How to optimize your inventory levels
Carrying inventories means carrying material costs within your organization. It’s possible to find opportunities to optimize your inventory levels. You can reduce inventory excess, detect unnecessary lists, and highlight obsolete materials occupying space. Make sure your inventories are at the right levels and take action whenever you find a gap. By implementing and following this technique periodically, you’ll reduce your inventory cost, and improve your space availability.
What type of inventories do I have?
You store an enormous amount of physical inventory in your warehouse. Physical inventory can be raw materials, spare parts, or finished products. In any case, it costs money, time, labor, energy, and space to have them available on hand. You also expect to
- transform the raw material into a product
- use the spare parts
- deliver your products
You may see that the inventory is not moving, and therefore, they are stored for a long time there. There are multiple causes:
- Suffering divergence with your forecasts
- Acquiring huge order quantities
- Manufacturing large batch sizes
- Storing obsoletes items
- Storing items with defects or out-of-compliance
- Storing just in case
What is it possible to do?
By following the kaizen principles, Upkaizen provides a series of recommendations for reducing unnecessary stock. To optimize your inventory levels you can
- Implement a Problem Solving Methodology.
- Create a multidisciplinary team with a project leader.
- Define a masterplan to reach your results (3 months to reach your first goal)
- Sustain the program with subsequent follow-up.
Which tools are available?
ABC Analysis
It’s a categorization technique. The whole inventory universe is defined as A, B, or C.
– The “A items” are 20% of the items that represent approximately 70% of the total value or consumption. Any slight improvement in this category leverages a significant impact. It’s recommended to focus on this category in the first stage.
– The “B items” are 30% of the items that represent approximately 25% of the total value or consumption. Making improvements in this category will create a satisfactory impact.
– The “C items” are the last 50% of the items that represent around 55% of the total value or consumption. By making improvements to this category, you will create minimum impact.
Housekeeping
Housekeeping is a methodology, also known as 5S methodology, which consists of 5 simple steps that contribute to achieving a more efficient work environment.
- Sort: to identify all unnecessary inventory, and eliminate it.
- Set in order: To assign and identify a place for each inventory item
- Shine: To clean the work area
- Standardize: to adopt a standard procedure to keep optimal inventory levels.
- Sustain: Maintain a philosophy of continuous improvement, adopting new techniques.
Stock Matrix
It’s a tool that identifies the actual ABC analysis, contrasted against the expected levels. You will be able to distinguish:
- suitable inventory, which means they are at the right levels
- unnecessary list, which means to remove them from your warehouse
- reduce inventory, which means to remove inventory in excess
After you’ll need to redefine your A, B, and C Items parameters, such as the Reorder Point, the Safety Stock levels, Consignment, Replenishment, and Lead Times. It’s important to emphasize that this technique has to be applied regularly (i.e., once a month/quarter) as demands, consumption rates, prices, etc. modify the ideal figures.
5G’s
The 5G is the five Principles that allow you to find the root cause of any phenomenon and understand the current situation. The name comes from 5 words in Japanese, which means:
- Genba: Go to the place. It’s the most important principle, so you can objectively see the problem and the opportunities.
- Genbutsu: Examine the object physically. This step consists of focusing on those items you want to take action. You’ll be able to understand the current conditions in addition to your spreadsheets.
- Gengitsu: Check Facts and figures. You’ll check historical data and collect current inventory data. You’ll examine the evolution throughout the time (days, weeks, etc.)
- Genri: Refer to theory. You’ll be based on physical principles, detect the root causes, and be able to adopt countermeasures.
- Gensoku: Follow the proper method. You’ll select a methodology with the intention to get maximum output with minimum effort.
Upkaizen as a critical player in your inventory optimization
In summation, efficiency means lower inventory total cost. The total inventory cost can be broken down into steps highlighting operational opportunities. Upkaizen offers a practical methodology to optimize your inventory levels and increase your operating profit, so enhancing higher operating profit and return on investment. And finally, it will ensure the competitiveness of your business.
