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Calculate Target Inventory Quantities

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In this Roadmap we will focus on how to establish the correct material quantities for a given item, and how to calculate the target number of containers that will be needed to support the anticipated usage.

  • When too much inventory is planned for a specific location, (to minimize trips or touches, or to give Operators a sense of security) many problems are created:
  • A large container is likely to have many days of inventory, rather than hours. In general terms, large containers encourage excess inventory.
  • Large containers will take a lot more space at the line, causing all kinds of waste, like potentially making the line larger than it needs to be. Floor space does not come cheap.
  • By increasing the line’s footprint, you will require Operators to walk more to get parts. Your Material Delivery system design will dictate your plant’s productivity. When operators have their hands on the product, productivity goes up. When they do not, because they are walking to get parts, productivity goes the other way in a rush.
  • Smaller containers can be moved by means other than a fork truck. Containers like the one in the picture almost always require a fork truck to move them. In many cases that is waste.

 

Review Usage Data with Team

Review the usage data with the entire Line Design team, both Process and Materials. The Forecasted Daily Usage (FDU) is the primary driver of the inventory quantities. It can be extrapolated from historical usage data, or calculated through a Bill of Material explosion.

Set Inventory Policy

Set the policy for the Days On Hand [DOH] based on a desired inventory turnover rate and the ABC and commodity codes for each item. This is the answer to “What is the maximum inventory want to have at a location?”. “A” items are typically controlled tightly and “B” items less so. “C” items can represent less than 10% of the total inventory investment, and need to be managed with an easy and low-cost method like Kanban or Vendor Managed Inventory (VMI).

Complete Material Flow Master List

Define and document all the Material Flow codes in accordance with the Days On Hand policy. Based on the inventory investment policy decisions made at step 1.4.2, enter all needed Material Flow chains and codes into the PFEP database.

Assign Material Flow Codes

Assign a Material Flow chain to every part to perform initial calculations. This is a manual step, but it can be accelerated by assigning by ABC code or commodity code.

Review Initial Calculations

Review the results of the initial automatic calculations. Inventory quantities are calculated automatically, but ensure that enough rows have been defined to capture all of the items in the Item Master worksheet. Review the results with the team one-by-one. We recommend using a projector and displaying the results worksheet for the entire team to see and review.

Target Inventory Met?

Calculate and review total inventory to ensure that the target inventory goals have been met. The PFEP database should automatically calculate the total dollar inventory investment within the inventory system. Look for opportunities to further reduce this investment by sorting the list by total dollar amount, and assessing whether or not the supplier could support lower inventory levels for that part.

Target Inventory met? | No | Adjust O/H Factor

Adjust the inventory calculations by using the DOH factor. Once the Forecasted Daily Usage is established, the control variable to adjust inventory quantities is the “DOH” in the formula, the replenishment time. Change this variable in the Material Flow chain for that part and the quantities will automatically be recalculated. Caution: quantities will be recalculated for all items with that Material Flow Chain. To change one part only you’ll need to define a new chain.