Everyone would agree that maintaining control of the raw materials inventory is important, if not critical, to successful production operations. You can’t produce a product if you have no raw material! Yet I’m amazed at the companies that cringe at the thought of managing their inventory. When they think of inventory control, they have visions of massive amounts of paperwork, expensive computer systems, tedious procedures and accountants lurking over their shoulders. All of these visions conjure up excuses of delayed production and wasted money with little or no beneficial results. It doesn’t have to be this way!
Successful production operations require knowledge of how much inventory is on hand; when it will be replenished; and what future production is scheduled to use it. All of this information is available in our manufacturing organization. If it isn’t, you have other problems, but inventory control will help you solve those problems.
How do you start getting your inventory under control? The first step is to decide what is most important to control. Use a Pareto analysis to classify the inventory items into A, B and C level items. Details of Pareto analysis will be left to another article. Suffice it to say that you are classifying your inventory based on the costs and volume of usage. The A level items are the most costly, may have a longer lead time and are critical to the end product. Therefore these items should be most carefully controlled and monitored. The B level items are the next level of cost and while they still need monitoring, the frequency of monitoring may be less than that for A items. The C items are the least costly and require the least control. Focus your attention on the A and B level items.
If you are not comfortable with a computerized inventory management system, then consider simple visual controls. The basic, two bin system is still viable in the modern age. As a refresher on the two bin system, remember that you divide the on-hand inventory into two groups (or bins or spaces in the warehouse). When the first bin is used up, you ask purchasing to buy more of this item. While purchasing is doing their work and the parts are on order, you use up the components in the second bin. The amount of material in the second bin is determined by the lead time to replenish the inventory, plus safety stock you require to cover surprises. The amount to be ordered is equal to an amount to fill both bins. The only discipline required is to make sure the empty bin is sent to purchasing (some companies use an order card in the bin) when it is empty.
Another method is to have a special inventory count person check all the A level items at frequent intervals and place replenishment orders if the on-hand balance falls below a set amount. A items should be checked more frequently than B items. You can have a larger quantity of B items on hand with less impact on the inventory costs. The replenishment check can be made less frequently with B items and the amount ordered can be larger than with A items. However, it is still important to have the discipline and to assign responsibility for checking the inventory levels and sending replenishment orders to purchasing.
Simple visual techniques can improve inventory management and keep the production lines running with little additional cost. These techniques will work for smaller production shops and when employed properly, will improve inventory management. But they will not necessarily give you the optimum inventory turnover that you could get from a computerized inventory system
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