261 12 Manufacturing Controls Integration R.T. “Chris” Christensen 12.1 THE BASIC PREMISE OF INVENTORY Ever since the pharaohs built the pyramids, humans have been faced with the problem in production management of how inventory should be used to maintain, balance, and level load production. In the case of the pharaohs, they needed to have a big pile of big rocks on hand to maintain a continuous production schedule. And since the time of the pharaohs, we hadn’t made any significant inroads into the pile-of-rocks theory of manufacturing and inventory control until 1959. That was when Joe Orlicky of IBM developed the matched sets of parts relationship required to get the right parts to the right job at the right time. He called it materials requirements planning (MRP). Although we had the tool, we had only a very limited application of MRP. Although the work required for processing information in an MRP environment is ideally suited for computer processing, the limiting factor in the early 1960s was our limited and expensive computer power. The repetitive work required to process the information and do the calculations was cost prohibitive. This left us with finding the cheapest way to balance the matched sets of parts. We found the method necessary to minimize our manufacturing cost and called that tool inventory . Like the pharaohs, we now have our “pile of rocks” — the cheapest way to do it. From this point on in the development of manufacturing theory, all we have really done is add tools to accomplish the task of controlling the matched sets of parts. The primary tool that we use is the computer, so we can do the calculations needed to control our operations. As we continue to increase the level of computer involvement as our tool, our processing time becomes cheaper than that pile of rocks. When computer power becomes cheaper than inventory, we reduce inventory and add power. This new and cheaper information processing power has brought us to today, where our goals are to run a quicker and leaner operation using the information we have gained from tools such as the theory of constraints (TOC), takt time, and advanced planning systems. Today’s quick-response manufacturing facility is an internal cog inside the supply chain, bringing the goods and services to the industrial or retail consumer at the right time and the right place with the right product. To do this we must use these tools so that we can be “just-in-time” to meet our customers’ needs. Though holding inventory in the past helped to speed up the delivery cycle to get product to our customers, we must remember that inventory adds no value in itself. This chapter shows how we can eliminate inventory and at the same time meet the customer’s rapid demands — essentially having only one Big Mac ready just as SL3003Ch12Frame Page 261 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 262 The Manufacturing Handbook of Best Practices you open the restaurant door. This chapter identifies advanced and economically viable techniques that now involve the use of e-manufacturing, Web-based informa- tion systems, and integrated control systems. 12.2 NEED FOR INVENTORY IDENTIFIED BY DEFINITION The following different definitions of types of inventory will help you get an idea of why you have inventory and what it really is. Once you understand why you have inventory, you can determine what you need to keep on your shelves. The reason that we define the different inventory groups is so that we can apply various tools to control and manage that inventory based on the reasons that cause you to have inventory. The definition of inventory is Material : In the traditional sense, inventory is the parts and material stocked to meet your short-term and long-term sourcing requirements. A decoupling activity : Inventory is the tool that decouples the customer’s demand from production capacity to enable the organization to flat load the plant. A fixed investment : If you have $2 million in inventory now, you’ll always have $2 million in inventory. You use parts and materials from your inventory supply, but you immediately replace them with new stock upon consumption. Insurance : What is insurance? It’s being reimbursed for an incurred loss. Insur- ance minimizes your loss if disaster strikes. So, isn’t inventory just that — insurance against an inability to get the parts needed to meet the production order? A bet : Similar to insurance. When you carry auto insurance for your teenager, you’re placing a bet that he or she will wreck the family car. The insurance company is giving 10-to-1 odds that it won’t happen. As a manager concerned about inventory, you’re like that insurance company. You bet there will be no downtime, and you stack the odds in your favor by the amount of inventory you carry. A buffer stock against use : Inventory is a hedge against the unknown. If you knew exactly when a part was required, you wouldn’t need to carry it in stock. You’d buy the part and have it arrive exactly when needed. This sounds good in theory, but because you don’t know exactly when you’ll need that part, you carry it. A buffer stock against delivery : Inventory also protects you from the uncertainties of delivery. If you knew exactly when a supplier would deliver your order, you’d never need inventory to cover for erratic delivery schedules. Hey, suppliers have problems, too. Safety stock : How big a risk taker are you? What are you willing to risk by not having parts on hand? We’re always being asked to reduce inventory and we come up with excuses for not meeting the reduction goals. The flip side is, if you reduce inventory and then run out, you are past the excuses point in defending your inventory policy. That’s when you get yelled at. CYA stocks : We all know what “cover your a ” inventory is and why we have it. See above. A quantitative measure of your inability to control yourself : I can always tell how well a person is able to run his or her operation by looking at the amount of inventory. The better you manage your operation, the better you control your inven- tory level. SL3003Ch12Frame Page 262 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC Manufacturing Controls Integration 263 “Unobtainium” : There is a layer of parts that fall into the category, “must have, can’t find.” These are rare, almost impossible-to-obtain parts; or the lead-time to acquire them is so long, it just seems like you can’t get them. These sit on your shelf awaiting your need, and there is little you can do about it. Hidden stock : This is the inventory your production people stash under convey- ors, under stairwells, inside parts cabinets, or in their lockers and toolboxes. This is the stuff you call “lost” each year when you do physical inventory. It’s a real problem because you don’t know the condition of those parts. This happens a lot in an incentive environment that allows the worker to turn in work for pay while the machine or line is down. The operators make this material during breaks, at lunch- time, between shifts, and at other times when they are present and can’t get paid for their time. This not only presents raw material and finished goods problems but also is a serious safety and quality issue. Rogue parts : These are the parts you don’t list in your system. You have errors in your bill of materials that your schedulers know about, which forces the scheduler to make manual inputs whenever the problem arises. These parts may be good and they may be useful, but many times you can’t find them when you need them. The mechanic has misplaced them, is on vacation, or has quit or retired. The parts are out there somewhere. Anticipation inventory : This inventory allows an organization to cope with the anticipated changes in demand. Vacations, shutdowns, peak sales periods, sales promotions, or strikes are situations that can lead an organization to produce or purchase additional inventory. “Cheapest way to do it” inventory : There are many ways to get the parts you need, but what it really comes down to is, “What is the cheapest way to get those parts when you want them?” However, you get these parts, there is a cost. There is a balance between the cost of acquiring and keeping parts in inventory, and your ability to plan or forecast needs. But somewhere along the line it will become clear that the overall cheapest way to get parts is to just carry them in inventory. This won’t apply to all your parts needs, but you’ll find a group of parts here that falls into this category. Lot size inventories : This inventory comes about when it becomes inefficient to produce or purchase goods at the same rate at which they are consumed. Fluctuation inventories : These inventories are used to provide a buffer for both demand fluctuations and supply fluctuations. These inventories help smooth out the production cycle. Transportation inventories : These inventories are used when stages of the pro- duction cycle are not always adjacent to each other. This is true for multiplant operations; the general rule is that the farther apart the plants are, the more inventory will be required to keep the system running. Reasons for inventory definitions and answers. We must know why we name these different groups. If you look at the goals and objectives top management gives you each year, you will invariably see items such as • Reduce inventory • Lower inventory costs • Improve on-hand availability of parts SL3003Ch12Frame Page 263 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 264 The Manufacturing Handbook of Best Practices • Reduce annual parts costs • Shorten the delivery cycle Those items are actually the savings that management wants to realize from your inventory. What management fails to do is give you the tools or a road map to achieve those lofty goals. So just add the words how to in front of the five bullet points and you’ll see an outline for categorizing your inventory for cost reduction. Once you have the reason for each type of inventory identified from the definitions given, you can then work on eliminating that inventory. If you can do this, then you can get the savings you are looking for. You can work on the tools needed to answer these concerns: • How to reduce inventory • How to lower inventory costs • How to improve on-hand parts availability • How to reduce annual parts costs • How to shorten the delivery cycle Now you know why we spent the time defining inventory. Before you can work on the five “how to’s,” you must define the reason you have inventory in the first place. 12.3 MANUFACTURING IS REALLY JUST A BALANCING ACT In order to understand the different elements in a manufacturing operation, we must begin by understanding the interrelations among the functions that make an operation run. The best way to visualize this is to imagine an operation as being a balancing act between the various components of the operation, the systems, and the manu- facturing capabilities. Upset this balance, and problems arise. Keep the elements in balance, and all should run fine. Understanding how these functions work will help you to understand solutions to the problems we face in operations and how the solutions affect the outcomes. 12.3.1 T HE B ALANCE Take a look at Figure 12.1. We have a balance beam that represents the operation. It is a simple balance beam, not that different from a balance scale. On the left side we have the system capabilities. These are the tools that are used to run the manu- facturing operation. These are the sales plans, the computer system, the suppliers’ capabilities, the forecast system, the customers’ requirements, and transportation issues. All the items in the systems box on the beam are the issues or constraints to be dealt with from a planning point of view. On the other side of the balance beam is the box representing the operations in which the manufacturing capabilities reside. This box contains the production capa- bilities, available capacity, throughput processing capabilities, manufacturing lead time, capacity constraints, inventory record accuracy, the accuracy and completeness of the bills of materials, and the route sheets. SL3003Ch12Frame Page 264 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC Manufacturing Controls Integration 265 Now, looking at the manufacturing system, we will begin with the premise that when each side is equal and in balance, all is fine — sort of like the teeter-totter we played on at the park when we were kids. When your weight was the same as the person on the other end of the beam, the beam remained stationary in a horizontal position and you were in balance. If your friend was larger than you, then that end of the beam went down while you went up and were trapped high in the air. The beam was out of balance and no longer functional. If you had a really big friend, there was no way for you to rock the beam up and down, as the beam was way out of balance. To solve this problem, you could have had another friend of yours climb on the beam at your end so your combined weight could bring the teeter-totter back into balance. Applying this analogy to the manufacturing operations, if the systems and operational capabilities are in sync, the beam is in balance. But if the system capabilities are not in balance with the operational capabilities, then the beam tips. When a manufacturing system is not in balance with operations, we can easily see what the effects are — longer lead times, stock-outs, missed shipments, or worse, lost customers. The system is out of balance and experiencing problems. To get back in balance, we again turn to the playground example. When we were on the light side of the balance beam and up in the air, we had a friend climb on the beam with us for weight to get us back in balance, and all was working well. In the manufacturing arena we also have a friend we can add to the light side to get us back into balance. That friend is called inventory. Inventory is the weight that we add to an operation to bring it back into balance so everything is back in sync again. It can be placed on either side of the beam as necessary to regain balance. It can be used to add weight to weak systems and weak operational capabilities. In essence, the inventory box can be moved to wherever it is needed, anywhere on the beam. If placement of the box cannot add enough leverage to balance the beam, then we can add a bigger box for more inventory. This now begins to explain the quantity of inventory we have in our operations and why we even have inventory. Inventory is a universal equalizer. Inventory supports the areas of operations that are weak, and it is essential for keeping us in balance. Look at Figure 12.2 to see how we have added weight to the beam in the form of inventory. Let’s assume that our customer requires us to produce and ship an order in 5 working days. If we can do it in 5 days, everything is fine and the system is in balance. But if the customer wants the order in 3 days and we still need 5 days to deliver, then we are out of balance and cannot make the delivery. If we cannot produce and ship in the time required, we have only two options. The first is to turn down the order. The second option is to add inventory to meet the customer’s FIGURE 12.1 The balance beam of manufacturing — the basic components. ᮡ Systems Operations SL3003Ch12Frame Page 265 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 266 The Manufacturing Handbook of Best Practices shipping demand of 3 days by shipping from that inventory. Because we are unable to meet the customer’s demand for 3-day delivery with our present manufacturing and inventory policy, we must increase our inventory as a short-term solution to the problem. We ship from that inventory, and the need to stay in balance begins to determine the amount of inventory necessary to meet requirements of the customer. The size of the gap between what our customer wants and our ability to deliver dictates the amount of inventory we must keep on hand. The long-term solution is to do something about the size of the systems or operations box to enhance the robustness of the weak link in the delivery chain to meet the 3-day delivery window, but that is a long-term fix and could be costly. If you remember your physics, you will recall that length times weight equals mass or, in plain English, multiplying the weight of the box by the distance from the box to the balance point determines how much weight is acting on the beam. This tells us how much weight is necessary and where to place the weight on the other side of the beam to keep it in balance. From this, we can see that a weak aspect of our operation can be brought back into balance just by moving the weak box farther away from the balance point and lengthening the beam until we are in balance again. Although this strategy works in theory, in reality we have a name for the length of the beam — lead time. If we move the weak link farther from the balance point on the beam by increasing lead times, we do, in fact, bring the beam back into balance. But we do so at a cost, and that cost is the amount of lead time necessary to deliver. If business requirements have weakened a link in the system, we could bring the beam back into balance by adding length to the beam and moving one of the boxes farther from the balance point until the system is balanced again, but our lead time has now increased. Now that lead time has been added to the balance beam, we have a balance beam that looks like Figure 12.3. We have now identified all the components of the beam that represents our opera- tional capabilities. Now we can clearly see what happens to the system when we try to meet the customer’s 3-day delivery requirement with a 5-day delivery operation. We can approach the delivery requirement in two ways over the short term — lengthen the beam and keep the 5-day window, or add inventory and make the 3-day window. In each case, we now notice that if we change one of the parameters of the balance beam we will need to change another parameter to keep the beam in balance and meet our objectives. What we see now is that there is a cause-and-effect relationship to consider when working at keeping the beam in balance. That cause-and-effect relationship means FIGURE 12.2 The balance beam — positioning inventory. ᮡ Systems Operations INVENTORY SL3003Ch12Frame Page 266 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC Manufacturing Controls Integration 267 that if we change one of the elements of the beam, another element on the beam must also change to keep the beam, and our operation, in balance and in sync. These are short-term considerations. In the long term, we need to assess what our needs are and the delivery window necessary to meet our customers’ requirements, and then make the changes necessary to meet the new demands and keep our system in balance. Inventory is the tool we use to keep the system in balance. If our goal is to reduce inventory and we install a new order-processing system that makes the system box more robust, we could then reduce inventory and maintain balance in the system. But, if our sales force starts to promise shorter delivery lead times to their customers based on the efficiency of the new system, we have really traded a more efficient system for a shorter lead time, and our goal of inventory reduction is in jeopardy, because inventory is now required to maintain balance to meet the new customer needs. According to a fundamental law of physics, for every action there is an equal and opposite reaction. That is true here, too. For every change that you make to one of the elements in a manufacturing system, as represented on the balance beam, there is another element in the system that must also change to keep the operation in balance. There is a cause-and-effect relationship to everything that you do. When you want to establish a goal of reducing inventory, remember that there is also another change that must be made to the balance in your operation to attain that goal. The balance beam represents this concept clearly. 12.4 THE PRIMARY CONTROLS FOR INVENTORY You cannot achieve manufacturing excellence by starting out with poor records. Remember that the first question you ask yourself when you receive an order is, “Do I have any of this on hand?” The answer to this question comes from your inventory records. That is the place where you go to see if you have any finished goods or components in stock to fill the order. If you do not have good inventory records, one of two things will happen, both bad. You will think that you have inventory when you don’t and will make a promise to fill the order that you can’t meet, or you will think that you don’t have product, thus order or produce more. Now you have too much inventory. One of the things a lot of people do is called “sneaker net.” You put on your sneakers, go out into the warehouse, and look for yourself. In the meantime, your buddy in the office is promising the same inventory to another customer. And so FIGURE 12.3 The balance beam — understanding the role of lead time. ᮡ Lead Time Systems Operations INVENTORY SL3003Ch12Frame Page 267 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 268 The Manufacturing Handbook of Best Practices the story goes. What you need is an accurate inventory record program so that you can easily and instantaneously answer the question, “Do I have any of this on hand?” The first thing you need to do to control your inventory is to stop its continual outward movement through “unofficial” channels. Lock it up and put someone in charge. Then, to get an accurate input of data in your inventory records system, bar code your inventory system. This will give you the 99.99(+)% record capture accu- racy that you need. This will take care of the “midnight acquisition” problem and give you a tool to minimize data-transfer errors. The best tool we have seen to ensure that you will reach and maintain a high level of inventory accuracy is the old tool of cycle counting. Let’s look at the tool that will help you find, control, and eliminate the human error side of the problem. Federal law requires us to take at least one inventory each year. The tax man is waiting for this. But more important, we need to understand what we have in our inventory. The physical inventory is the most inaccurate way of determining what we have in inventory. It is basically an accounting procedure designed for tax purposes, and it does nothing for the inventory records necessary for manufacturing. As long as the numbers come close, the accountants are happy and we can all go home. But the big problem from a manufacturing point of view is that the taking of the physical inventory does nothing to correct the cause of the problem that created the inventory errors in the first place. So next year when you take the physical, you will find the same errors, and make the same adjustments to the inventory record, but you are still stuck with the problem. You have gained nothing. One of the biggest abuses we find with cycle counting is that the name is used without understanding the technique. The abuse? Calling the taking of a monthly physical inventory “cycle counting.” We find people who recognize the need for having excellent record accuracy, but all they do is count it over and over again. As we have said, this physical approach does nothing to correct the cause of the problem. What you want is a tool that will not only give you a higher level of inventory record accuracy, but also lower the cost of maintaining that level of accuracy, while still keeping your operation in business. Remember that you shut down your oper- ations to take the physical and you lost all that production time. With cycle counting, you keep right on going while you’re doing the count. And do you know who handles the cycle count? The people in your stockroom, that’s who. And do you know why? Because they are the ones who are the most knowledgeable in your operation as to what your materials look like and what the part numbers are, and they are the ones whose lives will be made the easier by having your inventories under control. All is not free in this world and cycle counting does come at a cost, but the cost savings can be immeasurable. Let’s take a look at both the physical and the cycle counting methods of checking your inventories. The following is a list of disadvantages of taking the physical. • No correction of causes of errors • Many mistakes in part identification • Plant and warehouse shut down for inventory • No improvement in record accuracy SL3003Ch12Frame Page 268 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC Manufacturing Controls Integration 269 Now let’s look at the advantages you can gain by using the cycle counting approach, in terms of the same items: • Timely detection and correction of causes of error • Fewer mistakes in part identification • Minimal loss of production time • Systematic improvement of record accuracy Cycle counting is basically very easy. Every morning you come in and count a portion of your inventory. The cycle counter is given a list of parts to count and given all the information about the part that is available except one. You never give the cycle counter the number of parts your records show that you have in inventory. Why? Because if you send someone out to find 1675 “unicroms” in your inventory bin, guess how many unicroms he or she will find: 1675, that’s how many. Of course, it is easier to count an inventory location when the bin is near empty, as there will be fewer parts to count. So this is when you do your cycle count, when it is time to reorder. Because cycle counting is a daily activity, you can then choose when to make the count, so you do it when the bin is empty. This minimizes the workload. After the count is complete, you check the record, looking for a count match. If the counts don’t match, this is the list of items to do in sequence: • Total counts for all locations • Perform location audits • Recount • Check to account for all documents not processed • Check for item identity Ⅲ Part number Ⅲ Description Ⅲ Unit of measure • Recount again if needed • Investigate error factors Ⅲ Recording error Ⅲ Quantity control error Ⅲ Physical control problem Ⅲ Positive and negative counting errors Now that the count is complete and you know the reason for the errors in the records, you then just change the records, right? Wrong! Now that you know the reason for the error, you correct the cause of the error so that it won’t happen again. But this sure sounds like a lot of work that we don’t do now. And by the way, how many times a year do you count your inventory items? Generally speaking, to meet IRS standards, you must count your entire inven- tory at least once a year. So that is what you do to the C stock items only. You count your B stock twice a year and your fast-moving, high-dollar items at least six times each year. Sounds like we have added a lot of work, but we really haven’t. Let’s look at the workload for the people in your stockroom. As an example, we’ll SL3003Ch12Frame Page 269 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 270 The Manufacturing Handbook of Best Practices assume you have 10,500 stockroom parts. Table 12.1 compares cycle counting with physical inventory and shows the relative workload of each method of taking inventory. And, yes, you would be right. The workload did go up by requiring an additional count of 4500 parts per year. But look at the workload. Cycle counting should be done every day. If your operation works 5 days a week, 52 weeks a year, then you would work 260 days a year. If you cycle counted 15,000 parts per year divided by 260 days, then you would have to count only 58 parts per day. Is that a lot? Not really. First, if you have this size stockroom you probably have more than one attendant, probably three, one for each shift. Now you are looking at 19 or 20 parts per person per day. Not much of a workload here. And the workload gets even less. When you do a physical inventory, you must count all the items at the same time. As such, some of the bins are full and some are empty and on the average they are half full. So you are counting an average volume of inventory items. But when you cycle count, even though you count some items more than once a year, you can choose when in the year you will do the count. How about when the bin is at or near empty? Count accuracy goes up and the workload goes way down. And think of this: once you have completed a count, the cause of the error has to be resolved so that subsequent counts will be simple. The workload is going down. Now consider this additional information. Realizing that the operations will be ongoing when the count is made, you will save the production time lost for inventory record purposes. Here is a list of how to determine when to cycle count to save you time and money and to minimize the inconvenience to the operation. • Count when the bin record is near empty. • Count at reorder point (also verifies the need for the order). • Count during off shifts when no receipts are processed. • Count early in the morning just after the MRP has been updated and parts have not been pulled for the day’s operations. • Count when a bin record shows less than needed for an upcoming job. • Count C items at the slow point of the year. And take a look at this one: • Do a cycle count on the empty bins. TABLE 12.1 Inventory Counts Work Load Inventory Number C/C Counts Total Count Total Count Class of Items per Year C/C Physical C 8000 Once 8000 8000 B 2000 Twice 4000 2000 A 500 Six 3000 500 Total inventory counts per year 15,000 10,500 SL3003Ch12Frame Page 270 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC [...]... about 70% of your total dollar value of inventory and probably the same amount of your revenue from sales Your B items will be another 15% of your value and the remaining C stock will be the remaining 15% of value But the number of parts or stock keeping units (SKUs) represented by the A items, while being 70% or so of value, will be only about 15% of your part matrix The B stock will be about 15% of both... arguing in the president’s of ce at the end of every month trying to expedite their products to keep some of the customers happy When I studied the shop floor, it became obvious that there was no machine or piece of equipment that © 2002 by CRC Press LLC SL3003Ch12Frame Page 282 Tuesday, November 6, 2001 6:05 PM 282 The Manufacturing Handbook of Best Practices was utilized to the limit of its demonstrated... Press LLC SL3003Ch12Frame Page 278 Tuesday, November 6, 2001 6:05 PM Min/Max A 1 Year Supply The Manufacturing Handbook of Best Practices Inventory Value 278 Consignment Inventory Vendor Managed C B Part Numbers A B 1 Year Supply Min/Max Lot for Lot Inventory Value FIGURE 12. 9 Inventory component cost as a result min/max inventory Consignment Inventory Vendor Managed C Part Numbers FIGURE 12. 10 Inventory... your vendors can Usually a company can turn over the management of about half of its C stock to others This means that by giving up control of the dollars on about 7.5% of your stock, you have relieved yourself of doing the work of managing about half of your part numbers associated with C stock You no longer need to control about 35% of your part numbers and you have retained and improved the delivery... SL3003Ch12Frame Page 284 Tuesday, November 6, 2001 6:05 PM 284 The Manufacturing Handbook of Best Practices are lower than your flat rate, you meet the demand with what you produce and put the excess back into inventory But what do you put into inventory? You place your standard high-volume parts in inventory — not your customers’ high-volume parts, but your high-volume parts Because the high-volume parts... SL3003Ch12Frame Page 277 Tuesday, November 6, 2001 6:05 PM 277 Inventory Value Manufacturing Controls Integration Consignment Inventory Vendor Managed A B C Part Numbers 1 Year Supply Inventory Value FIGURE 12. 7 Inventory component cost as a result of consignment inventory A B Consignment Inventory Vendor Managed C Part Numbers FIGURE 12. 8 Inventory component cost as a result of a year’s supply of additional... are the parts that are a small volume of your business, so why not turn over the management of them to someone who takes ownership of them? It may be a small portion of your business and is therefore not significant And the management of this C stock inventory is not one of your core competencies But to your suppliers this part of your inventory is a major portion of their businesses and a core competency... Inventory Vendor Managed C Part Numbers FIGURE 12. 11 Inventory component cost as a result of on-demand inventory This now leaves the final portion of your inventory, the top-level parts Here you buy exactly what you need with a just-in-time approach These are high-volume parts that are easily forecast You buy only to a firm production schedule You might need some inventory of this type of part if it has a long... the customer requires, then of course you must ship from inventory Inventory is then the medium that you use to meet the needs of your © 2002 by CRC Press LLC SL3003Ch12Frame Page 272 Tuesday, November 6, 2001 6:05 PM 272 The Manufacturing Handbook of Best Practices customer in both time and quantity Having said that, are we saying that you need to own the world’s supply of everything that you sell?... 20% of the forecast before intervention is needed So now we have given you some tools to relieve you of the work of managing 85% of your part numbers and 30% of your costs And having so many part numbers in the B and C groups and so few dollars tied up in them, just think how extensive a cost-reduction program would be needed to get any savings out of this inventory © 2002 by CRC Press LLC SL3003Ch12Frame . availability of parts SL3003Ch12Frame Page 263 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 264 The Manufacturing Handbook of Best Practices • Reduce annual parts costs . The Manufacturing Handbook of Best Practices assume you have 10,500 stockroom parts. Table 12. 1 compares cycle counting with physical inventory and shows the relative workload of each method of. out of this inventory. SL3003Ch12Frame Page 273 Tuesday, November 6, 2001 6:05 PM © 2002 by CRC Press LLC 274 The Manufacturing Handbook of Best Practices Now we get to work on the part of the