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how to measure process capability of inventory reduc

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  • #43049

    SH
    Member

    Dear sirs,
    I am leading a BB project for improving inventory turnover rate for long lead time items.
    This kind of transactional six sigma project is first time for me.
    Therefore there are a couple of questions about measuring baseline.
    For example, in case of inventory days, how to measure the process capability and what should be LSL and USL?

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    #136233

    Rupesh
    Member

    Dear,
    I think you need to first have the data for your historical inventory turnover. The Inventory turnover can be calculated as the ratio of Cost of goods sold divided by the inventory value. The significance is to understand, how many times the inventory is sold. In your case, for simplification purpose you may replace COGS by sales data.
    It will be nice to have at least one year sales and inventory data. That will give you the turnover ratio. The data so obtained can be plotted using Minitab for Capability calculation purposes.

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    #136236

    Bob Digman
    Participant

    You shouldn’t replace COGS with Sales data because that would inflate the turns calculation..  In addition, most firms use average inventory for the particular period.  Once you have a turns ratio, you can divide it into 365 to estimate the days inventory, e.g., 365/10 (turns) suggest that you have 36.5 days of inventory on hand.
     

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    #136237

    Andejrad Ich
    Participant

    Unless you can find terms by which inventory management can be portrayed as a process with a measureable level of defective output, then there is nothing about this that makes it a six sigma project. 
    If you can determine and flowchart a process for inventory use, and materials held too long can be identified as a “defect”, then you might have a project.  If you can put a number on “too long”, then you have a USL to measure against. 
    Andejrad Ich

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    #136255

    KKN
    Participant

    You might want to back up and start with the definition of your defect. If your defect is any sku either in backorder against a customer requirement OR having greater that established safety-stock policy + lead time number of days of inventory on hand, there are your specs. If your definition is differnt, that will change your answers.

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    #136617

    Ron
    Member

    I deal with 500 MUSD in inventory and manage DOS (days of supply) daily for major company. 
    The key to measuring DOS, in my opinion, is having accurate visibility to your on hand inventory.  You need to separate by raw materials, semi-finished goods, and finished goods.  This is critical as you will need to manage these areas differently.  Then you need to know your AVERAGE daily COGS.  This COGS is simply the number of units you expect to sell x the BOM cost.  Dividing inventory by Avg Dail COGS gives you a “forecasted DOS.” 
    At the end of the month you then go back to see what you actially sold and then you have your “restated DOS” since you can now “restate” your COGSwhich is what you really sold x the BOM costs.  This is the data side of it which your ERP system should hopefully be able to help you with or better yet your finance guys should be able to give this to you as they must have it for month end closing.
    Once you have the data attacking it is another story.  I personally look at inventory by age.  You must eliminate excess and obsolete inventory first by selling, giving away, or last resort scrapping.  You can use all kinds of Six Sigma methods to chart this.  Be creative and have fun with this data mining.
    In the end the best way to improve DOS is to implement Lean practices of shortening supply chain, improving changeover times, implementing JIT, etc.  Read some James Womack books for advice. 
    I am also happy to consult so email me if you want more thoughts. 

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    #136987

    Simon Yang
    Member

    I am working on a similar project at this moment. However, I am contemplating to start with 5S  first. The puropse of this approach is to  get inventory/ information organized, increase visibility before proceed to six sigma.

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    #136990

    Ovidiu Contras
    Participant

    SH,
    LSL should be the minimum inventory days without stock-outs (you are below, you’ll have a stock-out)
    USL is something management would agree is acceptable in terms of money tied in inventory (more inventory days, more money tied in …)
    Hope this helps

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