Sunday, January 13, 2019
| | Inventory Is Evil! Series Inventory Is Evil! Volume 2 | Number 1 | January 2019 | | | | My passion is helping clients reshape and transform their supply chain management strategy, design and shifting their paradigms on process sustainability.
Today let's think about why inventory is evil!
One of my top priorities is helping clients understand why inventory is evil, getting their organization to reframe views on inventory and its cost to organization and customer service."
| | First, inventory is the life blood of any organization and without it you would have a hard time satisfying customer demand.
However, inventory is not your security blanket!
There are plenty of examples of healthy and highly profitable organizations with great inventory velocity. - Amazon = 11 turns.
- Apple = 20 turns.
- Etc.
But why is inventory evil? Why do we care about inventory? - Cost money – 30% – 80% / dollar on an annul basis.
- (A recent clients finance team calculated $0.73 per $1 spent-annually)
- Uses needed capacity.
- Negatively affect service.
- It hides problems; therefore, it delays fixing problems!
A few of the typical problems inventory hides: - Poor supplier delivery performance and quality.
- Poor operational performance. Wasting capacity building product "A" for safety stock and customers are waiting on product "B".
The objective is to get organizations to understand the importance of
reducing inventory to: - Make the right amount.
- Of the right things.
- At the right time.
And to get organizations to realize there is a correlation to service. - Providing customers consistently with how much.
- Of what they want.
- When they want it.
Taking time out (reduction to lead-times and processing time) of the supply chain and operations is critical to success in achieving objectives
And breaking the inventory myths: - Low Inventory = Poor Service.
- Good Service = Fastest Delivery.
- Many Stocking Locations = Good Service.
How is this fixed? What are these processes?
Get the inventory FACTS - Minimal inventory designs are more responsive to customers.
- Reliability to customers delivery dates is more valued than speed.
- Fewer locations result in improved reliability.
- Low inventory and excellent service go hand in hand.
The Service Equation - Inventory and Service.
- Short cycle times.
- Flexible manufacturing.
- Responsive suppliers.
- And CLEAR communications.
***Give the ability to have low inventories and high customer service.***
Some common values of best in class corporations. - Low inventory is compatible with high service and low cost.
- Very few trade-offs are needed.
- However, must be the businesses top priority.
- Only effective organizations can succeed.
- Many elements must be executed well.
There is a correlation between high service levels, high working inventory turns and low-cost.
Inventory-carrying costs can be broken down into four categories: - Capital costs - Money tied up in inventory.
- Storage costs - Space, personnel, and equipment.
- Opportunity costs - What you could do with the cash.
- Risk costs - Obsolescence, damage, pilferage, insurance, and deterioration.
***The percentage of inventory costs increase with the amount of inventory carried.***
Balance the cost of carrying inventory against the cost of not carrying inventory: - Customer service
- Changing production levels
- Placing orders
The sum of the cost of carrying inventory and the cost of not carrying inventory should be as low as possible.
I will debate anyone that inventory cost dollar for dollar on an annual basis; if you have $100 million in inventory, it's reduced by $50 million with the same sales volume, your operational cost will reduce by $50 million.
I've helped an organization achieve 55 turns/year for total inventory and first hand watched the improvements to the bottom line. If your organization is not using a range of 35 to 60% annual carrying cost, they need to rethink the numbers and the impact on corporate performance. Join me in becoming a zealot for operational excellence.
in·?ven·?to·?ry / 'in-v?n-?t?r-e / noun Inventory is the term for the goods available for sale and raw materials used to produce goods available for sale.
in·?ven·?to·?ry is evil! / 'in-v?n-?t?r-e is 'e-v?l / phrase Left unchecked inventory has many negative unintended consequences to profitability. | | | | | | Your Supply Chain, Your Supply Change, Your LeadershipTM | | | Thanks in advance for your time. As always, thanks for being a loyal client. Looking forward to helping you and your team again soon.
Carpe diem,
Art Koch
Arthur Koch Management Consulting, LLC
info@arthurkochmgt.com
+1 (336) 260-9441
| | | | Copyright © 2019 Arthur Koch Management Consulting, LLC, All rights reserved.
Our mailing address is:
21200 NE 38th Ave, Suite 2003, Miami FL, 33180
info@arthurkochmgt.com +1 (336) 260-9441 | | | |
|