How To Solve CKD Scheme Inventory Control Problems

Some companies adopt CKD (Completely Knock Down) scheme as their importation strategy.

A scheme that look simple since all parts are imported as a set, thus, it is easier to be supplied to next process, i.e. production. 

But, I have an experience about this CKD scheme. A scheme with 12 units of part set for each lot at that time. 

It looked simple at the beginning. Very simple. The parts came as a set, multiply of 12 units, then it was stored in the warehouse, for it will be supplied to production line lot by lot. 

It is simple, isn’t it? 

When problems started to come 

The problems started to come when following conditions occurred: 

1. Reject parts were found when the CKD set was unpacked. 

2. Reject parts occurred during assembly process. 

3. You found delivery quantity shortages from suppliers, so your CKD stock is no longer a complete set. 

Why is that become problems? 

There will be two reasons. 

Production part completeness problem 

First, how to complete the lot for production. Because, it is impossible to produce anything without complete components, isn’t it? 

Many people usually will overcome that problem by taking the same parts from the next lot number. 

As the consequences, your next lot will become incomplete, and you must complete it by taking the same parts from again the next lot. 

It will continue that way until the replacement parts arrive for, maybe, a couple of weeks later. 

This activity can really screw your inventory control up if you don’t record it well. 

You will no longer know which lot is still complete and which one is not. 

You will no longer know what parts have been taken from which lot number. 

You will only know if there are shortage parts only when you are preparing for production. 

And that situation will be very chaotic since you need to supply the parts to the production line on time. 

It’s even worse if your team doesn’t do it right when taking the parts from the next lot. 

If they don’t repack it properly, it will even make your inventory management worse and might affect the parts quality as well. 

Inventory recording problem 

The second problem is related with your stock accuracy in your inventory control system. 

Usually, for ease, the company will record the stock as a complete set also. The lot number is what is recorded in the system. 

On the other side, because of the first case I have mentioned above, your actual inventory management is no longer in lot set basis, but already as part by part basis instead. 

You need to know exactly what parts are missing for production. 

Since your inventory is recorded as complete lot basis, then what you will see on your screen is just the lot number that has not been supplied yet to the production line. 

But, you’ll never know whether that lot consist of complete parts or not. 

Another problem occurs during your stock counting. 

You just count which lot has not been supplied yet and your accounting team will note it as complete assets. 

In fact, it is not. It’s no longer complete sets. 

It means, there will be a big gap between your system and actual assets you have. 

What you can do to solve the problems 

As much as you can, reduce the activity to take the parts from the next lot. There are three things you can do. 

1. Make a good quality and quantity assurance system. 

If you really need to adopt CKD scheme, the first thing you need to prepare is having a good quality and quantity assurance system. 

You need to make sure that every part delivered are assured in terms of its quality and quantity. 

Do a regular audit for your suppliers. Continuously improve their performance time to time. 

2. Anticipate reject parts by providing safety stock 

Prepare safety stock. 

Take a record for how many your suppliers rejection ratio are. You need to take a record also for how many parts are damage during the assembly process. Use that data to calculate how many quantity of safety stock you need to provide for each part. 

Don't forget to consider how often your supplier delivers parts in shortage also. 

Keep improving you supplier delivery as well as your assembly process performance in order to reduce the safety stock time to time. 

3. Break your system stock down to part by part. 

You can break your inventory record down into part by part instead of lot by lot. But one thing you need to know, it means you also need to change your part storing method from lot basis to part basis that also means you will lose your CKD scheme storing simplicity. 

I don’t recommend this solution. I think, if you do that way, it’s better for you to change your ordering scheme into parts by parts once and for all. 

Conclusion 

Before you decide whether you will adopt CKD or part by part ordering scheme as your importation strategy, you need to consider each positive and negative points for each scheme. 

After that, make a strategy to minimize and anticipate possible risks might occur. 

Make continuous improvement to improve your supply chain performance time by time. 

CKD scheme will be suitable for production that have not so many variants and with small sales volume. But still, there are risks you need to mitigate from the beginning as I have explained earlier. 

If you have many production variants with high sales volume, it’s better for you to adopt part by part scheme. 

I hope it’s useful for you and see you in the next articles. 

-You can find this article in my blog also, scmcorner.com-