Practical methods for reducing stockholding Chapter 4 Practical methods for reducing stockholding

Figure 4.1 Stock Levels Figure 4.1 Stock Levels Delivery Use Order Order Delivery Supply Delivery Leadtime Review Level Quantity In Stock Delivery Use Quantities Safety Stock Time Stock should consist of two basic parts: Delivery quantity stock, because stock is provided in bulk Safety stock to cope with excess short term demand (or supply failure)

Figure 4.2 Measuring Obsolete & Excess Stock Cover more than “y” weeks OBSOLETE Not used for “x” weeks

Figure 4.3 Strategies for Non-moving Stock Improvement Strategy Improve Forecasting Increase delivery frequency & reduce lead time Co-ordinate Information & Supercession Process Improve Data Accuracy, Eliminate scrap avoidance Manage Demand Improve Supply Manage Process Quality Outdated products Excess Purchases Duplicated Stockholding Inventory held to avoid failures

Figure 4.4 Avoiding Surplus Inventory   Figure 4.4 Avoiding Surplus Inventory   Cause Solution Avoidance Customer specific products Over production, poor liaison with customer, large batch manufacture or bulk purchase discount Investigate any resumption or alternative, enforce contract terms Collaboration, leaner manufacturing or supply, fair partnership contracts Standard products Unreliable forecasting, Make to fill capacity, Unreliable supply Promotion, find new customers, sell to discount warehouse Improve historical forecast and market intelligence, Measure end user usage, lean supply chain Components (including packaging materials etc) Excessive purchase quantity, ineffective dependent demand control Find alternative uses, Return to supplier or sell standard items Accurate Master Schedule, small batch quantities Closer customer liaison

Figure 4.5 Sequence for dealing with surplus stock Department Technique Decision time 1 Marketing/Sales Sell items in new markets 6 Weeks 2 " Promote to existing customers 3 Sales Discount price 2 weeks 4 Management Transfer to sister companies 5 Purchasing Sell materials back to supplier 3 weeks 6 Sell as substitute for inferior product 4 weeks 7 Technical Alter/repackage 8 Reuse Major Modules 9 Reclaim components 10 Use to promote other products (free add-on) 11 Purchasing? Segregate materials and sell 12 Donate to charity or staff for promotional purposes 13 Scrap and pay for disposal Figure 4.5 Sequence for dealing with surplus stock

Key Points Pareto analysis of stock value is the basis for stock reduction. Reduce inventory of the highest value stock line first Reducing supply batch size is the best method. Adopt a policy for avoiding the risk of obsolete stock. Attack surplus stock using the correct technique in a project.