Inventory Turnover

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BUSINESS BASICS & BEST PRACTICES BULLETIN

Now serving 9921 subscribers

Competitive Knowledge for Manufacturing People 

Inventory Turnover
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September 19, 2005

Hi [[firstname]]... welcome back,

As interest rates continue to climb, pressure to 
reduce inventories will increase. Many of our 
subscribers are already feeling the pressure. 
Are you?

In this bulletin, I will introduce you and your 
company to a unique, proven, MS Windows compatible 
Inventory Control System that has generated hundreds 
of inventory reduction success stories. This is a 
system that interfaces with all MRP systems and its 
available with free onsite planner training. It's 
called the Inventory Quality Ratio System or simply: 
The IQR System.

If your inventories are not turning at 24 times a
year, you need the IQR System. If you do not have 
the authority to pursue this option, a good move 
on your part would be to put this bulletin in the 
hands of your CEO, COO, CFO. Believe me, they will 
be glad you did. 

For more information about the IQR System, take the
time to read this weeks bulletin and then pass it 
on to your leaders.

Have a nice day, keep the faith, and stay connected.

Bill Gaw
Business Basics, LLC
Bg@bbasicsllc.com
760-945-5596
Inventory Turnover
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BUSINESS BASICS & BEST PRACTICES BULLETIN

Now serving 9921 subscribers

Competitive Knowledge for Manufacturing People 
==========================================

Your response to my article on "Inventory Mania... 
Stopping the Flow" was huge and most of you wanted to 
know how do we "Establish Lower Level Control?" For 
those of you who missed the bulletin, I have pasted a 
portion of the article below:

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ESTABLISHING LOWER LEVEL CONTROL

If your company is measuring inventory effectiveness 
by inventory turnover ratios, chances are that your 
information is too little, too late, and too distorted 
for effective inventory management. Why? First, 
because financial turnover calculations are based on 
past sales and consequently are a trailing indicator 
that communicates false performance data. Second, 
because the data is aggregate, it does little to help 
track problems to their root causes. And third, because 
the data is provided on a monthly basis, planners are 
always in a reactive planning cycle. For planners to 
become proactive, inventory performance data must be 
provided on a more frequent basis and at the part 
number level. 

To effectively reduce inventories, you need to provide 
planners with valid and timely inventory performance 
data. The first thing that needs to be done is to get 
your materials team to work with your financial group 
to develop an inventory performance measurement that 
is predicated on forward requirements at the parts 
level. Such a system is called Days-of-Supply. This 
type of system takes the net requirements generated 
from a master schedule and calculates a daily 
consumption rate for each part. This rate is then 
divided into the on-hand inventory balance for each 
part to arrive at its designated Days-of-Supply. 

Next is to establish a Days-of-Supply target for A, B 
and C items (e.g.10, 30, 60 days). This information is 
then used to create a report that defines excess 
inventory in terms of $$$. It calculates by part number 
the quantity of parts above the Days-of-Supply target 
and multiplies the result by the part's unit cost. A 
simple Pareto analysis of this data will provide a value 
based priority focus for an inventory reduction program. 
It's not the perfect system but it is far superior to 
using turnover ratios.

Inventory Turnover

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HOW DO WE DO THAT?

So, the question most subscribers asked was: How do 
we "Establish Lower Level Control?"

At my last three companies, we did it by writing 
special computer software that used our Materials
Requirement Planning (MRP) System's database as its
input and provided the below outputs that:

1. Established dollar-driven inventory 
classifications and quality categories based 
on future requirements and/or weighted past 
usage.

2. Provided instant visibility of dollars 
and inventory performance by item, category, 
product line, planner, vendor, location, A-B-C 
class, etc.

3. Calculated and reported days of supply 
highlighting exactly where the planners, buyers 
and schedulers could reduce inventories and 
improve company profits.

4. Displayed all of the relevant data on one 
screen so planners and managers could make 
informed decisions more efficiently.

5. Generated exception reports to identify 
open and planned order projecting excess 
inventory build up in time for corrective actions.

6. Included inquiry and custom report writing 
capabilities so planners could get the information 
they needed without special requests for MIS 
services.

7. Simulated the impact of changes in material 
ordering guidelines and off-line "what-if" 
analyses. Outputs were used to update and fine-
tune MRP settings.

If your ready to consider a more effective method of 
managing inventories. One that is dollar-driven yet 
within the control of the planner; one that considers 
both future requirements and past usage; one that 
identifies good and bad inventories; one that measures 
performance by inventory segment; one that prioritizes 
reduction opportunities; and one that actually helps 
planners improve performance while making their jobs 
easier. GOOD NEWS...

NO NEED TO REINVENT THE WHEEL!

You don't have to reinvent the wheel. There is no 
longer a need to create a software development team to 
design the system and train planners on how to use it.
A software development company, IQR International, has 
a proven MS Windows compatible System that interfaces 
with all MRP systems and its available with free onsite 
planner training. It's called the Inventory Quality 
Ratio System or simply: The IQR System.

To inquire about an IQR System demonstration, 
simply click on the below URL:

http://bbasicsllc.com/IQR.htm

Inventory Turnover

IQR International is a software development company 
specializing in inventory management for the 
manufacturing and distribution industries. They 
provide inventory reduction and inventory management 
tools based on the Inventory Quality Ratio (IQR) 
methodology. 

IQR International has over 250 site installation in 
18 countries around the world. Their customers range 
from under $50 million in sales to multinational 
Fortune 100 corporations. IQR International serves a 
broad range of industries and manufacturing 
environments, including automotive, capital equipment, 
industrial and consumer products, electronics and 
high tech, pharmaceuticals, chemical and food 
processing, and maintenance and repair operations.

WHO IS USING THE IQR SYSTEM?

Included among their customers: ArvinMeritor, Beckman 
Coulter, Black & Decker, Robert Bosch, Carrier Corp, 
Dana Corp, Dow Chemical, Eastman Chemical, Hyundai, 
Intel, Johnson & Johnson, Kohler Companies, Motorola, 
Newell Rubbermaid, Pharmacia, Rheem Mfg, Schering 
Plough, Steelcase, Telex Communications, Unilever 
Bestfoods and many smaller companies.

These companies have been extremely successful in 
controlling their inventories with positive results:

* Typically reducing inventory investment 25% in 
first year 
* Improving cash flow by deferring unnecessary 
purchases 
* Identifying opportunities to rebalance 
inventories among locations
* Avoiding the build up of excess inventories 
that may become obsolete
* Prioritizing reduction opportunities based on 
the dollars involved
* cleaning-up data to avoid shortages of 
materials and finished goods 
* Calculating financial reserves and obsolescence 
with part level audit trail
* Measuring performance by inventory segment 
(item, product, vendor, etc.) 
* Establishing a baseline and setting realistic 
targets for inventory reduction
* Providing a model "what-if" analysis for fine 
tuning their MRP settings
* Tracking and graphing inventory investment and 
performance over time 
* Highlighting good and bad inventory movement 
so causes can be identified and action taken
* Consolidating reporting from different systems 
at division or corporate levels 
* Demonstrating the cost of poor forecasts and 
excessive product changes.

A SIMPLE SYSTEM THAT GETS RESULTS!

The Inventory Quality Ratio System is a simple 
analytical technique for measuring inventory 
performance, managing inventory dollars and making 
the planner's job easier. The IQR System incorporates 
the popular practices of periodic reviews and ABC 
analysis to identify the best opportunities to reduce 
inventory. It uses both past usage and future 
requirements to calculate days' supply, and user-
defined parameters to measure current inventory 
performance. It provides planners and managers with 
an easy way to reassess lead times, safety stocks, 
order quantities and replenishment cycles on a weekly, 
monthly or exception basis. The IQR System also 
enhances existing MRP systems by adding a dollar focus 
to prioritize current reduction opportunities.

FREE USER TRAINING

An integral part of the IQR International service and 
IQR for Windows software is the user training that 
comes with every installation. Although IQR tools are 
very easy to use, IQR International include training 
because of the motivation it provides planners to take 
charge and actually reduce inventories. 

Together, the IQR software and the IQR training provide 
the skill set necessary to attack current inventory 
problems and to avoid their buildup in the future. 
After learning the IQR logic and user-defined parameters, 
the planners perform a series of exercises that 
demonstrate how using the IQR tools will increase their 
productivity and effectiveness. Since the training is 
conducted with current data for each planner, they 
address and prioritize their specific issues. Once the 
planners are comfortable with what they can actually 
do to reduce inventories, they develop individual 
objectives (that they know they can reach) and action 
plans to achieve them.

To be less intrusive on planners' limited time, total 
training for IQR software is only twelve hours. IQR 
International conduct two six-hour classes at your site 
and can flex the hours to meet your schedule. All IQR 
training is approved by APICS for credit toward CPIM 
certification maintenance. And, unlike most user 
training classes, the cost is included in the price of 
the software. 

Inventory Turnover

The IQR software is the first part of the solution-it 
provides the information. The second part, the IQR 
training, provides the all-important motivation. Seeing 
what a tremendous impact they can have on inventory 
levels and company profits is truly empowering for 
most employees. They begin to take charge of the 
situation because they now have the information, the 
tools, the insight and the priorities to make it 
happen. The job actually becomes fun for a change

To inquire about an IQR System demonstration, 
simply click on the below URL:

http://bbasicsllc.com/IQR.htm

OPPORTUNITIES FOR INVENTORY REDUCTION

Excess inventories represent not only the biggest but 
also the best opportunities for inventory reduction. 
This is true for several reasons: 

* Reducing excess inventories reduces inventory 
dollars on the balance sheet; so turns, return on 
assets and all of the financial ratios improve. 
But unlike scrapping obsolete inventories, there 
is no negative financial impact from inventory 
write-offs.

* Reducing excess inventories improves cash flow 
by deferring incoming purchases until the excess 
inventory is consumed and replenishment is 
actually needed. Generally, there is a dollar-
for-dollar improvement in cash flow from reducing 
excess inventories.


* Very simply, the less excess inventories we have 
today, the less likely we are to have slow moving 
or obsolete inventories tomorrow and write-offs 
in the future.

A FOCUS ON EXCESS INVENTORY REDUCTION

The IQR methodology provides a simple way to attack
excess inventory by actually managing inventory 
dollars. It combines the information from existing MRP 
systems with best practices and a dollar focus to 
address inventory reduction in a more comprehensive 
manner. The IQR logic has helped companies worldwide 
to:

* Assess their true reduction potential by 
inventory segment.
* Identify and reduce excess inventories 
and improve cash flow. 
* Clean house of slow moving and obsolete 
inventories. 
* Calculate dynamic ABC classes based on 
future requirements.
* Analyze safety stocks, lot sizes, order 
policies and past usage.
* Simulate the impact of different material 
ordering guidelines.
* Fine tune MRP systems to keep them 
current and effective.
* Monitor inventory movement and identify 
the root causes of inventory build up.
* Manage inventory investment and avoid 
future write-offs.
* Set realistic reduction objectives and 
track progress over time.

Perhaps the greatest benefit of the IQR logic is 
helping the planners and inventory managers to be 
more effective – by giving them the information they 
need, and by showing them exactly where and how 
they can have the biggest impact on inventory 
performance and bottom line improvement.

If inventory management is part of your strategy for 
exceeding bottom line expectorations, why not explore 
how the IQR System can help you achieve your inventory 
objectives.

To inquire about an IQR System demonstration, 
simply click on the below URL:

http://bbasicsllc.com/IQR.htm

Inventory Turnover
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WHERE TO GET HELP

When the front office puts on the pressure to 
reduce inventories and you need help, try 
passing this bulletin on to your CEO/CFO/COO

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Business Basics, LLC
6003 Dassia Way, Oceanside, CA 92056

West Coast: 760-945-5596

Manufacturing Knowledge you'll neither find at offsite 
seminars nor in the books at Amazon.com

Lean Manufacturing - Balanced Scorecard 
ISO 9000:2000 - Strategic Planning - Supply Chain 
Management - MRP Vs Lean Exercises - Kaizen Blitz 
Lean Six Sigma - Value Stream Mapping

All at one Website: http://bbasicsllc.com

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Inventory Turnover

Manufacturing Knowledge you’ll not find at offsite 
seminars nor in the books at Amazon.com

Lean Manufacturing - Balanced Scorecard 
ISO 9000:2000 - Strategic Planning - Supply Chain 
Management - MRP Vs Lean Exercises - Kaizen Blitz 
Lean Six Sigma - Value Stream Mapping

All at one Website: Good Manufacturing Practices

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West Coast: 760-945-5596