Presentation Transcript

1. INVENTORY MANAGEMENT,LEAN and Finance

   John Carrico
2. What is inventory? Inventory is anything that is purchased and held (stored) prior to use/need product on-hand, current asset that has been acquired by cash (or payables) and is yet to be consumed
3. Inventory Distribution Management Physical inventory is the actual counting of supplies and comparing the amount on hand with the amount on the financial statement Inventory can be counted two ways: Periodic counting Done at regular intervals (usually 6 or 12 months) Cycle counting Continuously selecting subgroups to count Typically 10% of stock per month May be critical or volatile items
4. Inventory Distribution Management Inventory control should: Provide monetary savings Improve service levels Improve internal operations Review supply utilization Reduce waste Fully utilize MMIS capabilities
5. Inventory Distribution Management Inventory Valuation Last in, First out (LIFO) Cost is defined as the newest (most recently received) item is used to define product cost. First in, First out (FIFO) Cost is defined as the oldest item in the inventory (conservative, understates the inventory) Average costing inventory Method where a weighted average cost is computed. Your valuation methodology may be the source of your never being “right on” at inventory count time
6. Types of Inventory Official-On the Hospital financial books as an ASSET. Perpetual Always reflects actual on-hand quantity- computer Periodic Periodically updated based on a count Unofficial- Already expensed. ConsignmentHousedin the facility, owned by the vendor, purchased when used. Is not included in inventory turn calculations.
7. Inventory Ground Rules Impact of Consignment on our performance Consignment stock is not counted as our inventory and is not included in turns. The more items you consign, the higher your expected level of performance (turns) of your owned inventory. However, while you do not retain ownership of the product, you are still responsible for the loss or damage-how many of you have letters of understanding with your vendors?
8. Managing Inventory Why Manage Inventories? Reduce Costs-carrying costs Free Up Space Have Supplies Available
9. Managing Inventory Controlling Inventory Techniques you can use to monitor and reduce inventories
10. Inventory Distribution Management Successful Inventory Control is achieving balance between stock on-hand and organizational need Basic components to assist inventory management are: Order quantity Lead time Safety stock
11. “Normal” Departmental Inventory(% of total hospital supply inventory) 48% 23.8% 15.8% 12.3% 9% 6.3% Note: All other individual departments are less than 5% of total supply inventory Source: VCS Supply Chain Database
12. Inventory Control Techniques Inventory Turnover Rate Total $ Issued Turnover = Average Inventory Value (or ending value)
13. Inventory Control Techniques Balance Order and Inventory Costs Order Cost Higher Cost Lower 15 – 18 Turns Sweet Spot Inventory Levels Less Order Frequency More
14. Inventory Management
15. Inventory Costs Inventory Carrying Costs-what does it cost you to maintain your inventory? Opportunity Costs-Invested Capital-Cost of Money Cost of Space Handling Charges-labor expense Storage Costs Utilities/Insurance Data Processing Shrinkage Pilferage/theft Obsolescence Spoilage
16. Inventory Control Techniques Setting Levels Reorder points Reorder quantities Min/Max Economic Order Quantity (EOQ)
17. Inventory Distribution Management Supply level calculations Maximum/minimum Economic order quantity The greater the order quantity, larger the inventory. The longer the lead time, the greater the inventory. The higher the safety stock, the greater the inventory.
18. Terminology Order Cycle Period of time elapsed between determining need and receipt of goods. Usually expressed in days or weeks. Shows how many periods (days or weeks) of stock are generally on-hand and how often the item is being ordered. Lead Time Period of time between placing an order and receipt of goods.
19. Terminology Safety Stock A level or quantity of inventory on-hand to reduce the probability of a stock-out between time of order and time of receipt of stock (lead time). This is a level (usually less than the reorder point) that theoretically should never be needed or used. It is “insurance.” It increases the cost of inventory and that cost is weighed against the cost of a stock-out.
20. Terminology Economic Order Quantity Defined as a calculation of the most efficient maximum order quantities consider factors such as lead times, carrying costs, ordering costs and available space. A very basic EOQ formula follows: EOQ = square root of (2(F*S)/(C*P) F = fixed cost of placing and receiving an order S = annual usage C = carrying costs as a percentage of average inventory value P = purchase price per unit
21. Inventory Control Techniques Maintain Accuracy Control access to your inventory Locator system/location checks Cycle counting First in First Out (FIFO) philosophy
22. Inventory Distribution Management Fill-Rate- percentage of items successfully supplied to end user Total Annual Stocking Cost (TASC) TASC = Annual Ordering Costs (AOC) + Annual Carrying Costs (ACC) AOC = (D/Q)xS ACC= (Q/2)xC D = Average Annual Demand Q = Order Quantity S = Fixed Order Cost C = Carrying Cost per Unit
23. Inventory Distribution Management Economic Order Quantity (EOQ) D = Ave. Annual Demand S = Fixed Order Cost C = Annual Carrying Cost Total Material Cost (TMC) TMC = TASC + D(AC) TASC = (D/Q)xS + (Q/C)xC D = Average Annual Demand AC = Acquisition Cost
24. Inventory Distribution Management Safety Stock (SS) Z = Service Factor R = Average Replenishment Time S = Average Daily Demand σr = Standard Deviation of Replenishment σs = Standard Deviation of Daily Demand Order Point (OP) OP = EDDLT + Safety Stock EDDLT = Expected Demand During Lead Time EDDLT = R(S) R = Average Replenishment Time S = Average Daily Demand OP = R(S) +
25. Service Technology Quality Cost Integrated Enterprise Excellence Utilize “Lean Organization” and “Standardization” approaches focused on aggressively identifying and eliminating waste while achieving 5Rs (Right Product, Right Place, Right Quantity, Right Time, Right Price). Driving Enhanced Which results in Increased Patient Satisfaction Greater Value for the Community Improved Competitiveness Increased Employee/Physician Satisfaction
26. Lean Organization Characteristics: Equipment used synchronously to demand Utilizes people to their fullest capacity Simple, flexible, visible, & responsive Requires constant change Creates products/services with minimum consumption of: - Capital investment - Floor space - Materials - Labor - Time - Distance Definition: A systematic approach to the identification and elimination of waste and non-valueadded activities through continuous improvement in all products and services
27. Definition of Waste Anything that doesn’t add value to the process Anything that doesn’t help create conformance to the customer’s specifications Anything your customer would be unwilling to pay (or need) you to do Understanding Waste Identification and elimination of waste is the central focus of a lean system. It is dependent on the understanding and involvement of all employees. Successful implementation requires all employees be trained to identify and eliminate waste from their work areas. Waste exists in all work . . . . and at all levels in the organization
28. 8 Types of Waste Transportation Inventory Movement Waiting Over Production Over Processing Defects People skills/potential
29. Lean Tool Box Pull Systems Small Lots Standardized Operations Machine Process Capability Level Scheduling Supplier Development Reduction of Variation Lean Organization Transportation/ Logistics Lead Time Reduction Plant, Machine & Office Layout Error Proofing Containerization/ packaging Workplace Organization & Visual Controls Planned Maintenance Quick Set-up Employee / Process Control
30. Lean Organization A Four Step Focus Step One - Understand what waste is Step Two - Use appropriate waste elimination tool to eliminate specific waste(s) identified Step Three - Brainstorm to develop a vision so as to create a plan Step Four - Aggressive implementation of plans. Do it now!!!!
31. Finance 3 Financial Statements Income Statement Cash Flow Statement Balance Sheet
32. Income Statement Displays revenues and expenses Clearly states net profit or loss Also called “statement of revenue and expense”
33. Sample Income Statement
34. Balance Sheet Summarizes assets, liabilities, and shareholder equity or net assets (non-profit) Assets = Liabilities + Shareholder Equity Both sides of equation must “balance” out http://www.investopedia.com/video/play/introduction-balance-sheet#axzz1cjqs0ph6
35. Cash Flow Statement Records all cash movement Inflows from operations and investments Outflows for business expenses and investments http://www.investopedia.com/video/play/what-is-cash-flow#axzz1cjqs0ph6