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Designing FG Supermarket
Calculating Inventory Levels Marek Piatkowski – May 2012
Introduction - Marek Piatkowski
Professional Background
Toyota Motor Manufacturing Canada (TMMC) - Cambridge, Ontario
from 1987-1994
TPS/Lean Transformation Consulting - since 1994
Professional Affiliations
TWI Network – John Shook, Founder
Lean Enterprise Institute (LEI) – Jim Womack
Lean Enterprise Academy (LEA) – Daniel Jones
LEI Poland – Tomasz Koch, President
Lean Transformation Solutions, Toronto, Canada
www.TWI-Network.com
Inventory Levels for the Supermarket - Definitions
For every part we need to identify
Maximum level of inventory – this information can be calculated or it can be set as a directive
Re-order point – depends on capability of manufacturing to produce Every-Part-Every-what ??? A starting point would be Every-Part-Every-Week.
Minimum re-order lot size – depends on set-up and changeover times. As a starting point Changeover times should be less than 10% of production run times
Safety stock – depends on equipment (OEE) and suppliers’ reliability
Safety Stock
Buffer Stock
Standard Stock
Re-order Point
Designing FG Supermarket
Calculating Inventory Levels for the Supermarket
There are several methods to establish inventory levels in the
Supermarket:
Calculating Standard stock, Buffer stock and Safety stock by using pre-determined formulas
Defining inventory levels in terms of days or weeks worth of inventory – as a corporate directive
Using Sales forecast to determine future requirements
Using Shipping History as a guide
Designing FG Supermarket
Create a Data Base showing History of Shipments Designing FG Supermarket Step # 1
Total number of pieces shipped per week for each part
At least a 12 months history of shipments
The longer the period the better
Part
Number01/01/01 01/08/01 01/15/01 01/22/01 01/29/01 02/05/01 02/12/01 02/19/01 02/26/01 03/05/01 03/12/01 03/19/01 03/26/01
9438 1,800 2,500 2,500 1,400 1,533 2,500 2,500 2,400 2,625 2,625 1,625 1,625 0
9102 0 0 2,700 0 29 3,000 0 3,000 3,000 500 0 0 3,000
9918 0 1,000 1,000 700 500 800 1,950 300 2,005 1,405 940 600 600
9607 0 0 0 1,800 0 2,000 0 2,000 0 0 2,000 0 2,000
9840 0 0 0 0 0 0 0 0 0 0 0 0 0
9907 600 500 600 500 600 500 600 500 600 500 0 0 600
8711 800 0 900 0 800 0 800 800 800 0 800 1,600 0
8431 0 0 5,000 0 0 0 5,000 0 0 0 3,000 2,000 0
8843 0 3,000 0 0 0 3,000 0 0 0 3,000 0 0 0
2150 0 0 0 0 0 0 0 0 0 0 0 0 0
9331 0 0 0 800 0 850 0 0 0 750 0 0 0
8426 0 0 0 0 0 1,200 0 0 0 1,200 0 0 3
9901 0 900 0 900 0 0 0 0 0 900 0 0 0
9999 0 0 0 0 0 0 0 0 0 0 0 0 0
9412 0 0 0 0 0 840 0 0 0 840 0 0 0
9913 0 150 0 0 0 135 0 0 400 65 0 0 0
9841 0 0 0 0 0 0 0 0 0 0 0 0 0
9712 0 0 0 0 0 0 0 135 130 0 0 130 120
2156 0 0 0 0 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0 0 0 0 60
9107 0 200 0 0 0 0 150 150 300 0 0 150 150
Using History of Shipments to Define Inventory Levels Designing FG Supermarket Step # 2 Model: 9438
0
1,000
2,000
3,000
4,000
5,000
6,000
1 3 5 7 9 11
13
15
17
19
21
23
25
27
29
31
33
35
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39
41
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45
47
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51
53
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59
61
63
65
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71
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77
79
81
83
85
87
89
91
93
95
97
99
10
1
10
3
10
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10
7
10
9
11
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11
3
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5
11
7
11
9
12
1
12
3
12
5
12
7
12
9
Weekly Shipping History Model: 9438 Last - 30 Months, 130 Weeks
Weekly Average = 2,031
Period = 30 months, 2.5 years
Weekly Average = 2,031 pieces
Steady performer - Repeater.
Good candidate for the Supermarket.
Largest spike, week 115 = 4,800 pieces shipped in one week
Designing FG Supermarket Step # 2 Model: 9438
Period = 12 months, 1 year
Weekly Average = 2,039 pieces
Largest spike, week 115 = 4,800 pieces shipped in one week. The reason for this spike must be investigated.
Recommended MAX level of Inventory = 4,000 pieces, about 2 weeks
0
1,000
2,000
3,000
4,000
5,000
6,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
Weekly Shipping History Model: 9438 Last - 12 months, 52 weeks
Weekly Average = 2,039
Using History of Shipments to Define Inventory Levels
Designing FG Supermarket Step # 2 Model: 9102
Period = 30 months, 2.5 years
Weekly Average = 1,158 pieces
This product used to sale about 4,000 every other week, now the sales are down and we do not ship every week
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1 3 5 7 9
11
13
15
17
19
21
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25
27
29
31
33
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37
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99
10
1
10
3
10
5
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10
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1
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5
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7
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12
1
12
3
12
5
12
7
12
9
Weekly Shipping History Model: 9102 Last - 30 months, 2.5 years
Weekly Average = 1,158
Using History of Shipments to Define Inventory Levels
Designing FG Supermarket Step # 2 Model: 9102
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
Weekly Shipping History Model: 9102 Last - 12 months, 1 year
Weekly Average = 516
Period = 12 months, 1 year
Average of 516 pieces shipped weekly represents incorrect assumptions
This is not a candidate for the Supermarket – this part should be “Made to Order”
If it is required to keep it in stock – Max quantity = 2,000
Using History of Shipments to Define Inventory Levels
0
100
200
300
400
500
600
700
800
900
1,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118 121 124 127
Weekly Shipping History Model: 2156 Last - 30 months, 2.5 years
Designing FG Supermarket Step # 2 Model: 2156
Period = 30 months, 2.5 years
Weekly Average of 107 pieces shipped per week is very misleading
Looks like this is a new product and it’s sales are difficult to predict.
Shipping history is weak
Using History of Shipments to Define Inventory Levels
Designing FG Supermarket Step # 2 Model: 2156
Avery weekly shipments in the last 12 months = 244, last 6 months = 352
Last week it was 765 pieces
The trend is growing. Shipping history of this product and inventory levels must be monitored every WEEK
Recommended MAX level of Inventory = 1,500 pieces, about 2 weeks, based on the last week shipment. This decision must be approved by Sales.
0
200
400
600
800
1,000
1,200
1,400
1,600
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
Weekly Shipping History Model: 2156 Last - 12 months, 1 year
Using History of Shipments to Define Inventory Levels
Inventory Test Designing FG Supermarket Step # 3
Enter single day
inventory count into
PFEP
Calculate current
inventory value
Part Number Description Consumption -
Weekly Volume
LAST 6 MONTHS
Quantity per
bag
# of Parts in the
Warehouse on
July 18, 03
Cost per
Part - $$$
Cost of
Inventory on
July 18, 03
Maximum
Inventory in the
Stock Room
Target (Max)
Cost of
Inventory
1 Containers =
days of
Inventory
1B5961 LID 226 450 58,019 0.65 $37,712.35 900 $585.00 10
1B6150 LID 316 473 41,037 0.45 $18,466.65 946 $425.70 7
1B1632 LID 0 277 35,912 0.65 $23,342.80 500 $325.00 5
1B3418 LID 95 28,337 0.34 $9,634.58 500 $170.00 5
1B4944 LID 38 500 23,433 0.34 $7,967.22 500 $170.00 66
1B6665 LID 0 21,990 0.44 $9,675.60 500 $220.00 5
1B4983 LID 18 465 21,467 0.55 $11,806.85 465 $255.75 129
1B6676 LID 0 17,738 0.45 $7,982.10 500 $225.00 5
1B3834 LID 0 16,226 0.37 $6,003.62 500 $185.00 5
1B2216 LID 0 14,722 0.55 $8,097.10 500 $275.00 8
1B4391 LID 0 665 9,648 0.65 $6,271.20 500 $325.00 5
1B4806 TERM FERRULE 3950 3280 8,947 0.33 $2,952.51 9,840 $3,247.20 4
1B2846 LID 0 8,338 0.45 $3,752.10 500 $225.00 7
1B4867 LID 0 1164 7,608 0.55 $4,184.40 500 $275.00 5
1B1067 LID 0 6,738 0.33 $2,223.54 500 $165.00 5
1B3393 LID 0 6,497 0.55 $3,573.35 500 $275.00 5
1B3821 TERM FERRULE 324 2500 6,393 0.55 $3,516.15 2,500 $1,375.00 39
1B0799 TERM.FERRULE 9788 10,000 6,345 0.44 $2,791.80 20,000 $8,800.00 5
1B1831 LID 0 900 5,558 0.55 $3,056.90 500 $275.00 5
1B1556 LID 39 250 5,500 0.37 $2,035.00 250 $92.50 32
1B1449 TERM FERRULE 339 4,981 0.23 $1,145.63 500 $115.00 5
1B0360 LID 0 450 4,981 0.43 $2,141.83 500 $215.00 5
1B6675 LID 0 277 4,950 0.43 $2,128.50 500 $215.00 5
1B3732 LID 281 460 4,299 0.33 $1,418.67 920 $303.60 8
1B3664 FILL FERRULE 5018 7,975 4,256 0.34 $1,447.04 15,950 $5,423.00 8
1B2220 LID 157 4,031 0.44 $1,773.64 500 $220.00 1
1B5234 LID 101 900 3,540 0.33 $1,168.20 900 $297.00 45
1B3952 LID 353 750 3,421 0.76 $2,599.96 750 $570.00 11
1B6253 LID 450 860 3,410 0.56 $1,909.60 1,720 $963.20 10
1B6385 LID 1293 950 3,257 0.55 $1,791.35 2,850 $1,567.50 4
1B0797 FILL FERRULE 9738 10,000 2,935 0.34 $997.90 20,000 $6,800.00 5
Part Number Description Consumption -
Weekly Volume
LAST 6 MONTHS
Quantity per
bag
# of Parts in the
Warehouse on
July 18, 03
Cost per
Part - $$$
Cost of Inventory
on July 18, 03
Maximum
Inventory in the
Stock Room
Target (Max)
Cost of
Inventory
1 Containers =
days of
Inventory
1B0743 LID 15 450 0 0.45 $0.00 450 $202.50 150
1B0779 LID 0 500 0 0.36 $0.00 500 $180.00 5
1B6476 LID 69 500 2,751 0.34 $935.34 500 $170.00 36
1B5368 LID 2233 500 2,831 0.44 $1,245.64 4,500 $1,980.00 5
1B3952 LID 353 750 3,421 0.76 $2,599.96 750 $570.00 11
1B5234 LID 101 900 3,540 0.33 $1,168.20 900 $297.00 45
1B2220 LID 157 4,031 0.44 $1,773.64 500 $220.00 1
1B3664 FILL FERRULE 5018 7,975 4,256 0.34 $1,447.04 15,950 $5,423.00 8
1B3732 LID 281 460 4,299 0.33 $1,418.67 920 $303.60 8
1B4867 LID 0 1164 7,608 0.55 $4,184.40 500 $275.00 5
1B2846 LID 0 8,338 0.45 $3,752.10 500 $225.00 7
1B4806 TERM FERRULE 3950 3280 8,947 0.33 $2,952.51 9,840 $3,247.20 4
1B4983 LID 18 465 21,467 0.55 $11,806.85 465 $255.75 129
1B6665 LID 0 21,990 0.44 $9,675.60 500 $220.00 5
1B4944 LID 38 500 23,433 0.34 $7,967.22 500 $170.00 66
1B3418 LID 95 28,337 0.34 $9,634.58 500 $170.00 5
1B1632 LID 0 277 35,912 0.65 $23,342.80 500 $325.00 5
1B6150 LID 316 473 41,037 0.45 $18,466.65 946 $425.70 7
1B5961 LID 226 450 58,019 0.65 $37,712.35 900 $585.00 10
TOTALS 427,351 $208,351.36 133,301 $56,249.95 2,619
Actual $208,351.36
Target (Max) $56,249.95
Variance (Savings) -$152,101.41
Compare Current Inventory Count with Max Target
Total current
(actual) inventory
count and total cost
of inventory
Total Max Target
Inventory count and
cost
Compare the values
Designing FG Supermarket Step # 3
Komora "411" / Cavity "411"
0
200
400
600
800
1000
1200
1400
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
Zap
as [
szt]
/ S
tock [
pcs]
Monitor Inventory Levels for Critical Parts Designing FG Supermarket Step # 4
Komora "321" / Cavity "321"
0
200
400
600
800
1000
1200
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
Zap
as [
szt]
/ S
tock [
pcs]
Designing FG Supermarket Step # 4
Check if initial
calculations of
inventory levels are
accurate
Monitor for changes
in consumption
Adjust Min/Max if
necessary
Monitor Inventory Levels for Critical Parts
Designing FG Supermarket Step # 4
Steady consumption
– this is a repeater
You can reduce
inventory levels even
further
Part Number 13456
0
2000
4000
6000
8000
10000
12000
14000
16000
1 3 5 7 9 11 13 15 17 19
Min
Not Acceptable – Too much Inventory
Max
Monitor Inventory Levels for Critical Parts
Designing FG Supermarket Step # 4
Both Max and Min
levels working ell
No adjustment need
Min
Max
Monitor Inventory Levels for Critical Parts
Part Number 13456
0
2000
4000
6000
8000
10000
12000
14000
16000
1 3 5 7 9 11 13 15 17 19
Correct Inventory Levels
Wszystkie komory / All cavities
0
1000
2000
3000
4000
5000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
Za
pa
s [
szt
] /
Sto
ck [
pcs] > 50% Reduction
of Inventory
Designing FG Supermarket Step # 5
Verify Inventory Reduction Savings
Lean Transformation SolutionsThis presentation is an intellectual property of F.S.P. Consulting Inc.
No parts of this presentation can be copied or reproducedwithout a written permission from:
Marek Piatkowski F.S.P. Consulting Inc.
iPhone: 416-235-2631Cell: 248-207-0416
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