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Steve Cimorelli, CFPIM, is an independent consultant and owner of SCC Inventory Consulting. He holds a degree in engineering and has 30 years of experience in aerospace, industrial equipment, commercial manufacturing, distribution, and supply chain management. From 2005 to 2008, Cimorelli served as Director, Global Inventory Planning for Cummins Filtration. He can be reached at (321) 269-3407 or steve.cimorelli@sccinventory.com.

Excel Tools and Techniques

For Better Inventory Management

Steve Cimorelli, CFPIMPresident, SCC Inventory Consulting, LLC

IntroductionSteve Cimorelli, CFPIM

NASA: Engineer, space shuttle programMcDonnnell Douglas: Mfg. engineer, MRP managerLearjet: Manufacturing systems managerSquare D: Operations manager, staff analystCummins: Director, global inventory planningCurrent: President, SCC Inventory Consulting, LLCPublished Author

Kanban for the supply chain; 2005Handbook of manufacturing engineering; 1995APICS magazine: 2002-2009

Learning Path / Session Type

Global Supply ChainDemand Mgt., Forecasting, S&OPLogistics and DistributionLeanBasics of Operations ManagementGreen for Good Business

Legend:PrimarySecondary

GlobalAdvancedEmerging IssuesSpecific IssuesMini Workshop

Audience Level: Intermediate

Case Study

Six Learning Paths Six Session Types

Ground Rules & ExpectationsLearn something useful… Apply immediately (next week) on-the-jobParticipateLearn from each otherAsk questionsMutual respectHave fun!Others… ?

Course Take-AwaysLearning Objectives

Learn and practice Excel techniques for analyzing inventory data.Understand techniques for analyzing demand pattern statistics.Develop interactive chart; graphically portray demand data over time.Analyze inventory savings opportunities; summarize by vendor, ABC, planner, etc.Create an inventory management dashboard

Course OutlineExcel Skills (Demo)

Importing data from text filesFormatting dataFormulas & functionsSorting

Inventory Analysis (Demo)ABC classificationEOQ calculation (Appendix)

Excel Skills (Intermediate)Joining worksheetsMore FunctionsInteractive Graphs

BREAKVariability Review

Course Outline (continue)Inventory Analysis (Intermediate)

Part usage stabilityKanban or MRP?Demand through lead timeSafety stock

Excel Skills (Advanced)Analyzing dataDecision making

Inventory Analysis (Advanced)Lead time opportunitiesLot size opportunitiesPivot Table Summary

Time Permitting…OP, Avg. Inventory, OverstockDashboards

SetupEquipment

Laptop computer with USB or CD readerAssume Microsoft Windows XP

HandoutQuick-Reference Guide (Cheat Sheet)

Source DataUSB Flash DriveData CDs Confirm data on

laptops now.

ABC Classification

Pareto Principle80% value is in 20% of the partsApplying this to ABC classification yields the following typical breakdown

ABC % Items % Annual CostA 20 80B 30 15C 50 5

100% 100%

Excel Demo (ABC Analysis)Import data from ERP systemBasic formattingMerge data using VlookupSimple calculationsSortingABC assignment

Open workbook“Item Master (Solution1).xls”

… Follow Demo

Review: Import Data Wizard

Review: FormattingSizing rows and columnsAlignmentFreeze panesNumeric formatting (comma, decimal, etc.)Currency formatting

Review: Formulas & Functions

Simple math (= / + / - / x / ÷)

Fixed vs. Variable cell references

Paste_Special_Values

Sorting DataData_Sort

Sort Icons Group discussion.

Reorganize seating as needed…

Intermediate Excel SkillsFunctions:

SumAverageStd. DeviationConcatenate

MinMaxCountCountif

Vlookup with match functionGraphing data

Exercise: Demand AnalysisOpen “FG Demand Exercise.xls”

“Daily Demand” Tab

Create functions for blank columns:

Follow Demo…

PN and warehouseTotal demandAverage dayStd. deviation

Min dayMax dayNo. days with demand

Exercise: Interactive GraphContinue “FG Demand Exercise.xls”

“Daily Demand” tab

Create drop-down menuSelect part number and warehouse

Create Vlookup table for graphEmbedded match function

Create interactive graphFollow

Demo…

Normal Distribution: Bell CurveDaily demand for a product

0

20

40

60

80

100

120

140

160

1 3 5 7 9 11 13 15 17 19 21 23 25

Mean

+ 1 SD- 1 SD

- 2 SD

- 3 SD

+ 2 SD

+ 3 SD

Z-Score

Z Prob < Z0.00 50% 0.67 75% 1.28 90% 1.64 95% 1.88 97% 2.05 98% 2.33 99% 2.58 99.5% 3.09 99.9%

Excel: Normsinv() functionExample:

Normsinv(99%) = 2.33

Z = Number of Std. Deviations to the right of mean.Z = 2.05 means that 98% of days will have demand less than mean + 2.05 SD pieces.

Statistical Safety StockFormula: SS = SF x SD x Sqrt(LT)

SS = Safety stock (for a PN)SF = Safety factor (Z-Score)Represents the probability that demand will be less than a certain value; i.e. SS will provide X% part availabilitySD = Std. deviation of daily demandLT = Lead time (square root of LT)…Caution: use same time units as demand (days, weeks, etc.)

Statistical Safety Stock

Formula: SS = SF x SD x Sqrt(LT)Example

SF = 2.33 (represents 99% service)SD = 150 piecesLT = 20 daysSS = 2.33 x 150 x Sqrt(20) = 1563 pieces

Exercise: SS CalculationsRe-Open “FG Demand Exercise.xls”

“Planning” tab

Calculate statistical safety stock…Add lead time and safety factor columnsVlookup lead timeSafety factor function (NORMSINV)Calculate safety stock

Follow Demo…

Planning MethodsMRP – ERP default method

Kanban/pullStable demand patterns (low variability)Frequent, repeatable demand

Daily level load (continuous flow)Highest volume productsVery stable demandVery frequent, repeatable demand

Planning Methods – Excel Techniques & Formulas

Kanban/pull and level load statistics

Stability: Coefficient of variation (CoV)CoV = Std. dev / meanFrequency: Number days with demand

Low CoV

Med. CoV

High CoV

Stabledemand

Normaldemand

Erraticdemand

Excel pivot tableAnalyze natural breakpoints in data

Exercise: Inventory PlanningRe-open “FG Demand Exercise.xls”

“Planning” tab

Determine planning method rules…Add CoV columnUse Pivot Tables to determine “natural break points”Establish rules for Level Load, Kanban & MRP Follow

Demo…

Review: Inventory PlanningSelect planning method for each product

Nested “If()” Statement

And() & Or() Functions

Calculate safety stock for each product

Inventory Analysis - AdvancedChallenge: Analyze inventory savings potential

Which vendors & PNs hold the greatest savings opportunity?

Establish lead time & lot size Targets by ABCCalculate inventory savings potential by PNSummarize inventory savings potential by vendor & ABCUse Pareto analysis (80/20 rule) to focus on “big bang for the buck”

Exercise: Inventory SavingsRe-Open “Item Master Solution1.xls”Add new tab: “Control Table”Create control table as follows:

Follow Demo…

ABCLead Time

(Days)Lot Size (Days)

A 5 5B 10 20C 20 60

Calculate target lot sizeCalculate inventory savings by PNSummarize savings by vendor & ABCSave-As: “Item Master Solution2.xls”

Saw Tooth: Average Inventory

Avg Inv = SS + ½ Lot size

SS

LT

LS

Quantity

Time

DLT

OP

Depicts Inventory Usage & Replenishment over time.

Avg Inv

Inventory Analysis -Dashboard

Challenge: Are current inventory levels properly balanced?

Objective: Create an inventory dashboardConcepts Needed:

Reorder Point (aka Order Point)Average InventoryOverstock

Order Point & Average Inventory

Avg DLT = Avg. Daily usage X Lead timeAvg Inv = SS + ½ Lot sizeOP = SS + DLT

SS

LT

LS

Quantity

Time

DLT

OP

Depicts Inventory Usage & Replenishment over time.

Avg Inv

Overstock

Overstock Threshold = OP + LS

SS

LT

Quantity

Time

OP

Theoretical Max Inv= OP + Lot Size

Any Inventory above Max is considered “Overstock”.

No customer demand for several days after breaking OP. Replenishment occurs on-time within LT.

1 2 3

Exercise: Inventory StatusOpen “Item Master Solution2.xls”Add columns for SS, OP, DLT, Avg Inv, overstock and shortageCreate formulas for new columnsImport available inventory dataCalculate $ value of Avg inventory, overstock & product shortPivot table: $ values by planner & vendor

FollowDemo…

Inventory DashboardData

Dept/ Vendor

Sum of Theoretical

Target $Sum of Actual $

Sum of Overstock $

Sum of Shortage $

AAA 59$ 22$ 17$ (22)$ CSTG 13,638$ 12,225$ -$ -$ DDD 6$ 23$ 11$ -$ KKK 139$ 184$ -$ -$ NNN 25$ 40$ -$ -$ PPP 665$ 651$ 11$ -$ SSS 12,646$ 21,921$ 6,129$ (2,940)$ STMP 1,634$ 3,028$ -$ -$ Grand Total 28,811$ 38,093$ 6,170$ (2,962)$

Ref: “Item Master Solution3.xls”

Course ReviewExcel Skills (Basic)

Importing data from text filesFormatting dataFormulas & functionsSorting

Inventory Analysis (Basic)ABC classificationEOQ calculation

Excel Skills (Intermediate)Joining worksheetsMore functionsGraphs

BREAKVariability exercise

Inventory Analysis (Intermediate)Part usage stabilityKanban or MRP?Demand through lead timeSafety stock

Excel Skills (Advanced)Analyzing dataDecision making

Inventory Analysis (Advanced)Lead time opportunitiesLot size opportunitiesPivot table summaryOP, Avg. inventory, overstockDashboards

ABC Analysis – Sample Data26 Part NumbersAnnual Demand from 33 to 6410Costs from $0.55 to $125

Part Number Annual Qty Cost Annual CostA 249 53.20$ 13,246.80$ B 409 5.44 2,223.31 C 204 3.40 693.60 D 352 1.50 528.00 E 270 2.30 621.00 F 6410 1.70 10,897.00 G 264 3.40 897.60 H 57 7.44 424.02 I 77 6.70 515.90 J 428 53.75 23,005.00 K 247 0.69 170.49 L 337 5.50 1,853.50 M 282 2.30 648.60 N 535 1.12 599.20 O 573 6.00 3,438.00 P 35 6.18 216.44 Q 270 55.05 14,862.84 R 4034 0.55 2,218.70 S 450 4.56 2,052.00 T 529 5.44 2,876.44 U 750 0.58 435.00 V 54 5.87 316.86 W 145 3.51 508.84 X 33 125.00 4,125.00 Y 2010 1.25 2,512.50 Z 1819 20.16 36,668.21

Lowest annual cost, but not lowest cost or quantity.

Highest annual cost, but not highest cost or quantity.

ABC Analysis: Step-by-StepPart Number Annual Cost Cum Cost Cum % ABC %Cnt

Z 36,668.21$ 36,668.21$ 29% AJ 23,005.00 59,673.21 47% AQ 14,862.84 74,536.05 59% AA 13,246.80 87,782.85 69% AF 10,897.00 98,679.85 78% A 19%X 4,125.00 102,804.85 81% BO 3,438.00 106,242.85 84% BT 2,876.44 109,119.29 86% BY 2,512.50 111,631.79 88% BB 2,223.31 113,855.10 90% BR 2,218.70 116,073.80 92% BS 2,052.00 118,125.80 93% BL 1,853.50 119,979.30 95% B 31%G 897.60 120,876.90 96% CC 693.60 121,570.50 96% CM 648.60 122,219.10 97% CE 621.00 122,840.10 97% CN 599.20 123,439.30 98% CD 528.00 123,967.30 98% CI 515.90 124,483.20 98% C

W 508.84 124,992.03 99% CU 435.00 125,427.03 99% CH 424.02 125,851.05 99% CV 316.86 126,167.91 100% CP 216.44 126,384.36 100% CK 170.49 126,554.85 100% C 50%

Sort by descending annual costCalculate Cum Cost & Cum Cost %Set ABC Break PointsCalculate % Count Break Points as Sanity Check

Economic Order Qty (EOQ)

Part cost = Cost per part, considering setup and unit costFor Purchased Parts: Setup = ordering costFor make parts: Setup = Setup time X $/hourThe greater the lot size, the smaller the part cost per unit

Carrying cost = Cost of carrying parts in inventoryThe greater the lot size, the greater the carrying cost.

C a rrying C ost

P art C ost

T ota l C ost

L ot Size

E O Q = M inim u mT otal C ost$

C a rrying C ost

P art C ost

T ota l C ost

L ot Size

E O Q = M inim u mT otal C ost$

EOQ FormulaA = Annual usage (Units / Year)S = Setup or ordering cost ($)I = Inventory carrying cost

(Annual %)C = Unit cost ($ / Unit); (excluding setup)

2ASICEOQ =

2 x 10,000 x 1000.18 x 50EOQ =

= 471 pieces

Example:A = 10,000 pieces/yearS = $100I = 18% /yearC = $50

EOQ – Excel ExerciseOpen “EOQ Exercise.xls”Import setup & run times for make parts

Create Excel file: “Routing Data.xls”Use “if” statement to calculate setup cost

Fixed $50 for “buy” parts (Note: Reality may be more complex!)Assume $50/hour for “Make” parts

Calculate EOQ for all partsRound to nearest 10, 100, 1000, container Qty

Follow along with instructor demo…

Course Take-AwaysLearning Objectives

Learn and practice Excel techniques for analyzing inventory data.Understand techniques for analyzing demand pattern statistics.Develop interactive chart; graphically portray demand data over time.Analyze inventory savings opportunities; summarize by vendor, ABC, planner, etc.Create an inventory management dashboard

Presenter Contact Information

Steve Cimorelli, CFPIMPresident, SCC Inventory ConsultingOffice: 321-269-3407Cell: 321-431-0195Email: steve.cimorelli@sccinventory.com