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Best Practice in Inventory Management (Oliver Wight Manufacturing) PDF

234 Pages·1998·7.52 MB·English
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Best Practice in Inventory Management Tony Wild JOHN WILEY& SONS, INC. New York Chichester Weinheim Brisbane Singapore Toronto This book is printed on acid-free paper. @ Copyright O 1997 by Woodhead Publishing Ltd. All rights reserved. Published by John Wiley & Sons, Inc. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (508) 750-8400, fax (508) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850- 6008, E-Mail: PERMREQ @ WILEY.COM. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. ISBN 0-471-25341-3 Printed in the United States of America. Contents Preface Introduction 1 The basis of inventory control Role of inventory management Objectives for inventory control Profit through inventory management Reasons for the current stock 2 Customer service Meeting customer requirements Measuring availability Demand management 3 Managing the inventory Using Pareto analysis for control Stock cover Practical methods of reducing stockholding Practical methods of reducing stock 4 Just in time management The zero inventory philosophy JIT environment Advantages of JIT Stock control using JIT 5 Organisation and management Where stock control fits into the organisation Responsibilities and targets vi CONTENTS Inventory valuation Skills and systems 6 Safety stocks Learning from history Normal demand patterns Evaluation of safety stocks 7 Setting the right stock levels Simple assessment of review levels Managing lead times Target stock levels 8 The changing role of purchasing Modern supply practice Supply partnerships The ordering process Order quantities Purchasing processes 9 Forecasting demand Options for assessing demand Causes of forecasting inaccuracy Methods of improving forecasting 10 Historical forecasting techniques Basic forecasting techniques Weighted averages Choosing the best forecast Monitoring forecasts 11 Advanced forecasting methods More forecasting tools Forecasting for seasonal sales Other methods 12 Material requirements planning - an alternative to forecasting Avoiding uncertainty Material requirements planning Master planning Batch sizes CONTENTS vii 13 The future - inventory and logistics Review of techniques Stock distribution Review Appendix Questions and answers 204 Index 225 Preface In the distant past when I ascended from a being a scientist to the heights of inventory analysis, I was surprised at the lack of helpful written work on the subject. Although there are now many books, manuals and papers avail- able, there does not seem to be much written on the very important subject of how to carry out inventory control faced with the real inventory, cus- tomers and an assortment of stock records and styles of suppliers.Yet better control of stock (inventory) can give major benefits to the profitability of all companies. This book is aimed to show how good inventory control can be used in practice. It is a result of working continuously on inventory control with a large number of companies over many years. It contains the distilled techniques which have been tried out and proved to work. This book contains two main ingredients, namely: The basics of inventory management as covered in the IOM (Institute of Operations Management) Diploma syllabus. The application of these techniques to real inventory management. The applications are what really count, since the knowledge is not at all interesting without application. The experience of the author has been to use the basics to provide powerful changes in stocks and profitability. In several cases millions of pounds of inventory value have been saved and in others customer service has been greatly improved. Many of the topics here have been tried, tested and approved. They are all a matter of common sense, although which piece of common sense to use in a particular situa- tion is a matter which needs deeper understanding. The book is a driver's manual for inventory controllers. It will cover the working of the engine (how inventory control techniques work), how to use the controls (what the techniques do and how to manage them) and how to get the best out of the vehicle (how to optimise inventory). Understand the text and it will show the way to guaranteed improved inventory control, reduced stock levels and higher availability. x PREFACE In the preparation of this book there have been contributions from the many thousands of people to whom I have presented courses on these ideas and who have helped to hone the concepts. Thanks are also due to those companies who have let me loose on their inventory, carrying out consul- tancy projects which have extended my knowledge and proved the effec- tiveness and scope of different techniques. Central to the development of inventory techniques has been the Insti- tute of Operations Management (formerly BPICS the British Production - and Inventory Control Society) which has been a channel for professional debate, friendship and technical information. This book has been created with the support of Richard Turner as secretary of the Institute. The evolution of this book has been a two handed operation. The con- cepts have been blended into a logical text through my own work and that of Elaine Duckworth, who has shared the task of developing a useful and readable handbook. DR TONY WILD Introduction Everyone is a stock controller, at home and at work. We all keep food, clothes, domestic items, paper, pens and many other goods. We also have shortages and emergency purchases. Some people regularly have to throw out the contents of the refrigerator because they have been there for a while and changed in character. So stock control is a natural occupation which everyone does, some more successfully than others. There are many other activities which people do, such as sport, carpen- try, music and medicine, and for these it is generally accepted that a level of technical expertise is needed. In carpentry and music there are people who become highly skilled through their natural talents. Success appears to come from a mixture of talent, determination, practice and knowledge. In medicine, particularly in surgery, we are more likely to rely on those who have studied the subject and have a deep knowledge of both theory and practice. Lawyers cannot function without knowledge; often a common- sense approach does not work for them. As with any profession, stock control (or the subject of professional inventory management) has a body of techniques and knowledge which dif- ferentiates the professional from the DIY enthusiast. This expertise is the result of 100 years of development and refining. Now there are professional inventory managers with recognised qualifications, including the Diploma and Certificate in Professional Inventory Management (DPIM and CPIM, respectively). There are still colleagues who believe that inventory can be managed using a clear brain and common sense. It is unlikely that they would be happy with the same competency in their doctor or financial adviser. This book is for the inventory control practitioner. Many people have been able to manage their stock of inventory with the techniques described so that the customers are happier and so are the accountants. Reduction in inventory value, avoidance of unnecessary work and improvement in customer service can be accomplished at the same time through simple 2 BEST PRACTICE IN INVENTORY MANAGEMENT application of these techniques. Improved inventory management has been shown to halve stocks and improve service at the same time. The techniques described are the basic concepts which inventory con- trollers should have at their fingertips. The more complex theoretical approaches can be left to those developing sophisticated systems or those with excellent inventory control (and over the years I have not met any of these!). Inventory practitioners should be able to use this book to under- stand the best approaches and then to apply them to their own circum- stances. Simple application of the methods is most successful, while modifications usually result in less effective outcomes. The text covers the syllabus for the technical qualifications including DPIM and CPIM. It discusses good practice, inventory theory and the practical application of the techniques. The book starts with inventory structure, explaining target setting in chapters 1 and 2, and how to struc- ture inventory in chapter 3. The chapter shows how easily to make a big impact on inventory levels and the approach gives major benefits in tight- ening control. Continuing the theme of restructuring stock leads to the ulti- mate in stock management, the 'zero inventory' approach, 'Just In Time' UIT), discussed in chapter 4. Gradual absorption of the philosophy throughout inventory management is proving a great benefit and it is worth examining how to utilise JIT in each stock environment. The rate of progress is often governed by the attitude and organisation in a company and the development of modern inventory management practice is reviewed in chapter 5. The discussion follows on to the detail of item level inventory manage- ment, the essence of real inventory management. Chapters 6 to 8 are the elixir of item level stock control, the secret recipe for success. Chapter 6 concentrates on how to keep out of trouble: a rational approach to the risks of stockouts, chapter 7 shows how to use this information to set stock levels and chapter 8 discusses the options for ensuring suppliers are agreeable and flexible. The third aspect of inventory management, one which is usually carried out poorly, is forecasting. Forecasting methods are relatively well advanced, but there is less practical application of these in most companies. This is an opportunity, discussed in chapter 9, while the basic techniques are dis- cussed in chapter 10. Chapter 10 also includes the techniques used to ensure that forecasts produce sensible results. In practice there are items where it is worth managing the stock in more detail, so chapter 11 gives more techniques that are commonly used and provide good forecasts. The 'one item at a time' approach to inventory management is really not appropriate in many situations. Users often require a range of items to do

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