Inventory Management A .s. bhalerao
Engineering Spares Inventory Management • Inventory is a Latin word ‘’ in –ven-to- r y ‘’ meaning listing of physical stock on hand of items recorded every year by business concern. • It simply means blocked working capital of an organization in form of material . • The different departments like finance, maintenance often have differing views regarding appropriate level of inventory. • Financial managers would prefer low inventory levels to ensure that better utilization of funds. • Maintenance managers would prefer to keep spare part inventory levels high to avoid downtime for want of spare part.
Functions of Inventory • To meet anticipated demand. • To protect against stock outs . • To take advantage of order cycles . • To hedge against price rise . • To take advantage of quantity discounts. • The spare parts inventory management is different and complex as it is combination of diverse disciplines of maintenance management inventory management, stores management, procurement management . • Inventory Management does not make decisions or manage operations it provides the right information to managers so that they can take accurate and timely decisions .
Effective Inventory Management • A system to keep track of inventory. • A reliable centralized forecasting of demand . • Knowledge of lead times . • Identified critical spares for reliability of maintenance management. • Common tools for inventory analysis & control • A - B – C ANALYSIS • X - Y - Z ANALYSIS • V - E - D ANALYSIS • F - S - N / AGING ANALYSIS
Brief Description about commonly used tools • A – B – C Analysis / Consumption analysis . • Applies 70- 20-10 principle • A :About 10 % of materials consume 70 % of resources • B:About 20 % of materials consume 20 % of resources • C:About 70 % of materials consume 10 % of resources • X – Y – Z ANALYSIS / Inventory value analysis • Applies 70- 20-10 principle • X :About 10 % of materials accounts for 70 % of inv.value • Y:About 20 % of materials accounts for 20 % of inv. Value • Z:About 70 % of materials accounts for 10 % of inv. Value
Continue ….. • V – E –D / Criticality Analysis • Based on criticality items are classified into ‘Vital’, ‘Essential’ & ‘Desirable’. • Vital means items whose stock out will result into total plant stoppage or very heavy production loss. • Essential means items whose stock outs costs is very high. • Desirable means items whose stock outs costs is very negligible. • F - S – N / Aging analysis • It is movement analysis & it considers date of receipt & date of issue which ever is later . • On this basis divides items into fast moving /medium moving /slow moving . • The period is usually in terms of number of days that has lapsed from last movement .
Why focus on inventory at GHCL Sutrapada ? • Increase in regular inv . In July 2010 by 600 Lacs . • Problem addressed using D M A I C technique . • Reasons identified • Addition of high value insurance spares . • No linkage between budget and indent . • High lead time , Over indenting . • Dept wise stock for common items . • Physical inventory and system inventory not matching. • Duplicate codes .
Actions … • Focus working . • Inventory reclassification. • Continuous Information flow . • Linkage of indent with budget . • Maximum Common items under min max . • Perpetual inventory at stores. • Display of excess inventory at stores . • Maximizing system usage . • Reduction in lead time through rate contracts ,V M I .
Procurement Budget Following depts. have exceeded their set limit of 85 % of procurement budget . • SODA ASH MECH == 96 % • UTY MECH == 91 % • INSTRUMENTATION == 91 % # For these depts. indents are cleared only after approval of COO.
Need of Store stock ? • Most widely used & proven tool for inventory optimization . • Avoids multiple ,frequent indents in small qty . • Ease of operation for user as well buyer. • Reduces inventory carrying , ordering cost . • Works on Just in time principle thus reduces chances of storage of material beyond defined shelf life . • Better monitoring of consumption pattern ..
Common Terminology • Safety Stock : All moving items are important from production point of view Shortage occurs even when accurate & realistic order points have been computed. Safety stock is provided to safeguard against these shortages. • Re-order level: stock level at which fresh order is placed. Average consumption per month x lead time + buffer stock • Lead time : Duration time between placing an order & receipt of material • EOQ = Average Monthly Consumption X Lead Time [in months] + Buffer Stock – Stock on hand
Service levels fixing • The service level required for each item is set according to its criticality and consumption value. • Identifying Service Level for items in Inventory is a major step towards selective Inventory Control .This is done based on V-E-D and A-B-C classifications for moving items.
Movement analysis • Based on Item movement the items are classified as • Fast moving , Medium moving and Slow moving . • Criteria No of times issue • Fast moving : > 12 • Medium moving : >5 and <=12 • Slow moving : <=5
Store stock GHCL status • This concept is in place since 1999 when Baan was implemented. But due to some practical issues auto indenting was stopped and it was converted into annual indents with phased delivery 1200 + items were under annual indent till Jan 2012. • From 1/1/2012 onwards Auto indenting started for +1600 items . • Slowly they were increased and now almost 4010 items are under auto indent , VMI , annual indenting .
Challenges … • Cyclic ,uneven consumption pattern. • Tendency to issue material even if not required. • Increase in consumption pattern. • Lead time Challenges for 2014-15 • Addition of new unique equipments in capex results in addition of insurance spares. • Non usage of material as per plan date of consumption In last two years we have added aprox 300Lacs in inventory. • Delayed delivery of items & High lead time. • Over indenting.
Proposed actions … • Selection of max . Possible identical equipments , consumables during Finalization stage . • Inventory reclassification into Non moving & Moving insurance, • Regular & ROR [items against specific maint .planning] • Booking of ROR items on receipt to cost centre . • Defining levels of moving insurance. • More VMI . • Reduction in lead time. • Seasonal planning for min max items. • Indents Scheduling.