Inventory Best Practices

by Bragg, Steven M.

• ISBN13: 9781118000748
• ISBN10: 1118000749
• Edition: 2nd
• Format: Hardcover
• Copyright: 2011-04-05
• Publisher: Wiley

Summary

The latest and most important information for best practices in the inventory functionInventory Best Practices, Second Edition offers the latest and most important information on advanced techniques and strategies to improve on the accuracy of all ongoing inventories, configure a warehouse for optimum counting efficiencies, and more. Explains the difference between different types of distressed merchandise for disposal purposes Shows how to maximize the efficiency of inventory tracking systems by shifting selected inventory items into floor stock Examines inventory picking, storage, transactions as well as warehouse layouts, and inventory measurementInventory Best Practices, Second Edition will not only show professionals how to cut their business costs but will demonstrate how to optimize their company's effectiveness as well.

Author Biography

STEVEN M. BRAGG, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young and auditor at Deloitte. He is the author of over thirty books primarily targeted toward controllers, treasurers, CFOs, and their needs. Bragg received a master's degree in finance from Bentley College, an MBA from Babson College, and a bachelor's degree in economics from the University of Maine.

Table of Contents

Preface

Success or Failure with Best Practices

Types of Best Practices

Most Fertile Ground for Best Practices

Planning for Best Practices

Timing of Best Practices

Implementing Best Practices

How to Use Best Practices: Best Practice Duplication

Why Best Practices Fail

Summary

Inventory Purchasing

Include Suppliers in the New Product Design Process

Use Supplier-Concurrent Engineering

Avoid Designing Risky-Procurement Items into Products

Match Product and Part Life Cycles

Reduce Safety Stock by Shrinking Supplier Lead Times

Purchase Supplier Capacity

Reduce Safety Stocks by Accelerating the Flow of Internal Information

Buy from Suppliers Located Close to the Company

Relocate Suppliers On-Site

Use Local Suppliers for Rapid Replenishment

Consider Foreign Sourcing

Use Auctions for Selective Purchases

Compare Suppliers Based on Total Landed Cost

Eliminate Approvals of Routine Purchases

Purchase Based on Material Requirements Planning

Compare Open Purchase Orders to Current Requirements

Freeze the Short-Term Production Schedule

Share Production Plan with Suppliers

Obtain Direct Links into Customer Inventory Planning Systems

Require Frequent Deliveries of Small Quantities

Arrange for Inbound Split Deliveries

Arrange for Phased Deliveries

Adopt Rolling Schedules

Adopt Just-in-Time Purchasing

Implement Stockless Purchasing

Centralize Purchasing

Designate Major Suppliers as Lead Suppliers

Single-Source Products

Install a Supplier Rating System

Use Long-Term Supplier Relationships for Strategic Purchases

Shift Raw Materials Ownership to Suppliers

Flag Changes Impacting Advance Material Requests

Inventory Receiving and Shipping

Reject Unplanned Receipts

Obtain Advance Shipping Notices for Inbound Deliveries

Directly Enter Receipts into Computer

Automatically Collect Inbound and Outbound Cube and Weight Information

Repackage Incoming Items into Increments Ordered by Customers

Put Away Items Immediately After Receipt

Stage Received Goods for Zone Putaways

Eliminate the Receiving Function

Combine the Shipping and Receiving Functions in One Area

Assign Docks Based on Minimum Warehouse Travel Time

Require Supplier Deliveries with Open-Sided Trucks Directly to Production

Ship Using Returnable Wheeled Containers

Use Dunnage Bags to Cushion Outbound Shipments

Use Shippers with the Most Consistent Delivery Performance

Have Delivery Person Deliver the Invoice

Pay Suppliers Based Only on Receiving Approval

Provide Pending Shipment Information to the Collections Staff

Inventory Storage

Drop Ship Inventory

Cross-Dock Inventory

Move Inventory to Floor Stock

Use Temporary Storage for Peak Inventory Requirements

Assign Unique Location Codes to All Inventory Storage Locations

Reduce the Number of Inventory Bin Locations Assigned to the Same Product

Assign Fixed Inventory Locations to High-Volume Items

Segregate Customer-Owned Inventory

Allocate Warehouse Areas to Specific Customers

Segregate Inventory by ABC Classification

Store High-Pick Items in Order Fulfillment Zones

Adjust Case Height to Match Cubic Storage Capabilities

Adjust Case Stacking or Width to Avoid Pallet Overhang

Combine Out-and-Back Inventory Moves

Use Different Storage Systems Based on Cubic Transactional Volume

Use Modular Storage Cabinets for Low-Storage-Volume Items

Use Carousels to Increase Picking Efficiency

Use Moveable Racking Systems

Use Multistory Manual Picking Systems

Use Gravity-Flow Racking for FIFO Picking

Use Pallet-Flow Racks for Pallet FIFO Picking

Create Double-Deep Racking or Stacking Lanes for Large SKU Pallet Volumes

Use Push-Back Racks for Multiple Pallet Storage

Eliminate Cross Bracing in Low-Weight Storage Configurations

Inventory Picking

Group Single-Line Orders and Pick in Order by Location

Use Single-Order Picks for Emergency Orders

For Manual Systems, Pick from the Source Document

Implement Forward Picking

Use Wave Picking by Grouping to Consolidate Transactions

Use Zone Picking to Consolidate Total Transactions

Use Zone Picking with Order Forwarding

Use Voice Picking to Record Low-Volume Picking Transactions

Use Pick-to-Light to Record High-Volume Picking Transactions

Use Portable Scales to Pick Small Items

Pick into Multibin Carts

Store Kitted Inventory in an Accumulation Bin

Use Standard Containers to Move, Store, and Count Inventory

Issue Parts in Full-Bin Increments

Have Suppliers Sequence Their Parts Deliveries

Avoid Restocking during a Picking Shift

Optimize Inventory Storage through Periodic Location Changes

Production Issues Impacting Inventory

Eliminate Incentive Pay Systems Causing Excessive Production

Standardize the Number of Shifts Worked throughout a Factory

Allow Production Workers to Call Suppliers about Faulty Materials

Invest in Smaller, Low-Capacity Machines Rather than High-Capacity Ones

Purchase Machines from a Single Supplier

Produce the Same Parts on the Same Machine Every Time

Perform Inspections at the Next Downstream Workstation

Improve Periodic Equipment Maintenance

Shift Some Equipment Maintenance to the Production Staff

Preplan Major Equipment Maintenance

Replace Aisles with Conveyors

Schedule Smaller Production Batches

Produce to Order rather than to Stock

Reduce Container Sizes

Reduce Setup Times

Shorten Cycle Times

Replace Straight Assembly Lines with Serpentine Lines

Reduce the Length of the Assembly Line

Divide the Assembly Line into Segments

Use Cellular Manufacturing

Group Machine Cells Near Common Inventory Storage Areas

Position Local Cell Storage between Workstations and Aisles

Inventory Transactions

Reduce the Number of Stored Data Elements

Record Inventory Transactions with Barcodes

Record Inventory Transactions with Radio Frequency Communications

Track Inventory with Radio Frequency Identification

Eliminate All Paper from Inventory Transactions

Use the Kanban System to Pull Transactions through the Facility

Eliminate All Transaction Backlogs

Verify That Receipts Are Entered in the Computer System at Once

Have Customers Order by Part Number

Audit All Inventory Transactions

Compare Recorded Inventory Activity to On-Hand Inventories

Immediately Review All Negative Inventory Balances

Replace the Physical Count Process with Cycle Counts

Use Control Groups to Locate Transaction Errors

Prioritize Cycle Counts on Next-Usage Items

Streamline the Physical Count Process

Install a Warehouse Management System

Inventory Planning and Management

Include Materials Managers in the New Product Design Process

Reduce the Number of Product Options

Increase Prices for Non-Standard Options

Increase Prices for Small-Unit Orders

Convert Information Products to Electronic Versions

Reduce the Number of Products

Reduce the Number of Customers

Avoid Promotions

Design Products with Lower Tolerances

Require Formal Review and Approval of Engineering Change Orders

Assign Inventory Items to Classifications

Forecast Demand by Product Families

Segment Forecasted Demand into Stable and Unstable Products

Centralize Responsibility for Inventory Planning

Delay the Order Penetration Point as Long as Possible

Use a Material Requirements Planning System to Model Alternative Lot Sizes, Safety Stocks, and Lead Times

Reduce Job Releases to Production

Prioritize Production Based on Delivery Region

Use Variable Safety Stocks for Fluctuating Demand

Convert Safety Stock to Just-in-Case Stock

Eliminate Expediting

Develop a Product Substitution System

Question the Level of Customer Service Provided

Focus Inventory Reduction Efforts on High-Usage Items

Create a Visual Review System for Noninventoried Parts

Eliminate Departmental Stocks

Install a Distribution Requirements Planning System

Distribute Slow-Moving Items from Regional Warehouses

Install a Hold and Flow System

Use Overnight Delivery from a Single Location for Selected Items

Use Fair Shares Analysis to Allocate Inventory to Warehouses

Periodically Rationalize the Warehouse Network

Plan for Product Shutdowns

Create a Materials Review Board

Identify Obsolete Inventory via Physical Inventory Tags

Plan for Service Parts Inventory Levels

Inspect Returned Merchandise for Usability

Reserve Otherwise Obsolete Inventory with "Service/Repair" Designation

Avoid Product Obsolescence with Shelf-Life Control

Create an Obsolete Inventory Budget for Disposals

Batch Excess Inventory for Sale to Salvage Contractors

Sell Excess Items through the Service Department

Set Up a Reverse Logistics System

Outsource Selected Warehousing Functions

Warehouse Layout

Include Other Issues than Cost in a Warehouse Acquisition Decision

Generally Organize the Warehouse in a "U"-Shaped Process Flow

Organize the Warehouse by Storage Zones

Maximize Vertical Storage Space

Tailor Vertical Storage Space to Manual Picking Needs

Enclose Building Supports in Racks

Use Narrow Aisles in Manual Putaway and Picking Zones

Avoid Aisles Adjacent to Outside Walls

Use Automated Storage and Retrieval Systems

Use Automated Guided Vehicle Systems

Use Conveyors to Reduce Employee Travel

Avoid an Excessive Level of Warehouse Automation

Eliminate the Quality Review Area

Enlarge the Receiving Area

Design Just-in-Time Docks for the Largest Anticipated Trucks

Lock Down the Warehouse Area

Plan for Maximized Warehouse Space Utilization

Eliminate the Warehouse

Cost Accounting

Eliminate Purchase Price Variance Tracking

Eliminate Tracking of Work-in-Process Inventory

Eliminate Scrap Reporting in the Production Area

Charge the Entire Inventory to Expense

Use Specific Identification Costing with RFID Tags

Have the Cost System Separate Value-Added and Nonvalue-Added Activities

Assign Overhead Based on Square Footage Used

Do Not Credit Internal Departments with Sales When Production Is Completed

Report on Landed Cost Instead of Supplier Price

Report on the Total Cost of Product Ownership

Implement Activity-Based Costing

Assign Overhead Personnel to Specific Subplants

Implement Target Costing

Limit Access to Unit-of-Measure Changes

Review Cost Trends

Review Material Scrap Levels

Revise Traditional Cost Accounting Reports

Audit Labor Routings

Follow a Schedule of Inventory Obsolescence Reviews

Bills of Materials

Audit Bills of Materials

Conduct a Configuration Audit

Modify the Bills of Materials Based on Actual Scrap Levels

Modify the Bills of Materials for Temporary Substitutions

Eliminate Redundant Part Numbers

Standardize Parts

Review Inventory Returned to the Warehouse

Use Bills of Materials to Find Inventory Made Obsolete by Product Withdrawals

Identify Inactive Inventory in the Product Master File

Impact of Constraints on Inventory

Overview of the Theory of Constraints

Overview of the Constraint Buffer

Alternatives to the Constraint Buffer

Expedite Zone

Buffer Manager

Buffer Hole

Buffers for Labor Operations

Assembly Area Buffer

Inventory Releases

Batch Sizes

Summary

Inventory Policies and Procedures

Create a Policies and Procedures Manual

Train the Warehouse and Accounting Staffs in Inventory Procedures

Cross-Train for Mission-Critical Activities

Train Using Training Teams

Inventory Measurements

Percentage of New Parts Used in New Products

Percentage of Existing Parts Reused in New Products

Raw Material Content

Bill of Materials Accuracy

Item Master File Accuracy

Economic Order Quantity

Distribution Turnover

On-Time Parts Delivery Percentage

Incoming Components Correct Quantity Percentage

Purchased Component Defect Rate

Percentage of Receipts Authorized by Purchase Orders

Percentage of Purchase Orders Released with Full Lead Time

Putaway Accuracy

Putaway Cycle Time

Scrap Percentage

Average Picking Time

Picking Accuracy for Assembled Products

Average Picking Cost

Order Lines Shipped per Labor Hour

Shipping Accuracy

Percentage of Products Damaged in Transit

Warehouse Order Cycle Time

Inventory Availability

Delivery Promise Slippage

Average Back-Order Length

Dock Door Utilization

Inventory Accuracy

Inventory Turnover

Percentage of Warehouse Stock Locations Utilized

Square Footage of Warehouse Storage Space

Storage Density Percentage

Inventory per Square Foot of Storage Space

Storage Cost per Item

Average Pallet Inventory per SKU

Rate of Change in Inactive, Obsolete, and Surplus Inventory

Obsolete Inventory Percentage

Percentage of Inventory ? XX Days Old

Percentage of Returnable Inventory

Appendix Summary of Inventory Best Practices

Glossary

About the Author

Index

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