Intensified market competition and shortened product life cycles have made demand unbalanced.
"Small batches, multiple varieties, inaccurate sales forecasts, short order cycles, large order fluctuations, more customer customization, and more problems of various types"
are becoming more and more trends. This makes many companies worse and worse in terms of inventory, delivery, and quality.
 
In the manufacturing industry, inventory is often referred to as the "source of all evil", concealing many problems in the factory management process.
For any company, the turnover rate of excessive inventory is bound to be low.
Failure to pay attention will result in slower and slower return of funds until the company's cash flow is tight.
Once business management or market volatility, the company will be in danger of life.

Among the companies that Donghua supply chain has served, many companies continue to optimize inventory,
but have not achieved good results, so today we will discuss the method of reducing inventory:
 
First, let's take a look at the three KPI indicators for inventory control:
1. What is the inventory turnover rate?
2. How much liquid cash does the warehouse need?
3, need much safety stock to prepare?
Grasping these three KPI indicators, the inventory has dropped by at least 20% !

How to calculate the KPI of these indicators? Please refer to the following formula:
Required cash = material cost sold / 365 × (average accounts receivable cycle + 365 / inventory turnover rate-average accounts payable cycle)
Safety stock quantity = (estimated maximum daily consumption-estimated average daily normal consumption) × estimated order lead time
Minimum inventory = safety inventory + average daily consumption × lead time
Inventory turnover rate = cost of sales / (opening inventory + ending inventory) / 2

 
Below I have listed 7 ways to reduce inventory for your reference:
 
 
1
Safety stock ABC
The basic point of the ABC key control method is: divide the entire inventory of the enterprise into three categories: A, B, and C.
When managing, the high-value A materials are focused on strengthening management and control;
B materials are carried out according to the usual methods Management and control: There
are many types of C-type materials, but they are of little value. The simplest method can be used to manage and control them.



 

2
Shorten delivery time Leadtime
Number of orders equal to:
(a secondary ordering number of days + Lead Time ) the X- average amount of daily demand + safety stock - (inventory number + the number of transit)         
 
One of the best ways to optimize inventory is to reduce the lead time of the supplier,
which is to shorten the cycle time of "place order-deliver order".
 
However, more often, suppliers require an increase in lead time. For example, some domestic companies often face labor shortages.
Workers have to return
to their hometowns on the eve of the Spring Festival. Workers want to take leave and rest in the summer. In autumn, some migrant workers have to return to their hometowns. Help with the autumn harvest. Many reasons will lead to the extension of the delivery period, which will increase our inventory.
 
What the customer is most worried about is that the supplier has extended the delivery period without authorization. Not only did it fail to notify the customer,
but instead found various reasons of delaying the delivery. This would cause the risk of shortage of materials to the customer and
reduce the complete inventory. Rate, resulting in a shortage of urgently needed raw materials, and unneeded raw materials pile up in the warehouse.
 
3
Inventory management visual management method red yellow green (bar code)
Visual management refers to the use of various visual, graphical,
intuitive and color-appropriate visual perception information to manage on-site production
to improve labor productivity. It is also a way to use vision The scientific method of management.
 
The benefits of implementing visual management are low cost, the necessary good products are produced according to the delivery date and the number of orders, the inventory is reduced, and the logistics are improved.
 

4
VMI
In the VMI model, the supplier obtains the customer's sales data and is responsible for maintaining a certain amount of inventory on the client.
The supplier decides the type, quantity and frequency of replenishment. After completing the replenishment, the
supplier obtains the customer's receipt record, and bills the customer based on this.
 
The original purpose of VMI is to alleviate the bullwhip effect. Customers transfer the function of replenishment to suppliers,
who use historical sales data, combined with predictive analysis, to arrange replenishment plans by themselves.
 
During the replenishment process, the supplier continuously revises the forecast model to improve the accuracy of the forecast, which
can reduce the shortage of goods and improve the delivery time rate.
 
Do a good job of VMI, you can control the quantity of inventory, and will not produce excessive inventory or sluggish inventory.
Regardless of whether the ownership of the inventory belongs to the customer or the supplier, the overall inventory level will drop,
thereby improving the efficiency of the entire supply chain and reducing inventory costs.
 
5
Streamline inventory area
The most intuitive effect of reducing warehouse space is to expose the problem and attract attention from all parties.
For example, what should I do if the warehouse can no longer fit?
 
Of course, we can't reduce warehouse space indiscriminately. We need to have investigations, data, analysis, and basis.
 
There are two types of reduction in warehouse area: absolute reduction and relative reduction. The absolute reduction is to directly reduce the warehouse or reduce the area. For
example, the original 5 warehouses of 40,000 square meters are now changed to 4 warehouses of 30,000 square meters.
Relative reduction means not increasing or increasing warehouse area in a small proportion while increasing performance.
 
If there is clearly a warehouse, how can I reduce it?
That's simple, separate a part of the area, strictly forbid entry, and leave it empty.
 

6
data analysis
If you want to quickly understand the company's production and operation status, the best way is to analyze the company's inventory data.
 
Inventory data is a physical examination form for production and sales. If there is a problem with production and sales, the logistics of the warehouse will not be smooth.
Logistics is like the blood flow of the human body. Logistics problems are the result of the overall capabilities of the factory.
 
As a manager, analyze the inventory management data. At the moment of seeing the data, the key is to associate the process of data generation.
Through the seen data, it can immediately reflect the production and operation status of the enterprise represented by the data.
 

 

 

7
Increase turnover rate
How to improve inventory turnover? The most important thing is to reduce the amount of inventory.
The lower the inventory amount, the higher the inventory turnover, the higher the profit.
What are the factors that affect the amount of inventory? The main key is the logistics and distribution of raw materials, products in process and finished products.
 
The JIT production model (just-in-time production) mentioned in lean management refers to the
delivery of necessary materials to the production line in the necessary quantity and at the necessary time.
In this way, we can continuously eliminate waste, reduce inventory, and improve inventory turnover.