2005 Grant W. Howard Company 1
Grant W. Howard
13214 Wallace Road
Manchester, MI 48158
(734) 428-0529
“Best Practices” Inventory Management
The Next Level
Profitability, Longevity and Growth
2005 Grant W. Howard Company 2
Our Discussion Today
The Big Picture The Replenishment Process Getting Results:
– Customer Service– Profitability
Systems Utilization Some Final Thoughts
Through Slide 28 Today
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Profitability
Longevity
Growth
Warehouse
Sell
Procure
Customer Service
Vendor Performan
ce
Employee Happiness
Education and
Understanding
Communication,
Structure, and Team
Systems and ToolsProcesses and
Procedures
Owner’s Returns
and Happines
s
The Fundamental Tree
Service, GM Improvement, Asset Manage-
ment, Efficiency, Accuracy
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Profitability, Longevity and GrowthProfitability ($&%): GM Improvement ($&%):
– Sales Increase - Loyalty:» Sell Price x 2» Velocity Pricing» Lost Business and Backorders» More of Customer’s Business» New Business
– COGS Decrease/Supplier Negotiations
Expense Reduction:– Asset Management:
» Freight Reduction» Cost to Carry Reduction
• Rifle Approach• Surplus, Safety Stock, RC/OC/OQ
» Replace Freight & Inventory with ...
– Efficiency and Accuracy:» Cost to Replenish Reduction
– Replace Costs with ...
Longevity: Customer Loyalty:
– Customer Service:» Fill Rates» Backorder Handling» On-Time Delivery» Accuracy - Product, Price, Quantity,
Terms
– Ability to Solve Customer Issues– Use Technology to ...
Being Dynamic - its Critical:– Adaptability to Market Changes– Use Technology to ...
Growth: Existing Customers:
– Lost Sales and Backorders– Depth of Customer’s Business
New Customers
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Procure: Inventory
Management/Control Operations Sales Marketing Systems and Technology
Warehouse: Operations Inventory Management/Control Systems and Technology Sales Marketing
Sell: Sales Marketing Inventory Management/Control Operations Systems and Technology
Seems to be a Pattern?
Where does Management fit into all
of this?
Profitability, Longevity and Growth
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Customers: Availability Backorder Handling On-Time Delivery Accuracy
– Product
– Quantity
– Price
– Terms
Win-Win MEASURE
Vendors: Not Just Price Win-Win MEASURE
Employees: Want to do a Good Job Balanced Objectives/Team Tools, Processes, EDUCATE! Remove Stress, Give Method Win-Win MEASURE
Profitability, Longevity and Growth
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Communication, Structure and Team: Companies need to have a team concept, KNOWN balanced objectives, with a way to get there - Management!
Systems and Tools: Companies need to understand and use more than 20, 30, 50% of their systems!
Processes and Procedures: Companies need to have closed-loop, actual working processes and procedures!
Education and Understanding: Companies need to education their people and help them be part of the solution!
Profitability, Longevity and Growth
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Who’s Involved?
Usage LT Saf RCCtoP
EOQCtoP
EOQCtoC
On-hand
Paper-float
SurpPrev/Disp
BOHand-ling
OTD Acc-uracy
IM X X X X X X X X XSales X X X X X X XOpers/Ware X X X X X X X X X X XOffice X X X XIS/IT X X X X X X X X X X X XMgt X X X X X X X X X X X X
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Inventory Management
Getting ResultsWhen, What, How Much
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The Replenishment Model
A Good Replenishment Model addresses the two objectives of
Customer Service and Profitability
WhenWhen to Replenish? to Replenish?
What What to Replenish and to Replenish and How muchHow much??
What is incoming and will be late?What is incoming and will be late?
What is incoming and will be early or is not needed?What is incoming and will be early or is not needed?
What is not needed?What is not needed?
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“When, What and How Much” “When to Replenish”
– Target/Incentive and/or Review Cycle - Profits
– Worthy Items Below Order Point with Target/Incentive and/or RC Considerations - Profits and Service
“What to Replenishment”– Line Buy (Make Target/Review Cycle)
– Fill In/Emergency Buy
– Transfers
– Do Nothing “How Much to Replenish”
– Up to Line Point/Remaining Cycle (Cycle Coverage - Freight/C to P)
– Compare to Suggested Order Quantity (EOQ/Class - CtoC and CtoP)
– Minimum Run
– Vendor/Transfer Package Rounding
PNA/Level
Surplus Point
Line Point or Max/EOQ
Order Point or Min
EOQ
Order Cycle
Lead Time
Safety
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Data
Usage - OE/WT
Lead Time - PO/WT
Level/PNA Info - OH & Paperfloat
Purch Hist
Set-up
“Smart” Set-up
Co. and Whse.
Product Pline
Product Master
Product Whse.
The Numbers
Hits/Ranking
Order Cycle
Ave Usage, Safety, OP, LP, Order Quantity
Replenishment
Buyer’s Ctrl Center
Items BOP/Priority
Timeline Analysis
Too Late
Too Early
Surplus Inventory
External/Lng. Term
Internal/St. Term
Measurement
Fill Rate, BO’s
Turns, Excess, Mix
T&E, GMROI
Maintenance
One Stop Inq/Maint
Proofs/Mass Update
Exc Control Center
The Tools
Data to Info
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Data
Usage - OE/WT
Lead Time -PO/WT
Level/PNA Info - OH & Paperfloat
Purch Hist
Set-up
ICSR - “Smart”
ICSD - Whse
ICSL - Pline
ICSP - Prd Master
ICSW - Prd Whse
The Numbers
ICAI - Rank
ICAR - RC
ICAMM - AMU, Safety, OP, LP, OQ
Replenishment
POERR/WTERR
POERA/WTERA - BCC
Timeline Analysis
ICRIG - Too Late
ICRIG - Too Early
Surplus Inventory
ICRIS - Ext/LT
ICRIS - Int/ST
Measurement
ICRIF - Fill Rate
ICRIT - Turns
ICRIR - T&E
Maintenance
POERA - One Stop
Proofs/Mass Update
ICAMU - ECC
The Tools
Data to Info
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Know the Right Things to Do
Do these Things Right
Inventory Management is at the Time of Replenishment, the
“When, What, and How Much”, Everything Else is Correction.
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Getting Results!
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Service - Fill Rates? How well a business meets its customer’s needs - pulse of customer’s happiness/loyalty. What to Measure:
Fill Rates = Shipped/Ordered
Quantity: 9 out of 10 = 90%
Line Item SC: 9 out of 10 = 0%
Order Ship Complete?
What Should Fill Rates Be? The Report is Broken? Look at “First Pass” Orders - EDI, Fax, Internet, etc for true fill rates and backorder
percentages Only one way to better Fill Rates - The Right Inventory. Two ways to the Right
Inventory...
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Profits - Turns? ROI?
Freight, Cost to Carry and Cost to Purchase
Maximize the Bottom Line
C to P Turns
80’s $10.00 2-3
90’s $5.00 3-6
00’s $2-3.00 6-10
EDI/VMI $0.13?
Many companies are increasing the turns, but the infrastructure does not support it; bottom line, longevity and growth are all suffering! Customer
Service, GM Improvement, Efficiency, Accuracy, Asset ManagementP
rofi
tabi
lity
Turns
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TurnsWhat is it Measuring - Profits?
J M/A J/J S/O D C/I Turns
1.00 s1.25 1/1 1c1.00
1.00 s1.25 s1.25 2/1 2c1.00 c1.00
1.00 s1.25 s1.25 s1.25 s1.25 4/1 4c1.00 c1.00 c1.00 c1.00
CGM T&EGM%
GMROI.25 .25
20%20
.25 .5020%
40
.25 1.0020%
80Turns DOES NOT measure Profits, Turns is an Indicator of Profits
Turns is a Measurement of Utilization and Efficiency - i.e.., C to C
Turns is a one-side Indicator of Profitability, it looks at C to C... - What about Margin, Freight, C to P and SERVICE?
R O I
Inventory = Dollars! How many Times the Dollars are used to do Something
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Turns
4
5
6
7
Margin
35
30
25
20
Return
140
150
150
140
The “Whole” Picture
Inventory Management is not only Turns
Customer Service Improvement - Availability, OTD, BO Handling
Gross Margin Improvement - Sell Service (Price) and COGS
Expense Reduction - Freight, Cost to Carry, Cost to Replenish
Inventory Management is Bottom Line, Longevity and Growth
7 Turns & 4% Bottom Line or 5 Turns & 7% Bottom Line
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Return on Investment
GMROI:
= Turns CGM%
= COGS GMAve Inv COGS
= Sls Turns GM%
= Sales GMAve Inv Sales
= GMAve Inv
x
x
x
xx
x
Turns:= COGS (+
$Transferred)Ave Inv
T&E:
= Turns GM%
= COGS GMAve Inv Sales
No Directs, Non-Stocks or Pass-Throughs
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Inventory Management Objectives
Customer Service Availability (Fill Rates)
Proper Backorder Handling On Time DeliveryAccuracy: Item, Quantity, Price
Profitability (ROI)GM Improvement (Sales and Cost)
Freight Considerations - OC AnalysisEfficiency & Asset Mgt: CtoC and CtoPSurplus Inventory & Safety InventoryTurns/Days supply, ROI/T&E/GMROIWatch the C to P
(Purchasing/Replenishment, Receiving &
Put-away, A/P)
Watch the C to C
(Warehousing, Handling, Obsol. &
Shrink, Taxes, Ins, Interest)
Service Profits
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1. Right Inventory not Suffering because of Wrong
2. Controlled Replenishment
3. Stocking Policy
4. Good Numbers and Proper Use of Them (OP, Level, LP, and OQ) - Path to Service:– Replenish at Order Point - Prio
– Usage: Lost Sales, DP
– Freight/C to C vs Service
– Line Buy vs Emergency Buy
– Understand LP and OQ Effect
Customer ServiceAvailability, Backorders, OTD, Accuracy
5. Operations:– Backorder Policy and Handling
– On-Time Delivery
– Accuracy of Shipments and Billing
6. Fill Rates - Monitor, Drill Down, Find Areas of Improvement
Back to Basics
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7. Understand and Use:– Customer Buying Habits
– Timeline Analysis
– NOOS Policy and Procedure
– Smart Selling/Transferring
8. Follow LP and EOQ Suggestions:– Too many Fires
– BOP but not at Target Problems
9. “Never-Arrive” Incoming
10. Safety Stock Increase:– Safety Analysis (Over
Utilizing)
– Safety Increase:» Use a Rifle Approach
» Watch the Profits
Stellar Customer Service does not have to drive your inventory through the roof, it just has to be done smart.
Customer ServiceAvailability, Backorders, OTD, Accuracy
Keys to Good Fill Rates
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Inventory Management Objectives
Customer Service Availability (Fill Rates)
Proper Backorder Handling On Time DeliveryAccuracy: Item, Quantity, Price
Profitability (ROI)GM Improvement (Sales and Cost)
Freight Considerations - OC AnalysisEfficiency & Asset Mgt: CtoC and CtoPSurplus Inventory & Safety InventoryTurns/Days supply, ROI/T&E/GMROIWatch the C to P
(Purchasing/Replenishment, Receiving &
Put-away, A/P)
Watch the C to C
(Warehousing, Handling, Obsol. &
Shrink, Taxes, Ins, Interest)
Service Profits
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ProfitabilityGM & Expenses (Freight, CtoC, CtoP)
1. Stellar Customer Service
2. Controlled Replenishment
3. Stocking Policy
4. Good Numbers and Proper Use of Them (OP, LP, OQ, Level) - Path to Profitability:– Up to LP, OQ, Min, Package– Usage: Exceptional, DP– Targets/Incentives Properly– Line Buy vs Emergency Buy– Availability (Sales, GM, Fires)
5. Vendor Performance and Negotiations
6. T&E and/or GMROI - Monitor, Drill Down, Find Areas of Improvement
Back to Basics
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ProfitabilityGM & Expenses (Freight, CtoC, CtoP)
7. Excess and Defective Control:– Prevention
– Disposition
8. Order Quantity Reduction:– OC/RC (LP) Reduction:
» OC/RC Analysis/Paths, Watch Freight
» Lower Targets - Negotiate» C to P Departments Tools/ Efficiency
– Suggested OQ Reduction (EOQ):» Watch C to P Departments» Proper C to C
9. Safety Stock Reduction:– Safety Analysis (Not Utilizing)
– Safety Reduction:» Improve the Process
» Use Rifle Approach
» Watch the Service
10. Other Reductions:– “Never-Ship” Committed
– Duplicate Products and Lines
Turns the Right Way!Balanced Objectives - Increase
turns/decrease inventory but DON’T EFFECT SERVICE!
Reduce Inventory/Increase Turns
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PNA/Level
Surplus Point
Line Point or Max/EOQ
Order Point or Min
EOQ
Order Cycle
Lead Time
Safety
ProfitabilityGM & Expenses (Freight, CtoC, CtoP)
Understand the Impact Areas: Excess and Defective:
– No one wants or needs
– Control the Feelings
– Let it Roll, Let it Go
– Be Careful - C to C/Mix
– Cost of Disposition
Line Point and Order Quantity:– “What” and “How Much”
– Be Careful - C to P Departments
Order Point - Safety Stock:– “When”
– Be Careful - Customer Service
Least Risk
Most Risk
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Surplus Inventory Disposition
BOP/GAP - Put of the fire: Short or Long Term
BLP/Sugg Xfers - Use it where you can: Long TermTeach branches to use LT first. Don’t borrow stock and put branch in “need”.
1. Stock Balance: (“X” Months Supply) - With “To” branch approval/Before Buy
2. Sell Above Cost: Customer, Other Distributor
3. At Cost: Sell at cost, Return at cost with no charges (freight, restock)
4. Below Cost: Sell below cost, Return below cost and/or with charges
5. Sell Above “Write-off” Cost: Garage/Fire Sale, Flea Market, Auction House, Liquidation House
6. Dump at “Write-off” Cost: Donate, Scrap, Dump
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How Much of the System is Your
Company Using?
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“Best Practices” Inventory ManagementImprove Customer Service, GM, Asset Management, Efficiency, and
Accuracy Better SKU Coverage - System and Buyers
– 50 - 70% SKU Coverage to 85-97%– 5-25,000 SKU/Buyer to 40,000-100,000+
Improved Time Management Improved Priority Setting Improved Efficiency Improved Accuracy Technology and Core Replace Inventory with Information Rifle Approach Better Numbers and Better Tools Ability to Balance Profits and Service
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“Smart” Parameters
Product Record
Product Line Record
Vendor Record
Warehouse Record
Company Record
Table Driven/Automated
Depth
Watch Hardcoding
Balanced
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Economic Order Quantity (EOQ)
The EOQ formula minimizes the “Cost of Reordering or Purchasing” and the “Cost of Keeping or Carrying” which develops the lowest total hidden inventory costs - the lowest total inventory costs. The “How Much”
decision affects your bottom line and service!
24 x Avg. Monthly Usage x Cost to Purchase (“R”eorder cost)
Unit Cost x Cost to Carry (“K”eep cost)
C to C C to PCos
t Per
Uni
t Ord
ered
EOQ
Total Cost
Cost to Carry
(“K”eep Cost)
Cost to Purchase
(“R”eoder Cost )
Quantity Ordered1. Not less than “x” weeks supply (1 week)2. Not more than “x” weeks supply (1 year)
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EOQUsage Rate 1
Item Cost $100.00
Cost to Carry 24%
Cost to Purchase $4.00
EOQ 2
$100 Month Usage, 2 Month Supply
Usage Rate 100
Item Cost $1.00
Cost to Carry 24%
Cost to Purchase $4.00
EOQ 200
$100 Month Usage, 2 Month Supply
$Mth Usage Mth’s Supply $Inv $CtoC $CtoP M’s Sup (2.00CtoP)
.01 200 (16.67 years) 2.00 4.00 4.00 141 (11.75 years)
.10 63 (5.25 years) 6.30 4.00 4.00 45 (3.75 years)
1 20 (1.67 years) 20 4.00 4.00 14.1 (1.18 years)
10 6.3 (189 days) 63 4.00 4.00 4.5 (135 days)
100 2 (60 days) 200 4.00 4.00 1.41 (42 days)
1,000 .63 (19 days) 630 4.00 4.00 .45 (13.5 days)
10,000 .2 (6 days) 2000 4.00 4.00 .141 (4.2 days)
100,000 .063 (1.9 days) 6,300 4.00 4.00 .045 (1.35 days)
1,000,000 .02 (.6 day) 20,000 4.00 4.00 .014 (.42 day)$CtoC = $Inv x Month’s Supply x 1/2 x 2% (1/2 for Average Inventory, 2% Monthly CtoC)
What about freight percentage and RC days?
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Paperfloat Control
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Buyer’s Control Center/Workbench
On-line, Priorities, One-Stop, Drill Down, Maintenance,
Targets
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Making Targets ProperlyGeneral rules of thumb: Days Dollars 1/2 way through OC/RC
Cost to Carry vs Freight, Price, and Service:
Key is equal days supply Increase or Decrease Use for Proper Emergency
Buys/Fill-ins
LinePoint
OrderPoint
Out ofStock
SafetyStock
xx
x
x
x
xx
x
x
x
x = Products in Product Line
New line pointafter adjustingreview cycle days
xx
xx
2005 Grant W. Howard Company 37
$Dis
coun
t/In
crea
se$C
to C
$C to C
$Discount/Increase
Quantity
Negative
Positive
Break Even
Max. Potential
Discounts and Price Increases
Break Even (Days) =(2 x Discount% / Monthly C to C) x 30
Maximum Potential Savings (Days) =(Discount% / Monthly C to C) x 30
This is total days supply to have on the shelve, not to buy. Use the “up to vendor target logic*” (change order cycle days) to meet the days supply.*This method works well for periods less than 90 days supply (seasonal or large swing items - be careful).
Be aware of future freight, minimum considerations, fill ins, NS and OAN items. If targets are involved, be sure to fill in the entire line not just the fast movers or work a deal.
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Time Line Analysis
In Out
7-30 days
Ideal
Timeline
Out In
0 + days
Too Late
Timeline
In Out
30 + days
Too Early
Timeline
Identification and Prevention are the KeyDoesn’t matter if late if didn’t need
Doesn’t matter if on time if needed earlier
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Surplus Inventory
Responsibility Coordination
Prevention
Identification
Disposition
Goals/Plan
CONTINUOUS
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“Smart” MonitoringSafety Stock - Service and Turns
Safety Stock Level
X
X
XX
X
X
X
X
X
X
X = Actual stock available at time of receiving
Stock out
X
Properly managed safety stock will result, over time, in this configuration of remaining stock levels at time of receivingthe replenishment PO. Impossible task if done manually.
75%
25%
50%
Enhancement automates the monitoring.
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If there is no measurement, then it is all hearsay. Data-free conversations will cause lots of
frustrations, cost lots of money and result in lots on disappointments...
Use measurement and monitoring to confirm results and to drill down and find areas of improvement.
Be sure to use a “aimed” (rifle) approach rather than a broad (shotgun) approach, or it will be lots
of $$$ and probably disappointing!
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Measure ResultsCustomer Service: Availability (ICRIF & SMRL) Safety Analysis (ICAMU) Accuracy:
– Actual and Billing
– Product (CM%)
– Quantity (CM%)
– Price (CM%)
On-Time-Delivery Backorder Handling (ICRIN) Customer Defection (SMAC)
Profits and ROI: Surplus - Prevention &
Disposition (ICRIG & ICRIS)
RC/OC/XC and OQ:– Freight Dollars - As
percentage of sales– Turns - Really C to C and C
to P (ICRIT)– Turn and Earn - ROI (ICRIR)
Safety Analysis (ICAMU)
Vendors? Employees? Efficiency? Accuracy?
Do better on both sides!
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Vendor Performance and Negotiations - It’s not just Price
Lower COGS Lower Freight Minimums Multiple Drops for Freight Combined P/O’s for Minimum Freight Paid Fill-ins
Fill Rates Consistent Lead Times and OTD Accurate Shipping (Blanket
Receiving) - Product, Quantity, Price
Good Backorder Handling
EDI/VMI/2-Way Information Flow - B2B
Automated Product and Pricing Updates
RGA’s on New Items Excess Inventory Returns
Win/Win - Partnership
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“Best Practices”Better Numbers - Order Point
Usage Data and Calculation:– Lost Sales/Exceptional Sales Capability
– “Smart” Exception and “Auto” Correction
– “Path” Exception Reporting
– Flexibility to Where Usage Placed for Shipments, Backorders, and Credits
– Monthly, Weekly, Daily, Transaction Buckets
– DP/MRP Capability
– Flexibility with Method and Window by Rank
– Seasonal Capabilities:» Individual “Parameter Driven” Seasonal Trending» Lead Time Advance for Seasonal Items» Season Shift Capability» Dual Usage for Seasonal with Long Lead Times
– Threshold Minimums
– Rollup Capability
– Usage Forecasting Accuracy Analysis and Correction
Safety Stock Improvements:– Safety Days or Percentage– Safety Control by Rank– Method Control by Lead time– Safety Stock Analysis
Lead Time Improvements:– Minimum and Maximum– History File with Maintenance– History/Parameters by Path (Int/Ext)– Exceptions w/ Automated Ignore– Manual Exceptional Lead Times
Customer Buying Habits, Threshold Minimums and “Automated” Overrides
Use of Hits and “Smart” Item Ranking “Smart” Parameters and Controls
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Review/Order Cycle Improvements:– Based on Purchasing History or Extended
AMU– Min, Max and Exception– Transfer Cycle Days– OC/RC Analysis
Order Quantity (EOQ) Improvements:– Co, Whse, Pline, Product level
– Vendor and Transfer (Path)– Min and Max Supply– Calculate but do not use (SP)
Use of Hits and “Smart” Item Ranking “Smart” Parameters and Controls
Cos
t Per
Uni
t Ord
ered
EOQ
Total Cost
“K”eep Cost
“R”eoder Cost
Quantity Ordered
“Best Practices”Better Numbers - Line Point and OQ
PNA/Level
Surplus Point
Line Point or Max/EOQ
Order Point or Min
EOQ
Order Cycle
Lead Time
Safety
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“Best Practices” - Better Tools Buyer’s Control Center - BCC
– Priority– Targets– “Smart” Rounding– Drill Down/Maintenance– Proper combination of the three models and use of EOQ– “One-stop” Thinking
Time Line Analysis– “Too Late”– “Too Early”
“Smart” Surplus - “True” Surplus Exception Control Center - ECC
– “Smart” exception reporting– Mass Update– “One-stop” thinking
Safety Stock at Receipt Analysis Measurement and Monitoring
Rounding Control and Smart WT Three buying methods and WT’s:
– LP with or without OQ
– WT Cycle and Set weeks supply
– Full control and Works together
– Proper products, Proper quantities Improved Stock Levels:
– Orders, PO’s and WT’s Control
– Future Sales Orders
– Future P/O’s
– Strong Suggested Count Program
– WMS Flexible Product Merge Utility Stock Balancing Tools
Use of Hits and “Smart” Item Ranking “Smart” Parameters and Controls
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Some Final Thoughts
2005 Grant W. Howard Company 48
It’s not just good Software and Systems
It’s not just good Processes and Procedures
It’s not just good People and Education
It’s not just good Management
IT’S ALL OF THEM!
It’s not just good Usage
It’s not just good Order Points
It’s not just replenishing at Order Point
It’s not just the Timeline
It’s not just working the Surplus
IT’S THE ENTIRE PROCESS
Same Company Different Software
2005 Grant W. Howard Company 49
The Big PictureLon
gevi
ty Grow
th
Profitability
Customers
Employees
Vendors
Service, GM Improvement, Asset Management, Efficiency, Accuracy
Replace Inventory and Costs and Improve Service with Technology
2005 Grant W. Howard Company 50
Replace Inventory and Costs and Improve Service with Technology.
Improve the Bottom Line with Technology
Information, Efficiency, Accuracy(If it is not helping Service, if it is not helping Profits…)
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“Getting Results” - Top 10Better Numbers:1. Hits based Ranking - ICSR and ICAI
2. Smart Set-Up and Maintenance - ICSR
3. Usage: Lost Sales and Exceptional Sales, Seasonal Trending, and Roll Up - ICSR, ICSW, OE and WT
4. Customer Buying Habits - ICSR & ICSW
5. RC and EOQ Control and Depth - ICSD, ICSL, ICSW, ICAR
Better Tools:1. Paperfloat Control - BIIS
2. Buyer’s Priority, Targets Properly/Equal Days Supply, and One-Stop - POERA
3. Timeline Analysis “Too Late” and “Too Early” - ICRIG
4. Long Term Surplus - ICRIS
5. Exception Control Center and Mass Update - ICAMU
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“Getting Results” - Top 10Improved Fill Rates:1. Accurate Order Point:
– Track Lost Business/Usage– Customer Buying Habits
2. Accurate Level
3. “When” - Replenish at OP - BCC
4. Stock Out /Lost Business Prevention -Timeline Analysis/”Too Late”
5. Closed-loop Backorder Process
Improved Profitability:1. Accurate Line Point (OC) and Order Quantity
(EOQ/Class):– Track Exceptional Business/Usage
– Proper LP/OQ Controls and Use
2. Accurate Level
3. “What & How Much” - Line Point, Order Quantity, Package
4. Surplus Prevention - Timeline Analysis/”Too Early”
5. Inventory Reduction:– Surplus/Excess Reduction
– OC/RC/OQ Reduction - Caution
– Safety Reduction - Caution
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Spend your days reacting to the fires... you may be efficient, but
will you be effective?
Where are Your Systems, Procedures, and Objectives S(p)ending Your People?
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Back to BasicsMost distributors DON’T: Set the system up properly Feed the system good data Understand or Use the system properly Clean up bad processes and procedures Educate their people on the system or processes Help departments work together Help work towards common goals
Yet they think it will all just magically work
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“Branch Participation”It’s Essential! Sell
Service the Customer Controlled Replenishment (PO’s and Transfers) Good Data and Information (Rifle vs Shotgun)
– Lost and Exceptional Sales
– On-hand Integrity and Paperfloat Control Proper Backorder Handling Surplus Prevention & Disposition
– Controlled Replenishment
– Help utilize the Surplus “Smart” Selling and Transferring Eyes and Ears
Train the MassesTeach Them Benefits
Give Them the Tools
2005 Grant W. Howard Company 56
REMEMBER!
When to Replenish
Order Point
Service
What and How Much to Replenish
Line Point and OQ
Profitability
There is Always a Left and Right Side
Balance
2005 Grant W. Howard Company 57
The World is Changing!
Yesterday Today TomorrowBuyers/Inv. Control Inventory/Asset Managers ???
Turns Dominated Customer Service Oriented If you can’t
Inaccurate Data Data/Information Managers handle today,
Four Glass Walls Communications & Team how will you
Learned from “Bill” Education & Understanding handle
Pencil and Paper Technology and Efficiency tomorrow?
If your company is stuck in Yesterday or having troubles with Today, how will it survive Tomorrow?
2005 Grant W. Howard Company 58
Keys to “Getting Results” - Top 101. Hits/Ranking and “Smart” Parameters
2. Order Point, Line Point and Order Quantity Accuracy:
– Usage:» Lost/Exceptional Utilization» Usage Exceptions and Maint» Proper Method and Window» Seasonal Trending & Adv LT» Roll Up» Usage Accuracy Analysis
– Lead Time Exceptions and Maint– Safety Set-up and Safety Analysis– Order Point Adjusters– OC/RC Analysis– Proper EOQ Parameters– WT “Smart” Rounding
3. On-hand and Paperfloat Accuracy:– SC/CC Program and
Address the Issues, Good Processes
– Paperfloat Control– WMS, BC, RF
2005 Grant W. Howard Company 59
4. Buyer’s Control Center:– Priority - Replenish at OP– On-Stop, On-line, Paperless– Making Targets Properly - Keep
Equal Days Supply
5. Timeline Analysis:– “GAP”/“Too Late”– “Too Early”
6. Surplus/Excess/Defective:– “Smart” (Long and Short Term)– Visibility, Utilization and
Disposition– Incoming with LT Surplus
7. Backorder Policy and Procedure - Closed-loop
8. Exception Control Center:– “Smart”/”True” Exceptions
– On-Stop Corrections– Mass Update
9. Measurement and Monitoring:– Service (Fill, BO, OTD, Accuracy)
– ROI
– Mix
– Excess
– Freight
– Vendor Performance
Keys to “Getting Results” - Top 10
10. Controlled Replenishment and Stocking Policy
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GWHCO
www.gwhco.org
Grant Howard:[email protected]
734-428-0529 Phone
734-428-0593 Fax
John Cason:[email protected]
256-830-0676 Phone
256-830-0481 Fax
Our approach involves tailoring the best practices in distribution to the specific needs of our clients. Our working philosophy revolves around building a strong and self-maintaining infrastructure by developing a working plan based on processes and procedures, education and understanding, implementation of tools and technology; and through communication, organizational structure and team environments.