intensive inventory management programid.tamu.edu/media/inventorymgmnt.pdf · intensive inventory...

Fermier Hall, MS 3367Texas A&M University

College Station, TX 77840-3367Phone: 979-845-4984

Fax: 979-845-4980http://id.tamu.edu

Phone: 979-845-4984 / 866-

260-2463 Fax: 979-845-4980http://readcenter.tamu.edu

Intensive Inventory Management Program

Creating Competitive Advantage Through Education

KEY TAKE-AWAYS>> Reduce obsolescence and right-size inventory investments >> Maximize your ROI on inventory while balancing customer service>> Measure forecast accuracy through focused forecasting>> Optimize safety stock investment>> Minimize total relevant cost >> Manage item-level profitability>> Effective use of IT & human resources

WHO SHOULD ATTEND?>> Inventory Planners / Coordinators>> Inventory Managers>> Purchasing Professionals>> Anybody who manages inventory in your firm

PROGRAM OUTLINE>> Inventory Stratification •Methods •Policies

>> Forecasting •Demandpatternanalysis •Methods

>> Replenishment •EOQ •Reorderpoint •Policies •ServiceVsCostMatrix

>> Performance Assessment & Benchmarks •ProcessAssessmentFramework •ProcessAssessmentWorkbook •FinancialBenchmarking - Asset Efficiency, Cash Flow, Growth, Profitability

>> Stock Analyzer •Spreadsheet-basedanalyzer •FinancialStatements •CriticalVariablesInput •FinancialMetricsOutput

>> Inventory Best Practices •ProcessDescription •Common,GoodandBestPractices •MethodologyDescription •KeyPerformanceIndicators

>> Conclusion

“We collaborated with Texas A&M on an inventory stratification project which has resulted in a successful classification of our inventory based on item level profitability. We have already seen a significant reduction in capital employed and expect to benefit from further decreases.”

KevinC.Reid, VicePresident-Procurement ThyssenKruppMaterials,N.A.

“I was impressed with the overall program at TAMU. When I look back to the program, I was impressed with the Item Stratifica- tion segmentation of Critical (A&B) Items and (C) Items.”

Randy Thomas, Regional Manager, WilsonSupply

REGISTER NOW!http://id.tamu.edu

Stratification

Lead TimeDemand During Lead Time Safety Stock

ForecastingFill Rate

Reorder Point

Replenish

IntensiveInventoryManagementProgramdealswiththeSTOCKprocessessuchasinventorystratification,forecastingandreplenishment.Inventorystratificationistheprocessofclassifyingitemsintoacertainnumberofcategoriessothatmanagingthemday-to-daydoesnotbecomeunwieldy.Theinventorystratification processisusuallynotwelldefinedorgivendueimportance,anditoftengetsover-simplified.Whenappropri-ately used, it can play a pivotal role in defining policies and procedures for other inventory management processessuchasforecastingandreplenishment.Inventorystratificationmustbedonepriortoaddressingother inventory/purchasing related processes because it acts as a sledgehammer and thereby, places the com-panyinapowerfulpositionwitharelativelyquickreturn-on-investment.Thereforeinthisprogramyouwillbe exposedtovariousInventorystratificationmethodsandtaughthowtoleveragetheseresultsforforecasting.

The program will demonstrate various forecasting methods, helping you understand the best method to useforyourbusinesssetting.Youwillgethandsonexperienceanalyzingdemandpatterns,applyingvarious forecastingmethodsandevaluatingforecasterrortochoosethebestmethod.Theprogramwillalsohelpyouunderstandtheconceptof“Whattoorder?”and“Howtoorder?”formakingreplenishmentdecisions.Handsonsessionstodecidethereorderpointandreorderquantitieswillenhanceyour decisionmakingprocessinyourbusiness.

Youwillalsohearsuccessstoriesandstepstoimplementinventorymanagementbestpracticesfrom industryexpertsfrombothbusinessandITperspectives.TheSTOCKexercisewillwalkyouthrough theprocessofconnectinginventorydecisionstoshareholdervaluethroughyourfinancialstatements. At the end of the program you will be able to assess the stock processes in your company and develop aplanofactiontoimplementbestpracticesatyourcompanyrightaway.

PROGRAM OVERVIEW

DELIVERABLESOptimizing Distributor ProfitabilityBest Practices to a Stronger Bottom Line

F. Barry Lawrence • Senthil Gunasekaran • Pradip Krishnadevarajan

“Through knowledge learned from the inventory management program, attended by all our management and key salespersons, we have reduced our total inventory levels by over 20%”

BrentA.Burns,VicePresident,ISCBuildingMaterials,LP

“Texas A&M’s research has allowed our company to continue to stay ahead of our competition and excel in customer service.”

TimMiller,VicePresident–Operations, SecurityContractorServices,Inc.

T Y P I C A L I N V E N T O R Y M I X I D E A L I N V E N T O R Y M I X

Texas A&M multi-criteria inventory stratification

DAY 1 DAY 2 DAY 3 DAY 4 DAY 5 Inventory Management WORKING SESSION: WORKING SESSION: WORKING SESSION: WORKING SESSION: Overview Inventory Stratification Forecasting Replenishment/Service Process Assessment vs. Cost Matrix Stock Group

Key Performance Attendees to Present Demand Pattern Attendees to EXERCISE: Linking Indicators and EXERCISE Results and Policies Classification Present Results Inventory Management to Shareholder Value

EXERCISE: Inventory Inventory Stratification - Replenishment Policies Debrief and Discussion Inventory Management Carrying Cost Concluding Remarks Challenges and Benefits

Inventory Stratification Forecasting EXERCISE: Inventory Buy Decision - EOQ EXERCISE: Inventory Stock Out Cost Management Recap

EXERCISE: Sample EXERCISE: Forecasting Replenishment Policies - GUEST LECTURE: Discussions and Stratification Analysis Rounds 1 & 2 Continued Inventory Management Questions Business Perspective

WORKING SESSION: Forecasting Continued EXERCISE: ROP GUEST LECTURE: Certification Presentation Data Preparation for Inventory Management Inventory Stratification IT Perspective

Discussion and Discussion and CASE STUDY: Stock Group Discussion and Questions Questions From Optimizing Questions Distributor Profitability book

OBJECTIVEPerform Inventory Reduction and Inventory Redeployment (to A & B items) and evaluate the net impact on Return on Net Assets (RONA)

DATA Current Inv $ Current Sales $ Current COGS $Total 17,470,663$ 148,265,879$ 110,902,877$

A 28% 65% 65%B 21% 18% 18%C 25% 15% 15%D 26% 2% 2%

96,372,821$ 26,687,858$ 96,372,821$ 26,687,858$22,239,882$ 2,965,318$ 22,239,882$ 2,965,318$

72,086,870$ 19,962,518$16,635,432$ 2,218,058$

14.7 5.43.8 0.5 N/A N/A

4 891 786$ 3 668 839$

Where do you want to redeploy inventory (%)

Lost Sales % due to Inventory Reduction / RedeploymentCurrent Inventory $ (by item rank)

Current COGS $ (by item rank) New Sales $ (by item rank)Expected Turns upon

RedeploymentCurrent Turns (by item rank) Lost Sales $ (by item rank)

STOCK ANALYZER ‐ INVENTORY STRATIFICATIONINVENTORY REDUCTION / REDEPLOYMENT WORKSHEET

Current Sales $ (by item rank) Current Sales $ (by item rank)Refer Current Turns

4,891,786$ 3,668,839$4,367,666$ 4,542,372$ N/A N/A Sum

N/A N/AN/A N/A

N/A N/A N/A N/A Sum

Variable New Total Sales $ Current Total Sales $75%

Variable10%

Variable50%

Variable

Total Fixed Op. Exp

14,406,254$Current Delivery Exp

4 536 936$ 3 629 549$

New EBITDA $

148,265,879$

New Total COGS $

Current Employee Comp - Others

9,385,230$ 938,523$

Current EBITDA $Current Employee Comp -

Outside $ 7,709,826

COGS $ as % of Sales $

% Inventory for Reduction

Reduced Inventory $ 74.8%

% Inventory for Redeployment

New Total Sales $Redeployed Inventory $

Redeployed Inventory $ (by item rank)

Additional Sales $ (by item rank)Inv $ available for

reduction / redeployment (by item rank)

% Inventory considered for reduction / redeployment

Total Inv $ available for reduction / New Total GM $

erating Expe

9,059,045$ 6,794,284$ Other Income & Exp $

New Total Var Op.Exp

Total Variable Operating ExpCurrent Warehouse Exp New Total Op Exp $

4,477,630$ 2,238,815$ 15,246,922$

Refer Current Turns

Variable75%

Interest Income %

Current DSO NewTotal A/R $

46.4 C t N t A t

1,978,468$

New Total Sales $ Fixed & Non-current Assets New Total Assets

6,153,034$

Current Total Inventory $

17,470,663$ New Total Inventory $

Reduced Inventory $

Other Current Assets

1,645,751$

Current RONA %23.57%

New RONA %

4,536,936$ 3,629,549$

Current Other Op. Exp (G&A)

Interest Income

2,194,335$

Refer Current Turns

# days in a year Other Current Liabilities

365 2,404,335$

New Total COGS $ Notes Payables

1,427,456$

New Total Current LiabilitiesCurrent DPO New Total A/P $

# days in a year Cash & Market. Securities

365 1,990,029$ New Net Assets $

46.4 Current Net Assets $ 32,705,777

Refer Current Turns

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