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2008 DATA SERVICESTRAINING CONFERENCE
Controlling Your Inventory 101
JOHNSTONE SUPPORT SERVICES
Launched in 2004 in order to strengthen the Cooperative by strengthening its Members
Profitable Growth
Profitability
Asset Efficiency
Growth
Management Effectiveness
Build Brand Presence
Acquire New Customers
Optimize Pricing
Control Operating Expenses
Identify and Address
Unprofitable Customers and
Products
Optimize COGS
Operate Efficiently
Manage Inventory
Manage Accounts Payable
Manage Accounts Receivable
Manage Facilities and Capacity
Improve Execution Capabilities
Improve Management
Control
Improve Management
Efficiency
Improve Employee Performance Management
Improve Management Effectiveness
Focus Resources on Highest Potential
Improve Employee Recruiting and
Retention
Retain & Grow Profitable
Customers
AGENDA
What is Inventory Management Cushy Job…
Dead Inventory Correction Prevention
Redundant Inventory Accuracy Saw Tooth ROP & EOQ Upcoming Changes
I’M THE WHAT AND WHY GUY…
WHAT IS INVENTORY MANAGEMENT ?
Text Book: Inventory Management answers the following questions:
1.When should an order be placed for a product?2.How large should each order be?
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THE COST OF INVENTORY
Stock outs Purchasing costs Receiving costs Payables costs Freight
Obsolescence Carrying costs Cash flow Capacity
Less InventoryMore inventory
TH
E D
EFIN
ITIO
N O
F IN
SA
NIT
Y
Grant me the serenity to Manage the things I can Control, to Influence the things I can Affect and Compensate for the things I Cannot Influence
…knowing all the while that I will always have too much or not enough but never the right amount of inventory!
FORECASTING PROCESS
Run Forecast
ProbablyCan’t Trust It
BlameCustomers, Systems
And Suppliers
Don’t Believe
In It
Beg forMore
Information
Increase the MinOr Safety Stock
Pro
cess
Evalu
ati
on
Corr
ect
i on
Abandon AllHope for
Inventory Reduction
Despair
Go WithYour Best
Guess
FiguresDon’t It?
Not Coming
BeginPreparing Excuses
Good
Not Good
WHICH HAS THE GREATER IMPACT
“WHAT” TO CARRY OR “HOW MUCH”?
UNINTENTIONAL INVENTORY
•Bias Towards Avoiding Stock Outs•Manual Forecast•Bad ROP’s•Month’s Supply Rule
UNINTENTIONAL INVENTORYSafety Stock
•High Minimum Prepay•Long Lead Time•Erratic Lead Time•Unreliable Fill Rate•Standard Packs
Supplier Issues
•No Guaranteed Sale•No Marketing Plan•No Follow Up•No Return
New Products
•Duplicate Lines•Duplicate SKU’s
Redundant Stock
•Trade Show•Preseason•Price Increase•Dating
Speculative Stock
•New Store•Mild Season•Redistribution
Idle Inventory
•Special order not picked up•Special order not cancelled•Standard Pack Remainders•Unsuccessful New Product •Discontinued•Superseded•End of Product Life Cycle
“Dead” Stock
THE COST OF DEAD INVENTORY
Dead Inventory Offsetting Sales
$ 100 $ 2,227
$ 1,000 $ 22,272
$ 10,000 $ 222,717
$ 100,000 $ 2,227,171
9 LIVES OF DEAD INVENTORY
Specific Process for Reducing Dead Inventory Identify
Set Dead Parameters on 27.1.21 “E” inventory 6.16 Recalculate “e” Items on demand – 365 Days No
Activity 6.13 List of “E” Items from Last Calculations Count it – make sure it’s really there…
You may want to pull it and set it aside or even bin locate it
Rerun report
DISPOSITION
9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame
0 Verify the on hand balance and adjust if in error
Chances are pretty good it’s not there
Investing more time and money in a losing proposition
One Time
1 Check to see what customers, if any, have purchased the product. See if you can make them a deal on it.
May sell quickly May result in a loss if unable to negotiate above cost.
One Time
2a Display in the showroom with a big ‘sale’ or ‘reduced’ sign that highlights the former price and clearly points out the savings
May sell quickly May have to sell below cost and take a loss
2 Weeks (2 weeks total if combined with 2b)
2b Offer a “spiff” or commission to Counter & Sales staff to sell the product at or below cost
May sell quickly, may be exciting and a windfall for your staff
May result in a loss unable to negotiate above cost and with spiff/commission expense.
2 Weeks (2 weeks total if combined with 2a)
9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame
3a Cross over to the item(s) that superseded it
May sell quickly May result in a loss if substituted for a less expensive item
One Time
3b Substitute for another item that moves (even if the item it replaces is less expensive)
May sell quickly May result in a loss if substituted for a less expensive item
One Time
4 If there are multiple stores, look to see if the item moves in another location – if so, transfer it
May sell quickly Additional handling and transportation costs
One Time
5a Ask supplier for an RGA without a restock charge or offsetting order
Can move easily if this option is available
Will have to pay and take a loss on the freight amount
One Time
5b Donate to a charitable organization (if the product and the charity qualify for donation above cost.http://www.naeir.org/
The tax deduction for donated goods can be equal to the cost of those goods plus half the difference between that cost and the fair market value.
Better for or C corporations than for S corporations, partnerships, and sole proprietorships
One Time
9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame
5c Ask supplier for an RGA with an offsetting order (i.e. buy $2-$3 of stock from them for every $1 returned.
Can move easily if this option is available
Will have to pay and take a loss on the freight amount. May create overstock on other items
One Time
6 Find another Johnstone to compare dead stock lists with and make a $1 for $1 exchange for the items each of you sell
Can sometime move easily if this option is available
Will have to pay and take a loss on the freight amount. May create overstock on other items
One Time
7 Make sure items are listed as “D” for the Inventory Sharing data transmission
May receive full value
May take time. 30-60 Days
8 Put item on a pallet with other “dead” stock and ask good customers to make an offer (i.e. a silent auction during a counter day).
May sell quickly May have to sell below cost and take a loss
One Time
9 LIVES OF DEAD INVENTORYTactic Advantage Disadvantage Time Frame
9a If there is significant metal or other valuable salvage call a liquidator and ask for an offer
Get some cash value for the product
Loss of virtually the full cost of product. Write off cost (plus inbound freight) for tax benefit
One Time
9b Donate to a local vocational/tech school
Benefit from the “good will” of the school and its students. Help to get your name out to potential contractors.
Loss of full cost of product. Write off cost (plus inbound freight) for tax benefit
One Time
9c Throw it in the dumpster Stop taking up space and impeding productivity by walking by “dead” stock. Remember – every time someone walks by it, it’s costing you money.
Total loss of cost of product and cost of disposal.
One Time
PREVENTION…ALL DEAD STOCK IS PREVENTABLE…
DEAD STOCK PREVENTION
Customer orders not picked up Hang out Report
Deposits on special order (particularly non-returnable) products
Cancelled customer orders for special ordered products - and linkage to the purchase from vendor List of Inventory Problems
Enhancements to List of Inventory Problems (U2008.1 – job 128707)
New parameter: Multiple over ROP - currently this is hard-coded to 2 times ROP, change to “1”.
Add to Menu-6 to run this report on demand for beginning/ending dates (see JCI custom menu)
Menu-8.4 Inventory adjustments that put them over reorder point will be included
Any order quantity that is less than '‘P'' pack and ROP = 0 will be included
Discontinued items will be included Add ''on order'' column to the report Change items that say '‘OE'' to '‘CANCEL''
DEAD STOCK PREVENTION
Customer orders less than standard pack amounts
Customer returns on special ordered products List of Inventory Problems
Past due PO's from vendors on special ordered products Past Due PO Report
DEAD STOCK PREVENTION
New stocking products Introduction - authority, guaranteed return
terms, review of duplication, etc Review and disposition
Who, when, what happens then?
Review and handling of items carried for specific customers
Handling of items in decline (i.e. dropping ABC code from A to B, B to C etc.)
Reporting, review and handling of product discontinued from supplier
PRODUCT REDUNDANCIES
WHAT THE…? Vacuum Gauges
Supco J/B*
Vacuum Pumps Ritchie Refco* Robinair J/B*
Refrigerant Recovery Ritchie CPS Inficon Bacharach Appion Promax RG5410
Decide later
Refrigerant Leak Detectors Johnson Controls Ritchie Inficon TIF CPS Spectronics Amprobe Ultra Sonic
Decide later
Tubing Tools Ritchie Ridgid* Imperial J/B Lennox
JE decides
Access Fittings J/B* C & D
Manifolds, Hoses, and Gauges Ritchie* J/B* Uniweld CPS Imperial Zeppelin
Mini-Splits Fujitsu * Comfort-Aire LG Samsung
PTAC’s Amana * Friedrich G/E (Monroeville)*
Window A/C Comfort-Aire Friedrich*
Chemicals- Refrigeration Oils Nu-Calgon Virginia KMP -Copeland Oil
Acid Test Kits Virginia KMP Nu-Calgon
Pressure Temperature Controls Johnson* Ranco*
Evaporative Coolers Heatcraft* Peerless
Commercial Defrost Timers Paragon* Grasslin (G33-030 Butler)
Refrigerant Scales TIF CPS Refco*
Infrared ThermometersUEI*FlukeRaytekTIF
Manometers
UEI*Dwyer (Fluid)*RitchieTesto
Carbon Monoxide Tester/Analyzer
UEI*Testo*BacharachFluke
Test Instruments
UEI*FlukeFieldpiece
Combustible Leak Detectors
UEITIF 8800*Bacharach
Sheetmetal Tools
Malco (largest variety)* except snipsLenoxMidwest (snips only)*
Condenstae Pumps
Little Giant*DiversitechHartell
Pipe Insulation
ArmacellRubatexBest deal
Pipe wrenchesRidgid*Lenox
Infrared Heaters
InfrasaveModineDNS
MotorsEmerson*A.O. Smith*Others
Belts
Browning*Johnstone
Boiler Trim Package
WattsHoneywell*
Duct Tape
Nashua PolykenShurtape
Zip ScrewsMalco*Duradyne
Torches
Turbo-Torch (Victor)*Uniweld
Flashlights
EnergizerMagliteTerraluxStreamlightClipmate
Heat Guns
MilwaukeeWeller*
REDUNDANCY
More training More space Less accurate forecasts Higher risk of stock outs Higher safety stock levels Higher risk of obsolescence More ordering costs (purchasing, receiving,
put away and payables) Customer confusion
ROP & EOQ THEORY
SAWTOOTH
Time
Invento
ry L
evel
AverageInventory
(Q*/2)
0
Minimum inventory
Order quantity = Q (maximum inventory level)
Usage Rate
Untapped Inventory
ROP THEORY
Time
Total Inventory
SafetyStock
ROP
LeadTime
Incoming Orders
INVENTORY ACCURACY
LOWERING THE SWAMP
Untapped Inventory
ROP THEORY
Time
Total Inventory
SafetyStock
ROP
LeadTime
Incoming Orders
INVENTORY ACCURACY
Inventory Accuracy Remaining Quantity Counts Control Group Counts
Prevention vs. Correction Cycle Counting
Acc
urac
y Le
vel
Cycle Count
Acc
urac
y Le
vel
Annual Physical Inventory
Cycle Count Annual Count
COUNT CONTROL
Count Scheduled
Count Communicated
Area “Tagged”& Cut off Checked
Count Conducted
AdjustmentsNeeded?
Tags Collected
Check Transactions
Check Receiving, Shipping
WC & Counter
AdjustmentsNeeded?
Recount By Policy
Make Adjustment
Finish
No
Yes
EOQ VS ROP
Excess Inventory
ROP THEORY
Time
Total Inventory
SafetyStock
ROP
LeadTime
Incoming Orders
EOQ THEORY
TotalCost
Order SizeEOQ
Order Cost
Holding CostTotal Cost
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SCENARIOS
• Normal Lead Time from vendor is 10 days. They are now backlogged 22 days…• Less ? More? Stockout?
• There’s a 4% price increase coming up in 30 days on your main equipment line. You buy 4 months supply…
• You consolidate Gates, Browning and Johnstone Belts into a single line…
• You maintain tight control of your inventory levels and only reorder whatever was sold last week…
• Your inventory accuracy is only 84%...
SCENARIOS
• You buy a 2,500# Mueller order on a drop ship saving an average of 3.5%...
• You return $29k on your Corp Rotational Buyback…
• You improve inventory accuracy…• You order in a standard pack of 12 for a
customer who ordered 5 …• You begin a program to review & return non-
moving inventory within 60 days of receipt on the Corp Buyback…
• You follow up on hang out and past due POs…
QUESTIONS…?