Inventory Management

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INVENTORY MANAGEMENT
Hidden Inventory

Daniel Schranze
d.schranze@thegrid.net

Today’s business environment is very challenging for all companies. Doing more with less while increasing quality are the goals. There are numerous ways to accomplish this, but the key and usually “HIDDEN” methods is to reduce COMPANY INVENTORY.

There are numerous opportunities to reduce the company’s inventory costs while improving inventory customer service. This will result in an enhanced and more efficient/effective (cost) manufacturing/merchandising/maintenance operation. Estimated inventory cost savings have the potential of being reduced by 25+% over from current expenditures. A coordinated inventory reduction program must be implemented in order for the company to realize these cost savings.

Numerous companies have adapted and embraced these inventory cost savings initiatives and have realized major inventory cost savings.

The company inventory process is for both manufacturing material and MRO material. The entire manufacturing material life cycle flow from design to delivery and MRO material life cycle flow will be reviewed and analyzed. All components and operations of the procurement process are also included.

The following are tools, methods and techniques (not limited too) that if fully employed, implemented and exploited to their maximum potential with maximum coordination, can yield major (25%+) material cost savings. They are listed in a non-priority order and might not be applicable for all business activities.

	LEAN Enterprise Philosophy
	Toyota Production System
	APICS Body of Knowledge
	GAAP—(Generally Accepted Accounting Practices)
	Activity Based Costing
	Bill of Material (BOM) Development
	KANBAN System
	Point-of-Use Delivery
	Supplier Partnerships----(Multi-Year Contracts)
	Cycle Counting
	Bar Code System
	Reusable Containers----Reduce/Eliminate Corrugated Containers
	Vendor Managed Inventory (VMI)
	Common Parts Usage
	Mission and Vision Statements
	Visual Controls----(Shadow Boards)
	Use Pareto’s Law----A, B and C Inventory Categories
	Smaller and More Frequent Material Deliveries
	Inventory Customer Service Levels
	Metrics and Measurements
	Valid Master Production Schedules----(MPS)
	Material Payment schedule
	Eliminate Obsolete Material
	Coordinate Manufacturing/Material Control Systems
	Shorten/Eliminate Inspections

Use Period Order Quantity (POQ) not Economic Order Quantity (EOQ)

	Hedge Material Acquisitions
	Valid Manufacturing Plans and Schedules
	Develop Material Aging Limit(s)
	Single Minute Exchange of Dies (SMED)
	Work Cells
	Total Productive Maintenance (TPM)
	(Multiple) Bin Systems
	Reduce/Eliminate Time Traps
	Make/Buy Material Acquisitions
	Standard Work/Work Sequencing
	Modular/Flexible Tooling
	Moving Assembly Line
	Continuous Flow
	Kitting Reductions
	Supplier Kitting
	Stockroom Rearrangements
	Valid Capacity Plans
	Valid Production Planning----(Shop Level)

KEY PHILOSOPHIES----(Key LEAN Components)

	If the part is not moving, it is costing.
	Increase inventory turn over rate.
	Reduce/eliminate material handling costs

If these tool, methods and techniques are fully implemented, major material cost savings can be realized with a potential of reducing material costs by 25+% over current expenditures. This can lead to increased market competitiveness, increased sales and increased company profits which can enhance the company stake holder’s value.

These methods, tool and techniques can be applied to other organizations of the company and if applied and exploited to their maximum, can yield the same major cost savings results.

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