Best Practice in Inventory Management SHaping Inventory Chapter 3 Dr Tony Wild
Figure 3.1 Pareto curve Effect % Cause % 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 10 20 30 40 50 60 70 80 90 100 Cause % Effect % Best Practice in Inventory Management Dr Tony Wild
ABC Analysis Best Practice in Inventory Management Dr Tony Wild
Figure 3.3 ABC Inventory Control CHARACTERISTICS POLICY METHOD A ITEMS Few items Most of turnover Tight control Personal Supervision Communication JIT approach - balanced safety stock Frequent monitoring Accurate records Sophisticated forecasting Service level policy B ITEMS Important items Significant turnover Lean stock policy Use classic stock control Fast appraisal method Manage by exception Rely on sophisticated method Calculated safety stocks Limit order value Computerised Management & exception reporting C ITEMS Many items Low turnover value (Few movements or low value items) Minimum supervision Supply to order where possible Large orders Zero or high safety stock policy Simple system Avoid stockouts & excess Infrequent ordering Automatic system Best Practice in Inventory Management Dr Tony Wild
Example of Pareto Analysis Figure 3.4 Example of Pareto Analysis Best Practice in Inventory Management Dr Tony Wild
Figure 3.5 Classification by Usage Value Item Annual Usage (units) Unit Cost (£) Turnover (%) Rank Class Cumulative Percentage F67 394 12 4728 66.6 1 A B23 105 11 1155 16.3 2 B 82.9 H89 500 7.0 3 89.9 D45 50 5 250 3.5 4 C 93.4 A12 21 7 147 2.1 95.5 E56 9 14 126 1.8 6 97.3 J01 25 75 1.1 98.4 I90 44 0.6 8 99.0 G78 40 99.6 C34 15 30 0.4 10 100 Total 7095 Best Practice in Inventory Management Dr Tony Wild
Figure 3.6 Summary of ABC Analysis Classification Percentage of Items* Value Value Per Class A 10.0 66.6 4728 B 20.0 23.3 1655 C 70.0 10.1 712 Total 100.0 7095 Best Practice in Inventory Management Dr Tony Wild
Figure 3.7 The Cumulative Pareto Curve Sequence of items Best Practice in Inventory Management Dr Tony Wild
Best Practice in Inventory Management Dr Tony Wild
Stock cover in weeks (or days) Figure 3.5 Theoretical and Actual Inventory Profiles Number of lines Stock cover in weeks (or days) Best Practice in Inventory Management Dr Tony Wild
Figure 11a ABC Stock Balance Class Number of Items Value of turnover Stock Cover Average stock value Av Delivery Frequency Number of deliveries % Weeks Annually A 10 65 1.5 0.975 3 173 B 20 25 0.75 4 260 C 70 6 0.6 12 303 Total Delivery Quantity Stock 2.325 737 Best Practice in Inventory Management Dr Tony Wild
Reduction in Inventory Value Figure 11b 19% reduction in Inventory Value by more frequent A class supply Class Number of Items Value of turnover Stock Cover Average stock value Av Delivery Frequency Number of deliveries % Weeks Annually A 10 65 0.5 0.325 1 520 B 20 25 3 0.75 4 260 C 70 8 0.8 16 228 Total Delivery Quantity Stock 1.875 1008 Reduction in Inventory Value 19% Per 100 total lines Best Practice in Inventory Management Dr Tony Wild
Reduction in inventory Figure 11c 5% reduction in Inventory Value maintaining similar workload Class Number of Items Value of turnover Stock Cover Average stock value Av Delivery Frequency Number of deliveries % Weeks Annually A 10 65 1 0.65 2 260 B 20 25 3 0.75 4 C 70 8 0.8 16 228 Total Delivery Quantity Stock 2.2 748 Reduction in inventory 5% Per 100 total lines Best Practice in Inventory Management Dr Tony Wild