Inventory Management

Inventory. Some people like it, some people don't. We personally do not for the following reasons:

  • Inventory is cash that can't be used.
  • It is a dollar that could have been 100% spent on something else more important.
  • Inventory hides problems throughout the organization while Finished Goods inventory is at risk of design changes and obsolescence.

On the other hand, people argue that in order to maintain effective customer service levels you must have a specific amount of inventory on hand to satisfy customer orders. To some degree, they are correct. However, what our experience has shown over and over is that inventory levels creep up and if left unchecked, will continue to grow and tie up valuable cash. Field Service Spares inventory is a classic area for excessive inventory. Spares inventory needs to be tied closely to the reliability of the design, customer service response times and warranty reserves.

How we may help:

Inventory is a critical area that must be well controlled. ABC Classifications need to be established and a Inventory Control System such as Cycle Counting should be implemented to guard against surprises. Sometimes due to Supply Chain restrictions, you may have to purchase inventory for a future use. Such is the case of long lead times of devices. However, a concerted effort must be maintained on reducing inventory levels in order to expose inefficient areas and processes. We understand the inventory relationships and are ready to help you implement effective controls and measures to ensure your focus is on process improvement and not masked by high inventory levels. Contact us today in order to discuss how the following topics may be improved in your business:

  • Implementing Continuous Inventory Systems
  • Implementing Periodic Inventory Systems
  • Dependent Demand vs. Independent Demand Flow
  • ABC Classification and control systems
  • Total Costs: TC = CoD/Qb + CcQb/2
  • Basic EOQ Models: Qb = Sqrt [(2CoD)/Cc]
  • Production EOQ Models: Qp = Sqrt [(2CoD)/Cc(1-d/p)]
  • When does it pay to buy quantity discounts?
  • Should we use Safety Stock?

Value Add Consulting



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