Supply Chain Management

FUNDAMENTALS OF INVENTORY MANAGEMENT

The course focuses on 16 key objectives that address the conflicts between sales, operations, and finance, types vs. classifications of inventory, how to properly use safety stock and reviewing and accounting for inventory including BIC formulas with fundamental exercises and case studies.

 Inventory has a simple definition:  it is anything that is deferred for future use. Were you aware that every year that inventory sits on your shelf, your company is spending 20%-40% to keep it there?   Think about it, if you have $10M in inventory, you are spending $2M-$4M, which could be better used as an investment.   This could be the result of a sophisticated purchasing philosophy known as HHBB – “have a hunch, buy a bunch!”

A story that is commonly related in the certification programs was a company that specialized in hard to get replacement parts for aircraft.   Since 1974, they held on to approximately $1M in inventory specific to a type of Boeing airplane built in 1974.   Since 1974, the firm had little to zero sales for these parts.  When management was asked why they continued to hold on to this inventory – well into the 21st Century, they indicated that you never know when the customer will be ready to order and they want to be able to satisfy the customer’s need.   If you do the math on this – $1M times (30%) if you cut the 20%-40% down the middle and then multiply by numerous years, you can see that this company would have been better off by destroying the inventory and then producing the parts again from scratch if an order came in!

On the other end of the spectrum, the old JIT (Just-In-Time) philosophy of “zero inventory” (the literal interpretation) is not good either, as it can have a negative impact on customer service or efficient operations.  That was basically the fallacy of JIT and why it was replaced in the mid 1990’s by Lean.  JIT indicated that one area could be successful at the expense of another area.  As an example, the inventory management function could look like heroes for eliminating the costs of carrying the inventory but at the expense of sales having nothing to give the customer or operations having no raw material to convert to finished product.  Lean then came on the scene to emphasize that unless we are “all successful, nobody’s successful.”

Therefore, the compromise of the two extremes is a level of inventory that is manageable, not too much, nor too little.    That is why the inventory management experts will advocate that a company replace the word “zero” as in zeroing out the inventory with “optimize” as in having optimal inventory which leads to a great compromise to have enough to satisfy both sales and operations but not too much that leads to a reduction in profitability.   It is practicing these basic fundamentals that will lead to both optimized inventories and optimized inventory management.  This course will then provide you with the basic fundamentals to understand and optimize inventory management to the satisfaction of both your senior management and your internal stakeholders.

To support all of the above, this course will be featured in SCE’s virtual classroom with all of the functionality featured in our DEMO and based on our teams working with major corporations in BIC-Best-In-Class practices.  It will be a blend of educational topics, pertinent case studies, and practical stories based on past practices.  You will learn vital skill sets but also have fun!

 

Upon completion of the Fundamentals Of Inventory Management course, the participant will:

  • understand the three main inventory objectives of customer service, operations and finance and how they often conflict with each other
  • review the three types of inventory, which are raw materials, work-in-process and finished goods and how much to keep at each level
  • understand how inventory classifications differ from inventory types
  • determine how inventory management relates to a firm’s external environment vs. internal delivery strategy
  • understand the difference between aggregate vs. item inventory management
  • review the functions of inventory to address such factors as the variability of supply and demand
  • understand the importance of safety stock including calculations of both safety stock and safety lead time
  • correlate Standard Deviation with safety stock
  • define Time Period Safety stock and how it can apply to variability
  • calculate the real cost of carrying inventory relegated to the three categories of capital, storage and risk
  • understand the trade-off between the costs of carrying and the cost of ordering the inventory, leading to the use of an Economic Order Quantity (EOQ),
  • define Period Order Quantity (POQ) and when to make use of it
  • determine how to review the inventory utilizing an Order Point (Continuous Review) system or a Periodic Review system and the pros and cons of each one
  • move from a traditional physical inventory counting system to a cycle count system based on the ABC principle
  • account for the inventory based on the FIFO, LIFO or Average Value method
  • develop a Best-In-Class inventory management system

Depending on the learning style of the participant, this course is designed to be approximately 15 hours in the e-Learning – virtual classroom.  Additionally, at the end of the course – you will take an on-line quiz to make sure you have grasped the key points.

Upon completion of the Fundamentals Of Inventory Management course, the participant will receive a certificate of completion with 15 ceus of credit.

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  • 12 months

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