Inventory is money- Part-I

Inventory is money- Part-I

 

Inventory is Money, when it is converted into sales and added to revenue & profit. When it is slow/ non-moving it mostly adds to losses as it could be non-confirming / Obsolete or Excess or it will affect operation effectiveness. It is Money in both cases, ideally one does not want inventory at any stage. Let’s look at how to eliminate non-moving / slow moving /obsolete/ excess inventory. The process of Inventory Management starts with customer forecast or Order.

Well there are some lucky Contract Manufactures who able to  move non confirming inventory to customers and report sales for the quarter where the product yield is low & customers have gross margin of 47 % . Mostly issues are not related to assembly process. But that is a story of very lucky contractors. But that too has some other side effect. 

I Bill Of Material ( BOM ) Management

a.     It starts with Item Master set up ,

·       It is very critical part as how you form item code and revision management . Let’s take an example of  one of the biggest contract manufactures , where item codes are created adding the customer’s part number with product/customer prefix. Now here inventory management for that customer & product becomes unique , it brings in good control of inventory for that specific product or customer help on upside. But assume 60 % of the those items are used in other business units / factories. Here your system will not be able to identify that there are components which are common across business units /factories. It helps one to get world wide visibility of common components and is able to get better pricing and availability. In-turn control inventory cost is lost.

b.     BOM include Consumable items

·       Advantages

o   BOM cost accuracy

·       Disadvantages

o    qty accuracy , (sometimes it is difficult to define accurate usages in case of items like Adhesive )

o   If you buy them as readymade unit vs make them in your house, the cost differs

o   Biggest disadvantage is that if it is not planed properly end up line down few cent part (Like using same MRP  rule as A class item)

c.      Common BOM

·       If you have similar model with a lot of common parts ,all the cowman parts are added to the Dummy assembly and called common BOM.

·       It helps on MRP and Material availability, but it creates issues such as it is process wise cycle time routing to manage WIP by subassembly as  all parts do not belong to same assembly . It is always advised to keep BOM structure by different assembly level for better managing of WIP inventory.

d.     BOM Changes Management

Had seen b manage as follows

·       -Preliminary BOM it needs lot of Manual Data monument for new revision

·       Future effective dates for sub assembly by item – It is too messy

·       Add revise items as an alternate with old Revision having first priority to use & block on order of old revision – Less trouble some .

 Part II to continue.......