Gossard best practices for inventory reduction

3,697 views

Published on

Best practices for Inventory Reduction- found this from google. informative read.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
3,697
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
143
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Gossard best practices for inventory reduction

  1. 1. Best Practices forInventory Reduction Gary Gossard IQR International
  2. 2. Presentation Outline Best Practices Top Ten Inventory Reduction Practices Inventory Quality Ratio Reduction Strategies and Case Studies Identify and Reduce the Excess Revise Material Ordering Guidelines Use Continuous Improvement Summary & Conclusions© 1992-2005 IQR International, Inc.
  3. 3. Definition 1 A “Best Practice” is a process or technique … that has a proven record of success in providing significant improvement in cost, schedule, quality, performance, safety, environment or other measurable factors which impact the health of an organization. The Best Manufacturing Practices Center of Excellence© 1992-2005 IQR International, Inc.
  4. 4. Definition 2 A “Best Practice” is a group of tasks that optimizes the efficiency or effectiveness of the business discipline or process to which it contributes. It must be implementable, replicable, transferable and adaptable across industries. The Gartner Group© 1992-2005 IQR International, Inc.
  5. 5. Inventory Reduction Best Practices Survey Inventory Management Report “Improving Logistics & Supply Chain Management” Survey of inventory managers Reported top 5 best practices Tabulated by company size Under 500 employees Over 500 employees Ranked 20 practices by overall utilization© 1992-2005 IQR International, Inc.
  6. 6. Top Ten Reduction Practices Conduct periodic reviews 65% Analyze usage and lead times 50% Reduce safety stocks 42% Use ABC approach (80/20 rule) 37% Improve cycle counting 37% Shift ownership to suppliers 34% Re-determine order quantities 31% Improve forecast of A and B items 23% Give schedules to suppliers 22% Implement new inventory software 21%© 1992-2005 IQR International, Inc.
  7. 7. Survey Conclusions “Periodic Review” still most popular “Order Quantities” biggest gain Using more analytical approaches Past usage and safety stocks Lot sizes and order quantities ABC classifications Takes more than one best practice Inventory reduction a two step process© 1992-2005 IQR International, Inc.
  8. 8. Introducing IQR A comprehensive approach to reducing inventory investment. A more useful method of measuring inventory performance. Developed by 35 materials managers. Combines 7 of top 10 best practices.© 1992-2005 IQR International, Inc.
  9. 9. Inventory Quality Ratio Inventory management technique Works with your existing system Top-down focus on inventory dollars Measures performance by segment Gives planners information they need Enhances any MRP/ERP/SCM system No additional data entry required.© 1992-2005 IQR International, Inc.
  10. 10. IQR Logic MRP / ERP Data NM Extract E3 BOHV G 12 H 6 R H K AWWUV AWWRV SM 80 - 15 - 5 % DEF 4 - 12 - 24 ABC BC E1 B E2 B A1 A2© 1992-2005 IQR International, Inc.
  11. 11. Inventory Quality Ratio Active Inventory Dollars IQR = Total Inventory Dollars A1 + A2 IQR = A1 + A2 + E1 + E2 + E3 + SM + NM Perfect IQR = 100%© 1992-2005 IQR International, Inc.
  12. 12. Inventory Quality Ratio Active Inventory Dollars IQR = Total Inventory Dollars A1 + A2 IQR = A1 + A2 + E1 + E2 + E3 + SM + NM 30-50% 10% Average IQR = 30-45%© 1992-2005 IQR International, Inc.
  13. 13. The IQR Logic Analyzes inventory using: Balance on hand and unit cost Past usage and future requirements ABC techniques and user-defined parameters Develops inventory quality categories: Active: reqmt/use, balance within limits Excess: reqmt/use, balance over user’s limits Slow Moving: no reqmt, no use in 6 months No Moving: no reqmt, no use in 12 months Measures overall inventory performance. Combines BPs with a dollar focus.© 1992-2005 IQR International, Inc.
  14. 14. Inventory Reduction Strategies with Case Studies of IQR Results 1. Identify and Reduce the Excess Rapid Inventory Reduction at IGT 2. Revise Material Ordering Guidelines Working Smarter, Not Harder at AGCS 3. Use Continuous Improvement World Class Performance at Steelcase© 1992-2005 IQR International, Inc.
  15. 15. 1. Identify & Reduce the Excess Quick Look Good and Bad Focus on Dollars Action Items Open Orders Action Codes© 1992-2005 IQR International, Inc.
  16. 16. Case 1 - Rapid Reduction ♠ International Game Technology (♠IGT) ♠ Gaming equipment manufacturer ♠ Markets and products evolving ♠ Shortages increasing ♠ Inventories growing & turns falling ♠ Tired of “Program of the Month” ♠ Management’s demands of consultant Long-term solution Short-term benefits Reduce inventory $10 million by FY end.© 1992-2005 IQR International, Inc.
  17. 17. Inventory Dollars by Category Purchased and Manufactured at ♠IGT Quick Look Dollars ($1000) by Purch/Manuf and Quality Category Purch Active Active Excess Excess Excess Slow No Total IQR Manuf 1 2 1 2 3 Moving Moving Value Ratio P 351 16,994 4,097 26,879 0 1,738 3,400 53,458 32.4% M 21 695 121 385 0 18 267 1,507 47.5% Total 372 17,689 4,218 27,264 0 1,756 3,667 54,965 32.9% Excess 2: The biggest and best reduction opportunities.© 1992-2005 IQR International, Inc.
  18. 18. Rapid Reduction Phase ♠ By fiscal year end - 3 months Over $10 million reduction (20%) 27% reduction in Excess 2 inventories Management very happy. ♠ By calendar year end - 5 months $16.4 million reduction (31.5%) 53% reduction in Excess 2 inventories $14 million increase in cash flow. ♠ Increased turns, cash flow and ROA.© 1992-2005 IQR International, Inc.
  19. 19. Rapid Inventory Reduction ♠IGT Inventory Dollars and IQR Performance 60,000 45 40 50,000 Inventory Quality Ratio (%) Inventory Dollars ($000) 35 Added 40,000 30 25 30,000 20 20,000 15 Added 10,000 more inventory items 10 10,000 5 0 0 6/98 8/98 10/98 12/98 2/99 4/99 Rapid Reduction Phase Continuing Improvement Phase© 1992-2005 IQR International, Inc.
  20. 20. Continuing Improvement Phase ♠ Deployed IQR to all planners ♠ Doubled the parts managed with IQR Added 10,000 items and $14 million New items lowered overall IQR Total inventory base $69 million ♠ $30 million reduction (43% in 14 months) ♠ Purchased parts reductions Excess 2: $20.3 million (61%) SM + NM: $3.8 million (52%)© 1992-2005 IQR International, Inc.
  21. 21. 2. Revise Ordering Guidelines Inventory Profile Target Setting What Ifs Custom Analyses Safety Stocks Ordering Rules© 1992-2005 IQR International, Inc.
  22. 22. Case 2 - Working Smarter AG Communication Systems (AGCS) Lucent Technologies and GTE $350 million total sales Central office switching networks Genoa, IL: 800 employees, 300K s.f. Inventories 20,000 active part numbers $16 million purchased parts $9 million WIP and finished goods© 1992-2005 IQR International, Inc.
  23. 23. Inventory Performance Pressures Mounting Aggressive growth plan Shorter product life cycles Inventory investment increasing Inventory turns deteriorating Obsolescence exposure growing 20% of inventory balance Reserve funded from net income© 1992-2005 IQR International, Inc.
  24. 24. New Approach Needed Had been using State-of-the-art systems Event-driven replenishment Make-to-order assembly Experienced planners “The results just weren’t there!” Spending too much time on C items Need to focus on $$$, not quantities Saw IQR as a more effective method© 1992-2005 IQR International, Inc.
  25. 25. Improvement Strategy A Three Step Approach 1. Stop the Bleeding Cancel or defer excess open orders 2. Clean House Identify slow and obsolete inventories Assess potential for reducing write-offs 3. Take Away the Knife Apply ABC classifications Re-evaluate ordering guidelines Synchronize IQR and MRP© 1992-2005 IQR International, Inc.
  26. 26. Inventory Dollars and IQR AGCS Purchased Parts by Category and IQR Performance 12,000 50 45 10,000 Active 40 Inventory Quality Ratio (%) Excess Inventory Dollars ($1000) SM+NM 35 IQR % 8,000 30 6,000 25 20 4,000 15 10 2,000 5 0 0 0 1 2 3 4 5 6 7 8 9 Months After Implementation© 1992-2005 IQR International, Inc.
  27. 27. The Results and Benefits IQR doubled in nine months 35% reduction in excess inventory $3.8 million inventory savings Doubled active inventory available Fine tuned their MRP system Orders now consistent with targets Everyone working smarter, not harder Quicker response to product changes© 1992-2005 IQR International, Inc.
  28. 28. 3. Use Continuous Improvement The Second Step Movement Matrix Flag Changes Financial Impact Track Results Root Causes© 1992-2005 IQR International, Inc.
  29. 29. Three Causes of Bad Inventory Memo dfg fhhs lpwas fdfdfqevcnjhd adfgfg ffy 6dd sNoe id yhr ll good menjxcv Xvkclcxxcvl;c;cv cvxckvjxckxckcc Materials Sales Engineering© 1992-2005 IQR International, Inc.
  30. 30. Case 3 - Steelcase (four plants) World Class Performance 4 - 12 - 24 IQR= 80-90% 30 turns 1 - 2 - 6 IQR= 40-50% 6 months IQR= 55-70% 40 turns Over 42 turns Make to order Benchmark Revise rules Don’t outgrow The best get better.© 1992-2005 IQR International, Inc.
  31. 31. Best Practices and IQR Conduct periodic reviews Analyze usage and lead times Reduce safety stock levels Use ABC approach (80/20 rule) Shift ownership to suppliers Re-determine order quantities Update inventory systems IQR adds the dollar focus© 1992-2005 IQR International, Inc.
  32. 32. IQR Environments Manufacturing companies material planners buyers production schedulers operations management financial management Distribution and logistics Utilities and MRO stores Management consultants© 1992-2005 IQR International, Inc.
  33. 33. Best Practice Criteria A “Best Practice” is a process or technique that has a proven record of success in providing significant improvement. It must be implementable, replicable, transferable, and adaptable across industries.© 1992-2005 IQR International, Inc.
  34. 34. IQR Use is Spreading Airtechnics Dialogic - Intel Corp. Nilfisk-Advance Alcatel Dow Chemical Oakley Allergan Medical Eastman Chemical Ocean Cuisine Amtrol Incorporated Engenio IT - LSI Logic O’Sullivan Industries Andrew Corporation Erico Incorporated Pharmacia Italia Arvin Meritor GKN Automotive Rheem Manufacturing Avery Dennison Honeywell Ricon Corporation Banner Pharmacaps Hyundai Schering-Plough Beckman Coulter Johnson & Johnson Schlumberger BiltBest Products Katy Industries Stanley - MAC Tools Binney & Smith Korry Electronics Telex Communications Black & Decker Kohler Companies Tyco Electronics Bosch Corporation Krebs Engineers Unilever Bestfoods Bunn-O-Matic Corp LuK Automotive Wellman Products Carrier Corporation Motorola Wenger Corporation Chamberlain Group National Oilwell Woodward Governor Dana Corporation National RV Valmont Industries© 1992-2005 IQR International, Inc. Newell-Rubbermaid Vita-Tech International
  35. 35. Conclusions MRP/ERP good for planning Best practices needed to manage IQR combines best practices with $ focus Keys to reducing inventories: Focus on the dollars – prioritize opportunities Identify the excess – stop the bleeding Apply dynamic ABC analysis – work smarter Re-evaluate ordering rules – fine tune MRP Monitor movement – address root causes Make the planners’ job easier. Improve turns, cash flow and profits.© 1992-2005 IQR International, Inc.
  36. 36. Thanks for attending. Questions? Gary.Gossard@IQR.com (949) 487-5400© 1992-2005 IQR International, Inc.

×