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Achieving Effective
Inventory Management

Table of Contents

  1. Get your warehouse in order
    • Understand why you are in business
    • Every employee is aware of the cost of bad inventory management
    • Protect yourself against theft
    • Maintain a clean physical plant
    • Put your best people in receiving
    • Establish an approved stock list for each warehouse
    • Use ranking to separate stock from stuff
    • How do you handle non-stock items in the future?
    • Adding products to your approved stock list
    • Assign and use bin locations
    • Using a combination of material storage methods
    • Is your warehouse filled with air?
    • How much space do you assign to an item?
    • Bar coding improves accuracy
    • Record all material leaving your warehouse
    • Cycle count your products and process paperwork
    • Set appropriate goals for your buyers
    • Develop goals
    • Create a “Brand” for your company
    • Review
  2. Usage and demand
    • Maintaining products with sporadic usage
    • Forecasting demand for items with recurring usage
    • How do you determine the demand forecast
    • Past usage
    • Utilizing usage to forecast demand
    • Different forecast formulas for different patterns of usage
    • Determining the best forecast formula for each item
    • Why isn’t demand based on actual customer requests?
    • Does every product have to be stocked in every location?
    • Adjusting usage for unusual situations
    • Future usage that cannot be predicted by past usage or trends
    • Collaborative planning forecasting and replenishment (CPFR)
    • Usage and kits
    • Customer release orders
    • Forecasting far into the future
    • Weekly forecast periods
    • The total forecast
  3. The average lead-time & safety allowance

    • Lead times and vendor shipments
    • Components of the projected lead time
    • Dealing with unusual lead times
    • Other lead time situations
    • Long lead times are not a problem, inconsistent lead times are
    • Safety stock
    • How to maintain safety stock
    • How much safety stock do you need?
    • Items that require near 100% customer service
    • Items with erratic usage
    • Products with inconsistent lead times
    • High profit items
    • Stock reserved for a specific customer
    • Items that require less safety stock
    • Using residual inventory to determine if safety stock is adequate
  4. The order cycle and the line point

    • The order cycle
    • Order cycles for non-seasonal vendors lines
    • Order cycles for seasonal vendor lines
    • Using manual order cycles
    • The line point
    • Additional safety stock for an order cycle
    • Minimum and maximum order cycles
  5. The economic order quantity

    • Recognize the total cost of inventory
    • The reordering cost
    • The inventory carrying cost
    • The total cost of inventory
    • The economic order quantity formula
    • The improved EOQ formula
    • Working with the EOQ formula
    • Limits of the economic order quantity formula
    • The EOQ and seasonal items
    • The importance of calculating your reordering and carrying cost
    • When to use EOQ replenishment
  6. Other replenishment methods

    • Maximum stock level and just in time replenishment
    • New stock items
    • The inventory actuarial table
    • Consider the effect new items have on existing products
    • Price break purchasing by item
    • Price break purchasing for a vendor line
  7. Your investment in stock inventory

    • Calculate your projected inventory investment
    • Calculate your potential turnover
    • Day’s supply of inventory
    • Pruning your approved stock list
    • Stocking dead stock and slow moving items
    • Dead inventory
    • Slow moving inventory
    • Excess quantities of normal stock items
    • Three way ranking
    • Does every item have to be stocked in every branch?
    • Results take time
    • The liquidation of unwanted inventory
    • Inventory liquidation is a 12-month job
  8. The replenishment process

    • Analyze current replenishment needs
    • Assign non-stock products to a replenishment source
    • Analyze overall replenishment needs
    • Suggested replenishment inquiry/report
    • Suggested target purchase orders
    • Crisis prevention orders
    • Suggested order quantity for crisis prevention orders
    • Increase a suggested target order to meet vendor requirement
    • Decrease a suggested target order to meet vendor requirement
    • Transfer orders
    • One-step and two-step transfers
    • Assembly orders
    • Approve suggested orders
    • Intra-company buying groups
    • Distribution requirements planning
    • How much is free freight worth?
    • Early warning reports
  9. Physical inventory and cycle counting

    • Why is a physical inventory necessary?
    • The key to a good physical inventory is planning
    • Conducting the actual count
    • The advantages of cycle counting
    • Overcoming cycle counting challenges
    • Interpreting your discrepancies
    • Pay people to protect your assets
  10. Summary. What do you do now?

    Appendix A. Calculating the carrying cost percentage

    Appendix B. Calculating the cost of reordering inventory

    Appendix C. Inventory policies and procedures manual guidelines

    • New item budget
    • Decisions concerning stocking specific new products
    • Separate items with recurring and sporadic usage
    • Forecasting future demand of existing products
    • Verifying the accuracy of lead times
    • Determining safety stock quantities
    • Vendor target order requirements
    • What replenishment parameters are maintained for each item?
    • When are replenishment orders issued
    • Expediting
    • Receiving
    • Inspection/Processing
    • Maintain a clean physical plant
    • How is stock material stored in your warehouse
    • Consigned inventory from a vendor
    • Consigned inventory for customers
    • Filling customer orders
    • Filling outgoing transfers
    • Samples provided to customers
    • Inventory adjustments
    • Cycle counting
    • Full physical inventory
    • Customer returns
    • Returns to vendor
    • Handling broken carton quantities
    • Pre-assembled kits
    • Build to order kits
    • Intra-warehouse transfer
    • Procedures for packing and shipping
    • Open stock inventory
    • Inventory costing
    • Leading warehouse employees
    • How do you measure inventory performance?
    • How do you measure inventory errors?

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