Hello all.

I have been assigned the task to review our existing inventory system and compare it with other industries best practices. Also how to reduce the no of items from 40,000 down to min. possible.

Current system uses only two or three formulas for EOQ, ROP and weekly usage. Upon these equations, whole system is working for thirty years.

Classification is 10 digits based, further divided into slow moving, fast moving and insurance category.

What KPIs should be measured?

One manager says no work is required since if inventory cost is below 6-7% of plant value- it is doing no harm.

But where from I should start and how to put forward some solid recommendations to higher management?

Regards,

Expecting immediate rescue.

Just thought I would post two links that I found useful.

http://www.initiateaction.com/inventory_optimization_1.htm

http://www.newstandardinstitute.com/catalog_articles.cfm (articles 2 and 3)

Where is sabaq?

6-7% seems higher than it should be (1-3%) but depends how fast can get supplies of materials.

Some plants may want to review stock levels based on the actual consumptions over a period of time using certain formulae. This maybe quicker to do.

Over the long term, you may want to study the reliability behaviour of the plant equipment and stock parts based on this.

Furhter to my above explanation only 20% of my inventory has consumption, rest is idle for 4-10 years. I just tried to carry out Perto' Law.
How could I do ABC anbalysis for such a case.

Is Mr Slater there?

Also what is best practise to use for inventory turns. 4~6 or less. Any reference?

Regards

Yahoo,
I assume that you have been to the websites listed above, if not, then I suggest a visit and review of the articles. I must of course declare that InitiateAction.com is my website (thanks to Jack J for the recommendation).

What to do with your inventory review?
Your note says that you are looking at best practice and also at reducng the number of items, you also make mention of stock turns, I guess that my first question is what is most important?

Please bear with me here. If you want to reduce the number of items (as in the number of lines) the actions will be different to trying to increase your stock turn. So you need to be clear about your goal.

Best practice needs also to be carefully defined. For example what is best in a fertilizer plant in Sabah, may be quite different to what is best at a fertilizer plant in Australia and this may be different to a fertilizer plant in the USA.

So what can you do?
I think that you want to work on the dollar value invested. I assume this as you mention the inventory cost versus plant value. You have started well by using a pareto review.

My suggestion is that you read this article http://www.initiateaction.com/inventory_optimization_2.htm
This is part two of the article noted above. Also read part 3 (there are links to this from part 2).

Also go to this page http://www.initiateaction.com/ and click on the link 'simple step by step methodology'. This will download a flow chart that shows the steps to take.

These articles and chart won't solve your problem but will show you a process and steps to follow and will enable us to communicate with a common understanding.

Once you have done that I am happy to help guide you through your review process. Get back to me via this forum so that any others that have this problem can join in.

Phillip,I have read your articles. Useful indeed.

Now how do you comment on inventory moving only 20% items. I asked above.
ABC analysis mulitiplies cost x consumption. Whereas in my case 80% items have no consumption in a year. How do I use this tool then?

Another good thing I measured from your articles is stock turns.

B]A low stock turn rate may be acceptable – a stock turn rate of just 2 turns per year may be acceptable for MRO inventory whereas for other inventory the acceptable level may be 12 or more. [/B]

In my case it is 0.25 on average over last 10 years. Any comment on it as well?

Correct my direction if I am wrong?

Yahoo,
You have asked many questions here, let me try to answer them.

quote:

how do you comment on inventory moving only 20% items

.

In my view the issue is not how often the item moves but whether it is still needed and if there is substantial money tied up. For example,almost everyone with a car has a spare tyre. These often don't get used for many years but we still keep them. If we applied the 'hasn't moved' test we would not have spare tyres but we do because they are needed.
80% with no consumption is a big number and you need to do two things. First, review how you create spares so that you are not putting in items that you don't really need. Go to my articles list ( http://www.initiateaction.com/articles.htm ) and read the article The Importance of Day One Decisions. Second, review the spares using the Pareto Principle and 7 actions. This leads me to your second question.

quote:

ABC analysis mulitiplies cost x consumption. Whereas in my case 80% items have no consumption in a year. How do I use this tool then?

The thing to do is NOT use A,B,C analysis. Sort your data based on cost x quantity. This tells you where the bulk of the money is tied up. You can then review the items based on how much money is tied up. To do this you need to apply the 7 Actions for Inventory Reduction. Use the flow chart from my previous post to show you the approach. The 7 Actions are mentioned in the article noted in my previous post. If you need specific feedback on any of the actions, just ask.

Your stockturn:

quote:

In my case it is 0.25 on average over last 10 years. Any comment on it as well?

A stock turn of 0.25 sounds quite low but rather than target reaching a stock turn of (say) 1.0 you should use your measure as a way of tracking your progress and improvement. I say this because the actual best practice for your situation is not known. It is important to realize that achieving a stock turn of 1.0 would require you to eliminate 75% of your inventory. Obviously this would be a massive task. If you need a target try 0.32 - this represents a reduction of about 25% in inventory value.

quote:

Correct my direction if I am wrong?

You actually never answered my comment on what you are atcually trying to achieve so I have assumed that you are trying to reduce the value tied up in inventory rather than just the total number of stock codes. Let me know if this is wrong.
If you follow the steps laid out above you will move towards your goal. How quickly you get there depends on your situation and how much time you can put in.

The most important thing to remember is that software will not solve your problems. You need to work on the processes that influence your inventory. We call this inventory process optimization.

Hopefully I have answered your questions but am happy to keep helping if more input is needed.

quote:

You actually never answered my comment on what you are atcually trying to achieve so I have assumed that you are trying to reduce the value tied up in inventory rather than just the total number of stock codes.

Dear I want to reduce both the tied up money and no. of items.

But I was confused by your inventory newsletter that say often such reduction plans fail due to concentrating on ABC analysis big ones.

Where as here you are advising me on the same. Your newsletter suggests to look into small ones. That's what I understood. Please clear up this confusion.

Yahoo,
I am not sure which newsletter article you are refering to but apologize if I have created confusion.

Just to be clear, I believe that inventory reduction efforts fail when people focus too much on the item cost rather than the total investment. The total investment is the cost multipied by the number of items. So, if you have an item that costs $1,000 but hold 15 of them (for a total of $15,000) this is more attractive for reduction purposes than an item worth $10,000 where you hold one of them.

With repsect to your goals of reducing both the tied up money and the number of items, these are both worthy goals but you will need a different approach to achieve each one.

The best way to reduce the total investment is to focus on the few items that tie up most of the money. Typically 80% of the value will be tied up in about 12% of the items.

Reducing the number of items (and I am assuming here that you mean stock codes or skus)requires a review across all codes to find unnecessary, obsolete and duplicated stock. This might require eight times as much effort as reviewing the total investment but may be made more efficient with logical groupings. Still it is a very different task to reducing the money tied up.

In my earlier postings to this thread I have mentioned that you need to decide your priority between the two choices you have suggested and I stand by that as I assume that there is only so much time to apply to this task.

I hope all that helps.

Dear Philip,

Top Priority : Release of tied-up money

Another problem is created now. That is, my company is implementing MAXIMO. What should I do? Stop my inventory studies / analysis and just jo for MAXIMO?

Since Maximo has also an parts inventory module, your studies should be very useful in implementing Maximo.
Maximo itself is not a silver bullet

quote:

Originally posted by Josh:
Where is sabaq?

http://www.ameinfo.com/db-384479.html
United Arab Emirates ?

Other links on Sabaq brings references to a hindi song. Then, is Sabaq in India?

Yahoo,
I agree with Steven - Maximo (or any software for that matter) is not a silver bullet. However, if the installation of Maximo is a significant corporate project then it will be hard for you to ignore it!

Fortunately your inventory goal is to release tied up money and that is not as hard as you may think - assuming that you have the right information on your inventory.

Step 1: Sort your inventory data based on the total value invested, with the highest value item at the top. (Value invested is the cost per item times the number of items)

Step 2: Start at the top and review the items using the '7 Actions' detailed in the articles referred to above.

You can download a flow chart that shows this simple process at http://www.initiateaction.com/ and click on 'step by step methodology'.

The key is to be disciplined in investigating each action and not rush through saying 'We can't change that' or 'we looked at this before'.

By following this approach you will identify the highest value opportunities quite quickly and be able to plan the implementation of your results. (Recently a client of ours identified $2M of reduction that they hadn't previously considered in a bout 2 hours - how's that for a payback!)

Try this approach and let me know if you have questions - I am happy to help.

Cheers,
Phill

quote:

quote:
Originally posted by Josh:
Where is sabaq?


http://www.ameinfo.com/db-384479.html
United Arab Emirates ?

Other links on Sabaq brings references to a hindi song. Then, is Sabaq in India?

Darth Eugene Vader

Dear Eugene actually I missed Josh query. Sabaq is in Northern Pakistan.

Dear all,

Well, getting ahead in my job while trying to identify common items,I have great difficulty in convincing my maintenance people to look for such items. But they stick to the statement that every items has already been identified. Nothing left to be declared common.

Any suggestions ?

Yahoo,
it is not surprising that the maintenace team think that they have already identified everything - this is what I typcially findwhen I work with clients.

The problem is that they are thinking one dimensionally, that is, they are only considering whether the item is necessary, not how you might carry less of the item.

What you need to do is identify an item that is obviously overstocked and where actions can be taken to reduce the stock level. You do this by using the process mentioned in earlier postings.

Once you have examples you can then challenge the thinking that nothing can be done.

I predict that the next objection will be that it is not worth doing anything because the money is already spent. Before going on to explain how to get past that objection let's see how you go with finding examples and presenting them to the maintenace team.

Please let me know how you get on.