High-Speed Testers (HST) is a company that specializes in manufacturing semiconductor test machines. The company’s inventory is characterized as being a high mix, low volume environment. That means, it keeps many different parts but all in small quantities. Fewer than 15% of the parts between the two variants can be combined and ordered from the same suppliers.

HST currently produces two basic variants of testers out of two production sites. One variant, the 9 Series is created in the US, and the 6 Series in Europe. It stores its raw materials, work-in-progress, and finished goods inventory alongside these two production facilities.

Since 2015, HST has faced various inventory management issues that affected the company’s financial performance.

HST has been using the traditional approach of managing inventory, where they periodically order a fixed quantity of stock from their suppliers. However, this approach has led to many instances of shortages or excesses due to the highly fluctuating demand for their two main products. Of course, the other approach is the Fixed Order Quantity Approach. But that has its own set of constraints that the company is currently unwilling to undertake.

HST has an ERP system with a built-in MRP module. But the MRP module has not been turned on since Day One. Demand forecasting has also been largely performed via spreadsheets and Waterfall Charts. The company uses historical sales data and customer demand forecasts to build raw materials and predict expected finished goods numbers.

Consultants have advised HST to reduce their inventory carrying costs and stockouts to improve overall financial performance. However, this has yet to take place since no one has yet been able to quantify the impact caused by all these supply chain inefficiencies. On top of all this work that needs to be done, the Group CFO instructed the Order Fulfilment team to bring inventory levels to zero by the end of the year.

Learning Outcomes

1. Explain the fundamental differences in the approach to managing the order fulfillment process.
2. Apply appropriate inventory management approaches to improve business efficiencies.
3. Quantify the financial impact of different cost management methods on the profitability of different business units within a company.