Inventory Management & Its Prime Importance in India

WHAT IS INVENTORY?

INVENTORY can be defined as the goods and materials

a business holds for the ultimate purpose of resale

WHAT IS INVENTORY MANAGEMENT?

The overseeing and controlling of the ordering, storage and use of components that a company will use in the production of goods it

will sell, as well as the supervision of quantities of

finished goods for sale

COMMON INVENTORY MANAGEMENT STRATEGIES

JUST – IN – TIME (JIT)

MATERIALS REQUIREMENT

PLANNING

MISMANAGEMENT OF INVENTORY LEADS TO:

• FINANCIAL PROBLEMS

• INVENTORY SURPLUS (GLUT)

• INVENTORY SHORTAGE

COMMON COMPONENTS OF AN INVENTORY MANAGEMENT SYSTEM

Barcode Scanner

Mobile Computer

Inventory Software

Barcode Printer

Barcode Label

INVENTORY MANAGEMENT’S

IMPORTANCE IN INDIA

Prevent Spoilage of Goods

No Need to Pay Hidden Cost

Satisfying Customers

Saves Time

Future Planning

Just in time (JIT)

• A production strategy used to improve business by reducing in-process inventory

• Based on the philosophy: Inventory is waste

• A shift away from the older “Just In Case” strategy

Definition

“Just In Time is an inventory strategy which companies employ to increase efficiency and decrease waste by receiving goods

only as they are needed in the production process, thereby reducing inventory costs.This method requires that producers are

able to accurately forecast demand.”

KANBAN Literally means “signboard” or “billboard”

Created by Taiichi Ohno

It is not an inventory control system but a scheduling system

It uses the rate of demand to control the rate of production

DEFINITION

“A specific type of inventory control system. The kanban system is based upon a series of colored

cards. These cards denote such factors as quantity, the type of part and the manufacturer. A card is placed in the bin or other container with each

group of manufactured items as an identifier for those involved with the next phase of production

or distribution.”

KANBAN SCHEDULING

In the manufacturing kanban system, a machine shop supplies components with little setup and procedures in lot sizes of one, to customer requirements.

KANBAN CARDS

Move Card/C-Card (Yellow) Production Card/P-Card (Green) Signal Card/Material Supplier Card Rework Authorization Kanban (Orange) The Startup Excess Kanban (Pink) The Other Authorization Kanban (Blue) the Emergency Authorization Kanban (Silver)

• Japanese word for “improvement” or “change for better”

• Has been applied in psychotherapy, life-coaching, government, banking, etc.

• It is a daily process and its purpose goes beyond simple productivity improvement

• Toyota production system is known for Kaizen

KAIZEN

DEFINITION

“A philosophy that sees improvement in productivity as a gradual and methodical process. Kaizen is a Japanese term meaning "change for the better". The concept of Kaizen encompasses a wide range of ideas: it involves making the work environment more efficient and effective by creating a team atmosphere, improving everyday procedures, ensuring employee satisfaction and making a job more fulfilling, less tiring and safer.”

5 MAIN ELEMENTS OF KAIZENTeamwork

Personal discipline

Improved morale

Quality circles

Suggestions for

improvement

CYCLE OF KAIZEN ACTIVITY

The cycle of kaizen activity:• Standardize an operation and activities• Measure the standardized operation (find cycle time and amount of in-process inventory)• Gauge measurements against requirements• Innovate to meet requirements and increase productivity• Standardize the new, improved operations• Continue cycle ad infinitum

JIT IMPLEMENTATION DESIGN

1) Design Flow Process

• Redesign for flow• Reduce lot sizes• Link operations• Balance workstation

capacity• Preventive maintenance• Reduce setup times

2) Total Quality Control

• Worker compliance• Automatic inspection• Quality measures• Fail-safe methods• Worker participation

3) Stabilize Schedule

• Level schedule• Establish freeze windows• Underutilize capacity

4) Kanban Pull System

• Demand pull• Backflush• Reduce lot sizes

• Reduce lead time• Frequent deliveries• Project usage requirements• Quality expectations

5) Working with Vendors

6) Further Reduce Inventory

• Stores• Transit• Implement carrousel to

reduce motion waste• Implement conveyor belts

to reduce motion waste

7) Improve Product Design

• Standard production configuration

• Standardize and reduce the number of parts

• Process design with product design

• Quality expectations

JIT II

Revamped form of JIT to improve the customer-supplier relationship.

Places more responsibility with the suppliers for various functions.

provides the potential to reduce inventories, eliminate redundant purchasing agents and get cost-saving tips from having suppliers familiar with their business.

The retailing industry denotes this as ECR, efficient consumer response.

WHAT IS JIT II?

Risks

Stock out

Over stock

Defective items

Overpriced items

INDUSTRIAL APPLICATION OF JITIn context of – DELL and TOYOTA

DELL

• only company within its industry to effectively utilizes just in time.

• It uses a direct-business model whose fundamental tenets include taking custom orders directly from customers, thereby reducing inventory and streamlining distribution

• They became market leader over Compaq in 2001

How do they do it?

Dell's strategy is to focus to reduce inventory and streamline distribution. This strategy has allowed them to keep only five days of inventory on hand.

It has "created value for their customers”.

Dell has a philosophy to "only manufacture what their customers ask them to make, when they ask them”

The minimal amount of inventory held by Dell provides them with an economic advantage

• Dell's use of just in time results in cost savings, superior customer satisfaction, limited waste, and the ability to provide their suppliers with more information. In the end these benefits all result in a cost savings for Dell and higher revenue.

• "master and pioneer" of just in time• Their goal is to reduce the average time

between dealer order and delivery.• TOYOTA connects dealers to factories and

factories to suppliers. The integration of the value chain creates visibility for all members of Toyota's supply chain

• Toyota has also adjusted their distribution process effectively.

OVERVIEW• Dell and Toyota are two model companies of

just in time. They effectively get the right products to their customers when they need it. Both companies have achieved a competitive advantage within their industries due to utilizing the just in time process and allowing visibility between them and other members of the value chain.

Factory response fell to twice a day, improving customer satisfaction.

Factory began building many vehicles to order, eliminating the risk that they would not be sold. Thus, improving company’s return on equity.

Dramatic improvement in product quality.

EFFECTS OF JIT

In some cases, company eliminated multiple suppliers.

It has been widely emulated, but not always with the expected results, as many firms failed to adopt the full system. The just-in-time philosophy was also applied to other segments of the supply chain in several types of industries.

Reduced setup time

The flow of goods from warehouse to shelves improves

Employees with multiple skills are used more efficiently. 

Increased emphasis on supplier relationships. 

BENEFITS OF JIT

Production scheduling and work hour consistency synchronized with demand.

Supplies come in at regular intervals throughout the production day.

Minimizes storage space needed.

Smaller chance of inventory breaking/expiring 

BUSINESS MODELS FOLLOWING SIMILAR APPROACH

• VENDOR-MANAGED INVENTORY

Same principles as those of JIT inventory

Manager of inventory- vendor

Industry experience and expertise

Inventory cost on the vendor's books

• CUSTOMER-MANAGED INVENTORY

Customer has responsibility

for all inventory decisions

• EARLY USE OF A JIT SYSTEM

A type of JIT was used successfully

in the UK by Perkins to supply F3

engines to Ford from 1957 until 1964.

CONCLUSION• In JIT workers are multifunctional.

• Multifunction machines, U-shaped cells.

• Environment is clean and free of waste

• The "PULL" element of JIT

JIT has truly changed the face of manufacturing and transformed the global economy. JIT is both a philosophy and collection of management methods and techniques used to eliminate waste (particularly inventory).