Module 2 - Background

Scenario

COMPANY EMAIL

FROM: George Washburn

SUBJECT: Inventory Project

I am looking over your productivity and process improvement plan. I can see that you put some effort into it. Good job.

Now, I want to keep you in the loop. I have reviewed our financials and inventory records from the last three years. Inventory has grown and I'm sure it is too high, meaning we are not cash efficient. Inventory turns are way too low. I'll give you the details of this project very soon. Perhaps I will meet with you to discuss.

Let me know if you have any questions

~GW

Learning Wizard

Watch these two videos on Inventory (Part 1 and Part 2), by Dr. Elson

Inventory, Part 1: http://www.youtube.com/watch?v=GIuFC2nc3tg

Inventory, Part 2: http://www.youtube.com/watch?v=ASIjL1tyINI

INVENTORY TURNOVER

Why do companies need Inventory and How do you Measure the Efficient Use?

What is INVENTORY TURNOVER? Click Here

ECONOMIC ORDER QUANTITY (EOQ)

How much inventory do companies need? The amount that is ordered, both from the SUPPLIER (for raw materials and supplies) and from the SHOP (primary operations), has a very large influence on the levels of inventory.

What is EOQ? Click Here

ACCOUNTING FOR INVENTORY

Some inventory is more valuable than other. Some items in inventory may be valued at high dollar, like electronics or complex machine components, while others have relatively low value like screws and nails. So more attention should be given to the higher valued inventory than the lower value. For this reason, the ABC inventory system was created. This resource will explain how it is accomplished:

Wong, C. (n.d.). Using ABC Analysis for Inventory Control, APICS, retrieved from http://www.apics-redwood.org/articles/art0302BCW.htm

LEAN INVENTORY

Lean thinking promotes the reduction of lead times which goes hand in hand with the reduction of inventory. This resource provides information on lean inventories:

Lean Manufacturing Principles (n.d.). Strategos, retrieved from http://www.strategosinc.com/principles.htm and this page:

Inventory and Lean Manufacturing (n.d.). Strategos, retrieved from http://www.strategosinc.com/inventory.htm

This article discusses how lean flow is being implemented in some manufacturing companies in the US.

Preston J. McCreary (2009). The Need for Lean Flow, American Machinist. Retrieved from http://www.americanmachinist.com/304/Issue/Article/False/84882/Issue