In virtually all manufacturing companies, there is a direct correlation between inventory levels and overall business performance. According to Harold Geneen, the legendary financial genius and former chairman of ITT, "all the problems of business end up in inventory." Most knowledgeable executives would agree with Geneen. In fact, CEO's and CFO's believe that their companies consistently carry 25 to 40 percent or more inventory than is needed.
Assess Your Capabilities
Ask your material planning and operations team to answer the following four questions.
YES NO
1. Do you have effective, fact-based decision-support for identifying and prioritizing actions to stop unnecessary material inflow to inventory by dollar impact?
2. Does your decision-support system pinpoint undesirable inventory dollar movement by item?
3. Do you have decision-support capability that continuously assess specific items inventory reduction potential?
4. Does your decision-support system help you establish a baseline, set clear targets and provide on-going performance measurement for every item in your inventory?
What is likely to happen is that many individuals will skip over key words and, at first, answer the questions with a 'Yes'. However, when the key words are pointed out, the answers are almost always 'No' for not just some of the questions, but all four of them.
Finding out that your inventory planning and control system, even one based on modern ERP systems, does not have the depth and breadth of decision support capability needed to identify and prioritize preventative actions based upon their dollar impact can be a real eye-opener for senior management. A common misconception is that effective decision-support to reduce and prevent excess inventories from accumulating is part of the company's current system. To some extent, logic does exist in material planning systems to prevent inventory excesses. However, good prioritized separation of the vital few from the trivial many, especially by their dollar impact on inventory investment, is rarely part of the functionality in most ERP systems. The good news is that the functionality can be added quickly, at a modest cost. This can create an ROI like no other investment you can make.
Considering how much money may be unnecessarily flowing into inventory every year mandates that adding the capability to quickly answer the four assessment questions on page one is an absolute necessity.
Excess Inventory Is a Problem in Good Times, and Bad
Companies hit by a sharp decline in sales all too often experience a significant rise in inventories because of the considerable and unnecessary time that's usually needed to get incoming supply rebalanced with customer demand. When sales are declining, making the right adjustments in inventory levels becomes an exceedingly more important and difficult task. For some companies declining sales combined with a suddenly out of balance incoming supply of inventory have caused a massive cash outflow.
Coping with a rapid sales decline can easily cause companies to wait too long to make supply adjustments. The result is rapidly accumulating excess inventory. It's extremely important to have the capability to promptly take the right actions that are needed to prevent and reverse the accumulation of excess inventory. A healthy balance sheet depends on having a quick, precise inventory avoidance and reduction methodology. Most companies rely on their ERP systems for inventory accumulation avoidance and reduction only to be disappointed by the poor results.
Assess Your Capabilities
Ask your material planning and operations team to answer the following four questions.
YES NO
1. Do you have effective, fact-based decision-support for identifying and prioritizing actions to stop unnecessary material inflow to inventory by dollar impact?
2. Does your decision-support system pinpoint undesirable inventory dollar movement by item?
3. Do you have decision-support capability that continuously assess specific items inventory reduction potential?
4. Does your decision-support system help you establish a baseline, set clear targets and provide on-going performance measurement for every item in your inventory?
What is likely to happen is that many individuals will skip over key words and, at first, answer the questions with a 'Yes'. However, when the key words are pointed out, the answers are almost always 'No' for not just some of the questions, but all four of them.
Finding out that your inventory planning and control system, even one based on modern ERP systems, does not have the depth and breadth of decision support capability needed to identify and prioritize preventative actions based upon their dollar impact can be a real eye-opener for senior management. A common misconception is that effective decision-support to reduce and prevent excess inventories from accumulating is part of the company's current system. To some extent, logic does exist in material planning systems to prevent inventory excesses. However, good prioritized separation of the vital few from the trivial many, especially by their dollar impact on inventory investment, is rarely part of the functionality in most ERP systems. The good news is that the functionality can be added quickly, at a modest cost. This can create an ROI like no other investment you can make.
Considering how much money may be unnecessarily flowing into inventory every year mandates that adding the capability to quickly answer the four assessment questions on page one is an absolute necessity.
Excess Inventory Is a Problem in Good Times, and Bad
Companies hit by a sharp decline in sales all too often experience a significant rise in inventories because of the considerable and unnecessary time that's usually needed to get incoming supply rebalanced with customer demand. When sales are declining, making the right adjustments in inventory levels becomes an exceedingly more important and difficult task. For some companies declining sales combined with a suddenly out of balance incoming supply of inventory have caused a massive cash outflow.
Coping with a rapid sales decline can easily cause companies to wait too long to make supply adjustments. The result is rapidly accumulating excess inventory. It's extremely important to have the capability to promptly take the right actions that are needed to prevent and reverse the accumulation of excess inventory. A healthy balance sheet depends on having a quick, precise inventory avoidance and reduction methodology. Most companies rely on their ERP systems for inventory accumulation avoidance and reduction only to be disappointed by the poor results.
No comments:
Post a Comment