Inventory Reduction:
Getting Lean, Mean and Effective
by: R. Michael Donovan
生活大爆炸7Companies today must be fast and nimble enough to react quickly to changes in customer demand and do it with little inventory. Gone are the days when manufacturers could stockpile large quantities of raw materials; load-up the shop floor with work-in-process; and, pack warehous with finished goods. The old ways cost too much, require too much working capital, and contribute to erratic and longer lead times.
ustedEXECUTIVES ARE OFTEN CONCERNED WITH INVENTORY LEVELS
In a survey conducted by R. Michael Donovan & Co., Inc., 82 percent of the nior executives who responded said that excessive levels were a major concern for them. Some saw inventories as just a vehicle that absorbs massive amounts of cash while others understood that high inventories were also an indication of other rious problems. Also, the monies unnecessarily tied up in inventory could be better spent elwhere such as: new product development, expanded marketing and sales, moderniza
tion, reengineering, expansion, acquisitions, debt reduction among others. Even though inventories are under constant analysis and manipulation, permanent inventory reduction opportunities go largely untapped as evidenced by the fact, most manufacturers consistently carry too much inventory. Yet, well-intentioned efforts to reduce inventory, more often than not, get only temporary results. Without effective business process changes, the organization can easily slip back to old ways with inventories (and costs) just climbing up again.
WHY SHOULD THE CEO GET INVOLVED?
In some cas, inventory is so bloated that a high percentage of it will become obsolete before it is sold. Wor, too much inventory is a certain indicator that more rious and costly business process and system problems exist, which are very likely deeply rooted in the organization. Some of the problems include poor forecasting, inadequate product specifications, ineffective production scheduling, low quality, bottlenecks, long cycle times, product and process problems, high costs, poor vendors and wrong performance metrics to name a few. For instance, poor sales forecasts are often ud to schedule production and vendors sometimes for months in advance. When actual customer demand is not what was forecasted, as is often the ca, inventory quickly accumulates, salable throughput decreas, and customer rvice goes down. Then, the cycle just keeps repeati
ng itlf, further compounding cash flow, profit and rvice problems.
HOW GOOD IS YOUR ORDER-TO-DELIVERY PROCESS?
Too many companies limp along with well-intentioned, but ineffective approaches to their order-to-delivery process. As a result, management is often frustrated by the inability to solve the inventory and rvice dilemma once and for all. Why do companies repeatedly fail at achieving consistently high levels of customer rvice and permanent inventory and cycle time reductions? The 25 lf-asssment questions that follow will help you to “benchmark” your capabilities. The asssment questions are intended to assist executives to evaluate their circumstances and to identify potential improvement opportunities. One way in which to utilize the diagnostic questions is to have your entire management team (1) answer each question; (2) meet and discuss each question that received one or more
‘no’ answers; and, (3) outline your corrective action needs. During step (1), as you proceed through the diagnostic questions, you should make appropriate notes about particular areas of concern. The notes could be very helpful during subquent discussions and corrective action planning.
Foundation Disciplines YES NO
• Every product has a well-defined manufacturing and inventory
strategy? ❒❒
deployment
angelic• We have clearly defined organizational accountability for performancepat是什么意思
of each gment of inventory? ❒❒
• Our inventory record information is real time and 99% plus accurate? ❒❒
• Our bills-of-material are 100% plus accurate? ❒❒
• We create little to no inventory obsolescence as a result of engineering
歌舞青春3
changes? ❒❒
• Our forecasting process and demand variability is integrated with a
rvice oriented inventory deployment strategy? ❒❒
• We have a comprehensive and effective Sales and Operations Planning
process that is management’s handle on sales, production and inventory
plans? ❒❒
• We start the asmbly process without any material shortages? ❒❒
• We u distribution requirements planning (DRP) to plan inventory for
distribution
centers? ❒❒
• We have a comprehensive and dynamic inventory performance monitoring
system that pinpoints problems before they occur? ❒❒
Advanced Strategies YES NO • The impact on rvice and inventory from cycle time reduction has been
properly analyzed and quantified? ❒❒
• We have mapped all supply chain process clearly identifying value
added and non-value added activities, bottlenecks, queues, cycle times,
etc.? ❒❒• We have specifically defined the barriers that prevent us from achieving
increas in rvice and reductions in inventory and are actively removing
barriers? ❒❒ the
• We have organized and trained multi-functional teams that are
aggressively working on relieving bottlenecks and improving flow and
balance to achieve high velocity throughput? ❒❒
• We have decread our manufacturing and vendor leadtimes by at leastbesos
50% over the past 3 years? ❒❒
• Our lot sizes and t-up times have been reduced by at least 50% over
the past 3 years? ❒❒
• We have reduced queues and work-in-process inventories by 50% or ❒❒More over the past 3 years?
• Our process perform to a level where no inventory buffers are required
to protect against quality problems? ❒❒
• We have agreements with key vendors for short cycle deliveries and
mutually agreed upon goals for continuous improvement? ❒❒
• Our approach to supply ba management has each critical vendor’s
process certified to a “no inspection required” status? ❒❒
• Our vendor delivery dates are very predictable? ❒❒
• We can precily predict our delivery leadtime/date for customers or to
replenish
inventories? ❒❒
nogood• We have an active on-going program for vendor delivered, point-of-u
inventories? ❒❒
• Our production supervisors spend little to no time expediting materials
or firefighting due to shortages? ❒❒
• Our primary performance measurements and reward system are heavily
weighted toward short cycle times and quick respon?❒❒
HOW IS YOUR SCORE?
If you checked ‘yes’ to all of the questions, your company is more advanced than most. In fact, all ‘yes’ answers would indicate that your company is in an elite class of top performing companies. Of cour, ‘yes’ answers are only indicators of near and longer-term business success. However, ‘no’ answers are solid indicators that improvements are necessary to help ensure your business success.
公务员考试培训班EVALUATE PAST PROGRAMS
Lastly, to evaluate your past efforts at improving business process and inventory performance, try the following:
• Make a list of every improvement program your company has initiated in the past five years where better customer rvice and inventory performance should have been a result;
• Then compare the expected results with the permanent and measurable results that were actually achieved.
The answers from the 25 yes-or-no questions along with a candid evaluation of your current and past improvement programs will, for many, result in a question: Is there a better way?
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TAP THE “HIDDEN CASH RESERVE”
Most experts agree that top heavy inventories are a giant cash vacuum that needs to be turned off in order to free up cash for investment in revenue growth activities.So, how can this be accomplished? One of the major impediments to inventory reduction is the mistaken notion that just improved inventory management is all that is required to get the job done. The real culprits are the inefficient b
usiness process that cau excessive inventories to exist in the first place. Here are eight suggestions:
DON’T ALWAYS BLAME INVENTORY CONTROL
Certainly some aspects of excessive inventory investment are the result of Inventory Control, but often their behavior is motivated by management’s certain negative reaction to material shortages versus periodic and less vere respon to excess. For the most part, inventory excess can only be significantly reduced or eliminated when the cross-functional business process that cau the need for excessive inventory buffers to exist are fixed. It is futile to think inventories can be isolated and singularly managed. Inventories are
invariably the result of how well many cross-functional business process really work.
REENGINEER ORDER-TO-DELIVERY
Major reductions (20% to 50% or more) in all forms of inventory and incread rvice usually require the reengineering of the order-to-delivery cycle to develop a process to do it faster, better, cheaper. When you fix the business process that caud the excess inventory buffers to exist in t
he first place, you will very likely shorten cycle time, decrea costs, increa quality, and improve customer rvice.
IMPROVE SUPPLY CHAIN MANAGEMENT
By streamlining the entire supply chain, a company can reduce inventory, improve time to market, compress cycle times, free up more cash, decrea costs, and improve profitability. World class manufacturers have allocated the necessary resources to speed up the order-to-delivery cycle and improve the entire supply chain with the result clearly visible in rvice performance and the reduction of all forms of inventory. Manufacturers are establishing computer-to-computer links (EDI) with suppliers and customers to provide them with a “window” on their operations. Through this window, suppliers for example, can find out when the manufacturer will run out of the item they supply and automatically restock it. This streamlining of the supply chain enables manufacturers to reduce inventory buffers, decrea cycle time and achieve significant cost reductions.
In addition, many manufacturers are actively consolidating their supply bas following a single vendor partnership approach that is a much clor and more cooperative relationship with lected suppliers. By becoming an integral, larger part of the customer’s and supplier’s business, both pa
rties gain greater business leverage. The manufacturer or the supplier, in many cas, actually helps the other to improve operations and thereby reduce material costs, improving delivery timing, and the like.
IMPROVE PRODUCTION SCHEDULING
This is one of the least understood and appreciated aspects of manufacturing control. However, the common and unfortunately accepted result of poor production scheduling invariably is in manufacturing flow imbalances, causing bottlenecks and reduced throughput. This inevitably results in erratic output, more inventory and longer cycle times. The old illogical scheduling logic ud by most MRP II and ERP systems needs to be replaced with an approach that works for you rather than against you.
里约热内卢英文USE EFFECTIVE PERFORMANCE METRICS
It’s surprising that many manufacturers actually reward behavior that tends to bloat inventory levels everywhere. For instance, if production performance is bad on efficiency, utilization and standard hours produced for overhead absorption, you can be assured that parts will get produced and put into inventory even when there is no other rational reason to do so.
