EIM. Jon Schreibfeder Effective Inventory Management, Inc.

Transcription

1 EIM Jon Schreibfeder Effective Inventory Management, Inc.

2 Effective Inventory Management enables a company to meet or exceed customers expectations of product availability with the amount of each item that will maximize net profits or minimize your inventory investment. Effective Inventory Management, Inc. 2

3 Understanding everyone s role in achieving effective inventory management Stocking the products your customers expect you to have available for immediate delivery Making intelligent decisions for stocking new items Organizing your warehouse to minimize the cost of filling orders Setting inventory-related goals Effective Inventory Management, Inc. 3

4 Replenishment Sales Warehouse Good information is usually less expensive than additional inventory Effective Inventory Mmgt, Inc 4

5 Determine what products should be stocked in each branch or warehouse Help develop the forecast of future sales/usage of each finished good product Decide what new products should be introduced to the customer base Help keep inventory records accurate Effective Inventory Mmgt, Inc 5

6 Making sure that inventory is available in each store/warehouse/branch to meet the sales or usage forecast To minimize the total cost of inventory and maximize the firm s net profits or minimize total cost Determining the most economic purchase quantities Deciding the best source of supply for each product Effective Inventory Mmgt, Inc 6

7 Store products to minimize the cost of filling orders Maintain accurate on-hand quantities Protect inventory from breakage, spoilage and theft Effective Inventory Mmgt, Inc 7

8 Stocking a product is a commitment to have that product available in reasonable quantities Your warehouse is probably filled with: Stock (Merchandise you intend to stock) Stuff (Material that inadvertently got stuck in your warehouse) Effective Inventory Management, Inc. 8

9 Item Annual Customer Orders Annual Sales (Units) Annual Sales ($) A ,000 $300,000 B ,000 $75,000 C ,500 $6,500 Effective Inventory Management, Inc. 9

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11 Do customers realistically expect it to be available for immediate delivery? Is it a critical item that must be stocked in case of emergency? Does the profit margin offset the cost of carrying inventory for a prolonged period of time? Can a more popular item be used in its place? Effective Inventory Management, Inc. 11

12 Sort products in descending order based on activity Determine how may items contribute what percentage of total activity. For example: A items contribute the top 80% of activity B items contribute the next 15% of activity C items contribute the next 4% of activity D items contribute the last 1% of activity X items are dead and contribute no activity Effective Inventory Management, Inc. 12

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14 Cust Orders Cost of Goods A B C D A AA AB AC AD B BA BB BC BD C CA CB CC CD D DA DB DC DD Effective Inventory Management, Inc. 14

15 The GOOD: Inventory that you stock that provides an acceptable return on your investment The BAD: Inventory that doesn t provide an acceptable return on your investment, but contributes to other profitable sales The UGLY: Inventory that doesn t provide an acceptable return on your investment, and doesn t contribute to other profitable sales Effective Inventory Management, Inc. 15

16 Gross Margin is defined as: Sales Dollars - Cost of Goods Sold Dollars Sales Dollars No, gross margin dollars don t vary as the amount of inventory increases Effective Inventory Management, Inc. 16

17 Sales = $10,000 COGS = $6,000 Gross Profit = $ 4,000 Gross Margin = 40% But they have $12,000 in inventory! What are the risks of paying commissions on gross margin? How could they have accumulated $12,000 in inventory? Effective Inventory Management, Inc. 17

18 Calculate the Adjusted Margin: Annual Profit ($) - (Avg. Invty Investment ($) * Carrying Cost %) Annual Sales ($) Effective Inventory Management, Inc. 18

19 Accumulation of all of the costs involved in maintaining inventory in your warehouse Cost of putting away stock receipts and moving material within the warehouse Insurance and other charges on inventory Rent and utilities for the portion of your facility used to store material Physical inventory and cycle counting Inventory shrinkage and obsolescence Opportunity cost of the money invested in inventory Questionnaire at Calculated at no cost and no obligation! Effective Inventory Management, Inc. 19

20 Effective Inventory Mmgt, Inc 20

21 Sales = $1,000 Gross Profit = $150 Gross Margin Percentage = 15% K Cost = 20% Average Inventory = $250 [$150 (20% * $250)]/$1000 = 10% Average Inventory = $500 [$150 (20% * $500)] /$1000 = 5% Average Inventory = $750 [$150 (20% * $750)]/$1000 = 0% Effective Inventory Management, Inc 21

22 Who will buy this product? Why will they buy it from us? What are the estimates of usage for each of the upcoming six months (Units, Sales $, and Gross Margin Percentage) What affect will usage of this product have on usage of other existing stock items? How many month s supply must initially be purchased? Where will this new inventory be stored? How can any unsold stock be liquidated? Effective Inventory Mmgt, Inc 22

23 Committee of marketing, sales, management and purchasing How accurate has the source been in the past? Three or more members must agree to add the product to stock inventory in that location Effective Inventory Mmgt, Inc 23

24 Provide salespeople with a weekly report of the sales of new stock products. For each item: Item and Description Sales Projections Actual Sales Actual Profits Current Available Quantity Minimum/Maximum Parameters Value of Available Quantity Person requesting that the product be stocked Consider a budget for new inventory items Effective Inventory Mmgt, Inc 24

25 Often the red headed stepchild in a distribution organization Where do you start new employees? Where do your most experienced employees work? What are the characteristics of a good warehouse manager? Effective Inventory Management, Inc. 25

26 Install a flexible material storage system that allows products to be stored to minimize the cost of filling orders Label floor areas, aisles, shelving units, shelves A bin is any designated storage location Shelves Pallet racks Floor areas With a good bin system, a new employee will be productive on his/her second day of employment Effective Inventory Mmgt, Inc 26

27 1. Storage Unit 2. Space in the Storage Unit 3. Location of the Space in the Storage Unit Effective Inventory Mmgt, Inc 27

28 Plastic Fittings Bryer Products Murphy Products Cates Products Clairmont Products Wedge Products Smith Products Jones Products Tubing and Brass Fittings Chemicals Shipping, Staging and Receiving Effective Inventory Mmgt, Inc 28

29 Dead Stock Surplus and Bulk Storage "D" Ranked Items "C" Ranked Items "B" Ranked Items "A" Ranked Items Shipping, Staging and Receiving Effective Inventory Mmgt, Inc 29

30 Poor Location Poor Location Prime Location Prime Location Fair Location Fair Location Identify most accessible bins in each storage section Stock items with highest hits at eye level Effective Inventory Mmgt, Inc 30

31 Poor Location Fair Location Best Location Effective Inventory Mmgt, Inc 31

32 Determine the pick face storage requirements of each item A items Up to a 1 to 2 week supply B items Up to a 4 to 8 week supply C items The entire stock quantity Arrange pick face bins to facilitate order fulfillment Effective Inventory Mmgt, Inc 32

33 Position Trim Rack 10 Position Trim Rack Row D 4 Position Trim Rack Row C Row B Row E Shipping Row A Floor Storage Along This Wall Effective Inventory Mmgt, Inc 33

34 Document procedures and paperwork for every type of material movement (not only disbursements) Discontinue sloppy procedures Establish a sample account for each employee that might need to take material for approval No material ever leaves your warehouse without paperwork. Effective Inventory Mmgt, Inc 34

35 Receipts Unexpected receipts Requisitions Emergency Requisitions Sales Transfers (in-transit whse?) Assemblies Bin-to-Bin Transfers Returns to stock Returns to supplier Positive adjustments Negative adjustments Scrap Document all Material Movement! Effective Inventory Mmgt, Inc 35

36 Date Quantity Item # Reason Taken By A-1234 Sample for Acme Construction Jeff Miller M-2356 Emergency for Jensen Controls Will Bring Back P.O. Karen Becker Effective Inventory Management, Inc. 36

37 In a full physical all stocked products in a location are counted at one time (usually once a year) Some problems with a full physical inventory: Time constraints and customer service (all activity must stop during count) Counters may not be properly trained and may not have a vested interest in the goodness in the count Even if physical is accurate, how long will it remain accurate? Effective Inventory Mmgt, Inc 37

38 Bins/items with a large number of hits are counted more often Every time someone goes to a bin to pull an order is another opportunity for a error or unquality event to occur These items are more likely to have inaccurate quantities and should be counted more often. Slow moving products usually have great accuracy and therefore can have an extended count cycle Effective Inventory Mmgt, Inc 38

39 Count A items six times a year Count B items twice a year Count C, D and X items once a year Best for maintaining accurate stock levels Effective Inventory Mmgt, Inc 39

40 Prominently display the results of cycle counting If the accuracy of cycle counts during the week are within pre-established guidelines, all employees in the facility with access to the inventory will receive a bonus in their next paycheck Effective Inventory Mmgt, Inc 40

41 The number of times you sell or turnover your average investment in inventory each year Every time you sell from inventory, you have the opportunity to earn a profit. The more you turn your inventory, the more opportunities you have to earn profits Effective Inventory Mmgt, Inc 41

42 Annual Sales = $12,500 Annual COGS = $10,000 Annual Gross Profit = $2,500 January December $10,000 $5000 $5000 $2500 $2500 $2500 $2500 Effective Inventory Mmgt, Inc 42

43 Cost of Goods Sold From Stock Sales in the Past 12 Months Average Inventory Value Effective Inventory Mmgt, Inc 43

44 Rank #Items %Total COGS$ %Total A 2,000 13% 8.0 Mil 80% B 3,000 20% 1.5 Mil 15% C 4,000 27% 0.4 Mil 4% D 4,500 30% 0.1 Mil 1% X 1,500 10% No Sale 0% Total 15, % 10.0Mil 100% Effective Inventory Mmgt, Inc 44

45 Rank COGS Avg Invty Turnover A 8.0 Mil 1,666, B 1.5 Mil 500, C 0.4 Mil 222, D 0.1 Mil 166, X No Sale 163, Total 10.0 Mil 2,718, Effective Inventory Mmgt, Inc 45

46 Rank COGS Avg Invty Turnover A 8.0 Mil 1,333, B 1.5 Mil 500, C 0.4 Mil 222, D 0.1 Mil 166, X No Sale 163, Total 10.0 Mil 2,385, Effective Inventory Mmgt, Inc 46

47 Rank COGS Avg Invty Turnover A 8.0 Mil 1,666, B 1.5 Mil 500, C 0.4 Mil 222, D 0.1 Mil 166, X No Sale Total 10.0 Mil 2,555, Effective Inventory Mmgt, Inc 47

48 Combines inventory turnover with gross margins High margins can compensate for low turns Multiply inventory turnover by the gross margin Inventory Turnover * Gross Margin Percentage Effective Inventory Mmgt, Inc 48

49 Annual Gross Profit Dollars Average Inventory Investment Effective Inventory Mmgt, Inc 49

50 Annual Sales = $2,000 Annual COGS = $1,500 Avg Invty = $250 Turn/Earn = [($ $1500)/$2000] * ($1500/$250) = 150 GMROI = [($2,000 - $1,500)/$250] = 200 Effective Inventory Mmgt, Inc 50

51 Upper 50% Turn/Earn Index of 120 or a GMROI of 150 Upper 25% Turn/Earn Index of 150 or a GMROI of 200 Upper 10% Turn/Earn Index of 180 of a GMROI of 223 Effective Inventory Mmgt, Inc 51

52 Understanding everyone s role in achieving effective inventory management Stocking the products your customers expect you to have available for immediate delivery Making intelligent decisions for stocking new items Organizing your warehouse to minimize the cost of filling orders Setting inventory-related goals Effective Inventory Management, Inc. 52

53 Effective Inventory Management enables a company to meet or exceed customers expectations of product availability with the amount of each item that will maximize net profits or minimizing total inventory cost. Effective Inventory Management, Inc. 53

54 Jon Schreibfeder, President EIM Effective Inventory Management, Inc. 120 South Denton Tap Rd Suite Coppell, TX (972) Fax (972) Effective Inventory Management, Inc. 54