It is no secret that the economy looks awful right now. It seems that no matter where you turn there is more bad news. Unfortunately, I think focusing on the negatives causes us to lose sight of the positives.
In conversations with contract manufacturers I have discovered that this year has been decent over all. For some, it has been a year of significant growth. This clearly indicates that it is possible to do well even in a down economy.
Times like these are perfect for reviewing current processes and procedures to see where you can become more profitable and efficient.
The last survey I sent highlighted one of these areas. Sixty percent of respondents indicated that 26-50% of the on-hand inventory value is excess inventory. While it is impossible to completely avoid excess inventory, this number can and should be significantly reduced.
Because it is a vital subject, this issue will discuss sources of excess inventory and ways to dispose or reduce the inventory.
Don't forget to checkout the redesigned "Make YOUR Mark" and all new "In You Own Words" sections. Please take a moment to review the topics and provide your insights. This way the case solutions will have even more value and application to your business.
As always, we look forward to your participation and feedback as you gain new insights and become a more effective provider of Electronic Manufacturing Services.
Sincerely,
David Sharp
ManEx, Inc.
Business Case - Inventory Control
Excess Inventory
North Eastern Company* (N.E. Company) recently noticed a steady increase in their on-hand inventory. While sales increased over the same period, they also had a rapid decline in the number of inventory turns per year. Management suspected this is from a build up of excess inventory and asked for a full review to be sure.
The analysis confirmed that 43% of on-hand inventory was unusable. Additional study indicated that the sources of excess inventory were: purchase minimums, poor MRP setup, customer design changes, and fluctuations in demand from their customers.
How can N.E. Company reduce the amount of excess inventory purchased? How can they quickly and efficiently reduce the excess inventory already on hand? What can be done to minimize the impact of customer demand fluctuations on inventory turns and therefore cash flow?
* Company name has been changed.
Business Case Solutions
To most effectively manage excess inventory, you should purge what you can, prevent excess inventory as much as possible, and prepare for handling what you cannot prevent.
Please share your ideas and insights on a topic below. Use the questions to direct your response. You can submit your thoughts to mym@manex.com by clicking the topic title. Where appropriate and space permitting, we will post responses in a future newsletter so all may benefit.
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In YOUR Own Words
EXCESS INVENTORY
"We created ourselves as a vendor. All excess inventory is then removed from ICM and placed on a PO with us as the Vendor. If we ever have a need for the excess inventory we simply receive it in and use it. Otherwise, it just sits on the PO and off of our books.
[One issue is that] the POs created constantly have actions to cancel and/or reduce the quantity when viewing in MRP.
We have tried using an excel spreadsheet, but it is not efficient as using the above method."
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