There is a frustration in the customer which is looking for the item that is not in stock at this time.
The inbound load of materials that you have no room for, and now have to figure out where to put it.
“Who took the last one?” Now there is a wait until the item arrives.
What do all of these statements have in common? Each indicate a red flag – the flow of your inventory is off. Whether it is the customer who cannot make the purchase, the shop floor employee that cannot figure out where to put the inbound material, or the frustrated person that does not have what they need to perform a function. The importance of flow for any business is key.
First off, if you are seeing these types of issues we should take a step back and see what we can do to correct the problem. Does your department have a safety stock? A safety stock is defined as the minimal amount that you can have to cover the transit of new materials to refill your supply. So if it takes one day to get the materials back in stock – you should have a safety stock that covers (on average) one days consumption. If the delay is longer – then the supply should reflect that. Along that same line we need a max. The min/max is defined as the minimum and maximum quantities that you need in an area to not run out during transit (local – such as from the parts room or stock room). You can count minimum as a safety stock if your design is set up to stock the floor only. The maximum should be the amount you need on the floor at any given time. How much can you store on the shelf, so that the supply will last until next refill without going below the safety stock? If you store in the parts room (or back room) how much do you need on the floor until the refill interval happens? In many cases stocking happens on an off shift.
Lastly, what is your trigger? What is the pull? What is your kanban? All of these are terms which mean indication for an inventory refill? When you hit the minimum quantity, how do you know more is needed? You could have a systematic indicator, or something as simple as a card that someone brings to a staff member. When the trigger or indication happens the refill requirement needs to happen. That will depend on how you stock – or if you order again.Using the kanban, or trigger, will also help the inventory concerns mentioned above; the employee trying to find a place to put the material that is not needed. Since you are not ordering until you hit the minimum quantity, and you are only ordering to the maximum level, there will not be any excess. Purchasing inventory before it is needed is actually a costly misconception. Every piece of inventory that you own, which you do not need, is cash that is tied up. What if the part suddenly no longer needed, or something happens to the inventory you have on hand damaging it? Min and max will help keep your inventory turns in line and cost of inventory down. If you need more help with inventory and forecasting look into an ERP or MRP type system.
- Inventory Theory (businesforum.wordpress.com)
- Microsoft Stock Has a 29% Margin of Safety (fool.com)
- Stock’s Safety Net Disappearing? (managed-futures-blog.attaincapital.com)
- ABCs (and XYZs) of Inventory (whiterockpurchasing.wordpress.com)
- What is inventory? (accountingcoach.com)