Holding costs are all of the expenses a company incurs to hold inventory items over a period of time before they are used to fill orders. Generally speaking, Inventory carrying/holding costs are the costs you incur as a result of holding inventory. It is most often described as a percentage of your inventory value. The percentage is often unique to organizations and includes the amount of capital invested in inventory as well as depreciation, space occupied, insurance and opportunity costs. Inventory carrying or holding costs generally account for 15-30% of a business’s total inventory value.
This is one of the basic costs that is associated with your inventory. When thinking of item level inventory, item cost typically includes the price that you pay to acquire the item as well as any costs that you may incur when purchasing. Some examples of extra costs that may be incurred as part of your item costs are taxes, duties, fees, packing and even transportation fees. Unit costs generally change based on the size of your order.
Have you ever wanted something to snack on really bad, so you jump up head to the store and when you get there they are fresh out of inventory? Have you ever made the decision to purchase a new vehicle and you go to the dealer and the vehicle you want isn’t there so you go home and order it online? Inventory stock out costs. These are both examples of inventory stock out costs. Stockouts occur when the inventory you have on hand is not enough to fulfill the customers demand needs. Likewise a stock out might be when there is inventory, but the inventory is not what you wanted.
Internal Move kanbans are essentially permission to retrieve or move materials or information. The move kanban authorizes one point of a process to get what they need and move it. Many cards will show the consuming location and the supplying location so that the person moving the tagged item knows where to move too. Let’s look at a very basic example of how the move kanban works.
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Inventory waste is any unnecessary storage of materials, products or information.
Inventory is listed as an asset on a firm's balance sheet and consists of the stocks or items needed to maintain production, support activities such as maintenance and repair, and provide customer service. Inventory typically is categorized based on its flow through the production cycle, using such designations as raw materials, work in process, and finished goods. Maintenance, repair, and operating supplies also are stocked to support the functionality of the firm.
Inventory Turnover is the number of times your inventory cycles or turns over in a year or other defined period. Inventory turnover can help an organization understand how efficiently their inventory is supporting sales. The inventory turnover number implies how often inventory was bought and sold throughout the year or other defined period. Put another way, inventory turnover is an indicator of how well a business is using their inventory. For example, how many dollars of sales from a cost perspective are being supported by each dollar of inventory.
Independent Demand is an item that generates demand all by itself. In other words, it is not dependent or related to any other demand item.
The word investment is defined in one way as "the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value." With this in mind, Inventory Investment is the total amount of money or capital that has been invested in every form of inventory.
What is 100% Inspection?
100% inspection is just that, the act of checking or inspecting every single physical product or piece of information.
ISO 9000 is a group of international standards that has been developed and focuses on quality in the areas of management (quality management) and assurance (quality assurance). The standards were developed to help companies effectively document a quality system and its elements. The system also assists in the implementation and maintenance of an effective quality system.
The video above is from Lean Strategies International LLC's Quick Changeover with REDUCE Course.
Internal setup refers to the activities associated with elements of a setup procedure that can only be performed while a process or machine is not running.
The fishbone diagram is a structured analysis tool used to organize potential causes associated with a specific effect.
An inventory policy outlines the organization's vision, objectives and goals with regards to inventory. It will also define how the company intends to manage its inventory at all levels of the organization.
The Ideal State is a reference to the absolute perfect condition. One way to envision the ideal state of a map, process, product or service is to imagine that money, time and resources were not limited at all. What would you create then? Ideal state value streams are created many times to show the gap between the current state and the ideal state. This can help teams to reaffirm they are in alignment and ensure that the progress made is on track.
The icon shown above is used to visually display inventory on a value stream map. This symbol also represents places in a value stream where the flow of material/information is stopped (wait points).
Inventory velocity is the speed at which inventory passes through or is cycled in a given period for each item. Inventory velocity’s underlying objective is to improve the turnover of inventory.
How is it measured?
Inventory Turns = Cost of Goods Sold / Average Inventory on Hand.
How can you Improve Inventory Velocity?
Thinking of inventory velocity in terms of inputs and outputs (applying six sigma) can be very helpful when trying to improve inventory velocity. If our measurement is Inventory turns (Y) then we need to be able to identify the inputs (X's) and the process or functions being applied. If the inventory turnover is not meeting a standard or performance level that we want, we then know that our inputs (X's) need to change in a manner that improves our output, or at least moves it in the correct direction. Some ways to improve inventory velocity are:
1. Reduce cycle times
2. Reduce lead time associated with vendors
3. Look to balance the flow of value streams
4. Reduce buying sizes
5. Remove material that is obsolete
6. Use cycle counting and establish ABC classifications
An input is a product, service, information, data, labor material or any other type of resource which is added to a process step usually by a supplier. In the case of reverse supply chain the input is sometimes added by a customer. The input is most commonly added to a process or product with the intention of transforming the input into an output. In a SIPOC map the input represents the second stage. Inputs can be measured in terms of quality, volume, time and financial impact on a process.
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