Thursday, July 24, 2008

Inventory management tips -part 2

Here are some of the most common techniques for lowering inventory levels.
6. Forecast Events: If one-time demand clutters the sales history, or if one-time demand events are part of the future, then they need to be taken into account in any forecasting done-both in terms of editing them from history and in terms of incorporating future events into the routine demand forecast.

7. Think Postponement: For parent products from which multiple SKUs can be manufactured, only partially completing manufacturing, placing semi-finished product in inventory, and then completing manufacturing of the final SKUs to order reduces total inventory. In a similar manner, component products from which final SKUs may be assembled can be purchased to inventory and then the final SKUs assembled to order, providing that the time for assembly doesn't exceed the customer lead time.

8. Rationalize SKUs: Removal of inappropriate product from the product line can be a controversy-ridden process, but may reduce inventory significantly if handled in a constructive manner, as follows:

* Develop consensus on the objective of maximizing profit
* Develop activity-based costs for each SKU and separate them into three groups:
o Those with selling prices that create positive gross margin
o Those with selling prices that cover their variable cost but do not completely cover their fixed cost
o Those with selling prices that do not cover their variable cost
* Quantify the sales volume correlations between SKUs, based on the analysis of both individual orders and aggregate order patterns by customer
* Identify the combination of SKUs which maximizes profit on a fully-absorbed basis

9. Reduce Lead Times for Product Acquisition: For either manufactured or purchased product, any reduction in lead time, whether supplier lead time, transportation time or receiving cycle time, provides a one-time, permanent reduction in cycle stock inventory proportional to the throughput level of the SKU and the degree of lead time reduction. In a similar manner, reducing lead time variability and increasing inbound unit-, SKU-, or order-fill rates both increase supply reliability and reduce safety stock inventory for a given customer service level.

10. Implement Common Supplier Joint Procurement for Purchased Products: Joint procurement of multiple SKUs from a common supplier serves to effectively reduce unit purchase transaction costs and thereby reduces both cycle stock inventory and annual purchase transaction expenses. In a similar manner, joint procurement of multiple SKUs from different suppliers located in close physical proximity and consolidation of inbound (LTL) volume to form full TLs serves to reduce the incremental transportation cost portion of purchase transaction costs and reduce cycle stock inventory.

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