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Inventory management is a business issue that requires cross-functional involvement to assess the needs of the business and the customer in relationship with a level of inventory. This analysis is also appropriate for MRO or other expense type of inventory. The Inventory Manage­ment planning process includes and requires:

• An understanding of the inventory dollars—general statistics.
• Classification/categorization of the inventory, i.e., raw material, WIP, finish goods, intermediates, etc.
• Multifunctional business team involvement and un­derstanding of inventory.
• Review of Company inventory policies and procedures.
• An increased level of understanding of what is inven­tory (definition), why the current levels, and its impact on the business.
• A root cause analysis of inventory—why? why? why? why? does it exist at the given levels (micro analysis).
• Challenging the way your business is conducted or managed regarding inventory levels in relationship to Customer Service.
• Communicating the objective of an inventory manage­ment plan.
• Developing action items and identifying their impact on inventory levels.
• Assigning multifunctional individual accountability and measurements.
• The assessment of issues and risks if inventory levels are changed or reduced.
• The development of an inventory plan reflecting the action items and accountabilities.
• Factoring the inventory plan into the annual budget and forecast process.
• Measuring continuous improvement in inventory mea­surements and performance.
• Sharing results of performance and acknowledging performance of contributing individuals.
• Continuous evaluation of the inventory plan versus the needs of the business and customers.
• Monitoring of the plan and making adjustments as needed—a dynamic plan.

General Statistics

To develop an Inventory Management plan, you need to understand the numbers. Statistics/numbers can be used for analyses to determine inventory trending and relationships between sales, inventory dollars, inventory turns, excess, obsolescence or working capital. Reference sources:

• Historical, budget, forecast—inventory turns and dol­lars.
• Company/Division/Plant inventory dollars—historical, budget, forecast.
• Sales—history, budget, forecast.
• Four part working capital (accounts receivable, ac­counts payable, inventory, advance payments)—his­tory, budget.
• Industry and/or competition inventory profiles.
• Customer shipments performance.
• Marketing forecast performance.

Inventory Classification/Categories

Each Operation/Function must determine what inventory classification/stratification is applicable for their busi­ness, for example, identify inventory categories as required per the following:

• finish goods
• product lines
• whole goods
• work-in-process (WIP)
• intermediates
• raw material
• MRO (maintenance, repair & operating supplies)
• obsolete
• excess/slow moving
• service/spare parts
• commodities
• floor stock
• components/subassemblies
• others—specific to the business, i.e., off-site ware­house, plant, consignment, etc.

Aggregate inventory cannot be effectively analyzed and therefore the above breakdown provides a more manage­able micro profile. If available, review historical informa­tion as to trending of inventory at this detail level. Inven­tory turns analysis, throughput, days-on-hand, velocity, dollar levels are examples of some inventory measure­ments.

To be Continued