Balancing availability against cost.
WHAT STOCK COSTS
Cash committed Storage space Handling Deterioration and obsolescence Insurance Risk of loss
WHAT HOLDING TOO LITTLE COSTS
Lost sales Production stoppages Emergency purchasing at higher prices Customer dissatisfaction
WHAT TO ESTABLISH FOR EACH ITEM
Usage rate Lead time Variability of both Consequence of running out
WHY CONSEQUENCE VARIES
Some shortages stop everything and some are inconvenient.
WHAT TO HOLD MOST OF
Items with long lead times, high usage and severe consequences.
WHAT TO HOLD LEAST OF
Items easily and quickly obtained Items that deteriorate Expensive items with predictable demand
WHAT A REORDER POINT IS
The level at which a new order is placed.
HOW TO SET IT
Usage during lead time, plus buffer for variability.
WHY BUFFER
Both usage and lead time vary, and running out is more expensive than holding.
WHAT TO ESTABLISH
Minimum and maximum levels for significant items.
WHAT TO CLASSIFY
Items by value and importance.
WHY
A small number of items usually represents most of the value.
WHAT TO MANAGE TIGHTLY
Those items.
WHAT TO MANAGE SIMPLY
Low-value items, where the cost of managing exceeds the benefit.
WHAT TO REVIEW
Stock that has not moved.
WHY
It is cash sitting still and it rarely improves.
WHAT TO MEASURE
Stock turnover, and items out of stock.
