Managing Inventory Levels for Process Manufacturers
It’s critical for manufacturers to maintain inventory at correct levels. Too much inventory increases working capital costs. Too little inventory results in stockouts, production disruption, and unhappy customers.
But many process manufacturing companies do a poor job of managing inventory levels, because it is a complex and challenging task.
Manufacturing plants often produce hundreds or thousands of SKUs, with different volumes and demand variability. They need to produce the right amount of every SKU at the right frequency to maintain correct inventory levels.
Cycle Stock and Safety Stock
Process industries need to manage three components of inventory; safety stock, cycle stock, and lot size impact. Safety stock is the stock held to accommodate variability in demand and production. Cycle stock and lot size impact result when production is not continuous and must be made in batches.
Phenix Inventory Management
Phenix Aligned Product Wheels™ introduce a regularly repeating production cycle with a frequency designed to meet service levels and minimize production and inventory costs.
Phenix then runs a simulation to calculate the safety stock required for each SKU to meet a desired service level. The simulation takes into account the demand variability, production variability, lot size, and volume of each SKU using either demand history or a demand forecast.
Phenix then produces schedules that produce the right amount of each SKU in each production cycle to meet demand and maintain correct inventory levels.
Too Important for Excel
Scheduling the production of hundreds or thousands SKUs to maintain service levels and minimize production and inventory costs is an impossible task in Excel. Incorrect levels add costs and disappoint customers. Phenix’s planning and scheduling software makes it easy to optimize inventory levels for all SKUs all the time.
Phenix Aligned Product Wheels™ can help your company minimize waste and align production with the business’s customer service, cost and working capital goals.
This article is adapted from an article published February 3, 2021 by SCM Now, and is published with permission of the Association for Supply Chain Management. This is the second of two articles discussing good inventory managing practices. The first described the...
This article is adapted from the Q4 2020 issue of SCM Now, and provided with permission of the Association for Supply Chain Management. Determining appropriate inventory levels is generally one of the most important and challenging tasks that operations managers face:...
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