vetri:
A couple more thoughts on inventory reduction
. Many of the responses you receive from the forum come from a manufacturing perspective. Not all SS inventory projects are related to manufacturing as some come from the sales/service industries. Though similar in some aspects, the projects can be very different in others.
In sale/service industries, inventory is not necessarily bad
. Especially if your company uses stock and immediate delivery as a differentiator from your competition. To focus only on inventory dollars would be a mistake. There are a group of measures that have more importance and they should be looked at as a package:
1). Sales Dollars The higher the better. Inventory $s could go down (not as a result of project improvements) due to a decline in sales. You think youre getting better but youre not
Sub measurements by product, by region, by salesperson, etc.
2). Turns The higher the better. TURNS is KEY! Higher inventory may be OK if it is turning at a high rate. The trick is to balance turns with availability across all your products. Sub measurements by product, by region, by season, by promotion, etc. Other, related measurements: by length of time in inventory over dollar value (low dollar items may turn at different rates than high dollar items)
3). Backlog Dollars The higher the better. Backlog is an indication of the flow of your pipeline. Again, Inventory $s could go down (not as a result of project improvements) due to a decline in orders. You think youre getting better but youre not. Sub measurements by product, by region, by salesperson, etc.
4). Availability The higher the better (but within reason). Segregate your products logically as they pertain to your business. Segregate by $ value and/or demand. There may be some products that you can NEVER be out of. Others are less critical as they can be replenished within the customer requirements. This measurement can be very closely tied to lost sales reporting. Focus on those products that suffered lost sales due to not being available (or the opposite – what sales did you get because availibilty was the differentiator?). As previously mentioned, it can be difficult to balance with turns (utopia = 100% availability at a high turn rate).
5). WIP is important but maybe not quite as important as in manufacturing? Some products are prepped before selling and/or have 3rd party add-ons incorporated. WIP should be measured and should be constantly worked on to lower $s and increase throughput.
6). Inventory Dollars It is what it is (but always trying to lower). If you have focused on the first five measurements and have a good handle on where they are and how to get to where they need to be, Inventory Dollars fall into place.
Good Luck! OLD
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