Best Practices Inventory Management Sx Enterprise How to

“Best Practices “Inventory Management Sx Enterprise How to Set it Up, How to Use it, How to Get Results ICAMM ICRIG WTERR ICAMU POERR ICSR ICRIS ICSW ICSL WTERA ICSD POERA ICSP ICIA Ó 2005 Grant W. Howard Company Grant W. Howard 13214 Wallace Road Manchester, MI 48158 (734) 428 -0529 ghoward 685@aol. com 11

Day 2 - How to Use it: The Big Picture (Company and Replenishment) Overview of the Replenishment Process How to Use it and How to Get Results: The Tools - Service and Profits Proactive Maintenance - Keeping it Correct Monitoring and Measuring Results - Getting Results Final Thoughts Ó 2005 Grant W. Howard Company 22

ng Lo Employees th ow Customers Gr ev ity The Big Picture Vendors Profitability Ó 2005 Grant W. Howard Company 33

Inventory Management Objectives Customer Service Availability (Fill Rates) Proper Backorder Handling On Time Delivery Accuracy: Item, Quantity, Price Profitability (ROI) GM Improvement (Sales and Cost) Freight Considerations - OC Analysis Efficiency & Asset Mgt: Cto. C and Cto. P Surplus Inventory & Safety Inventory Turns/Days supply, ROI/T&E/GMROI Watch the C to C Watch the C to P (Warehousing, Handling, Obsol. & (Purchasing/Replenishment, Receiving & Shrink, Taxes, Interest) Put-away, A/P) Ó 2005 Grant W. Howard Company 44

Order Point: • Usage Buckets • Usage Method • Trending • Path/Roll up • LT Buckets • LT Method • Safety Method • OP Adjusters To Be a Profitable Company Forever Availability, BO Handling, Accuracy, OTD Sales, Cogs, Freight, C to C, C to P Maintenance Line Point: • Target & Type • RC/OC/XF • Calc. or Manual EOQ: • “K” and “R” Cost • Min and Max Surplus Points: When to Replenish? • Internal (LP+EOQ) • External (X months) Time Line: • Too Late • Too Early • Days Supply • Promise Dates Level: • On-hand • Committed • Incoming Misc: • Status • Freeze • Usage Method, Path • Replenishment Method Replenishment: Items to Replenish: • Below OP - Must • Below LP - Include Order Quantity: • LP - Level • SOQ (EOQ/Class) • Minimum Run • Package Quantities Priority Meeting Targets EB Logic External Surplus Measurement 5

Ó 2005 Grant W. Howard Company 66

Profitability, Asset Management, and Efficiency “Getting Results” Better Tools Ó 2005 Grant W. Howard Company 77

Measurement Data to Info Data Usage - OE/WT Fill Rate, BO’s Turns, Excess, Mix T&E, GMROI Lead Time PO/WT The Numbers Hits/Ranking Purch Hist Order Cycle “Smart” Set-up Ave Usage, Safety, OP, LP, Order Quantity Product Master Product Whse. Items BOP/Priority Timeline Analysis Too Late Too Early Surplus Inventory Co. and Whse. Product Pline Replenishment Buyer’s Ctrl Center Level/PNA Info OH & Paperfloat Set-up The Tools Maintenance One Stop Inq/Maint External/Lng. Term Internal/St. Term Proofs/Mass Update Exc Control Center Ó 2005 Grant W. Howard Company 88

The Tools Improving Profits, Longevity and Growth Service/Replenishment n Replenishment - BOP, BLP, Suggested WT: – Purchase Priority/BCC – Drill Down/Maintenance – Making Targets Properly n Surplus/Excess Inventory n n Time Line Analysis “Too Early” Prevention Surplus Identification - Short/Internal and Long/External Time Line Analysis “Too Late” Proactive Maintenance Measurement and Monitoring Ó 2005 Grant W. Howard Company 99

Replenishment Service n n Profits What is the objective, where on the spectrum? Do your people understand this? Have you given them the tools, processes and education to do it? Do they know how to accomplish it? Service/When: – Service: Below Order Point Trigger – Profits/Cost: Target and/or Timeframe Trigger n Profits/What and How Much: – Wait: Still a decision if notified - Costs vs Service – Fill In: Time left in RC – Target: Change RC to meet target The Key is to “Make Today Work” without “Breaking Tomorrow” Balance Every Replenishment Ó 2005 Grant W. Howard Company 1010

Buyer’s Control Center/Workbench On-line, Priorities, One-Stop, Drill Down, Maintenance, Targets Ó 2005 Grant W. Howard Company 1111

Making Targets Properly Cost to Carry vs Freight, Price, and Service: n n n Key is equal days supply Increase or Decrease Use for Meeting Targets and Emergency Fill-ins Ó 2005 Grant W. Howard Company General rules of thumb: n n n Days Dollars 1/2 way through OC/RC 1212

Discounts and Price Increases $Discount/Increase $C to C e tiv a g Ne $Discount/Increase Break Even e itiv os P Max. Potential Quantity Break Even (Days) = (2 x Discount% / Monthly C to C) x 30 Maximum Potential Savings (Days) = (Discount% / Monthly C to C) x 30 Ó 2005 Grant W. Howard Company This is total days supply to have on the shelve, not to 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. 1313

Time Line Analysis Too Late Too Early 0/- days Out 30/+ days 0 -30 days In Incoming and will be late Out Incoming and will be early or not needed Identification and Prevention are the Key Ó 2005 Grant W. Howard Company 1414

Surplus Inventory CONTINUOUS Responsibility Ó 2005 Grant W. Howard Company Prevention Identification Disposition Goals/Plan Coordination 1515

Long & Short Term Surplus n Short Term/Internal (EB, GAP): Surplus = Available > LP + EOQ n Long Term/External (Take Action, Gone): Surplus = Available > X Months Usage* n Smart Logic: 1. Frozen or LP + EOQ > X Mth. Usg: Avail > LP + EOQ 2. Order as Needed, N/S, Discontinued: Avail 3. New Items: No Surplus *X Months Usage is calculated as “ 12 months usage/12 x X months” Ó 2005 Grant W. Howard Company 1616

Surplus Inventory Disposition BOP/GAP - Put of the fire: Short or Long Term BLP/Sugg Xfers - Use it where you can: Long Term Teach branches to use LT first. Don’t borrow stock and put branch in “need”. 1. 2. 3. 4. 5. Stock Balance: (“X” Months Supply) - With “To” branch approval/Before Buy Sell Above Cost: Customer, Other Distributor At Cost: Sell at cost, Return at cost with no charges (freight, restock) Below Cost: Sell below cost, Return below cost and/or with charges Sell Above “Write-off” Cost: Garage/Fire Sale, Flea Market, Auction House, Liquidation House 6. Dump at “Write-off” Cost: Donate, Scrap, Dump Ó 2005 Grant W. Howard Company 1717

Inventory Reductions Understand the Impact Areas: n Excess and Defective: – – – n Low Risk No one wants or needs Control the Feelings Let it Roll, Let it Go Be Careful - C to C/Mix Cost of Disposition Surplus Point EOQ Line Point or Max/EOQ Order Cycle Order Point or Min Line Point and Order Quantity: – “What” and “How Much” – Be Careful - C to P Departments n PNA/Level Lead Time Order Point - Safety Stock: – “When” – Be Careful - Customer Service Ó 2005 Grant W. Howard Company Safety High Risk 1818

Proactive Maintenance Keeping it Working Ó 2005 Grant W. Howard Company 1919

Measurement Data to Info Data Usage - OE/WT Fill Rate, BO’s Turns, Excess, Mix T&E, GMROI Lead Time PO/WT The Numbers Hits/Ranking Purch Hist Order Cycle “Smart” Set-up Ave Usage, Safety, OP, LP, Order Quantity Product Master Product Whse. Items BOP/Priority Timeline Analysis Too Late Too Early Surplus Inventory Co. and Whse. Product Pline Replenishment Buyer’s Ctrl Center Level/PNA Info OH & Paperfloat Set-up The Tools Maintenance One Stop Inq/Maint External/Lng. Term Internal/St. Term Proofs/Mass Update Exc Control Center Ó 2005 Grant W. Howard Company 2020

Service and Profit - A Quick Method Hits H H L L Cost L H Ó 2005 Grant W. Howard Company 2121

How it All Works “The 10 KEY’s to Proactive Fixing” n Good proofing reports (Pline, Product) - Get a clean start n If change a quantity, remove a line, add a line - Do the maintenance n If items BOP or Gap before expected and not an exception spike or adjustment - Do the maintenance n Good company understanding and Eyes and Ears with communication n Good exception reports are a must! Use Hits and Cost logic to review, to prioritize, and for action n Order Point Line Point 1. AMD/U 4. OC/RC/XC 2. ALT 3. Safety Stock Ó 2005 Grant W. Howard Company Stock Level Four More 5. On-hands 6. Paperfloat 7. SOQ/EOQ 8. Status 9. Paths 10. Freeze/Tmins 2222

Product Line Proof Report Ó 2005 Grant W. Howard Company 2323

Product Proof Report Ó 2005 Grant W. Howard Company 2424

Exceptions Ó 2005 Grant W. Howard Company 2525

Monitoring and Measuring Getting Results! Ó 2005 Grant W. Howard Company 2626

Measurement Data to Info Data Usage - OE/WT Fill Rate, BO’s Turns, Excess, Mix T&E, GMROI Lead Time PO/WT The Numbers Hits/Ranking Purch Hist Order Cycle “Smart” Set-up Ave Usage, Safety, OP, LP, Order Quantity Product Master Product Whse. Items BOP/Priority Timeline Analysis Too Late Too Early Surplus Inventory Co. and Whse. Product Pline Replenishment Buyer’s Ctrl Center Level/PNA Info OH & Paperfloat Set-up The Tools Maintenance One Stop Inq/Maint External/Lng. Term Internal/St. Term Proofs/Mass Update Exc Control Center Ó 2005 Grant W. Howard Company 2727

Measure Results Customer Service: n n n Availability Safety Analysis Accuracy: – – n n n Profits and ROI: n n Actual and Billing Product (CM%) Quantity (CM%) Price (CM%) n On-Time-Delivery Backorder Handling Customer Defection T&E/GMROI - ROI Surplus - Prevention & Disposition RC/OC/XC and OQ: – Freight Dollars - As percentage of sales – Turns - Really C to C and C to P n Safety Analysis Vendors? Employees? Efficiency? Accuracy? Do better on both sides! Ó 2005 Grant W. Howard Company 2828

Vendor Performance and Negotiations It’s not just Price n n n Lower COGS Lower Freight Minimums Multiple Drops for Freight Combined P/O’s for Minimum Freight Paid Fill-ins n n n RGA’s on New Items Excess Inventory Returns n Win/Win - Partnership n n n Fill Rates Consistent Lead Times and OTD Accurate Shipping (Blanket Receiving) - Product, Quantity, Price Good Backorder Handling Ó 2005 Grant W. Howard Company EDI/VMI/2 -Way Information Flow - B 2 B Automated Product and Pricing Updates 2929

Final Thoughts AWOA W Ó 2005 Grant W. Howard Company 3030

“Better Numbers and Tools” Top 10 Better Numbers: Better Tools: 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 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 Ó 2005 Grant W. Howard Company 3131

Getting Results - Top 10 Service Profits Improved Availability/Service: Improved Profitability: 1. Order Point 1. Line Point and Order Quantity 2. Stock Level 3. “When” to Replenish 3. “What & How Much” to Replenish 4. Stock Out/Lost Business Prevention Timeline Analysis -”Too Late” 4. Surplus Prevention - Timeline Analysis -”Too Early” 5. Closed-loop Backorder Process 5. Inventory Reduction Program Ó 2005 Grant W. Howard Company Most “talk about” 1 and 2, Many do not understand 3 and Few do 4 and 5 3232

“ Better Results” - Top 10 Service Profits Improved Availability/Service: Improved Profitability: 1. Accurate Order Point: 1. Accurate Line Point and Order Quantity: – – – Track Lost Business Usage Roll Up Seasonal Trending Customer Buying Habits Lead Time and Safety Considerations 2. Accurate Stock Level: OH and Paperfloat 3. Understand “When”: – – Replenish at Order Point Use Priority Reporting 4. Stock Out/Lost Business Prevention Timeline Analysis -”Too Late” 5. Closed-loop Backorder Process Ó 2005 Grant W. Howard Company – – Track Exceptional Business/Usage Seasonal Trending RC and OQ Understanding & Use Cto. C and Cto. P, RC/OQ Controls 2. Accurate Stock Level: OH and Paperfloat 3. Understand “What & How Much”: – – – Line Point, Order Quantity, Package Understand Fill Ins vs Line Buys Meeting Targets Properly 4. Surplus Prevention - Timeline Analysis -”Too Early” 5. Inventory Reduction: – – – Surplus/Excess Reduction OC/RC/OQ Reduction - Caution Safety Reduction - Caution 3333

Measurement Data to Info Data Usage - OE/WT Fill Rate, BO’s Turns, Excess, Mix T&E, GMROI Lead Time PO/WT The Numbers Hits/Ranking Purch Hist Order Cycle “Smart” Set-up Ave Usage, Safety, OP, LP, Order Quantity Product Master Product Whse. Items BOP/Priority Timeline Analysis Too Late Too Early Surplus Inventory Co. and Whse. Product Pline Replenishment Buyer’s Ctrl Center Level/PNA Info OH & Paperfloat Set-up The Tools Maintenance One Stop Inq/Maint External/Lng. Term Internal/St. Term Proofs/Mass Update Exc Control Center Ó 2005 Grant W. Howard Company 3434

The Numbers: Inventory Management 10 Step Process The Tools - Inventory Management: 1. Parameters/Setup: – – – 5. Replenishment: – – – “Smart” Company/Warehouse Product Line Product Master Product Warehouse 6. Timeline Analysis: – – 2. Data Collection: – – Usage Lead Time Level: On-hand Paperfloat Purchasing History 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 “Too Late” “Too Early” 7. Excess/Surplus: – – Prevention Disposition The Tools - Getting Results: 8. Proactive Maintenance: – – 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) 10. CONTROLLED REPLENISHMENT Ó 2005 Grant W. Howard Company 3535

“B 2 B” What is not needed? Surplus Point EOQ What to replenish and How Much? Line Point or Max/EOQ When to Replenish? Order Cycle PNA/Level Order Point or Min Lead Time Safety Too Late Too Early 0/- days Out Ó 2005 Grant W. Howard Company What is incoming and will be late? 0 -30 days In 30/+ days Out What is incoming and will be early or not needed? Out 3636

The Foundation Ó 2005 Grant W. Howard Company Plan of Improvement Back to Basics Proactive versus Reactive Replace Inventory With Information 3737

“Best Practices” n n n Better Numbers - (OP, LP, OQ) Hits and “Smart” Item Ranking “Smart” Parameters and Controls Usage Data and Calculation Improvements (Cornerstone) – Lost Sales Tracking – Usage Control Window by Rank – Seasonal Trending – Transfer Usage History vs. Roll up n n n Lead Time Improvements Safety Stock Improvements – Safety Control by Rank – Safety Control by Lead times – Safety Analysis Customer Buying Habits and “Automated” Overrides Ó 2005 Grant W. Howard Company n Better Tools Buyer’s Control Center - BCC – Priority – Targets – “Smart” Rounding – Drill Down/Maintenance – Proper combination of the three models and use of EOQ – “One-stop” Thinking n n Time Line Analysis – “Too Late” – “Too Early” “Smart” Surplus - “True” Surplus Exception Control Center - ECC – “Smart” exception reporting – Mass Update – “One-stop” thinking Measurement and Monitoring 3838

“Best Practices” n n n Better Numbers - (OP, LP, OQ) Advance Lead Time on Seasonal, Forward and Trend item usage calculation Review Cycle Improvements: – Based on Purch or Ext AMU – Min, Max and Exception – WT Cycle Days Order Quantity Improvements: – Controls and Depth: » » Vendor vs Transfer (ARP) Min and Max Weeks Calculate but do not use R and K Cost Ó 2005 Grant W. Howard Company n n n Better Tools Rank added throughout system Rounding Control and Smart WT Rounding Three buying methods and WT’s: – LP with or without OQ – WT Cycle and Set weeks supply – Full control and Works together – Proper products, Proper quantities n Paperfloat Control: – Orders, PO’s and WT’s – Summary and Detail/Drill Down 3939

GWHCO www. gwhco. org Grant Howard: ghoward@gwhco. org 734 -428 -0529 Phone 734 -428 -0593 Fax John Cason: jcason@gwhco. org 256 -830 -0676 Phone 256 -830 -0481 Fax Ó 2005 Grant W. Howard Company Our approach involves tailoring the best practices in distribution to the specific needs of our clients. Our working philosophy revolves around building a strong and selfmaintaining infrastructure by developing a working plan based on processes and procedures, education and understanding, implementation of tools and technology; and through communication, organizational structure and team environments. 4040