Mail Boxes Etc. is an independently owned business with about 3000 outlets nationwide that offer a variety of packaging and shipping choices. Each store has the resources to ship most any type of product to any where in the world through nearly any channel that the customer chooses. Through personalized attention from trained employees they will handle your package with care to ensure that they are delivered in a timely fashion. Their mission statement reads as follows:
Making business easier worldwide through
our service and distribution network, delivering
personalized and convenient business solutions
with world-class customer service.
We began our process-improvement project with Mail Boxes Etc. by frequenting the store and by conferring with employees to determine potential problem areas. This particular store was experiencing minor customer service problems because they occasionally ran out of the correct size boxes for certain packages. Upon further investigation, we found that the employees used no structured system for keeping track of the box inventory. This negligence was evident when a customer would need a specific box, and it would not be available. This is truly a problem because the safety of the item being shipped is dependent on the way that it is packaged. Mail Boxes Etc. could usually handle the problem by using the next available box size and by charging the customer the price for the box they demanded. To clarify the problem, we developed a flowchart that showed the actual packaging process, and an Ishikawa diagram to determine the exact root causes of the inventory problem. From this diagram we determined the most prevalent root cause was the inadequate inventory tracking and forecasting procedures being used.
The next step in our investigation was to compile actual inventory data under the present system.. During this process we were encumbered by the inadequate physical organization system used in the storeroom. This problem, as you can see from the Ishikawa diagram, was another one of the root causes. We determined that the storeroom must be reorganized to recognize further operational efficiency. The biggest problem that needed to be corrected was that the stock for certain boxes could be found in many places throughout the room. This often led employees to believe that they may be out of certain boxes if the main bin was empty. We corrected this problem by consolidating the boxes of like size. We also labeled certain bins so they were more easily identifiable. Although the reorganization helped the storeroom, it is still lacking in sufficient space. This will only be corrected as excess inventory is depleted.
With a neatly organized bin system it was much easier to compile numerical inventory data. After two weeks of compilation, we were able to recognize specific problem areas, such as which box types were overstocked and which were under-stocked. It was fairly easy to see that the current "guess" system of inventory maintenance was not working, There were certain boxes that occasionally ran out, and there were others that remained in inventory for prolonged periods of time. In fact, employees stated that some of the larger boxes had been in inventory since the previous holiday season. As you can see from the data, ten of the largest box sizes, which are also the least used types, make up 55% of the inventory. This stationary inventory is tying up a large amount of working capital.
An added dimension to this problem is the off-sight storage facility that the owner maintains. The facility is used primarily during the holiday season to hold buffer stock to meet the high shipping demand. The facility is 10�x10�, costs $40 per month, and currently holds approximately $100 in box inventory. This inventory is used from time to time to meet immediate box needs. To put this in perspective, $100 worth of inventory takes up about one quarter of the storage facility.
To help to correct these problems we determined that a structured inventory tracking process should be implemented. This will allow store employees to closely follow box usage and correctly forecast future box needs. Unneeded inventory will be reduced, and the store will be able to maintain sufficient levels of frequently used boxes. Ideally, this will allow for the eventual elimination of the off-sight storage facility in the ten months of the year that it remains relatively empty. This alone will be a cost savings of $400 a year.
The actual implementation policy consisted of daily inventory checks at close. There are 32 box types which can be divided among the three employees that are normally on duty at close. By using a team approach to checking inventory, the store closing procedure was only extended by five minutes. The inventory check sheet that the employees used can be seen in the attached data.
The forecasting method that we chose to implement was a rolling weekly average. This method was selected because of its relative ease of use by the employees. The demand for each day during the pre-implementation period was added up to find the weekly totals and then averaged with the previous week. The results were used as the reorder point for the next week. If inventory dropped below the forecasted weekly, usage the employees would reorder. This pulled actual demand into the calculations and allowed the store to have a week�s worth of inventory on hand. This is a big improvement over the previous system that kept, in some cases, a month�s worth of inventory.
After two weeks of daily observation, the new tracking system proved to be effective. The daily inventory dollar totals consistently dropped as is displayed in the following graph.
This was accomplished while still maintaining adequate levels of inventory to meet daily demand. Over the course of the project, the tracking system freed up about $300 in working capital. A further suggestion that we made to the storeowner was to donate some of the excess inventory, particularly the large boxes, to an organization, such as the Salvation Army or the Red Cross. He would get a tax credit for the donation, free up physical space in the storeroom, and free up additional working capital. This extra money could be used to pay an additional part time employee that is, at times, clearly needed. The owner did not commit to this suggestion, but allowed that it was a viable one.