Customers ordered over 71 billion commodities from Rutronik in 2020. For the majority of these components, it is important to view the huge volumes in the context of their prices, which are often just a few cents or even fractions of a cent—these are referred to as C-parts. To generate savings potential here, it is therefore more beneficial to examine the order processes than the price of the goods themselves.
Let’s say a business needs 40,000 chip resistors each month. To keep store inventory low, an order of 10,000 resistors is sent each week. This means that four times a month a worker has to unpack the goods, check the delivery note, enter the delivery note into the inventory control system, and then shelve the goods. So as we see, components that are themselves worth just a few euros cause process costs that are at least equally as high—if not higher—than the product’s actual worth. The potential to cut costs is therefore much higher in this area than with price adjustments through annual price negotiations.
Potential for Optimization
To reduce process costs, delivery volumes and packaging units are effective tools for optimization. Many commodities are available in packages of 5,000 to 50,000 units, usually on a reel. The rule to consider is this: the bigger the selected unit, the lower the process costs. If the company in the above example were to order 40,000 chip resistors once a month instead of 10,000 units four times a month, the required expense and effort would be reduced to just a quarter. While this increases store inventory, the low value of the C-parts means that this is not usually a relevant factor.
With optimizations such as these, Rutronik has been able to drastically reduce the number of delivery note items for numerous customers whose annual order volumes number in the billions of units (see image), or has managed to keep these items consistent while volumes rise. And each item removed from the delivery note represents process costs saved.
Security of Supply with Low Storage Costs
If the main concern is a low stock value, a consignment store is a good way to keep this value low. The goods are stored near to the company’s production facilities, ready to be collected as needed. They are only billed when collected. This is how a consignment store offers not only low storage costs but also optimized management of goods flows, as well as security of supply.
Increased Efficiency Thanks to Digitalization
To make procurement processes generally as efficient as possible, Rutronik had taken steps years ago to digitalize the entire process, from order to forecast to shipping notification to invoicing. In addition to standardized file formats such as EDIFACT, VDA, or SAP IDOC, Rutronik can also handle other formats, such as Excel or text files, enabling as many customers as possible to benefit from electronic data interchange and, with it, the ability to automate procurement processes. This results in an improvement in data quality, as a by-product.
This is true both of conventional procurement processes with order submissions and order confirmations as it is of dynamic delivery systems involving rolling, long-term forecasts. The latter in particular also contributes significantly to security of supply, because the more familiar the distributor is with the long-term needs of its customers, the better they can take account of these needs in the event of sudden market changes in the manufacturer backlog. A situation, that is extremely common, whether due to adverse weather conditions in regions with large numbers of production sites, the impact of the COVID-19 pandemic, or demand surges resulting in allocation, as was the case in 2018.
Conclusion
Logistics is much more than just ordering the right goods at the right time to be delivered to the right place. It is also an essential element of optimizing cost structure and of the performance of the company. For C-parts, efficient delivery processes play an especially important role in keeping logistics and processing costs as low as possible, even as volumes rise. This is why a customized, smart delivery strategy makes more sense here than a just-in-time delivery system.
Optimized procurement allows for drastic cuts in the number of delivery note items—and with these, a reduction in the effort and expense required for the receipt of incoming goods.
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