gossard best practices for inventory reduction
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Best practices for Inventory Reduction- found this from google. informative read.TRANSCRIPT
Best Practices for Inventory Reduction
Gary GossardIQR International
© 1992-2005 IQR International, Inc.
Presentation OutlinePresentation OutlineBest PracticesTop Ten Inventory Reduction PracticesInventory Quality RatioReduction Strategies and Case Studies
Identify and Reduce the ExcessRevise Material Ordering GuidelinesUse Continuous Improvement
Summary & Conclusions
© 1992-2005 IQR International, Inc.
Definition 1Definition 1A “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.
Definition 2Definition 2A “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.
Inventory Reduction Inventory Reduction Best Practices SurveyBest Practices Survey
Inventory Management Report“Improving Logistics & Supply Chain Management”
Survey of inventory managersReported top 5 best practicesTabulated by company size
Under 500 employeesOver 500 employees
Ranked 20 practices by overall utilization
© 1992-2005 IQR International, Inc.
Top Ten Reduction PracticesTop Ten Reduction PracticesConduct 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.
Survey ConclusionsSurvey Conclusions
“Periodic Review” still most popular“Order Quantities” biggest gainUsing more analytical approaches
Past usage and safety stocksLot sizes and order quantitiesABC classifications
Takes more than one best practiceInventory reduction a two step process
© 1992-2005 IQR International, Inc.
Introducing IQRIntroducing IQRA 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.
Inventory Quality RatioInventory Quality RatioInventory management techniqueWorks with your existing systemTop-down focus on inventory dollarsMeasures performance by segmentGives planners information they needEnhances any MRP/ERP/SCM system No additional data entry required.
© 1992-2005 IQR International, Inc.
6
A1A1 A2A2
NMNM
SMSM
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12
BB
R H
D E F A B C
E2E2
MRP / ERP
Extract
A B C
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Data
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80 - 15 - 5 %4 - 12 - 24
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IQR LogicIQR Logic
© 1992-2005 IQR International, Inc.
Inventory Quality RatioInventory Quality Ratio
IQRIQR ==A1 + A2A1 + A2
IQR =IQR =Active Inventory DollarsActive Inventory Dollars
Total Inventory DollarsTotal Inventory Dollars
Perfect Perfect IQRIQR = 100%= 100%
A1 + A2A1 + A2 + E1 + E2 + E3+ E1 + E2 + E3 + SM + NM+ SM + NM
© 1992-2005 IQR International, Inc.
Inventory Quality RatioInventory Quality Ratio
IQRIQR ==A1 + A2A1 + A2
IQR =IQR =Active Inventory DollarsActive Inventory Dollars
Total Inventory DollarsTotal Inventory Dollars
Average Average IQRIQR = 30= 30--45%45%
10%10%3030--50%50%
A1 + A2A1 + A2 + E1 + + E1 + E2E2 + E3+ E3 + + SM + NMSM + NM
© 1992-2005 IQR International, Inc.
The IQR LogicThe IQR LogicAnalyzes inventory using:
Balance on hand and unit costPast usage and future requirementsABC techniques and user-defined parameters
Develops inventory quality categories:Active: reqmt/use, balance within limitsExcess: reqmt/use, balance over user’s limitsSlow Moving: no reqmt, no use in 6 monthsNo Moving: no reqmt, no use in 12 months
Measures overall inventory performance.Combines BPs with a dollar focus.
© 1992-2005 IQR International, Inc.
Inventory Reduction Strategies Inventory Reduction Strategies with Case Studies of IQR Resultswith Case Studies of IQR Results
1. Identify and Reduce the ExcessRapid Inventory Reduction at IGT
2. Revise Material Ordering GuidelinesWorking Smarter, Not Harder at AGCS
3. Use Continuous ImprovementWorld Class Performance at Steelcase
© 1992-2005 IQR International, Inc.
1. Identify & Reduce the Excess1. Identify & Reduce the ExcessQuick Look
Good and Bad
Focus on Dollars
Action Items
Open Orders
Action Codes
© 1992-2005 IQR International, Inc.
Case 1 Case 1 -- Rapid ReductionRapid 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 solutionShort-term benefitsReduce inventory $10 million by FY end.
© 1992-2005 IQR International, Inc.
Inventory Dollars by CategoryInventory Dollars by CategoryPurchased and Manufactured at Purchased and Manufactured at ♠♠IGTIGT
Excess 2: The biggest and best reduction opportunities.Excess 2: The biggest and best reduction opportunities.
Quick Look Dollars ($1000) by Purch/Manuf and Quality Category
Purch Active Active Excess Excess Excess Slow No Total IQRManuf 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 18 267 1,507 47.5%
Total 372 17,689 4,218 27,264 0 1,756 3,667 54,965 32.9%
0
© 1992-2005 IQR International, Inc.
Rapid Reduction PhaseRapid Reduction Phase♠ By fiscal year end - 3 months
Over $10 million reduction (20%)27% reduction in Excess 2 inventoriesManagement 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.
Rapid Inventory Reduction Rapid Inventory Reduction ♠♠IGTIGTInventory Dollars and IQR Performance
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20,000
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6/98 8/98 10/98 12/98 2/99 4/99
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Rapid Reduction Phase Continuing Improvement Phase
Added 10,000 moreinventory items
Add
ed
© 1992-2005 IQR International, Inc.
Continuing Improvement PhaseContinuing Improvement Phase♠ Deployed IQR to all planners
♠ Doubled the parts managed with IQRAdded 10,000 items and $14 millionNew items lowered overall IQRTotal inventory base $69 million
♠ $30 million reduction (43% in 14 months)
♠ Purchased parts reductionsExcess 2: $20.3 million (61%)SM + NM: $3.8 million (52%)
© 1992-2005 IQR International, Inc.
2. Revise Ordering Guidelines2. Revise Ordering GuidelinesInventory Profile
Target Setting
What Ifs
Custom Analyses
Safety Stocks
Ordering Rules
© 1992-2005 IQR International, Inc.
Case 2 Case 2 -- Working SmarterWorking SmarterAG Communication Systems (AGCS)
Lucent Technologies and GTE$350 million total sales
Central office switching networksGenoa, 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.
Inventory Performance Inventory Performance Pressures MountingPressures Mounting
Aggressive growth planShorter product life cyclesInventory investment increasingInventory turns deterioratingObsolescence exposure growing
20% of inventory balanceReserve funded from net income
© 1992-2005 IQR International, Inc.
New Approach NeededNew Approach NeededHad been using
State-of-the-art systemsEvent-driven replenishmentMake-to-order assemblyExperienced planners
“The results just weren’t there!”Spending too much time on C itemsNeed to focus on $$$, not quantities
Saw IQR as a more effective method
© 1992-2005 IQR International, Inc.
Improvement Strategy Improvement Strategy A Three Step ApproachA Three Step Approach1. Stop the Bleeding
Cancel or defer excess open orders
2. Clean HouseIdentify slow and obsolete inventoriesAssess potential for reducing write-offs
3. Take Away the KnifeApply ABC classificationsRe-evaluate ordering guidelinesSynchronize IQR and MRP
© 1992-2005 IQR International, Inc.
Inventory Dollars and IQR AGCS
Purchased Parts by Category and IQR Performance
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Months After Implementation
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ExcessSM+NM IQR %
© 1992-2005 IQR International, Inc.
The Results and BenefitsThe Results and BenefitsIQR doubled in nine months35% reduction in excess inventory$3.8 million inventory savingsDoubled active inventory availableFine tuned their MRP systemOrders now consistent with targetsEveryone working smarter, not harderQuicker response to product changes
© 1992-2005 IQR International, Inc.
3. Use Continuous Improvement3. Use Continuous ImprovementThe Second Step
Movement Matrix
Flag Changes
Financial Impact
Track Results
Root Causes
© 1992-2005 IQR International, Inc.
Three Causes of Bad InventoryThree Causes of Bad Inventory
MaterialsMaterials SalesSales EngineeringEngineering
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© 1992-2005 IQR International, Inc.
Case 3 Case 3 -- SteelcaseSteelcase (four plants)(four plants)
World Class PerformanceWorld Class Performance4 - 12 - 24 IQR= 80-90% 30 turns1 - 2 - 6 IQR= 40-50%6 months IQR= 55-70% 40 turns
Over 42 turnsMake to order
BenchmarkRevise rulesDon’t outgrowThe best get better.
© 1992-2005 IQR International, Inc.
Best Practices and IQRBest Practices and IQRConduct periodic reviewsAnalyze usage and lead times Reduce safety stock levelsUse ABC approach (80/20 rule)Shift ownership to suppliers Re-determine order quantitiesUpdate inventory systems
IQR adds the dollar focusIQR adds the dollar focus
© 1992-2005 IQR International, Inc.
IQR EnvironmentsIQR EnvironmentsManufacturing companies
material plannersbuyersproduction schedulersoperations managementfinancial management
Distribution and logisticsUtilities and MRO storesManagement consultants
© 1992-2005 IQR International, Inc.
Best Practice Criteria 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.
IQR Use is SpreadingIQR Use is SpreadingAirtechnicsAlcatelAllergan Medical Amtrol IncorporatedAndrew CorporationArvin MeritorAvery DennisonBanner PharmacapsBeckman CoulterBiltBest ProductsBinney & SmithBlack & DeckerBosch CorporationBunn-O-Matic CorpCarrier CorporationChamberlain GroupDana Corporation
Dialogic - Intel Corp.Dow ChemicalEastman ChemicalEngenio IT - LSI LogicErico IncorporatedGKN AutomotiveHoneywellHyundaiJohnson & JohnsonKaty IndustriesKorry ElectronicsKohler CompaniesKrebs EngineersLuK Automotive MotorolaNational OilwellNational RVNewell-Rubbermaid
Nilfisk-AdvanceOakleyOcean CuisineO’Sullivan IndustriesPharmacia ItaliaRheem ManufacturingRicon CorporationSchering-PloughSchlumbergerStanley - MAC ToolsTelex CommunicationsTyco ElectronicsUnilever BestfoodsWellman ProductsWenger CorporationWoodward GovernorValmont IndustriesVita-Tech International
© 1992-2005 IQR International, Inc.
ConclusionsConclusionsMRP/ERP good for planningBest practices needed to manage IQR combines best practices with $ focusKeys to reducing inventories:
Focus on the dollars – prioritize opportunitiesIdentify the excess – stop the bleedingApply dynamic ABC analysis – work smarterRe-evaluate ordering rules – fine tune MRPMonitor movement – address root causes
Make the planners’ job easier.Improve turns, cash flow and profits.
© 1992-2005 IQR International, Inc.
Thanks for attending.
Questions?Questions?
[email protected] (949) 487-5400