Inventory carrying cost, carrying cost, or cost of holding inventory is most often described as a percentage of the 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.
Reference: Carrying cost of inventory: Investopedia
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.
For planning and forecasting purposes, inventory is classified based on the source of its demand as either independent or dependent. Independent demand items are requested directly by the customer and thus must be forecasted. Demand for dependent items can be derived or calculated based on relationships to independent items, usually noted by higher levels in the bill of material.
Reference - Inventory (APICS OMBOK Framework 5.2).
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 Remove material that is obsolete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
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.
Examples of Internal Setup Activities:
Services for improving setup times:
The fishbone diagram is a structured analysis tool used to organize potential causes associated with a speciffic effect.
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Inventory Turnover is the number of times your inventory cycles or turns over in a year. 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. Low inventory turnover numbers often hint at overstocking, obsolescence or unstable processes. A high inventory turnover can also be dangerous if it is depleting reserves to quickly.
How to calculate:
Inventory turnover is calculated by dividing the cost of goods sold by the average amount of inventory.
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? This will often help in creating the absolute most perfect condition possible.
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.
The ABC's of