Intelligent Manufacturing € January € 1996 € Vol. 2 € No. 1

How to Solve the Inventory Dilemma

Too many manufacturers today limp along with well-intentioned but ineffective inventory reduction efforts, according to management consultant Mike Donovan. As a result, management is often very frustrated with the seeming inability to solve the inventory and service dilemma once and for all. Why do companies repeatedly fail at achieving consistently high levels of customer service and permanent inventory and cycle time reductions?

The 25 inventory performance audit questions that follow will help you to benchmark your capabilities with a self-assessment. These questions, prepared by Michael Donovan, president of R. Michael Donovan Inc. (Natick, Mass.), are intended to assist executives in evaluating their circumstances and to identify potential improvement opportunities.

One way in which to utilize the diagnostic questions is to have your entire management team: (1) answer each question, (2) meet and discuss each question that received one or more "no" answers, and (3) outline your corrective action needs. During step (1), as you proceed through the diagnostic questions, you should make appropriate notes about particular areas of concern. The notes could be very helpful during subsequent discussions and corrective action planning.

FOUNDATION DISCIPLINES: YES NO

Every product has a well-defined manufacturing and inventory deployment strategy?
We have clearly defined organizational accountability for performance of each segment of inventory?
Our inventory record information is real time and 99%+ accurate?
Our bills-of-material are 100% accurate?
We create little to no inventory obsolescence as a result of engineering changes?
Our forecasting processes and demand variability is integrated with a service-oriented inventory deployment strategy?
We have a comprehensive and effective Sales and Operations Planning process that is management's handle on sales, production and inventory plans?
We start the assembly process without any material shortages?
We use distribution requirements planning (DRP) to plan inventory for distribution centers?
We have a comprehensive and dynamic inventory performance monitoring system that pinpoints problems before they occur?

ADVANCED STRATEGIES: YES NO

The impact on service and inventory from cycle time reduction has been properly analyzed and quantified?
We have mapped all supply chain processes, clearly identifying value added and non-valued added activities, bottlenecks, queues, cycle times, etc.?
We have specifically defined the barriers that prevent us from achieving increases in service and reductions in inventory and are actively removing the barriers?
We have organized and trained multi-functional teams that are aggressively working on relieving bottlenecks and improving flow and balance to achieve high velocity throughput?
We have decreased our manufacturing and vendor leadtimes by at least 50% over the past three years?
Our lot sizes and set-up times have been reduced by at least 50% over the past three years?
We have reduced queues and work-in-process inventories by 50%?
Our processes perform to a level where no inventory buffers are required to protect against quality problems?
We have agreements with key vendors for short cycle deliveries and mutually agreed upon goals for continuous improvement?
Our approach to supply base management has all critical vendors' processes certified to a "no inspection required" status?
Our vendor delivery dates are very predictable?
We can precisely predict our delivery leadtime/date for customers or to replenish inventories?
We have an active on-going program for vendor delivered, point-of-use inventories?
Our production supervisors spend little to no time expediting materials or firefighting due to shortages?
Our primary performance measurements and reward system are heavily weighted toward short cycle times and quick response?

How Is Your Score?
If you checked "yes" to all, or even nearly all, of the questions, then your company is more advanced than most. In fact, all "yes" answers would indicate that your company is in an elite class of top performing companies. Of course, "yes" answers are only indicators of near and longer-term business success. However, "no" answers are solid indicators that improvements are necessary to help ensure your business success.

Further Evaluation
To evaluate your past efforts at improving business processes and their effect on inventories, Donovan urges you try the following:

Make a list of every important program your company has initiated in the past five years where better customer service and inventory performance should have been a result.
Then compare the expected results with the permanent and measurable results that were actually achieved.

The answers from the 25 yes-or-no questions, along with a candid evaluation of your current and past improvement programs, will for many result in a question: Is there a better way?

Click here to return to Table of Contents for the Intelligent Manufacturing January issue