2008 DATA SERVICESTRAINING CONFERENCE

Controlling Your Inventory 101

JOHNSTONE SUPPORT SERVICES

Launched in 2004 in order to strengthen the Cooperative by strengthening its Members

Profitable Growth

Profitability

Asset Efficiency

Growth

Management Effectiveness

Build Brand Presence

Acquire New Customers

Optimize Pricing

Control Operating Expenses

Identify and Address

Unprofitable Customers and

Products

Optimize COGS

Operate Efficiently

Manage Inventory

Manage Accounts Payable

Manage Accounts Receivable

Manage Facilities and Capacity

Improve Execution Capabilities

Improve Management

Control

Improve Management

Efficiency

Improve Employee Performance Management

Improve Management Effectiveness

Focus Resources on Highest Potential

Improve Employee Recruiting and

Retention

Retain & Grow Profitable

Customers

AGENDA

What is Inventory Management Cushy Job…

Dead Inventory Correction Prevention

Redundant Inventory Accuracy Saw Tooth ROP & EOQ Upcoming Changes

I’M THE WHAT AND WHY GUY…

WHAT IS INVENTORY MANAGEMENT ?

Text Book: Inventory Management answers the following questions:

1.When should an order be placed for a product?2.How large should each order be?

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THE COST OF INVENTORY

Stock outs Purchasing costs Receiving costs Payables costs Freight

Obsolescence Carrying costs Cash flow Capacity

Less InventoryMore inventory

TH

E D

EFIN

ITIO

N O

F IN

SA

NIT

Y

Grant me the serenity to Manage the things I can Control, to Influence the things I can Affect and Compensate for the things I Cannot Influence

…knowing all the while that I will always have too much or not enough but never the right amount of inventory!

FORECASTING PROCESS

Run Forecast

ProbablyCan’t Trust It

BlameCustomers, Systems

And Suppliers

Don’t Believe

In It

Beg forMore

Information

Increase the MinOr Safety Stock

Pro

cess

Evalu

ati

on

Corr

ect

i on

Abandon AllHope for

Inventory Reduction

Despair

Go WithYour Best

Guess

FiguresDon’t It?

Not Coming

BeginPreparing Excuses

Good

Not Good

WHICH HAS THE GREATER IMPACT

“WHAT” TO CARRY OR “HOW MUCH”?

UNINTENTIONAL INVENTORY

•Bias Towards Avoiding Stock Outs•Manual Forecast•Bad ROP’s•Month’s Supply Rule

UNINTENTIONAL INVENTORYSafety Stock

•High Minimum Prepay•Long Lead Time•Erratic Lead Time•Unreliable Fill Rate•Standard Packs

Supplier Issues

•No Guaranteed Sale•No Marketing Plan•No Follow Up•No Return

New Products

•Duplicate Lines•Duplicate SKU’s

Redundant Stock

•Trade Show•Preseason•Price Increase•Dating

Speculative Stock

•New Store•Mild Season•Redistribution

Idle Inventory

•Special order not picked up•Special order not cancelled•Standard Pack Remainders•Unsuccessful New Product •Discontinued•Superseded•End of Product Life Cycle

“Dead” Stock

THE COST OF DEAD INVENTORY

Dead Inventory Offsetting Sales

$ 100 $ 2,227

$ 1,000 $ 22,272

$ 10,000 $ 222,717

$ 100,000 $ 2,227,171

9 LIVES OF DEAD INVENTORY

Specific Process for Reducing Dead Inventory Identify

Set Dead Parameters on 27.1.21 “E” inventory 6.16 Recalculate “e” Items on demand – 365 Days No

Activity 6.13 List of “E” Items from Last Calculations Count it – make sure it’s really there…

You may want to pull it and set it aside or even bin locate it

Rerun report

DISPOSITION

9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame

0 Verify the on hand balance and adjust if in error

Chances are pretty good it’s not there

Investing more time and money in a losing proposition

One Time

1 Check to see what customers, if any, have purchased the product. See if you can make them a deal on it.

May sell quickly May result in a loss if unable to negotiate above cost.

One Time

2a Display in the showroom with a big ‘sale’ or ‘reduced’ sign that highlights the former price and clearly points out the savings

May sell quickly May have to sell below cost and take a loss

2 Weeks (2 weeks total if combined with 2b)

2b Offer a “spiff” or commission to Counter & Sales staff to sell the product at or below cost

May sell quickly, may be exciting and a windfall for your staff

May result in a loss unable to negotiate above cost and with spiff/commission expense.

2 Weeks (2 weeks total if combined with 2a)

9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame

3a Cross over to the item(s) that superseded it

May sell quickly May result in a loss if substituted for a less expensive item

One Time

3b Substitute for another item that moves (even if the item it replaces is less expensive)

May sell quickly May result in a loss if substituted for a less expensive item

One Time

4 If there are multiple stores, look to see if the item moves in another location – if so, transfer it

May sell quickly Additional handling and transportation costs

One Time

5a Ask supplier for an RGA without a restock charge or offsetting order

Can move easily if this option is available

Will have to pay and take a loss on the freight amount

One Time

5b Donate to a charitable organization (if the product and the charity qualify for donation above cost.http://www.naeir.org/

The tax deduction for donated goods can be equal to the cost of those goods plus half the difference between that cost and the fair market value.

Better for or C corporations than for S corporations, partnerships, and sole proprietorships

One Time

9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame

5c Ask supplier for an RGA with an offsetting order (i.e. buy $2-$3 of stock from them for every $1 returned.

Can move easily if this option is available

Will have to pay and take a loss on the freight amount. May create overstock on other items

One Time

6 Find another Johnstone to compare dead stock lists with and make a $1 for $1 exchange for the items each of you sell

Can sometime move easily if this option is available

Will have to pay and take a loss on the freight amount. May create overstock on other items

One Time

7 Make sure items are listed as “D” for the Inventory Sharing data transmission

May receive full value

May take time. 30-60 Days

8 Put item on a pallet with other “dead” stock and ask good customers to make an offer (i.e. a silent auction during a counter day).

May sell quickly May have to sell below cost and take a loss

One Time

9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame

9a If there is significant metal or other valuable salvage call a liquidator and ask for an offer

Get some cash value for the product

Loss of virtually the full cost of product. Write off cost (plus inbound freight) for tax benefit

One Time

9b Donate to a local vocational/tech school

Benefit from the “good will” of the school and its students. Help to get your name out to potential contractors.

Loss of full cost of product. Write off cost (plus inbound freight) for tax benefit

One Time

9c Throw it in the dumpster Stop taking up space and impeding productivity by walking by “dead” stock. Remember – every time someone walks by it, it’s costing you money.

Total loss of cost of product and cost of disposal.

One Time

PREVENTION…ALL DEAD STOCK IS PREVENTABLE…

DEAD STOCK PREVENTION

Customer orders not picked up Hang out Report

Deposits on special order (particularly non-returnable) products

Cancelled customer orders for special ordered products - and linkage to the purchase from vendor List of Inventory Problems

Enhancements to List of Inventory Problems (U2008.1 – job 128707)

New parameter: Multiple over ROP - currently this is hard-coded to 2 times ROP, change to “1”.

Add to Menu-6 to run this report on demand for beginning/ending dates (see JCI custom menu)

Menu-8.4 Inventory adjustments that put them over reorder point will be included

Any order quantity that is less than '‘P'' pack and ROP = 0 will be included

Discontinued items will be included Add ''on order'' column to the report Change items that say '‘OE'' to '‘CANCEL''

DEAD STOCK PREVENTION

Customer orders less than standard pack amounts

Customer returns on special ordered products List of Inventory Problems

Past due PO's from vendors on special ordered products  Past Due PO Report

DEAD STOCK PREVENTION

New stocking products Introduction - authority, guaranteed return

terms, review of duplication, etc Review and disposition

Who, when, what happens then?

Review and handling of items carried for specific customers

Handling of items in decline (i.e. dropping ABC code from A to B, B to C etc.)

Reporting,  review and handling of product discontinued from supplier

PRODUCT REDUNDANCIES

WHAT THE…? Vacuum Gauges

Supco J/B*

 

Vacuum Pumps Ritchie Refco* Robinair J/B*

 

Refrigerant Recovery Ritchie CPS Inficon Bacharach Appion Promax RG5410

Decide later

 

Refrigerant Leak Detectors Johnson Controls Ritchie Inficon TIF CPS Spectronics Amprobe Ultra Sonic

Decide later

 

Tubing Tools Ritchie Ridgid* Imperial J/B Lennox

JE decides

 

Access Fittings J/B* C & D

 

Manifolds, Hoses, and Gauges Ritchie* J/B* Uniweld CPS Imperial Zeppelin

 

 

Mini-Splits Fujitsu * Comfort-Aire LG Samsung

 

PTAC’s Amana * Friedrich G/E (Monroeville)*

 

Window A/C Comfort-Aire Friedrich*

 

Chemicals- Refrigeration Oils Nu-Calgon Virginia KMP -Copeland Oil

Acid Test Kits Virginia KMP Nu-Calgon

 

Pressure Temperature Controls Johnson* Ranco*

 

Evaporative Coolers Heatcraft* Peerless

 

Commercial Defrost Timers Paragon* Grasslin (G33-030 Butler)

 

Refrigerant Scales TIF CPS Refco*

Infrared ThermometersUEI*FlukeRaytekTIF

 Manometers

UEI*Dwyer (Fluid)*RitchieTesto

 Carbon Monoxide Tester/Analyzer

UEI*Testo*BacharachFluke

 Test Instruments

UEI*FlukeFieldpiece

 Combustible Leak Detectors

UEITIF 8800*Bacharach

 Sheetmetal Tools

Malco (largest variety)* except snipsLenoxMidwest (snips only)*

 Condenstae Pumps

Little Giant*DiversitechHartell

 Pipe Insulation

ArmacellRubatexBest deal

Pipe wrenchesRidgid*Lenox

 Infrared Heaters

InfrasaveModineDNS

MotorsEmerson*A.O. Smith*Others

 Belts

Browning*Johnstone

 Boiler Trim Package

WattsHoneywell*

 Duct Tape

Nashua PolykenShurtape

Zip ScrewsMalco*Duradyne

 Torches

Turbo-Torch (Victor)*Uniweld

 Flashlights

EnergizerMagliteTerraluxStreamlightClipmate

 Heat Guns

MilwaukeeWeller*

REDUNDANCY

More training More space Less accurate forecasts Higher risk of stock outs Higher safety stock levels Higher risk of obsolescence More ordering costs (purchasing, receiving,

put away and payables) Customer confusion

ROP & EOQ THEORY

SAWTOOTH

Time

Invento

ry L

evel

AverageInventory

(Q*/2)

0

Minimum inventory

Order quantity = Q (maximum inventory level)

Usage Rate

Untapped Inventory

ROP THEORY

Time

Total Inventory

SafetyStock

ROP

LeadTime

Incoming Orders

INVENTORY ACCURACY

LOWERING THE SWAMP

Untapped Inventory

ROP THEORY

Time

Total Inventory

SafetyStock

ROP

LeadTime

Incoming Orders

INVENTORY ACCURACY

Inventory Accuracy Remaining Quantity Counts Control Group Counts

Prevention vs. Correction Cycle Counting

Acc

urac

y Le

vel

Cycle Count

Acc

urac

y Le

vel

Annual Physical Inventory

Cycle Count Annual Count

COUNT CONTROL

Count Scheduled

Count Communicated

Area “Tagged”& Cut off Checked

Count Conducted

AdjustmentsNeeded?

Tags Collected

Check Transactions

Check Receiving, Shipping

WC & Counter

AdjustmentsNeeded?

Recount By Policy

Make Adjustment

Finish

No

Yes

EOQ VS ROP

Excess Inventory

ROP THEORY

Time

Total Inventory

SafetyStock

ROP

LeadTime

Incoming Orders

EOQ THEORY

TotalCost

Order SizeEOQ

Order Cost

Holding CostTotal Cost

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SCENARIOS

• Normal Lead Time from vendor is 10 days. They are now backlogged 22 days…• Less ? More? Stockout?

• There’s a 4% price increase coming up in 30 days on your main equipment line. You buy 4 months supply…

• You consolidate Gates, Browning and Johnstone Belts into a single line…

• You maintain tight control of your inventory levels and only reorder whatever was sold last week…

• Your inventory accuracy is only 84%...

SCENARIOS

• You buy a 2,500# Mueller order on a drop ship saving an average of 3.5%...

• You return $29k on your Corp Rotational Buyback…

• You improve inventory accuracy…• You order in a standard pack of 12 for a

customer who ordered 5 …• You begin a program to review & return non-

moving inventory within 60 days of receipt on the Corp Buyback…

• You follow up on hang out and past due POs…

QUESTIONS…?