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Inventory Utilization
Part 1 of 4

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The objective of this program is to demonstrate how companies improve their inventory turns. We shall compare and contrast companies that use the same concepts, with differing focus, to move inventory turns from 3 to 9, plus, at the high end, from 20 to 60. These techniques can be classified in the areas of accuracy, speed, attitude, and postponement. We will examine their specific pro­cesses along with soft skills such as communications and teamwork.

Accuracy, speed, attitude, and postponement form the acronym ASAP. This acronym means lots of differ­ent things to different folks. To some plants, like one airplane plant with a two-year backlog, it means deliv­ery some time in 2002. To others, ASAP means delivery today—no matter how complex the product.


We have the same kind of differences in meanings with the phrase "to improve inventory turns." To some folks that means moving turns from three to nine. And to others, improving turns means moving from 20 to 60 turns a year. Each of those companies will employ different tools and techniques to achieve their goals.


No! That is not true. Both companies can and should employ the same techniques. It is just that the methods of using those techniques will differ. Both need to improve the accuracy, speed, and attitude of their people and em­ploy postponement. It is the purpose of this paper to ex­plore how these two companies will apply the same techniques, but with a slightly different focus. This is de­scribed in our outline, shown in Figure 1. By examining the similarities and at the same time highlighting the dif­ferent focus, we can all learn how our efforts can be ap­plied to improve the inventory turns in any situation.


Those companies working to move their turns from three to nine will employ the concept of accuracy to work on improving their data regarding the counts and location of materials. The company that is striving to move from 20 turns to 60 will also work on accuracy, but will more likely focus on the accuracy and depend­ability of their process.

Most companies I know of have some sort of effort going to do cycle counting. The purpose of cycle count­ing is to achieve accuracy in our inventory records. How­ever the main goal is really to find and identify the causes of errors. This is what we need to do to achieve our real objective—which is to fix the problem by removing the cause of the error or adjusting the process that is creat­ing the error in the first place. Companies that are work­ing to improve their turns from 20 to 60 will also focus on accuracy. However, the emphasis will shift from maintaining the accuracy of our static inventory records to creating an accurate, dependable process. This will entail locating any errors in the process that must be corrected so that the delivery of materials will be very accurate.

The same concept will apply to the control of deliv­ery lead times. When moving from three to nine turns, we focus on what it takes to have accurate on-time de­liveries. However, the faster-moving company with 20 or more turns will focus those same energies on obtain­ing accurate cycles and predicable rates of flow. The same skills will be applied, except that instead of working on one order at a time, we shift our focus to putting into

place repeatable cycles that will deliver products at a very dependable rate. These objectives are achieved by utiliz­ing concepts such as vendor-managed inventory and using vending machines for delivery of tools. Both tech­niques depend heavily on cycles, and we can expect a concentration on the aspects of storing at the point of use and working to manage the flow of material.


Another issue that always seems to rear its ugly head is forecast accuracy. Companies striving to increase their turns from three to nine are always searching for ways to improve forecasting. Companies that have already achieved 20 turns and are looking to go further seem to have discovered that there is no panacea for forecast­ing. Rather, it is important to become more proactive with their customers. A slight change in words does in fact emphasize this change in approach. Consider, for a moment, a "weather forecast." This phrase is used daily throughout the United States and immediately brings to mind a guess or estimate that everyone knows is go­ing to be wrong. On the other hand, if our society were to adopt the phrase a "weather plan"—that would im­ply that someone has some responsibility and author­ity to go out and ensure the results. While predicting the weather is beyond the scope of this presentation, companies that have achieved very good turns do in fact take a very proactive role with their customers. They create a demand plan in conjunction with the custom­ers. This implies a plan where people can be held ac­countable, do have some control over the result, and can exert effort to make it happen. At least we have a proactive planning approach and may even call it the sales and operations plan. No matter what we call it, it is much better described as a demand plan than a fore­cast estimate.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 12


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