Inventory Management Solution

Archive for tag ‘Inventory Management’

5 things to think about when reducing inventory

Tuesday 12 October 2010

1.Less art, More science

Generally, organizations are applying a very simplistic approach using rules of thumbs to a very complex problem. We believe that simultaneously improving service levels and inventory requires a multi-dimensional approach across the supply network. It is our belief that inventory management is governed by the laws of probability and statistics. Success is just a matter of putting them to use.

2.Integration

Fixing supply chain problems is challenging,  especially in the high complexity retail environment.  It requires advanced skills and new ways of managing across the supply network as well as the need to integrate across multiple supply chains per business unit in a global footprint

3.Execution

Inventory buildup also has an operational dimension – reducing execution cycle times and flexibility and supplier lead times will have a big impact on the inventory level.

4.Right product. Right place. Right time. Right cost

Inventory buildup and low service level performance are often a result of insufficient planning or planning tools; demand forecasting, SKU assortment management, supply and production planning/collaboration, inventory/replenishment planning and warehousing.  All are elements of a planning chain that requires integration.

5.Knowledge equal savings

Cost cutting and availability of products remain the primary goals. The key to achieving results involves developing systematic and collaborative approach that go far beyond simple bidding and price evaluations.

Benoit Ouellette

Who’s pulling the weight

Monday 2 August 2010

In more than 80% of organizations, management of min-max is left in the hands of managers who are often caught between a rock and a hard place. On the one hand the sales people operations and maintenance all strive to ensure they do not encounter any shortages. On the other hand, the finance people, bankers and shareholders are all concerned about the money tied up in inventory.
Inventories are manually adjusted in response to the company’s crises. If a major customer encountered a stock shortage, the min-max are increased. At quarter end finance people want the inventory as low as possible. Procurement is stopped and the min-max are reduced.

The “Miracle Department” reacts again and corrects the situation. The expectations of the organization are extremely high towards the inventory management department. It is expected that these individuals manually adjust min-max for 15,000 to 35,000 items without making any mistakes. They must consider seasonality as well as upward or downward demand trends. They know when an item, used twice a year, will be requested next.

A recipient of a master’s degree in Operations Research, I have over 30 years of experience and am recognized as a leader in Quebec in Inventory Management. However, even with my experience, I do not have the capability to manage 35,000 items and to manually determine the optimal min-max.

The good news is that inventory management is now a science. There are formulas and calculations which allow optimizing inventory management and automatically and dynamically setting (with automatic and computerized revisions at month-end) the min-max in order to achieve the organizational objectives of service while minimizing inventories. Min-max that are managed using this approach usually increase the overall rate of availability of parts or items with 25% to 50% less inventory.

Another positive point is that inventory management is also an art. The machine does not know everything. A good inventory management system will notify managers it is time to adjust a min-max when:
- there are sudden changes in the pattern of consumption;
- a new item has now enough history to use the automatic mode;
- the system has difficulty in establishing reliable consumption forecasts for a given item;
- there is an open order to the supplier for an item in surplus (a customer order might have been canceled, stock might have been returned from another customer or for any other valid reason);
- an item has not been consumed for six months;
- the calculated min-max for the coming month is quite different from the previous min-max;
- or for any other defined signal.

Put a talented and artistic inventory manager in command of a good scientific system and you will obtain the perfect balance for managing inventory. It’s a thousand times more effective!

Robert Lamarre

Inventory optimization and customer service (part 2)

Monday 21 June 2010

Among key indicators of a company’s dashboard, the higher management must determine its customer service objectives by class and/or by family of products.  These service objectives are part and parcel of the strategic data that sets your business apart.

Service wise, these objectives will take into account customer needs and the market positioning desired by the company in terms of service as well as its capacity to invest in its inventory to reach its goals.

It must be noted that the higher the service objectives are, the more the inventory level must be increased to guarantee the level of service.  The proper software can assist the company in linking its service objectives with the inventory required.

A trustworthy computer system dealing in inventory management should compute efficiently the parameters of inventory management in relation to the service objectives.  A good system will establish the level of buffer stock required in relation to the optimal service desired by the company.  The buffer stock should normally also take into account delivery schedules as well as the forecast of the demand or demand variability.

To achieve a sustainable level of service, it is imperative to establish variables such as the minimums and maximums on hand that will not only be dynamic but also correlate with the desired service goals.

Interestingly, there are companies today that offer services that provide dynamic calculations of the parameters of inventory management that consist in updating the Min Max according to the service objectives sought by way of dashboards, via the WEB, through a set of indicators that follow the evolution of inventory management.  The IMAFS system also offers exception reports on a pay-as-you-go basis for inventory management.  It is undeniable that an inventory management system will increase a company’s profitability, thus guaranteeing a return on its investment.

In conclusion, we have a better understanding of how inventory management and optimization of customer service go hand in hand.

Robert Lamarre