sheet

Monitor POs for fast delivery.

Received Equipment using Bar Code and store it.

End

Mathematical Model

10

10

Daily Data Base

11

11

Updatable Demand

12

12

Financial Benefits

13

13

Financial Benefits 1 Day

14

14

Financial Benefits 5 Days

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15

Example of Calculation
Based on the 16 CPE products savings are: One Day= $46,630

5 Days= $233,703

Note: There is potential of 10 Extra Days of Savings if we negotiate a win win strategy with our supplier. Potential Savings off an additional $468,994

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Annex 1
ABC Classification
$4,000,000 120

$3,500,000 100

$3,000,000

80 $2,500,000

2007/2008 Unit Cost

$2,000,000

60

Items Accumulative %

$1,500,000 40

$1,000,000

20 $500,000

$0 2431-16 2431-8 2432-24 2431-T1E1 VWIC-1MFT-T1 VWIC-2MFT-T1 Products 2821 PVDM2-64 3845

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Summary
Enhance PO approval process
Immediate one-time savings of $233,703

Automate Field distribution reporting

Eliminate manual labor increasing accuracy

Automate the re-stock analysis system

Immediate one-time savings of $326,180~ Optimizes stock levels Minimizes capital commitment

Potentially decrease supplier lead time

Additional potential savings of $ 468,994

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Annex # 2

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Annex # 3 Current Inventory Levels

1200

1000

800

MinInv based on lead time/product Current Inventory

600

400

200

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