The prime Negative Effect seen in an inventory system out of control, is see lots of stock, but not having what is needed right now!

A warehouse may look something like “a Manhattan skyline”, piles and no piles!

This means that in order to ship a product or assemble a product from stocked parts, it cannot happen as all parts are not available, so the order goes on to “backorders”.

The root cause is a factory focusing on resource efficiencies, where batch processing occurs, that drives how big batches should be. In effect, the bigger the batch, the more stock is required to cover all the parts necessary to ship/assemble products. This “more and more” situation finally hits the point where the big piles get bigger and the smaller piles get smaller, ie the Manhattan Skyline is exacerbated.

The direction to a solution is to implement “Kanban or replenishment”, a pull system process, that in effect has a factory replace, what just got consumed. So, if the warehouse sends out an order, the factory remakes the parts in that order.

Now, we can’t remake each single part, as that would kill setups, but say we figured out how big the inventory pile should be based on a “formula”, such that the pile will allow for variation in the demand and variation in the re-supply, and most of the time, 1/3rd to 2/3rds of the pile was available to ship/assemble parts from.

Imaging these piles (a calculated pile based on the formula) are then divided into 1/6ths, and there is a “Kanban” ticket for each 1/6th. When 1/6th is consumed, that ticket is sent to the first process, so parts can be remade. Let’s say the first process guy takes that ticket, and hangs in on the first row of a big board with hooks on it. When he gets around to starting the first process, he makes exactly what is on that ticket. No more, no less.

Then, another ticket for the same SKU (pile) comes, and he now knows there is another 1/6th consumed, ie 2/6ths. He takes both tickets of the same SKU and hangs it on the 2nd row. Remember, he has no idea when the 3rd ticket will be consumed. (no need for forecasts here, just release of consumed tickets).

**But there is a guiding rule #1:**

Don’t let more than 4 tickets for a SKU hang on this board. Ie on the 4th row. With 4 tickets or less, you can run the tickets in any order you please, to suit you and others. Because there are still 2 tickets available in the warehouse. You have safety to make choices.

**If ticket #5 arrives, then there is a new guiding rule #2.**

**Now you have NO safety! And now NO choice. You MUST…**

Process the oldest ticket SKU first, and get rid of them asap. And as Murphy’s Law applies, it is highly likely you will get more than 1 SKU hitting #5 ticket or even #6 ticket. The universe always conspires against us! So be ready!

Run the tickets in such a way to get rid of the heat as fast as possible, and get back to stability again, letting the board absorb the natural variation in the supply/demand curves. You may run 2 tickets of a few SKUs, get rid of the heat, and move the remaining tickets back up to the 1,2 or 3 rows.

**Inventory Management:**

Now you will see a closing up of the Manhattan Skyline. If you take note of the SKUs that hit the last 2 rows of the board, and why, you can now increase the SKU piles by 25-33% to better the protection.

Some SKU piles will be “too full” relative to demand, so tickets “stuck” on rows 1 and 2, may have SKU piles reduced, so tickets are withdrawn from the system.

**This process will massively expose the unders and overs of inventory management. In a few weeks on fast moving products.**

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**For other implementation tricks, please call Peter Thorby on +64 212437382**