What is direct line feed (DLF)
DLF does not have a precise definition in the academic world. However, it is often mixed with vendor-managed inventory (VMI). However, the perspective can be much broader. Usually, DLF is provided by a vendor to customers under so-called "All-inclusive" contracts, in which the vendor handles replenishments directly at the point of consumption. Availability and transaction costs significantly affect item costs. This business model is typical, for example, for fasteners and other indirect categories such as health and safety items.
Many LEAN tools support DLF. Kanban cards can guide components and flow, or the pull flow principle can control the process. The Toyota Production System has been used for decades as a master source for the LEAN strategy. It has been the original model for building an effective and high-quality production process. Material flow is designed to feed the correct consumption at the right time. To achieve the highest possible accuracy in resource utilisation, material flow levelling is required. From a material management perspective, DLF is considered one of the processes that create material availability for production.
DLF and procurement process
In procurement, production materials can be divided into three categories based on the differences in required engineering work, consumption fluctuation, and material costs.
Items with a high level of engineering require procurement to take an active role. The share of customized engineering work must be considered alongside item costs. This category requires frequent bidding activity. Due to their non-standardized product features, these items might not be suitable for DLF.
The second group includes standard items with fluctuating consumption levels. Raw material costs have a significant impact on the item price. Typically, these items are stainless steel components or castings, where alloy surcharges affect the total price. Procurement usually involves bidding rounds among several accepted suppliers.
The third group consists of items with low value and high availability requirements. Usually, these are fasteners and other items that keep the production process rolling. Without these so-called MRO items, the process delay might have costly consequences. Vendor transaction costs significantly affect item pricing to achieve the required availability level. Thus, significant value is placed on this replenishment process and product features. Typically, vendors offer several options to build a direct replenishment process for customers. Usually, pricing is an "all-in" type with a delivery term of DLF.
What if the buyer owns DLF?
LEAN is teaching us to collaborate closely with the vendors. The goal is to develop the process by avoiding waste. And so build process competitiveness against competitors' processes. Often, DLF is applied when the service component creates value for low-value items. Sometimes, even 70-80% of the total item costs. Vendors also try to lock the customer relationship with their own vertical delivery method, for example, by introducing technical solutions for DLF that are closed to other vendors. Thus making it hard to break down the pricing structure and organise a proper tender process.
Could the buyer direct its own line feed, and how would managing these items make a difference? The costs of DLF, the replenishment process, and material management are the buyer's responsibility. The business case depends on the category's spending and negotiation position at the supplier market to really understand pricing for the delivery term "DLF."
When ownership of the DLF process lies with the buyer, the buyer must provide the relevant resources for procurement activities. To achieve better cost control and process efficiency, active development is needed. This approach is often in conflict with MRO vendor interests. However, the gains might be substantial. Then, RFQ rounds can be organized at relatively low procurement costs. Changes to the supplier base are more manageable as the differentiating replenishment processes are excluded in bidding, which might not be in the interest of MRO vendors. This sets specific requirements for the buyer. One must know the items, their features, and material differences. Also, there must be a willingness to change the process and take the related risks. Naturally, item pricing must reflect the new delivery term.
DLF in the future
Delivery times get faster; batch sizes get smaller, which requires regional fulfilment centres with efficient delivery processes.
Evolving material management tools and automation can challenge DLF ownership and the business case of the MRO vendors. Rising volumes in global e-commerce are pushing parcel logistics service providers to develop their services in consumer markets. Delivery times are getting faster, and batch sizes are getting smaller, which requires regional fulfilment centres with efficient delivery processes. This also creates pressure on the industrial side. One way to implement DLF more efficiently is to establish more prominent hubs that provide replenishment services to a single factory, with good response times and reasonable costs. The future will show how buyers' increasing control over the process challenges the local MRO vendors' branches.
When looking for alternatives for DLF technology, challenge your current knowledge. Make sure to check the latest in the market: Agilon® automated warehouse - manage and handle thousands of packages efficiently | Konecranes
Vesa Hämetvaara, Director, Agilon Business
Konecranes Agilon
vesa.hametvaara@konecranes.com
Veli-Pekka Vuoti
Director, Operations, Konecranes Agilon
veli-pekka.vuoti@konecranes.com
