Inventory Performance_GovernorsStateUnivAPICS
- 1. For Internal Use Only – Do Not Distribute Improving Inventory Performance 22 March 2016 - Governors State University/APICS Sunil Kulkarni – Senior Associate NorthFind Partners
- 2. Welcome!
- 3. Why hold inventory? • Cover process time • Allow for uncoupling of processes • Anticipation/Speculation • Minimize control costs • Buffer against uncertainties -Demand -Supply -Delivery -Manufacturing/Processing
- 4. • Supply Chain decisions Strategic - What are potential alternatives to Inventory - How should the product be designed? • Deployment decisions Tactical - What parts/items should be carried as inventory? - In what form should it be maintained? - How much of each should be held and where? • Replenishment decisions Operational - How often should the inventory status be determined? - When should a replenishment decision be made? - How large should the replenishment be? Three levels of Inventory decisions
- 5. • Part of a well thought out holistic strategy • Based on the VoC, economic conditions, market intelligence, and supply chain complexity • Consists of solid analytics, robust process, and a culture of accountability. • A closed loop execution management operating system • Balances the investments in inventory with requirements of each part and customer. • Best in Class companies outperform others by collaborating on an inventory plan both internally and externally with their key trading partners. An effective inventory strategy is critical for success
- 6. Understand part behavior ► All parts are not created equally ► Parts that have predictable demand patterns versus those with low level of forecastability require different methods of planning. Understand types of Inventory ► Understand by part and location what form of inventory is required at each node. ► Understanding the relative importance of the parts. Ensure execution ► Develop a link between the inventory plan and execution. ► Balance customer service level with inventory carrying costs. ► Ensure the systems, process and culture support execution and accountability. Steps to establishing an inventory strategy
- 7. • Process and tools for governing the progress and ensuring rapid root cause analysis. • Creating transparency to current state and desired future state • is the first step followed by ongoing ‘drum beat’ for • Rigorous review of status and root cause analysis for areas where targets are not being met by the organization - Sales and Operations Planning (S&OP) process framework. • Clear roles and ownership • Quick response to disruptions. • Platforms that enable analytics and optimization of inventory. Elements of a management operating system
- 8. Financial Categories -Raw Material -Work In Process (WIP) -Semi-Finished goods, Components All look at added value – they change in accounting categories Do not look at opportunity costs – or help manage inventories Functional Categories -Cycle Stock -Safety Stock -Pipeline Stock Differ in the way they are used. Classification of Inventory
- 9. 40% 50% 60% 70% 80% 90% 100% SAFETYSTOCK$ SERVICE LEVEL Safety Stock $ vs. Service Level P3 P2 P1 Inefficient position: Safety stock inventory levels are too high and service levels are too low. Optimal position: Safety stock and service levels are optimized along this curve. Extremely high service level, but requires too much inventory. Balancing safety stock vs. service level
- 10. • View planned cycle stock, safety stock, average inventory, turns/year and service level by part class Example – Analytics driven optimization North-Find Inventory Calculator
- 11. • Compare “what-if” simulations to determine your desired inventory investment and service levels • Change “A2” and “A3” service levels to 98% • Notice change in average inventory required Example.. North-Find Inventory Calculator
- 12. BIC Profile BIC companies exceed 95% accuracy on inbound and outbound orders while reducing total landed cost and out of stock frequency 83% are more likely to segment the demand forecast based on key product-customer characteristics. 67% are more likely to provide accurate views of inventory and ensure that “availability to promise” is extended across multi- echelon inventory whether at stores, DCs, suppliers or partners Aberdeen Research 2014
- 13. Metrics that drive accountability High performing companies measure Inventory at business and functional levels Current FGI benchmarks indicate 67% or more of companies measure the following: Inventory Balance Inventory as measured in dollars, units or lbs. Inventory Turns The comparison of dollars of inventory to the cost of goods sold for a specific period (cost of goods sold / average inventory). It measures how many times a company sold its average inventory amount during the time period. Days of Supply The number of days it will take a company to sell all of its inventory (365 x (Average Inventory / Cost of Goods Sold). On-Time Shipments Percentage of shipments delivered on time to customer order due date. Inventory Accuracy A percentage showing the variance between inventory records and actual count. Order Fill Rates Percentage of customer orders satisfied from stock at hand (Benchmark data and categories from Tompkins Finished Goods Supply Chain Benchmarking, 2013)
- 14. Summary Inventory strategy is based on Analytics, Voice of the customer, economic conditions, market intelligence, innovation Operational control of inventory ABC Analysis A items- careful controls, deliver to schedule (just in time techniques) B- batching rules for EOQ EBQ to obtain discounts and volume benefits C- Implement simple policy controls e.g. Use analytics to balance costs v/s sla’s, change supply strategy (e.g. make to order) based on part behaviour. Minimize internal variety and maximize external variety! INVENTORY MANAGEMENT IS NOT A RANDOM SET OF INVENTORY CONTROL TECHNIQUES IT IS PART OF A WELL THOUGHT OUT STRATEGY OPTIMIZED USING ANALYTICS TO BRING TOGETHER ALL ASPECTS OF THE SUPPLY CHAIN