Inventory management, enhanced by AI

Pacific Coast Manufacturing (PCM) is no stranger to automation. The stainless steel fabricator in Chino, Calif., has AMADA blanking automation feeding two bending robots, one for large-format work and the other for small workpieces, alongside a press brake with automatic tool change for those quick-response, low-quantity orders.

Until recently the organization operated as a contract fabricator specializing in high-end outdoor kitchens—cutting, bending, and welding drawers, ice bins, trash receptacles, and anything else that can be installed below and around the actual grill. In 2021, PCM was acquired by Louisiana-based BBQGUYS, which owns Blaze Grills, a premium grill brand; as well as BBQGUYS.com, an online retailer that sells a variety of grills and accessories. PCM effectively gave BBQGUYS the quick-response, domestic manufacturing capability that today is a central part of its long-term competitive strategy.

PCM remains a supplier of high-end kitchen products, most of which are cut, formed, and welded out of 22- to 14-ga. 304 stainless steel. Under BBQGUYS’ ownership, of course, all of the products it fabricates are for Blaze and other products under the BBQGUYS brand.

The work PCM sends to the rest of the organization complements components sourced from overseas, an arrangement that illustrates how reshoring is not an all-or-nothing idea. With the right information, BBQGUYS can make strategic use of its domestic stainless steel fabrication capability while remaining globally competitive.

Some products make sense to source from overseas, others might be sourced both globally and domestically, while still other work is performed entirely stateside. Innovative use of purchasing and sales data is helping drive down real costs, making best use of its domestic metal fabrication capability, and setting the stage for BBQGUYS’ future growth.

Minimizing Distressed Inventory

Dan Hauser, senior director of operations at BBQGUYS, highlighted one metric that illustrates how streamlined the organization’s inventory management has become. “Only 0.6% of our purchases has gone into a distressed state. That’s incredibly low.”

The company defines “distressed inventory” as items that sit for more than six months and don’t sell—something that, for a seasonal business like BBQGUYS, used to be far too common, even just two years ago.

BBQGUYS’ engineering team takes full advantage of modular design. That is, many products use identical or similar components, just assembled differently. This helps streamline manufacturing at PCM and at external suppliers.

That said, the company still offers several thousand different products, and creating a detailed forecast for all of them is a challenge—a conundrum many small and medium-sized businesses face. Sure, having a broad product portfolio helps diversify revenue, which is especially beneficial in highly cyclical or seasonal businesses. And “seasonal” certainly applies to BBQGUYS; most products are sold between March and August.

But coming up with a reliable forecast for every SKU is easier said than done, at least without an expansive staff of purchasers and data analysts—a luxury few small and mid-sized companies have. To that end, BBQGUYS contracts with Hydrian, a supply chain consultancy that uses artificial intelligence (AI), including some advanced forms of machine learning (ML), to create what’s known as a probabilistic forecast, which can work with a company’s enterprise resource planning (ERP) platform.

“Our highest-paid employee is AWS.”

That was Josh Bartel, CEO and co-founder of Hydrian, quipping about the company’s investment in Amazon Web Services and cloud computing overall. The ML models are trained on publicly available data sets, like consumer purchasing data and even weather history for every zip code across the continent, as well as data specific to BBQGUYS. This includes customer demand trends as well as the company’s internal demand for purchased components and raw materials.

“This helps us create a good lead time forecast,” Bartel said. “Lead time forecasting is every bit as important as demand forecasting, and it can be just as difficult.”

Hydrian takes a regular snapshot of BBQGUYS’ inventory, including where it’s sourced from, the current levels, and its cost and size. Hydrian also integrates what Bartel called “qualitative” information. This includes minimum order quantities (MOQs), specific freight agreements, and other elements that might not be self-evident in the purchasing and sales data. Complementing this are regular meetings to discuss tactical items (trends in inventory turns, for instance) and strategic elements, like how the company’s current inventory situation can complement broader growth plans.

As Hauser explained, “We now have a specific seasonal demand curve for each product grouping. And we have good forecasting that incorporates promotional planning data.”

Product promotions (offering a price discount) often create short-term bursts in demand. Of course, a sale isn’t “real” until the product ships to the customer, and that can’t happen if the supply chain simply doesn’t have immediate capacity to deliver.

As Hauser explained, “Using a combination of Hydrian forecast data and better purchasing processes, we now adhere to specific days-on-hand goals.”

Strategic Reshoring

For many products, BBQGUYS targets a three months’ supply, but again, those days on hand depend on the product, demand trends, replenishment lead times, and—not least—the time of year. For instance, moving into the busy selling season in the spring, BBQGUYS will have slightly more inventory on hand, just to account for unexpected demand spikes beyond the normal seasonal variation. As the season progresses, inventories are drawn down to normal levels, to minimize the risk of having too much inventory at the end of the selling season.

MOQs also factor into the equation. If BBQGUYS’ demand surpasses the MOQ for an overseas supplier, the per-unit cost will almost always be lower. But the analysis doesn’t just stop at per-unit cost. The organization also considers the cost of inventory. This includes not just the production lead time, which can be three months, but also two months of transit times, administrative costs, compliance costs (like importing paperwork and invoicing), additional time to clear customs—the list goes on. Some factors vary depending on cash flow and payment terms for certain vendors. In some scenarios, deposits are needed to purchase raw materials or specific items, depending on the payment terms from a particular supplier.

“We can have a lot less cash tied up in inventory by making something at PCM,” Hauser said. “For certain items, we’ve been able to reshore certain products from overseas, including certain cabinetry items.”

This doesn’t mean BBQGUYS plans to reshore all its manufacturing capacity. The numbers often simply work better when sourcing with certain overseas suppliers. Even so, smart use of data allows the organization to make strategic use of its flexible metal fabrication capability in California and ensure it complements other sourcing channels in the best possible way.

For certain products, BBQGUYS is now dual sourcing, both domestically from PCM and from overseas. The overseas sources handle what the company deems to be “predictable” demand, while PCM handles those less predictable demand spikes.

“This really helps us with our promotions,” Hauser said, adding that when the sales team puts a sale on certain products, PCM can deliver quickly. The strategy helps the organization free significant cash, since it no longer has that “just-in-case” inventory, which of course isn’t free to warehouse and maintain.

Fully automated, PCM can ramp up production quickly, too, particularly with its bending automation for large and small parts. Eugene Olvera, director of manufacturing, described one shelf unit that incorporates 10 bends and a tapered edge. It’s a piece that would take an experienced press brake operator significant time to process, yet the robot in the large-format AMADA bending cell bends and stacks those components quickly.

PCM’s ability to respond quickly has been key to BBQGUYS’ overall inventory strategy. “PCM used to be a job shop that took on any job of any size,” Hauser said, “and that job shop mentality drove a culture of innovation, striving to build the best cabinetry as a domestic supplier. Since PCM was purchased, a big focus has been growing its capacity to ensure its potential output is two to three times what it used to be. Now, we’re focusing on efficient production cycles that are 100 units or greater. That stabilizes our margin, which allows us to price effectively.”

“There’s a big advantage of having a manufacturing arm under the BBQGUYS umbrella. We’re extremely flexible. We can pivot quickly, run a small run if necessary. We’re nimble, and that really makes a difference.”

That was Craig Gilmour, director at PCM, describing the shop’s quick-response strategy, adding that the quick-turn demand arises both with certain product lines as well as with prototyping. “Someone calls us and has a drawing for a particular product, and they just need 100 units. Our team programs it and runs with it.”

“Within a day or 48 hours, we have the first sample,” Olvera added. “We send it for approval, and then have 100 units finished by the end of the week.”

That’s a response no overseas supplier can match.

The Cost and Value of Inventory

Hydrian’s Bartel described a typical error that can lead to numerous supply chain headaches: forecasting strategies for products with highly variable demand that use simple averages instead of analyzing true customer behavior. Consider a product that customers order sporadically. Some months the product doesn’t move, while other months customers order as many as 10. The “average” is four, so the company keeps four in stock.

“In this case, the four units just sit there and do nothing until the PO comes in for 10, which the company now can’t fulfill,” Bartel said. “In this case, the company should either stock 10 or not stock any at all. Stocking just four doesn’t add any value, especially if the customer won’t accept partial shipments.”

When determining the safety stock level for certain items, various factors come into play. There’s the holding cost, or the space and capital required to hold inventory. “But there’s also the ordering costs, or the costs needed to receive and manage the inventory,” Bartel said. “And there’s the stock-out cost. If you don’t have something, what does it cost you every day?” The idea is to weigh the probability of a stock-out with the cost of lost sales for those out-of-stock items.

The considerations might differ significantly depending on the nature of the demand. “You have two categories of demand,” Bartel explained. “One is your known demand, and the other is your unknown demand, or just-in-time demand. For known demand, you communicate up and down the supply chain to ensure a project is on track and the timelines are still good. You segregate that stock from your JIT, day-to-day demand.”

Regarding JIT demand, a company keeps a safety stock that weighs myriad factors: the cost of holding it, demand variability, the probability and cost of stock-outs, and more. Bartel added that all these supply chain considerations aren’t novel. What is new is the machine learning, cloud computing, and the advanced mathematics that make these sales and lead time forecasts more robust than ever before.

Inventory on the Move

Back at BBQGUYS, Hauser referred again to that metric showing distressed inventory being just 0.6% of all company purchases. “That’s just really incredible.”

Such a low percentage means that the vast majority of inventory is on the move, or at least about to move soon. It’s not sitting indefinitely, gathering dust. Work could be in transit, staged ahead of an AMADA robotic press brake at PCM, or on hand at a BBQGUYS distribution center. Wherever it is, inventory spends less time sitting and more time moving toward its destination—to someone’s backyard or deck, just in time for grilling season.