Understand how to Inventory Management and Control can improve your companies' Bottom Line Read more: https://www.nextlevelpurchasing.com/procurement-training/courses/inventory-management-and-control

1. Profitable Inventory
Management and Control
Webinar
3/21/2019
David Millington, M.Sc.QSM, NPDP, CL6σBB, SPP℠, SPSM3®, CM®
Director of Education

3. Procurement Professional’s Mandate
Understand, measure, solve problems relating to:
Manage Spend
Support Operations
Protect our organizations from the impact of Risks

4. Scope of Webinar?
Understand how Inventory Management and Control can improve your
companies' Bottom Line
Learn how to leverage collaboration to prevent inventory build up in
Supply Chains "Bull Whip Effect“
Learn to leverage the 5S Methodology to optimize Inventory Turns
Leverage ABC Stratification to optimize Inventory Management
Leverage technology to optimize Inventory Management

5. Types of Inventory

6. Understand how Inventory Management and Control can improve
your companies' Bottom Line
Inventory Management
To meet target customer service levels at a minimum cost
This requires figuring out how much or how little inventory will be needed
Inventory Risks
Surplus
Spoilage
Obsolescence
Pilferage
Loss
Damage

7. Some contributors to Bullwhip Effect
Disorganization
Poor Communication
 Poor Demand Information
Learn how to leverage collaboration to prevent inventory build
up in Supply Chains "Bull Whip Effect“
The bullwhip effect is a phenomenon that describes how minor demand fluctuations by retailers causes significantly
larger fluctuations in demand at the manufacturer, raw material supplier, distributor, and wholesaler levels
Customers Manufacturers

8. Learn to leverage the 5S Methodology to optimize Inventory Turns
Reduced Warehouse Operation Cost
Organized and Clean Warehouse
Improved Warehouse productivity
Improved Delivery Performance
Reduced Injuries
Reduced Wastes
Improved Inventory Turns
Sort
Set in
order
ShineStandardize
Sustain
5S
5S is a powerful methodology that organizes a work space in such a manner to realize awesome
business process performance. The 5S process follows the following steps:

9. Learn to leverage the 5S Methodology to optimize Inventory Turns

10. Leverage ABC Stratification to optimize Inventory
Management
There are at least 3 ways that the Pareto Principle (80/20 Rule) has been found to manifest itself in
inventory management:
 Twenty percent of the total number of line items (also called “stock keeping units” or “SKU’s”) account
for 80% of the total number of transactions
 Twenty percent of SKU’s account for 80% of cost of goods sold (expressed in money)
 Twenty percent of SKU’s account for 80% of inventory value
****************************************************************************
A Items 80%
B Items 15%
C Items 5%
There really is no right or wrong way to determine these A, B, and C groups.
The point is that the most attention should be paid to the A items, less attention paid to the B items, and
the least attention is necessary for the C items

11. Inventory Performance
Ways inventory management decisions affect value:
 Having inventory available when the customer needs it can make the difference between getting a
sale and losing that sale to a competitor
Having inventory available when the customer needs it can help maintain high service levels, fostering
customer loyalty and repeat business
Having inventory available when it is needed can reduce logistics costs associated with expedited
shipping when standard shipping isn’t fast enough to satisfy the demand
 Reducing inventory reduces the carrying costs associated with holding inventory
 Investing in less inventory than in previous periods frees up cash to invest elsewhere (or pay down
expensive debt) for a faster or larger return on investment
Good inventory management thus delivers value and contributes to improved profitability

12. Measuring Inventory Performance
1. Inventory turnover ratio (degree of cost control)
2. Months of inventory (can be either degree of customer fulfillment or degree of cost control depending on
what the target is)
3. Value of inventory (degree of cost control)
4. Financial ratios (degree of cost control)
5. Air freight cost (degree of cost control)
6. Forecast accuracy (can be degree of cost control or degree of customer fulfillment)
7. Fill rate (degree of customer fulfillment)

13. Measuring Inventory Performance
1. Inventory turnover ratio (degree of cost control)
The inventory turnover ratio indicates:
 How well your organization is managing its purchased assets
 Inventory turnover is the number of times that your inventory is replenished in a year
Low inventory turnover means:
You are carrying too much inventory
 Unnecessarily restricting your company's access to cash that it could be using to invest in profit-generating activities,
 Difficulty paying Bills, or even stay in business!
Here's the formula for a Single Item: Here's the formula for Your Overall Inventory:

14. Measuring Inventory Performance
5. Air freight cost (degree of cost control)
As you can see, the additional air shipping that was required due to insufficient inventory added $728,000 ($1,948,000
- $1,220,000) in new cost, more than offsetting the carrying cost savings of $576,000. As such, it is important to keep
an eye on air freight cost if one of your other metrics involves measuring inventory reduction.
Air Freight Cost can be an important inventory management metric.