Problem and Goal Statement for Excess Stock Project

Six Sigma – iSixSigma Forums General Forums Implementation Problem and Goal Statement for Excess Stock Project

This topic contains 3 replies, has 2 voices, and was last updated by  Mike Carnell 7 months, 2 weeks ago.

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    I am about to lunch 2nd six sigma project and would like to check if used statement and metrics make sense.

    Problem statement:
    On 6/30/2018 inventory level for 44.32% SKU from group “BOX” exceed 6 month usage (121 out of 273 SKU). Average stock cover is 77,45 months (goal is 6 months). This drives to:
    1. Value of 350k USD frozen company assets
    2. Storage cost of 2k USD/month
    3. Renting pallet places outter warehouse 1.8k USD/month

    Reduction on numer of SKUs from group “BOX” with stock cover above 6 months from 121 to 50 with total value of 200k USD by the end of February 2019.

    Main “Y” -> Average stock cover group “BOX”
    Y1 -> scrap cost for group “BOX”. This is to make sure that main Y won’t get better due to increase in scrap.


    Mike Carnell

    @pacocapo Personally I really dislike warehouse/incoming/FG projects. Particularly excess and obsolete type projects. A ware house is just where poor management becomes visible. Nobody in the ware house created the SKU’s. Nobody in the warehouse bought 6 months of inventory, etc.

    Unless you want to do this project once per year you need to look at the entire system that piles stuff up in the warehouse.

    Don’t waste time on excess and obsolete until you go to accounting and find out how much they budgeted to write down. It doesn’t matter how much you have you are not going to be allowed to get rid of more than what is in the budget.



    Hi Mike,

    Thank you for reply.

    Problem with Obsolate or excess inventory is easy to transfer into money, track trend and etablish gap.
    I agree that finding root cause is necessary to make sure that problem is fixed and will not come back.
    By possible root cause i would consider:
    – optimistic forcast of new products
    – poor ramping down old products
    – very epidemics sales forcast
    – old gold habits “If I buy more, vendor will give me better price and someday it will be used”
    – customers who did not buy dedicated or promised materials

    Aim of this project is to confirm root causes for high coverage, create effective counter measure and then if it works transfer it to other products/materials group by lesson learnt.


    Mike Carnell

    @pacocapo I understand about converting excess and obsolete. Just a warning to talk to accounting.

    Here is the problem you get into with a buyer. They probably understand scrap better than anyone in the factory. If I want to build 100 parts they know eactly how much extra they need because they have seen material get scrapped out of the process. They get into trouble when someone wants to build something and there is no material. They get in trouble every time it is OOS. They can order extra, never run out and the only time anyone says anything is when they do a physical inventory. Regardless what you do as a counter measure this goes on in their head.

    Just my opinion.

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