Chapter 4 Practical methods for reducing stockholding Best

Chapter 4 Practical methods for reducing stockholding Best Practice in Inventory Mangement Dr Tony Wild

Figure 4. 1 Stock Levels Order Figure 4. 1 Stock Levels Supply Order Delivery Leadtime Quantity In Stock Delivery Use Quantities Review Level Safety Stock Time Stock should consist of two basic parts: Delivery quantity stock, because stock is provided in bulk Safety stock to cope with excess short term demand (or supply failure) Best Practice in Inventory Mangement Dr Tony Wild

Figure 4. 2 Measuring Obsolete & Excess EXCESS Stock Cover more than “y” weeks OBSOLETE Not used for “x” weeks Best Practice in Inventory Mangement Dr Tony Wild

Figure 4. 3 Strategies for Non-moving Stock Improvement Strategy Outdated products Excess Purchases Inventory held to avoid failures Duplicated Stockholding Manage Demand Improve Supply Improve Quality Manage Process Increase delivery frequency & reduce lead time Improve Data Co-ordinate Accuracy, Information & Eliminate scrap Supercession avoidance Process Best Practice in Inventory Mangement Dr Tony Wild Improve Forecasting

Figure 4. 4 Avoiding Surplus Inventory Customer specific products Cause Over production, poor liaison with customer, large batch manufacture or bulk purchase discount Solution Standard products Unreliable forecasting, Make to fill capacity, Unreliable supply Investigate any resumption or alternative, enforce contract terms Promotion, find new customers, sell to discount warehouse Components (including packaging materials etc) Excessive purchase quantity, ineffective dependent demand control Find alternative uses, Return to supplier or sell standard items Avoidance Collaboration, leaner manufacturing or supply, fair partnership contracts Improve historical forecast and market intelligence, Measure end user usage, lean supply chain Accurate Master Schedule, small batch quantities Closer customer liaison Best Practice in Inventory Mangement Dr Tony Wild

Figure 4. 5 Sequence for dealing with surplus stock Sequence Department Technique 1 Marketing/Sales " Sell items in new markets 2 Promote to existing customers Decision time 6 Weeks 3 Sales Discount price 4 Management Transfer to sister companies 2 weeks 5 Purchasing Sell materials back to supplier 3 weeks 6 Sales Sell as substitute for inferior product 7 Technical Alter/repackage 8 " Reuse Major Modules 9 " 4 weeks Reclaim components Use to promote other products (free 10 Sales 3 weeks add-on) 11 Purchasing? Segregate materials and sell 4 weeks Donate to charity or staff for 12 Sales 4 weeks promotional purposes 13 Purchasing? Scrap and pay for disposal 4 weeks Best Practice in Inventory Mangement Dr Tony Wild

Key Points Pareto analysis of stock value is the basis for stock reduction. Reduce inventory of the highest value stock line first Reducing supply batch size is the best method. Adopt a policy for avoiding the risk of obsolete stock. Attack surplus stock using the correct technique in a project. Best Practice in Inventory Mangement Dr Tony Wild