1. Practical methods for reducing stockholding
Chapter 4
Practical methods for reducing stockholding

2. 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)

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

4. 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Outdated products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

5. 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

6. 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

7. 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.