Download - Introduction To Processes
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Introduction To ProcessesIntroduction To Processes
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The Objective Of Inventory The Objective Of Inventory Management IsManagement Is
"Buy What You Sell/Sell What You "Buy What You Sell/Sell What You Buy"Buy"
As You Know, It Has As You Know, It Has Two ComponentsTwo Components
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(1) Purchases For Stock(1) Purchases For Stock
(2) Purchases Not-For-Stock(2) Purchases Not-For-Stock
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The "Stock Order" Process The "Stock Order" Process Uses A Uses A "Forecasting""Forecasting" Tool Tool
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The Forecasting Tool Has The Forecasting Tool Has Six ComponentsSix Components
(1) Prior Sales History: Usually 12 Months (1) Prior Sales History: Usually 12 Months
(2) Phase-In Rule: When To Convert From (2) Phase-In Rule: When To Convert From "Non-Stock" To "Stock" Status (“X“ Unit "Non-Stock" To "Stock" Status (“X“ Unit Sales / “Y" Time Period) - Sales / “Y" Time Period) - And Commence And Commence Automatic Ordering - For Stock - Automatic Ordering - For Stock - Determines Inventory "Breadth"Determines Inventory "Breadth"
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(3) Re-Order Point: A Calculation Depending On (3) Re-Order Point: A Calculation Depending On Sales Volume For Each Part Sales Volume For Each Part (Minimum Piece (Minimum Piece Count: OH+OO+BO – “The Pipeline”)Count: OH+OO+BO – “The Pipeline”)
(4) Best Stocking Level: A Calculation (4) Best Stocking Level: A Calculation Depending On Sales Volume For Each Part Depending On Sales Volume For Each Part (Maximum Piece Count: OH+OO+BO) - (Maximum Piece Count: OH+OO+BO) - Determines Inventory "Depth"Determines Inventory "Depth"
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(5) Phase-Out Rule: When To Convert From (5) Phase-Out Rule: When To Convert From "Stock" To "Non-Stock" Status (“X“ Unit "Stock" To "Non-Stock" Status (“X“ Unit Sales / “Y" Time Period) - Sales / “Y" Time Period) - And Suspend And Suspend Automatic Ordering - For StockAutomatic Ordering - For Stock
(6)(6) Stock Status vs Non-Stock Status: Stock Status vs Non-Stock Status: Computer Identifies And Segregates Computer Identifies And Segregates "Stock Status" vs "Non-Stock Status" "Stock Status" vs "Non-Stock Status" PartsParts
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All DMS’ Incorporate These All DMS’ Incorporate These Six Basic ComponentsSix Basic Components
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Assume This DMS Separates Non-Assume This DMS Separates Non-Stock Status From Stock Status - And Stock Status From Stock Status - And That The "Phase-In" Is 3 Sales In 12 That The "Phase-In" Is 3 Sales In 12
Months Months
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10 Years10 Years
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NewNew No Longer No Longer ServicedServiced
Assume a part has a Assume a part has a 10 year lifespan…10 year lifespan…
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……and That The Sample DMS System and That The Sample DMS System Has All The Basic Forecasting Has All The Basic Forecasting
ComponentsComponents
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At The Start Of A Parts' Life Cycle At The Start Of A Parts' Life Cycle There Are No Sales - Nothing Stocked There Are No Sales - Nothing Stocked
In DealershipIn Dealership
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As Time Goes On - The First As Time Goes On - The First Dealership Sale Occurs -Dealership Sale Occurs -
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"1" Sale In 12 Months - And So The "1" Sale In 12 Months - And So The Current Status Is Current Status Is "Non-Stock""Non-Stock" - It Has - It Has
Not Yet Achieved "Phase-In"Not Yet Achieved "Phase-In"
It Does Not QualifyIt Does Not QualifyFor Stocking Status And The For Stocking Status And The Computer Will Not Re-OrderComputer Will Not Re-Order
It Does Not QualifyIt Does Not QualifyFor Stocking Status And The For Stocking Status And The Computer Will Not Re-OrderComputer Will Not Re-Order
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Non-StockStatus
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As Sales Increase to 3 Sales In 12 As Sales Increase to 3 Sales In 12 Months - The Part Months - The Part "Phases-In""Phases-In" And And
Converts To "Stock Status"Converts To "Stock Status"
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StatusStatus
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StockStockStatusStatus
Another SKU Is Added - Another SKU Is Added - Inventory "Breadth" Inventory "Breadth"
IncreasesIncreases
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The Computer Will Suggest Ordering The Computer Will Suggest Ordering 1 Unit For Stock1 Unit For Stock
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StatusStatus
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StockStockStatusStatus
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As Sales Increase The Computer As Sales Increase The Computer Will Suggest Keeping Additional Will Suggest Keeping Additional
Units In StockUnits In Stock
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StockStockStatusStatus
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Inventory "Depth" Inventory "Depth" Will Will IncreaseIncrease
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As Annual Sales Decline The As Annual Sales Decline The Computer Will Suggest Keeping Only 1 Computer Will Suggest Keeping Only 1
Unit In StockUnit In Stock
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StatusStatus
StockStockStatusStatus
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Inventory "Depth" Inventory "Depth" Will Will DecreaseDecrease33
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As Sales Decline/Cease - To The As Sales Decline/Cease - To The Point Where The Parts Point Where The Parts "Phases-"Phases-Out"Out" - And Further Ordering Is - And Further Ordering Is
SuppressedSuppressed
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StatusStatus
StockStockStatusStatus
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When The Last Piece is Sold - The When The Last Piece is Sold - The Computer Does Not Reorder And Computer Does Not Reorder And
The Life Cycle The Life Cycle ConcludesConcludes
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StatusStatus
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For Many DMS's - The Part Number For Many DMS's - The Part Number Will Be Deleted 12 Months After The Will Be Deleted 12 Months After The
Last SaleLast Sale
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StatusStatus
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The Point Of The Demonstration Is To The Point Of The Demonstration Is To Illustrate The "Necessary" Complexity Of Illustrate The "Necessary" Complexity Of
Inventory Management - Even ForInventory Management - Even For One Piece…One Piece…
……And Also To Illustrate That The Parts And Also To Illustrate That The Parts Manager Is Charged With A Task Much More Manager Is Charged With A Task Much More
Significant Than Mere "Inventory Significant Than Mere "Inventory Management"Management"
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Lowest Acquisition CostLowest Acquisition CostParts Profits Are Made at Point of Purchase as well Parts Profits Are Made at Point of Purchase as well
as Point of Saleas Point of Sale● FCSD facilitates point of purchase profit through FCSD facilitates point of purchase profit through
discount programs that are directed at the purchase discount programs that are directed at the purchase of Stock partsof Stock parts
● By not taking advantage of parts return programs, By not taking advantage of parts return programs, Dealers carry inventory that does not sell and Dealers carry inventory that does not sell and accumulate Idle Capitalaccumulate Idle Capital
● Not stocking a Stock part causes Dealers to pay Not stocking a Stock part causes Dealers to pay higher acquisition costs – thus lowering profithigher acquisition costs – thus lowering profit
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Lowest Acquisition CostLowest Acquisition Cost
Costs to NOT Stock a Part:Costs to NOT Stock a Part:
● Parts Counter TimeParts Counter Time
● Local Pickup TimeLocal Pickup Time
● Reduced Technician ProductionReduced Technician Production
● Diminished Customer SatisfactionDiminished Customer Satisfaction
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Are Inventory Are Inventory Records Accurate?Records Accurate?
Is The Is The PhysicalPhysical On-Hand Count Identical On-Hand Count Identical To The To The ComputerComputer On-Hand Count - For On-Hand Count - For
EachEach Part Part
Are Sales, Receipts, Credits, Returns, Are Sales, Receipts, Credits, Returns, Claims, Claims, (e.g. “Transactions”)(e.g. “Transactions”) Accurately Accurately
RecordedRecorded
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Two InventoriesComputer On Hand Physical On Hand
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Database AccuracyDatabase Accuracy
A Quick Method For Assessing Database A Quick Method For Assessing Database Accuracy Is To Randomly Select 50 SKUs For Accuracy Is To Randomly Select 50 SKUs For
A Physical InventoryA Physical Inventory
Compare The Inventory Record Count With Compare The Inventory Record Count With The Actual Physical CountThe Actual Physical Count
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Non-Stock StatusNon-Stock Status Inventory ControlInventory Control
(Also Known As Special Order Control)(Also Known As Special Order Control)
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Non Stock Processes Manage Non Stock Processes Manage Parts At Both Ends Of The Bell Parts At Both Ends Of The Bell
CurveCurve
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Special Order Control Processes Are Special Order Control Processes Are Applied To Parts Applied To Parts Not Intended For StockNot Intended For Stock
They Represent High Risk - Because They They Represent High Risk - Because They Have Little Or No Sales History - And If Not Have Little Or No Sales History - And If Not Sold To The Ordering Customer - They Will Sold To The Ordering Customer - They Will
"Never""Never" Sell Sell
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They Also Represent High Risk Because They Also Represent High Risk Because Of All The People Involved And Because Of All The People Involved And Because
Of The Many Steps (In The Process) Of The Many Steps (In The Process) InvolvedInvolved
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This Symbol Represents The This Symbol Represents The Chaos Of Parts Management Chaos Of Parts Management If Effective Processes Are Not If Effective Processes Are Not AppliedApplied
You Probably Will Also Agree You Probably Will Also Agree That That Special Order Special Order “Processes” Represent The “Processes” Represent The Area Of Greatest ChaosArea Of Greatest Chaos
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Let’s Review The Steps In The Special Order Let’s Review The Steps In The Special Order Process To Get A Better Understanding Of Process To Get A Better Understanding Of
The Complexity Of This SubjectThe Complexity Of This Subject
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New
Used
Service
Body
Parts
The Special Order Process Is The Special Order Process Is Like The Gears In A Machine:Like The Gears In A Machine:
• Each Gear Has A FunctionEach Gear Has A Function• Each Gear Is Dependant Each Gear Is Dependant
Upon the OthersUpon the Others
Special Order CycleSpecial Order Cycle
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The Special Order The Special Order Process Begins With Process Begins With The The Parts Selection Parts Selection FunctionFunction Performed Performed
By One Of The By One Of The Dealership Dealership
DepartmentsDepartments
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Parts
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The “Demand” For Parts The “Demand” For Parts Generated Through One Of Generated Through One Of The Sales Functions Leads The Sales Functions Leads
To The Generation Of An To The Generation Of An “Order“Order”
New
Used
Service
Body
Parts
Order
The Ordering The Ordering FunctionFunction Is Is Then Performed - Either Then Performed - Either
By The By The Originating Originating Department Department Or Passed Or Passed
Through The Through The Parts Parts DepartmentDepartment
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New
Used
Service
Body
Parts
Order Recv
The The Receiving Receiving FunctionFunction Is Is
Performed By Performed By The Parts DeptThe Parts Dept
Documentation Is Documentation Is Reconciled And Reconciled And Special Order Special Order
Parts Are Parts Are IdentifiedIdentified
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New
Used
Service
Body
Parts
Order Recv StockKeep
The The Stockkeeping Stockkeeping
FunctionFunction Is Is Performed By Performed By
The Parts The Parts Department Department And Special And Special
Order Parts Are Order Parts Are Posted To Posted To ComputerComputer
The Bin Location Is The Bin Location Is Determined And Recorded Determined And Recorded
On The ComputerOn The Computer
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New
Used
Service
Body
Parts
Order Recv StockKeep
NotifyDept
The The Notification Notification FunctionFunction Is Is
Initiated And Initiated And The The
Originating Originating DepartmentDepartment Is Informed Is Informed Of Special Of Special
Order Parts Order Parts ReceiptReceipt
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NotifyCust
New
Used
Service
Body
Parts
Order Recv StockKeep
NotifyDept
The The “Originating “Originating Department”Department”
Completes The Completes The Notification Notification Process By Process By
Contacting The Contacting The CustomerCustomer
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NotifyCust
New
Used
Service
Body
Parts
Order Recv StockKeep
NotifyDept
And Parts Are And Parts Are Distributed To The Distributed To The
“Originating “Originating Department” To Department” To Complete The Complete The
SaleSale
DistParts
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If The Originating If The Originating Department Department
"Selects" The Wrong "Selects" The Wrong Part - Financial Loss Part - Financial Loss
Will OccurWill Occur
How Frequently Do How Frequently Do Incorrect Parts Get Incorrect Parts Get
“Selected”“Selected”
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Parts
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New
Used
Service
Body
Parts
Order Recv
If "Receiving" Fails To If "Receiving" Fails To Recognize The Recognize The
Receipt Of A Special Receipt Of A Special Order - Financial Order - Financial Loss Will OccurLoss Will Occur
Does This Ever Does This Ever Happen?Happen?
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New
Used
Service
Body
Parts
Order Recv StockKeep
If The Stock If The Stock Keeping Keeping
Function Fails Function Fails To Put The Part To Put The Part
Where It Can Where It Can Be Found - Be Found -
Financial Loss Financial Loss Will OccurWill Occur
This Probably This Probably HAS HappenedHAS Happened
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New
Used
Service
Body
Parts
Order Recv StockKeep
NotifyDept
If The Initiating If The Initiating Department Is Department Is Not Notified Of Not Notified Of The Receipt Of The Receipt Of
The Part - The Part - Financial Loss Financial Loss
Will OccurWill Occur
This May Have This May Have Happened TooHappened Too
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NotifyCust
New
Used
Service
Body
Parts
Order Recv StockKeep
NotifyDept
If The Customer If The Customer Isn't Notified - Isn't Notified - Financial Loss Financial Loss
Will OccurWill Occur
How Many How Many Customers Have Customers Have
Not Been Not Been Contacted?Contacted?
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Unless Each Step In The Unless Each Step In The Process Is Process Is
(1) Recognized, (1) Recognized, (2) Implemented In The Correct (2) Implemented In The Correct
Sequence By The Correct Sequence By The Correct Function, And Function, And
(3) Measured To Identify (3) Measured To Identify Success Or FailureSuccess Or Failure
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Chaos Will Continue To Chaos Will Continue To Mis-Administer This Financial Mis-Administer This Financial
Investment ActivityInvestment Activity
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The Opportunity To The Opportunity To "Buy What You Sell / Sell What Buy" . . . "Buy What You Sell / Sell What Buy" . . .
Will Always Be Dependent Upon The Effective Will Always Be Dependent Upon The Effective Application Of Two (And Only Two) Processes:Application Of Two (And Only Two) Processes:
Stock Order ProcessStock Order Process Special Order ProcessSpecial Order Process
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Buy What You Buy What You Sell / Sell What Sell / Sell What
You BuyYou Buy