“Best Practices” Inventory Management

2006 Grant W. Howard Company Infor, Inc (Sx screens only)

1

“Best Practices” Inventory Management

Grant W. Howard

(734) 428-0529

[email protected]

www.gwhco.org

ICSR

ICSPICSD

ICSL

ICAMM

ICAR

ICAI

ICSW

WTERR

POERA

POERR

ICAMUWTERAICRIS

ICRIG

Sx EnterpriseSetting it Up, Getting Good Data , How to Use it, and How to Get Results

ICRIR

ICRIF

ICRIT


2

Sx.e - Getting Results Overview of the Replenishment Process How to Set it up, How to Use it, How to Get Results - 10 Steps:

– The Numbers:» Step 1: Parameters/Set up 9» Step 2: Data Accuracy 33» Step 3: Forecasting - OP, LP and EOQ 38» Step 4 : Stock Level Accuracy 42

– The Tools:» Step 5: Replenishment 47» Step 6: Timeline (Too Late and Too Early) 59» Step 7: Excess/Surplus Inventory 63

– Getting Better Results:» Step 8: Proactive Maintenance 71» Step 9: Monitoring and Measuring Results 91» Step 10: Controlled Replenishment 97

Final Thoughts

Through Step 8 Today. Steps 9 & 10 and Final Thoughts are Self Explanatory.

3

Order Point:•Usage Buckets•Usage Method•Trending•Path/Roll up•LT Buckets•LT Method•Safety Method•OP AdjustersLine Point:•Target & Type•RC/OC/XF•Calc. or ManualEOQ:•“K” and “R” Cost•Min and MaxSurplus Points:•Internal (LP+EOQ)•External (X months)Misc:•Status•Freeze•Usage Method, Path•Replenishment MethodLevel:•On-hand•Committed•Incoming

Parameter Set-Up

Data Collection, Accuracy and Proper Use of Data

Forecasting

Stock Level Accuracy

Replenishment: When, What and How Much

Time Line: Too Late and Too Early

External Surplus

Maintenance

Measurement

Controlled Replenishment

To Be a Profitable Company Forever

Availability, BO Handling, Accuracy, OTD

Sales, Cogs, Freight, C to C, C to P

When to Replenish?


4

Inventory Manager/Buyer’s Day “Smart” Continuos Parameter Set Up -

Daily Data Collection, Accuracy and Proper

Use of Data - Daily Forecasting: Safety, Order Point, Line

Point, EOQ - Daily/Monthly Stock Level/PNA Accuracy - Daily

Replenishment: Worthy Items Below Order Point - Daily

Timeline Analysis:– “Too Late” Report - 2X/Week– “Too Early” Report - 2X/Week

Surplus Inventory - 1X/Week Proactive Maintenance - Daily

– Good Proof Reports for Start Up– While doing Replenishment– Good Exception Control Center– Information from Other Sources (Internal,

Customers and Vendors)

Monitoring and Measurement - Continuos Improvement

Controlled Replenishment - Critical


5

Inventory Management10 Step Process

The Numbers:1. Parameters/Setup:

– “Smart” - ICSR

– Company/Warehouse - ICSD

– Product Line - ICSL

– Product Master - ICSP

– Product Warehouse - ICSW

2. Data Collection:– Usage - OE/WT

– Lead Time - WT/PO

– Level: On-hand and Paperfloat - BIIS

– Purchasing History

3. Forecasting:– Rank - ICAI

– Replenishment Cycle - ICAR

– Usage, LT, Safety, Order Point, Line Point, Surplus Point, Order Quantity - ICAMM

4. Stock Level Accuracy:– On-hand - CC’s

– Paperfloat - BIIS

The Tools - Inventory Management:5. Replenishment:

– Use Priority Reporting - POERA– Purchases - POERR, POEAR– Transfers - WTERR, WTERA

6. Timeline Analysis:– “Too Late” - ICRIG– “Too Early” - ICRIG

7. Excess/Surplus:– Prevention– Disposition - ICRIS

The Tools - Getting Results:8. Proactive Maintenance:

– Proofs– While Replenishing - POERA– Exceptions and Mass Updates - ICAMU

9. Measurement and Improvement:– Fill Rates, BO, OTD, Accuracy - ICRIF– Inventory Mix (Safety, Excess, Defective)– Turns and ROI (GMROI and/or T&E) - ICRIT/R

10. CONTROLLED REPLENISHMENT


6

Inventory Management is at the Time of Replenishment - the

“When, What, and How Much”, Everything Else is Inventory

Correction.


7

Data, Set up, and Generating the

Numbers

It All Starts Here

Better Numbers


8



– “Smart”

– Company/Warehouse

– Product Line

– Product Master

– Product Warehouse

2. Data Collection:– Usage

– Lead Time

– Level: On-hand and Paperfloat


3. Forecasting:– Rank

– Replenishment Cycle

– Usage, LT, Safety, Order Point, Line Point, Surplus Point, Order Quantity

4. Stock Level Accuracy:– On-hand

– Paperfloat


– Use Priority Reporting– Purchases– Transfers

6. Timeline Analysis:– “Too Late”– “Too Early”

7. Excess/Surplus:– Prevention– Disposition


– Proofs– While Replenishing– Exceptions and Mass Updates

9. Measurement and Improvement:– Fill Rates, BO, OTD, Accuracy– Inventory Mix (Safety, Excess, Defective)– Turns and ROI (GMROI and/or T&E)



9

Step 1: The Set Up - Parameters “Smart” Parameters MaintenanceICSR Warehouse Maintenance ICSD Product Line Maintenance ICSL Product Maintenance ICSP/ICSW

At start up and as needed


10

ICSR - IC Setup Replenishment


11

ICSR - Ranking


12

ICSR - Ranking


13

ICSR - Usage Months


14

ICSR - Usage Monitoring and Adjusting


15

ICSR - Lead Time


16

ICSR - Safety Stock and Analysis


17

ICSR - Order Point Adjusters


18

ICSR - Exceptions


19

ICSR - BCC Priority


20

ICSR - Transfer “Smart” Rounding


21

ICSD - IC Setup Warehouse


22

ICSL - Prod. Line Maint. (Order)


23

ICSL - Prod. Line Maint. (Required)


24

ICSP - Prod. Maint. Master (Req’d)

6” Disney Princess

Doll - Belle

Belle 6” Doll

A1 Toys


25

ICSW - Required


26

ICSW - Ordering


27

ICSW (Ordering) - Usage and Hits


28

ICSW (Ordering) - Trending


29

ICSW (Ordering) - LT Maint


30

ICSW (Ordering) - ASQ


31

ICSW - Frozen

12” Aluminum Shovel


32

ICSW - Seasonality (Trending)

12” Aluminum Coated


33

Step 2: Data Collection Usage Buckets: Sales, Transfers, Lost Sales,

Exceptional Sales, and Manual/Automated Overrides

Lead Time Buckets: P/Os, Transfers, and Manual Overrides

Stock Level Accuracy: Onhands and Paperfloat - Will discuss in Step 4

Where Does Most of this Data Come From?


34

Usage LT Saf RCCtoP

EOQCtoP

EOQCtoC

On-hand

Paper-float

SurpPrev/Disp

BOHand-ling

OTD Acc-uracy

IM X X X X X X X X XSales X X X X X X XBrch/Ware X X X X X X X X X X XOffice X X X XIS/IT X X X X X X X X X X X XMgt X X X X X X X X X X X X

Who’s Involved? - TEAM


35

Usage/DemandThe Cornerstone

Sales/Transfer History

Lost Sales

Exceptional Sales/Xfer

Human Input

Usage/Demand

What is Demand Planning?

Lost Sales:– Ask what they want

– Canceled B/O’s

– Directs to fill in

– Substitutes

– Ship from another whse

Three Methods to Enter LS:1. While in Sales/Order Entry

2. Lost Sales open order

3. Sheet, then to LS open order

What about the fill rate report?

What is an Exceptional Sale/Transfer?


36

OEET- Lost & Exceptional Sales


37

Lost Sales Tracking- Usage Logging


38

Step 3: Forecasting

Rank (Rank and Class) ICAI Review/Order/Xfer Cycle ICAR Usage, Safety, OP, LP, OQ ICAMM Exception Reporting* ICAMU

Monthly and as needed

* Discussed With Maintenance Section


39

ICAI - Rank (and Class)


40

ICAR - Review Cycle Min, Max, Exception RC Analysis & Basis


41

ICAMM - Review Cycle Basis


42

Step 4: Stock Level/PNAThe Other Cornerstone

On-hand Integrity WMS, CC Paperfloat Control BIIS

Daily


43

Paperfloat Control - BIIS


44

Paperfloat Control - BIIS


45

Profitability, Asset Management, and

Efficiency

“Getting Results”

Better Tools


46



– “Smart”


– Product Line

– Product Master



– Lead Time







– Paperfloat










47

Step 5: Replenishment “When” to Replenish - Order Point:

– Service: Below Order Point Trigger– Profits/Cost: Target and/or Timeframe Trigger

“What” to Replenish - Line Point:– Replenishment Options:

» Line Buy (Make Target/Review Cycle)» Fill In Transfer/Emergency Buy» Do Nothing

– Replenish all items that will go BOP before the next replenishment cycle (Balance the Line)

“How Much” to Replenish - Line Point/EOQ:– Up to Line Point/Remaining Cycle (Cycle Coverage - Freight/C

to P)– Compare to Suggested Order Quantity (EOQ/Class - CtoC and

CtoP)– Minimum Run– Vendor/Transfer Package Rounding

PNA/Level

Surplus Point

Line Point or Max/EOQ

Order Point or Min

EOQ

Order Cycle

Lead Time

Safety


48

ReplenishmentBuying and Transferring

Generate RARR’s/Report POERRMerge P/O POERMEdit P/O POET

Generate RARR’s POERR*Review/Accept/Merge P/O POERA (BCC)* Schedule to run nightly if using the POERA. Setup to run to a file.

ERR - Generate RRAR - Print (ERM)/Online(ERA)

ERA - Review/Acceptance/Merge - Online RRAR (BCC)

ERM - Merge - Printed RRAR

ET - Edit

Recommended Replenishment Action Report (RRAR)

Warehouse Transfers follow the same except “WT”


49

PO/WTERR


50

POERA- Line Summary(Buyer’s Control Center)


51

POERA - Item Summary (BLP/BOP/Suggest WT)


52

POERA - Item Detail (Drill Down/Maint)


53

Making Targets ProperlyGeneral rules of thumb: Days Dollars 1/2 way through OC/RC

Cost to Carry vs Freight, Price, and Service:

Key is Equal Days Supply Increase or Decrease Use for Meeting Targets and

Emergency Fill-ins

LinePoint

OrderPoint

Out ofStock

SafetyStock

xx

x

x

x

xx

x

x

x

x = Products in Product Line

New line pointafter adjustingreview cycle days

xx

xx


54

POERA - Making Target

Header Tab - Increase/Decrease Tab


55

$Dis

coun

t/In

crea

se$C

to C

$C to C

$Discount/Increase

Quantity

Negative

Positive

Break Even

Max. Potential

Discount/Price Increase versus C to C

Break Even (Days):(2 x Discount% / Monthly C to C) x 30

Maximum Potential Savings (Days):(Discount% / Monthly C to C) x 30


56

Discount/Increase: 5% (This could also be Freight)

Cost to Carry “K” cost: 24%

Break Even (Days): (2 x Disc% / Monthly C to C) x 30 = 150 days

Maximum Potential (Days): (Disc% / Monthly C to C) x 30 = 75 days


57

Price Increases/Discounts

Remember, this is total days supply to on the shelve, not necessarily buy. Use the “up to vendor target logic” (change order cycle days) to meet the days supply.**This method works well for periods less than 90 days supply (seasonal or large swing items - be careful).

Be aware of future freight, minimum considerations, fill ins, NS and OAN items. If targets are involved, be sure to fill in the entire line not just the fast movers or work a deal.


58

Vendor Performance and Negotiations - It’s not just Price

Lower COGS Lower Freight Minimums Multiple Drops for Freight Combined P/O’s for Minimum Freight Paid Fill-ins

Fill Rates Consistent Lead Times and OTD Accurate Shipping (Blanket

Receiving) - Product, Quantity, Price

Good Backorder Handling

EDI/VMI/2-Way Information Flow - B2B

Automated Product and Pricing Updates

RGA’s on New Items Excess Inventory Returns

Win/Win - Partnership


59

Step 6: Time Line Analysis

Identification and Prevention are the Key

Out

0-30 days

In Out

30/+ days

Too Early

Incoming and will be early or not needed

Out

Incoming and will be late

0/- days

Too Late


60

ICRIG - Time Line Analysis


61

ICRIG - “Too Late/Gap”


62

ICRIG - “Too Early”


63

Step 7: Excess/Surplus Inventory

Responsibility Coordination

Prevention

Identification

Disposition

Goals/Plan

CONTINUOUS


64

ICRIS - “Smart” Surplus

Short Term/Internal (EB, GAP):

Surplus = Available > LP + EOQ Long Term/External (Take Action, Gone):

Surplus = Available > X Months Usage*Smart Logic:

1. Frozen or LP + EOQ > X Month Usage: Surplus = Avail > LP + EOQ

2. Order as Needed, N/S, Discontinued: Surplus = Avail

3. New Items: No Surplus

Must have Visibility and Utilization Monitoring


65

ICRIS - Surplus


66

ICRIS - Long Term Surplus


67

Surplus Inventory Disposition

BOP/GAP - Put of the fire: Short or Long Term

BLP/Sugg Xfers - Use it where you can: Long TermTeach branches to use LT first. Don’t borrow stock and put branch in “need”.

1. Stock Balance: (“X” Months Supply) - With “To” branch approval/Before Buy

2. Sell Above Cost: Customer, Other Distributor

3. At Cost: Sell at cost, Return at cost with no charges (freight, restock)

4. Below Cost: Sell below cost, Return below cost and/or with charges

5. Sell Above “Write-off” Cost: Garage/Fire Sale, Flea Market, Auction House, Liquidation House

6. Dump at “Write-off” Cost: Donate, Scrap, Dump


68

PNA/Level

Surplus Point

Line Point or Max/EOQ

Order Point or Min

EOQ

Order Cycle

Lead Time

Safety

Inventory Reductions - The Proper Way to Turns

Understand the Impact Areas: Excess and Defective:

– No one wants or needs

– Control the Feelings

– Let it Roll, Let it Go

– Be Careful - C to C/Mix

– Cost of Disposition

Line Point and Order Quantity:– “What” and “How Much”

– Be Careful - C to P Departments

Order Point - Safety Stock:– “When”

– Be Careful - Customer Service

Low Risk

High Risk


69

Proactive Maintenance

Keeping it Working


70



– “Smart”


– Product Line

– Product Master



– Lead Time







– Paperfloat










71

Step 8: Proactive Maintenance Good Proofing Reports (Pline, Product) - Get a Clean Start While doing the Inventory Management Functions:

– If Change a Quantity, Remove a Line, or Add a Line - Do the Maintenance

– If Items Go BOP or Gap Before Expected and Not an Exceptional Spike, Adjustment or PNA Change - Do the Maintenance

– If Items are Not at BOP or are on “Too Early” and Not a Return, Adjustment or PNA Change - Do the Maintenance

Good Exception Center/Reports are a Must! Good Company Understanding and Eyes and Ears with Communication Use Hits and Cost logic to Review, to Prioritize, and for Action

Order Point Line Point Stock Level Four More

1. AMD/U 4. OC/RC/XC 5. On-hands 7. SOQ/EOQ

2. ALT 6. Paperfloat 8. Status

3. Safety Stock 9. Paths

10. Freeze/Tmins


72

Service and Profit - A Quick Method

Hits H H L L

Cost L H L H


73

Spend your days reacting to the fires... you may be efficient, but

will you be effective?

Fire Prevention ...


74

Product Line Proof Report


75

Product Proof Report


76

POERAWhile Replenishing - Be Proactive!


77

How to Make it Work

Items Below Order Point Sooner then Expected Items Show on the “GAP”

Spike (customer or branch) - Teach Smart Selling/Transferring, Did you Expect to Cover (Safety, ASQ, 5HI, Tmin)

Stock Adjustment and/or Changed/Deleted Incoming (P/O or Transfer) Knocking Line Out of Cycle: Topping Truck Incorrectly, Special Buys on Fast Movers Not Putting Order/Transfer on when getting the Commitment Bad OP/LP/OQ/Level: Demand, Lead Time, Safety, Order/Review Cycle, Level Wrong Not Replenishing up to OP - Playing the Game Not Replenishing up to LP - Playing the Game

CHECK THE LEDGER INQUIRY - Spike or Adjustment

CHECK OLD P/O and TRANSFER - Changed Incoming

CHECK BAD DATA/PARAMETERS - Usage, LT or Safety Low

OTHERWISE - Playing the Game


78

ICAMU


79

ICAMU - Exception Selection


80

ICAMU - OAN Products with Hits


81

ICAMU - Tmin Low Activity


82

ICAMU - Trending Exception


83

ICAMU - Lead Time Exceptions


84

ICAMU - 5HI ASQ


85

ICAMU - Tmins to Expire


86

ICAMU - Value Change Inquiry


87

ICAMU - Mass Update


88

ICAMU - Mass Update


89

Monitoring and Measuring

Getting Results!


90



– “Smart”


– Product Line

– Product Master



– Lead Time







– Paperfloat










91

Step 9: Measurement & Improvement

Customer Service: Fill Rates/Availability

(ICRIF) Accuracy - Product, Quantity,

Price (CM%) On-Time-Delivery - OTD Backorder Handling (ICRIN)

Profits and ROI: Surplus - Disposition (ICRIS)

and Prevention Safety Analysis (ICAMU) Review/Order Cycle:

– Freight Dollars - As Percentage of Sales

– Turns - Really CtoC and CtoP (ICRIT)

– Turn and Earn - ROI (ICRIR)

Replace Inventory with Information

Do better on both sides!


92

If there is no measurement, then it is all hearsay. Data-free

conversations and decisions will cause lots of frustrations, cost lots

of money and result in lots of disappointments...


93

Service - Fill Rates How well a business meets its customer’s needs - pulse of customer’s

happiness/loyalty. What to Measure:

Fill Rates = Shipped/Ordered

Quantity: 9 out of 10 = 90%

Line Item SC: 9 out of 10 = 0%

Order Ship Complete?

What Should Fill Rates Be? The Report is Broken - Look at “First Pass” Orders - EDI, Fax, Internet, etc for true

fill rates and backorder retention Only one way to better Fill Rates - The Right Inventory. Two ways to the Right

Inventory...


94

Profits - Turns? ROI?

Cost to Carry, Cost to Purchase and Freight

C to P Turns

80’s $10.00 2-3

90’s $5.00 3-6

00’s $2-3.00 6-10

EDI/VMI $0.13 ?Many companies are increasing the turns, but the infrastructure does not support it;

bottom line, longevity and growth are all suffering! Customer Service, GM Improvement, Efficiency, Accuracy, Asset Management

Pro

fita

bili

ty

Turns


95

Turns vs Bottom Line ContributionReturn

140

150

150

140

Turns

4

5

6

7

Margin

35

30

25

20

Customer Service Improvement - Availability, OTD, BO Handling

Gross Margin Improvement - Sell Service (Price) and COGS

Expense Reduction - Freight, Cost to Carry, Cost to Replenish

Inventory Management is Not Only Turns…

Inventory Management is Bottom Line, Longevity and Growth

7 Turns & 4% Bottom Line or 5 Turns & 7% Bottom Line

Velocity P

ricing?


96

Return on Investment

GMROI:

= Turns CGM%

= COGS GMAve Inv COGS

= Sls Turns GM%

= Sales GMAve Inv Sales

= GMAve Inv

x

x

x

xx

x

Turns:= COGS + $TransferredAve Inv

T&E:

= Turns GM%

= COGS GMAve Inv Sales

No Directs, Non-Stocks or Pass-Throughs

How to Use T&E/GMROI


97

Step 10:

CONTROLLED REPLENISHMENT

Uncontrolled Replenishment Leads to Uncontrolled

Results


98

Final Thoughts

AWOA W


99

“Better Numbers and Tools” Top 10

Better Numbers:1. Hits based Ranking

2. Smart Set-Up and Maintenance

3. Usage: Lost Sales and Exceptional Sales, Seasonal Trending, and Roll Up

4. Customer Buying Habits

5. RC and EOQ Control and Depth

Better Tools:1. Paperfloat Control

2. Buyer’s Priority, Targets Properly/Equal Days Supply, and One-Stop

3. Timeline Analysis “Too Late” and “Too Early”

4. Long Term Surplus

5. Exception Control Center and Mass Update


100

SX.enterprise Summary“Best Practices” Inventory Mgt

Better SKU Coverage - System and Buyers Improved Time Management Improved Priority Setting Balances Technology and Core Replace Inventory with Information Rifle Approach vs. Shotgun Approach Better Numbers and Better Tools Better Service and Better Profits Distributor of Choice: Owners, Customers, Employees

and Vendors

Now What? Go Back, Follow the 10 Steps, Execute and Get Results… The Door is Open!


101

Inventory Management10 Step to Results


– “Smart” - ICSR

– Company/Warehouse - ICSD

– Product Line - ICSL

– Product Master - ICSP

– Product Warehouse - ICSW

2. Data Collection:– Usage - OE/WT

– Lead Time - WT/PO

– Level: On-hand and Paperfloat - BIIS


3. Forecasting:– Rank - ICAI

– Replenishment Cycle - ICAR

– Usage, LT, Safety, Order Point, Line Point, Surplus Point, Order Quantity - ICAMM

4. Stock Level Accuracy:– On-hand - CC’s

– Paperfloat - BIIS


– Use Priority Reporting - POERA– Purchases - POERR, POEAR– Transfers - WTERR, WTERA

6. Timeline Analysis:– “Too Late” - ICRIG– “Too Early” - ICRIG

7. Excess/Surplus:– Prevention– Disposition - ICRIS


– Proofs– While Replenishing - POERA– Exceptions and Mass Updates - ICAMU

9. Measurement and Improvement:– Fill Rates, BO, OTD, Accuracy - ICRIF– Inventory Mix (Safety, Excess, Defective)– Turns and ROI (GMROI and/or T&E) - ICRIT/R



102

Back to Basics

Many distributors DON’T: Set the system up properly Feed the system good data Understand or Use the system properly Clean up bad processes and procedures Educate their people on the system or processes Help departments work together Help work towards common goals

Yet they think it will all just magically work


103

The FoundationPlan of Improvement

Back to BasicsProactive versus Reactive

Replace Inventory With Information


104

J D I

It’s too hard to log lost and exceptional sales

It’s too hard to keep the paper work clean

It’s too hard to keep the on-hand correct

It’s too hard to work excess inventory

It’s too hard ...

It’s too hard..., The system is broken or doesn’t have it…, We will never get them to do that…,

We don’t know how to do that… J D I !

“Best Practices” Inventory Management

Documents

Transcript of “Best Practices” Inventory Management