The Conflict:

To successfully grow the business, with minimum working capital and consistently high service level requires a significant discipline.

As interest rates and debtors increase Inventory will be a costly liability (not an asset), particularly through the potential write off of lost items, obsolete items and deterioration, but mostly due to its absolute value. Most stock is properly controlled but not so often effectively managed.

Inventory Control and Inventory Management or two entirely different operations.

The realisation that the "Conflict" can be managed, measured, improved is a revelation or discovery for some while for others it is a better way of using the ERP tools readily available. The "how to reduce inventory and increase service level" is predicated on the understanding of Inventory behaviour within your business. All investments will be analysed for risk, reward, attributes and opportunities.

Inventory Management:

The inventory manager’s role is to establish the attributes impacting the inventory behaviour and to review the complete range two to three times a year. The results establish the re-ordering profiles available within the MRP environment. The options are often numerous but most importantly the Minimum / Maximum system is often the most inefficient & ineffective.

The combination of Attributes:

The attributes reviewed as single indicator is misleading. The various attributes must be combined to determine the re-ordering and stock holding management process.

The KPI’s:

• Service level (DIFOT)

• Stock Turns by family (not all items at that is a poor average)

• Lead-time violation

• In-bound DIFOT

• Forecast Accuracy (by family)

• ABC - XYZ profile (see below)

Use the tools:

Understand the ERP tools available and turn them on.

Many ERP implementations ran out of funds and the Supply Functions have had to catch up.

What does it Involve?

Inventory should be managed within Segments or classes as each will have differencing characteristics.

5 basic attributes are :-

"A" "B" "C" Items

The Pareto (80/20 rule) identifies The Significant Few in $ Sales or $ Issues as "A" and the trivial many items are "C". The "B" group is the rest or mid range.

"X" "Y" "Z" Items

The Pareto (80/20 rule) identifies The Significant Few in Inventory $ Value on hand as "X" and the trivial many are the "Z" items. The "Y" is the rest or mid range.

Demand

Internal demand or sales will have three behaviour attributes Routine, Slow and Volatile.

Forecasting

Demand will be dependant (via a Plan (maintenance or production) or independent "as it comes" and often items are a mixture of both.

Lead time

Lead-time will be either less than Recognition-time (the forecast horizon) or greater than recognition-time.

If you have many thousands of items (SKU’s) the task of reviewing each one (even using an ERP system) is too large and does not get done. By segmenting inventory into family groups 60,000 SKU’s can be managed in say 12 family groups

2011 is a great time to manage Inventory not just control it.

Michael Tucker