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1 Copyright © 2001-2007 Infor Global Solutions1 Copyright © 2001-2007 Infor Global Solutions

enterprising U

Copyright © 2001-2007 Infor Global SolutionsInfor Confidential

“Best Practices” Inventory Management

Grant W. Howard, Founder GWHCO, September 10, 2007

3 Copyright © 2001-2007 Infor Global Solutions

Service, Profits and Growth to the Next Level


“Getting Results” - Taking Profits, Longevity, and Growth to the Next Level

Authority on “Best Practices” Inventory Management, Operational Efficiency, Systems Utilization

Wholesale Distribution Degree Many Years of Experience Works with Multiple Distributors, Associations and Software Systems,

80% of Time at Distributors On-site Inventory Management, Operations and Systems Workshops/Conferences Multiple Boards of Directors Conceptual Designer Behind Infor’s Sx.e “AIM” and other ERP Platforms Software Development, Enhancements and Spec/Design Work Our Expertise is “Best Practices” - Improving and Implementing Proven

Practices that Work and Get Results - Profits, Longevity and Growth PLG, MOT, PET, ACE

Grant Howard and GWHCO


Company Objectives

Inventory Management Objectives

Inventory Management Model:When to Replenish

What to Replenish & How Much

Other Things We Can’t Forget

Inventory Management – 10 Steps

10 Actions to Success

Our Session Today


Company Objectives - The Big Picture

Bottom Line Profits (P&L)GM and Oper. Efficiency

Asset Management

Customer Service & Retention

Maintain the base

Profitability Longevity

Employee Happiness

Growth


Maximizing Indicators (Turns, A/R Days, Etc) May Not be Maximizing the Bottom Line

The Impact Zones – Company Objectives

Customer Service Inventory Availability Backorder Handling On-Time Delivery Accuracy

Entry, Shipping, Invoicing

Product, Quantity, Price

Fair Price

Profitability Revenue Generation GM Improvement Costs Reduction:

Cost of Inventory Cost of A/R Freight x 2 Cost of Transactions x 3 Cost of Errors and Fires Administrative Costs

P

R

O

C

U

R

E

W

H

S

E

&

O

P

S

S

A

L

E

S

Longevity ProfitabilityGrowth


Inventory Management

and Replenishment


The Replenishment Model

The Replenishment Model Addresses the Two Objectives of

Customer Service and Profitability

When to Replenish?

What to Replenish and How much?

What is Incoming and Will be Late?

What is Incoming and Will be Early or is Not Needed?

What is Not Needed?


The Replenishment System – When, What, How Much

PNA/Level

Surplus Point

Line Point or Max/EOQ

Order Point or Min

EOQ

Order Cycle

Lead Time

Safety

When to Replenish?

What is Not

Needed?

What to Replenish and How Much?

When, What, How Much?


“Best Practices” Inventory Management – 10 Steps

1. Set-Up 2. Data1. Set-Up 2. Data

3. Forecasting3. Forecasting

4. PNA/Level

EOQ

Dmd during Order Cycle

Dmd during Lead Time

Safety

OPOP

LPLP

SPSP

5. Replenishment5. Replenishment

6. TimeLine Analysis6. TimeLine Analysis

7. Surplus/Excess7. Surplus/Excess

9. Measurement and Monitoring9. Measurement and Monitoring10. Controlled Replenishment & Maintenance10. Controlled Replenishment & Maintenance

8. Proactive Maintenance8. Proactive Maintenance

1. Set-Up 2. Data1. Set-Up 2. Data

3. Forecasting3. Forecasting 4. 4. LevelLevel

PNA/Level

EOQ

Dmd during Order Cycle

Dmd during Lead Time

Safety

OPOP

LPLP

SPSP

5. Replenishment5. Replenishment

6. TimeLine Analysis6. TimeLine Analysis

7. Surplus/Excess7. Surplus/Excess


“Best Practices” Inventory Management - 10 Steps

Numbers:1. Parameters/Set Up - Collection and Use of Data/Tools2. Data - Usage, Lead Times, Purchasing History3. Forecasting - Safety, Order Point, Line Point, EOQ4. Stock Level Accuracy - On-hand and Paperfloat

Tools:5. Replenishment Process -When, What, How Much6. Timeline Analysis - Too Late and Too Early7. Long Term Surplus - Identification and Disposition

Maintenance and Measurement:8. Proactive Maintenance - DWIADT & DIRTFT9. Measurement - Profits, Service, Improvement

10. Controlled Replenishment and Maintenance - The Entire Company

Missing Steps - Missing Results Expectations?


Step 1: Smart Parameters and Set Up

Set Up and Parameter Maintenance is Continuous and Ongoing. Not Just at Start: The World is Dynamic, Things Change New Items at Beginning vs Once Established

Implement “Smart Continuous” Set Up, Mass Update Capabilities and Good Proof Reporting or a Good PET Wrapped Around This … Critical

Review Parameter Review/Setting Tools

At Start Up and as Needed


Step 2: Data Collection

Usage Buckets: Sales, Transfers, Lost Sales, Exceptional Sales, and Manual/Automated Overrides

Lead Time Buckets: P/Os, Transfers, and Manual Overrides

Implement Lost Sales and Exceptional Sales at OE Review Demand Planning Tools Review Data Cleansing Tools

Where Does Most of this Data Come From?


Usage/DemandThe Cornerstone

Sales/Transfer History

+ Lost Sales

- Exceptional Sales/Xfer

+/- Human Input

Usage/DemandWhat is Demand Planning?

Future Forecast, Forecast Accuracy (Safety), Collaborate/MRP Data,

Visibility, Bucket Size


Demand Management/Planning

Understand and Use the Strengths of EachLevel 1: Full P/O generation from the DP to ERP

Level 2: AMU, Safety, Order Point, Line Point and EOQ from DP to ERP; ERP generates P/O's

Level 3: AMU and Safety Suggestions from DP to ERP; ERP generates OP, LP, EOQ and P/O's


Step 3: Forecasting

Rank Average Monthly Usage/Demand Review/Order/Transfer Cycle Safety, OP, LP, EOQ Exception Center Reporting

Implement Hits/Customer Based Ranking System Implement Smart Forecasting, ie Seasonal Demand

Trending, Demand Roll up, Tmin/ASQ/5HI, “Smart” Exception Reports or Center

Monthly and as Needed


Ranking

Good Product Ranking is Critical for: “Smart” Parameter Maintenance Good Exception Reporting Good Analysis/Priority Reporting

Using Line Hits: Hits: Sales, Transfers, Lost Sales, No Exceptions Percentage and Set hits New Items? Frozen, OAN, DNR?


Step 4: On-hand, Available and Stock Level The Other Cornerstones

On-Hand

- Committed

+ Incoming

Stock Level/PNA

On-Hand

- Committed

Available

CC, WMS, and Solid PET for Accuracy and EfficiencyPaperfloat Control is Critical


Step 4: On-hand, Available, and Stock LevelThe Other Cornerstone

On-hand Integrity: Cycle Counts/Suggested Counts Warehouse Management System

Paperfloat Control Open Doc Control Center Proper Dates

Implement Proper Use of Dates (Orders, Transfers and P/O’s) on System and Paperfloat Control Process

Implement On-Hand Integrity by the Way Things are Done Implement a Warehouse Management System (WMS)

Daily


Warehouse Management SystemsAccurate On-hands, Shipping and Receiving

A WMS is great tool and it will do great things for your company and your customers. It will really shake you up the first 2-6 months because it is very unforgiving and will make your people follow the processes and steps with no deviations. At first, it will absolutely drive you crazy and you will cuss it every morning when you arrive and every evening when you leave.

But once you have it up and running and the company procedures and people working with it and not against, you will love the results.

Be sure to do lots of discussion and homework, lots of planning and testing, and get lots of advice and support.

Accuracy, Consistency and Efficiency

Source: Email GWHCO to Customer


Step 5: Replenishment

Implement On-Line BCC, One Stop Drill Down Inquiry/Maintenance

Implement Priority Reporting Implement Making Targets Properly

and When to Make Freight Minimum and When to Pay Freight

Daily

PNA/Level

Surplus Point

Line Point or Max/EOQ

Order Point or Min

EOQ

Order Cycle

Lead Time

Safety

Inventory Management is at the Time of Replenishment...

“When, What, and How Much”Everything Else is Inventory

Correction.


Buyer’s Control Center (BCC)

On-line, Priorities, One-Stop, Drill Down, Maintenance, Targets


So Many Stop Here

It’s 10 Steps, Not 5


Step 6: Time Line Analysis

This is a Missing Piece in Most Inventory Systems Identification and Prevention are the Key Implement Timeline TODAY, The Logic is Not Hard

Out

0-30 days

In Out

30/+ days

Too Early

Incoming and will be early or not needed

Out

Incoming and will be late

0/- days

Too Late


Step 7: Excess/Surplus Inventory

Implement Long Term Surplus Definition: Short Term/Internal (EB, GAP): Surplus = Available > LP+EOQ Long Term/External (Take Action, Gone): Surplus = Available>X Months Usage

Implement Visibility and Utilization Monitoring Implement Goals with Disposition Plan

Responsibility Coordination

Prevention

Identification

Disposition

Goals/Plan

CONTINUOUS


Step 8: Proactive Maintenance

Proofing Reports (Pline and Product) - Get a Clean Start

While Doing the Inventory Management Functions

Good Exception Center/Reports are a Must! Good Company Understanding - All Eyes

and Ears Watching

Implement Good Proofing Reports Implement BCC and ECC with Drill Down

Inquiry/Maintenance Implement Proactive Maintenance

Thinking Implement Inter-Departmental Education


Step 9: Measurement and Monitoring

Customer Service: Fill Rates/Availability Accuracy - Product, Quantity,

Price, Terms On-Time-Delivery - OTD Backorder Handling

Profits and ROI: GM Improvement (Sales and

COGS) Operational Cost Improvement

Cost of Inventory and A/R Cost of Freight x 2 Cost of Transactions x 3 Cost of Fires/Errors

ROI/Turns/Days Supply

Implement Measurement Tools Implement “Processes to Improvement” & “Closed Loop” Implement Inter-Departmental Education


Uncontrolled Replenishment Leads to Uncontrolled Results

Step 10: Controlled Replenishment

Implement Controlled Replenishment Implement Controlled Maintenance Implement Controlled Replenishment Implement Controlled Maintenance Implement Inter-Departmental Education


“Best Practices” Inventory Management – 10 Steps 10 Steps - 10 Actions for Success

1. “Smart” Continuous Parameter Set Up - Daily

2. Data Accuracy and Proper Use of Data - Daily

3. Forecasting: Safety, Order Point, Line Point, EOQ - Daily/Monthly

4. Stock Level/PNA Accuracy - Daily

5. Replenishment: Worthy Items Below Order Point - Daily

6. Timeline Analysis:

“Too Late” Report - 2X/Week

“Too Early” Report - 2X/Week

7. Surplus Inventory - 1X/Week

8. Proactive Maintenance - Daily

Good Proof Reports for Start Up

While doing Replenishment

Good Exception Control Center

Information from Other Sources (Internal, Customers and Vendors)

9. Monitoring and Measurement - Continuous Improvement

10. Controlled Replenishment - Critical and Always


Top 10 Actions for Success – Implement Now

1. “Smart Continuous” Set Up

2. Lost and Exceptional Sales

3. Hits/Customer Based Ranking System

4. Proper Use of Dates (Orders, Transfers and P/O’s) and Paperfloat Control Process

5. Priority Reporting

6. Timeline Analysis – Its Powerful

7. Long Term Surplus Definition, Identification and Disposition Plan

8. Proactive Maintenance Thinking

9. “Processes to Improvement” & “Closed Loop” Processes

10. Controlled Replenishment and Controlled Maintenance

Don’t Forget the Others


Remember the Objectives

Increase Margins and Control Costs: Sell Higher and More Buy Lower and Less Reduce Costs (Freight, Inventory, A/R, Cost of Transactions and

Cost of Errors)

Offer Stellar Customer Service: Availability of Inventory Flawless Backorder Handing On-time Delivery (OTD) Accuracy of Orders

Smart Growth - MOT and PET in Place to Maintain and Gain

Distributors of Choice Execute


Everyone’s Priorities

Profitability: Revenue and GM Improvement, Costs Reduction Service the Customer: Availability of Inventory, Proper Backorder

Handling, On Time Delivery, and Accuracy of Shipping and Billing

On-hand, Available and PNA/Level Integrity - On-hand, Alt-Inv, Paperfloat

Usage/Demand Accuracy - Lost/Exceptional Sales and Human Input

Flawless Backorder Handling - Policies, Info To/From Customer, Procurement of and Receiving/Filling

Help Maintain the Stocking List Prevention and Disposition of Excess Inventory Smart/Controlled Replenishment


The World is Changing!

Yesterday Today TomorrowBuyers/Inv. Control Inventory/Asset Managers ???

Freight and Review Cycle Order Point and Order Cycle

Turns/Profits Dominated Profits and Service Balance If you can’t

Inaccurate Data Data/Information Managers handle today,

Four Glass Walls Communications & Team how will you

Learned from “Bill” Education & Understanding handle

Pencil and Paper Technology and Efficiency tomorrow?

If your company is stuck in Yesterday or having troubles with Today, how will it survive Tomorrow?


Thank YouBuilding the Bridges to Operational Excellence – PET, ACE,

Closed-Loop and Processes to Improvement

Tomorrow

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