We frequently find it helpful to identify and rank order root and systemic causes of excess inventory. An example completed for a large HVAC client is depicted below. In this case the root causes in rank order are (1) large order releases required by Chinese suppliers (33.9% = $1,210,864), (2) mis-sized purchased orders with other suppliers (31.5% = $1,126,000), (3) MRP data errors (11.2% = $401,000), and (4) poorly negotiated minimum order quantities (4.93% = $176,319 ).
The RightStock™ Root Cause Analysis gave birth to an extensive project plan aimed at eliminating non-value added inventory. The plan is presented below. Not every plan works, but this one led to the plant being named one of America’s Ten Best Plants by Industry Week. The plan moves through four major phases – stabilization, optimization, automation, and collaboration. The entire plan yielded an inventory reduction in excess of $7 million; a reduction in days-on-hand from 35 to 21; and an increase in on-time delivery performance from 93.5% to 97.5%.