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All businesses are some form of value-added work connected to customers and suppliers by an input/output channel. That portion of the channel from the suppliers to the creation of a product is called the supply chain, and its management is referred to as supply-chain management.
One focus of supply chain management is inventory
control. The purpose of inventory
is to decouple the supply of materials from the demand for their use.
In other words, inventory provides a buffer between when you receive
materials (supply) and when you use them (demand).
High productivity requires that you maintain a
balance between the capacity to do the work, the relevant information and
instructions and the input/output channel of the work. (see
The Four Laws of Productivity)
Any restriction in the input/output channel will affect any part of the
channel that is not buffered by a supply of inventory.
On the other hand, inventories require capital to store, move, pay for,
and cover obsolescence. Good
management can reduce these costs. Good
inventory management requires better purchasing and control practices (supply)
and may require changes in the processes that use them (demand).
Balancing the changing cost of supply with the effect on availability to
maintain balance in the Input/output channel is the challenge of good inventory
management. It requires the
coordinated efforts of all departments in a company.
Techniques employed to manage inventories vary with
the item being managed. Supply
based management include:
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Segmentation: dividing the inventory into categories according to use. |
Demand based techniques extend inventory and
materials management through the supply chain to include modification in
processes. These techniques include
Material Requirement Planning (MRP): a system where
aggregate usage is determined by analyzing future requirements and orders
are placed based on predicted future needs.
Just in time delivery (JIT): a system to minimize
storage and handling.
Lot sizing (a.k.a. Kan Ban): a system to standardize
lot sizes to interface with other elements in the manufacturing process.
On site suppliers: a system where suppliers occupy
space in the customer’s facility and manage the inventory to be used by
the customer.
Lean Manufacturing: a system that employs changes in
the manufacturing processes that affects the demand for materials.
Lean manufacturing considers logistics (the plan), methods and
processes ( value-added work), metrics (the measure of what is being
achieved), organization (information and instructions) and the flow along
the Input/Output Channel (process mapping).
Customer sales and supply information driven systems:
an extension of the sharing of information between companies that are part
of the input/output channel of the products produced as depicted in the
diagram below. (See “The Parallel Corporation” under Books and Articles).
Businesses today extend their influence on the supply chain to include the work
done at their suppliers and in some cases their suppliers supplier.
This influence might include employees working at the site of their
suppliers to assure quality. It may
include working with the design team of their suppliers and customers to tap
into their knowledge and proficiency to improve the parts and assemblies that
become part of the businesses product. It may include
tapping into the point of sale information of their customers to have advance
warning of changing demand. Each of these techniques seeks to
minimize the cost of owning and managing inventory while maximizing the service
to those who need the materials being managed.
For Seminars on Inventory Management, click on the highlighted words or see the section on Seminars. For information about the experience of Richard Johnson concerning inventory management click on his name or go to the section titled resume. For information on an associate who has extensive experience in inventory management, see the resume of Henry Jordan III.
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