Customer response time requirements are also a significant contributor to inventory requirements. If required customer response times are longer than supplier and/or manufacturing lead times; no inventory is required. If that is not the case, then the shorter the response time requirement, the greater the inventory requirement. The increase is normally due to additional facilities required in close proximity to customers, and their associated inventory deployment requirements. As described earlier, the greater the number of inventory stocking locations, the greater the inventory requirements.
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
The RightStock™ model also distinguishes between value added inventory (VAI) and excess, non-value added inventory (NVAI). Value added inventory is the sum of safety stock, lot size, and pipeline inventory. Those three types of inventory
Hedge inventory (HI) mitigates risks of potential sharp price increases, shortages in critical commodities, and extreme price and availability volatility for those same items. Fuel is a classic example of a commodity whose inventory may
Contingency and disaster inventory (CDI) insures against unexpected situations outside the realm of those covered by traditional safety stock inventory. Those situations include natural disasters, labor strikes, and other abnormal supply chain disruptions. For example,
The shortage factor is the % of an item's unit selling price (USP) that is lost in the event of a stockout and subsequent lost sale. It is used to compute the lost sales cost. For example, if the
Setup cost (SUC) is the cost to setup (prepare or changeover) a machine or production line to make a production run for a particular item or change between items. It is sometimes referred to as changeover cost (COC).
The purchase order cost (POC) is the cost of placing a purchase order from a vendor. The majority of those costs are related to sourcing, purchasing, and procurement salaries and benefits (italics) and include: Purchase
As a part of the National Science Foundation’s Japan Technology Evaluation Center I had the unique privilege to lead a major study for the U.S. government comparing U.S. and Japanese logistics systems. During the study
There are two conceptual models for inventory management – push and pull. The push inventory model is so called because the emphasis is on "pushing" speculative inventory, made-to-forecast (MTF) in response to forecasted demand, out
Order status communication should be proactive when there is an exception to the order contents, timing, or terms agreed upon at order entry. Order status information should be updated in real-time and should be available