7/30/2019 COST-SEEN 19.11.10

1/19

Cost Reduction Using Ten Inventory

Management Techniques

Monday, May 1, 20004:15 -- 5:50 p.m.

Mark S. Miller, C.P.M.,CIRM

Thomas M. Graddy, C.P.M., CIRM

NAPMs 85th Annual International Conference

New Orleans, LA

7/30/2019 COST-SEEN 19.11.10

2/19

Purchasing and Inventory

Inventory is $

Purchasing can play a major role

The impact to the bottom line

10 ways to reduce inventory costs

Master forecaster from the midwest

7/30/2019 COST-SEEN 19.11.10

3/19

Impact to the Bottom Line

Base $10 less inventorySales 300 300

Cost of goods sold

Materials Purchases 100 100

Labor 50 50Overhead 40 40

Change inventory 0 (10)

Total COGS 190 180

Gross Profit from sales 110 120Expenses 50 50

Net Income $60 $70

7/30/2019 COST-SEEN 19.11.10

4/19

Impact to the Bottom Line

Balance sheet Raw material

Work in process Finished goods

Cash flow

7/30/2019 COST-SEEN 19.11.10

5/19

1) Improve Communications in

the Supply Chain

The Supply Chain

CustomerSupplier Plant Warehouse Dealer

7/30/2019 COST-SEEN 19.11.10

6/19

Safety/ Buffer inventory at each level

Communicate electronically

In house supplier personnel Manage schedules

Expedite Sales trends at retail level

Improve Communications

7/30/2019 COST-SEEN 19.11.10

7/19

Lead times affect safety stock 95% of lead time is idle time

Track and measure supplier lead times Negotiate lower lead times

Look at lead times in entire supply chain Transportation

Receiving Inspection

2) Reduce supplier lead Times

7/30/2019 COST-SEEN 19.11.10

8/19

Benefits of standard products

Lower prices

Lower process costs

Fewer quality costs

Lower inventory costs

3) Standardize

7/30/2019 COST-SEEN 19.11.10

9/19

Steps to standardize

Use industry standards

Classify parts

Form a Standardization committee

Get the supplier involved

Standardize

7/30/2019 COST-SEEN 19.11.10

10/19

4) Reduce Surplus/ Obsolete

Inventory

Identify surplus/ obsolete

Use it elsewhere within your firm

Return it to the supplier

Sell it to other companies

Promote and sell at a discount to your customers

Donate it to charity

Scrap it

7/30/2019 COST-SEEN 19.11.10

11/19

5) Improve Supplier Quality

Poor quality leads to more inventory

Supplier selection

Supplier quality audits

Corrective actions

7/30/2019 COST-SEEN 19.11.10

12/19

Minimum order quantities and pricequantity breaks increase inventory

Costs of setting up a job Commitment agreement

6) Challenge MOQs and

Price Quantity Breaks

7/30/2019 COST-SEEN 19.11.10

13/19

7) Schedule More frequent

deliveries

time time

quantity

7/30/2019 COST-SEEN 19.11.10

14/19

Schedule More Frequent

Deliveries

Class Frequency Average Inv New Freq New ave Inv

A Monthly 2 weeks Weekly .5 Weeks

B 3 months 6 weeks Monthly 2 weeks

C 6 months 24 weeks 6 months 24 weeks

Average Inventory 3.7 weeks 1.9 weeks

7/30/2019 COST-SEEN 19.11.10

15/19

Poor delivery = inventory

Measure supplier performance

Communicate how it is measured

Set goals with suppliers

Recognize superior supplierperformance

8) Improve On Time

Delivery

7/30/2019 COST-SEEN 19.11.10

16/19

Vendor managed inventory (VMI)

Point of sale (POS) Consignment stocking

Supplier stocking

9) Let Suppliers Manage

Inventory

7/30/2019 COST-SEEN 19.11.10

17/19

Get everyone involved Communicate the impact to the bottom line

Get everyone involved - suppliers, finance,

engineering and marketing

Credit inventory reduction as a cost

reduction Reinforces the importance to the organization

10) Recognize the Value of

Inventory Reduction

7/30/2019 COST-SEEN 19.11.10

18/19

Premier forecaster -

Markac the cheesehead

11) Improve forecasting

7/30/2019 COST-SEEN 19.11.10

19/19

1) Improve communications in the supply chain

2) Negotiate lower supplier lead times

3) Standardize to reduce inventory

4) Reduce surplus/ obsolete inventory5) Improve supplier quality

6) Challenge supplier MOQs and price quantity breaks

7) Have parts delivered more often

8) Improve supplier on time delivery

9) Have supplier manage inventory

10) Give credit for inventory reduction.

Summary