Live Learning Center. Solution-Driven Integrated Learning Paths. Make the Most of Your Educational Experience

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1 Solution-Driven Integrated Learning Paths Educational Sessions Lean Global Supply Chain Basics of Operation Management Demand Management, Forecasting, and S & OP Professional Advancement Special Interest Topics Plant Tours Networking Events/Peer Interaction Materials for Sale at the APICS Bookstore Make the Most of Your Educational Experience Develop a Learning Plan Assess your learning needs Use teamwork Prepare to learn Create your own Action Plan Live Learning Center Sync-to-Slide

2 Steve Cimorelli, CFPIM, is an independent consultant and owner of SCC Inventory Consulting. He holds a degree in engineering and has 30 years of experience in aerospace, industrial equipment, commercial manufacturing, distribution, and supply chain management. From 2005 to 2008, Cimorelli served as Director, Global Inventory Planning for Cummins Filtration. He can be reached at (321) or steve.cimorelli@sccinventory.com. Excel Tools and Techniques For Better Inventory Management Steve Cimorelli, CFPIM President, SCC Inventory Consulting, LLC Introduction Steve Cimorelli, CFPIM NASA: Engineer, space shuttle program McDonnnell Douglas: Mfg. engineer, MRP manager Learjet: Manufacturing systems manager Square D: Operations manager, staff analyst Cummins: Director, global inventory planning Current: President, SCC Inventory Consulting, LLC Published Author Kanban for the supply chain; 2005 Handbook of manufacturing engineering; 1995 APICS magazine:

3 Learning Path / Session Type Six Learning Paths Global Supply Chain Demand Mgt., Forecasting, S&OP Logistics and Distribution Lean Basics of Operations Management Green for Good Business Legend: Primary Secondary Six Session Types Global Advanced Emerging Issues Specific Issues Mini Workshop Audience Level: Intermediate Case Study Ground Rules & Expectations Learn something useful Apply immediately (next week) on-the-job Participate Learn from each other Ask questions Mutual respect Have fun! Others? Course Take-Aways Learning Objectives Learn and practice Excel techniques for analyzing inventory data. Understand techniques for analyzing demand pattern statistics. Develop interactive chart; graphically portray demand data over time. Analyze inventory savings opportunities; summarize by vendor, ABC, planner, etc. Create an inventory management dashboard

4 Excel Skills (Demo) Importing data from text files Formatting data Formulas & functions Sorting Inventory Analysis (Demo) ABC classification EOQ calculation (Appendix) Excel Skills (Intermediate) Joining worksheets More Functions Interactive Graphs BREAK Variability Review Course Outline Course Outline (continue) Inventory Analysis (Intermediate) Part usage stability Kanban or MRP? Demand through lead time Safety stock Excel Skills (Advanced) Analyzing data Decision making Inventory Analysis (Advanced) Lead time opportunities Lot size opportunities Pivot Table Summary Time Permitting OP, Avg. Inventory, Overstock Dashboards Setup Equipment Laptop computer with USB or CD reader Assume Microsoft Windows XP Handout Quick-Reference Guide (Cheat Sheet) Source Data USB Flash Drive Data CDs Confirm data on laptops now.

5 ABC Classification Pareto Principle 80% value is in 20% of the parts Applying this to ABC classification yields the following typical breakdown ABC % Items % Annual Cost A B C % 100% Excel Demo (ABC Analysis) Import data from ERP system Basic formatting Merge data using Vlookup Simple calculations Sorting ABC assignment Open workbook Item Master (Solution1).xls Follow Demo

6 Review: Import Data Wizard Review: Formatting Sizing rows and columns Alignment Freeze panes Numeric formatting (comma, decimal, etc.) Currency formatting Review: Formulas & Functions Simple math (= / + / - / x / ) Fixed vs. Variable cell references Paste_Special_Values Sorting Data Data_Sort Sort Icons Group discussion. Reorganize seating as needed

7 Intermediate Excel Skills Functions: Sum Average Std. Deviation Concatenate Min Max Count Countif Vlookup with match function Graphing data Exercise: Demand Analysis Open FG Demand Exercise.xls Daily Demand Tab Create functions for blank columns: PN and warehouse Total demand Average day Std. deviation Min day Max day No. days with demand Follow Demo

8 Exercise: Interactive Graph Continue FG Demand Exercise.xls Daily Demand tab Create drop-down menu Select part number and warehouse Create Vlookup table for graph Embedded match function Create interactive graph Follow Demo

9 Normal Distribution: Bell Curve Daily demand for a product 160 Mean SD + 1 SD SD + 2 SD 0-3 SD + 3 SD Z-Score Z = Number of Std. Deviations to the right of mean. Z = 2.05 means that 98% of days will have demand less than mean SD pieces. Excel: Normsinv() function Example: Normsinv(99%) = 2.33 Z Prob < Z % % % % % % % % % Statistical Safety Stock Formula: SS = SF x SD x Sqrt(LT) SS = Safety stock (for a PN) SF = Safety factor (Z-Score) Represents the probability that demand will be less than a certain value; i.e. SS will provide X% part availability SD = Std. deviation of daily demand LT = Lead time (square root of LT) Caution: use same time units as demand (days, weeks, etc.)

10 Statistical Safety Stock Formula: SS = SF x SD x Sqrt(LT) Example SF = 2.33 (represents 99% service) SD = 150 pieces LT = 20 days SS = 2.33 x 150 x Sqrt(20) = 1563 pieces Exercise: SS Calculations Re-Open FG Demand Exercise.xls Planning tab Calculate statistical safety stock Add lead time and safety factor columns Vlookup lead time Safety factor function (NORMSINV) Calculate safety stock Follow Demo

11 Planning Methods MRP ERP default method Kanban/pull Stable demand patterns (low variability) Frequent, repeatable demand Daily level load (continuous flow) Highest volume products Very stable demand Very frequent, repeatable demand Planning Methods Excel Techniques & Formulas Kanban/pull and level load statistics Stability: Coefficient of variation (CoV) CoV = Std. dev / mean Frequency: Number days with demand Excel pivot table Analyze natural breakpoints in data Low CoV Med. CoV High CoV Stable demand Normal demand Erratic demand Exercise: Inventory Planning Re-open FG Demand Exercise.xls Planning tab Determine planning method rules Add CoV column Use Pivot Tables to determine natural break points Establish rules for Level Load, Kanban & MRP Follow Demo

12 Review: Inventory Planning Select planning method for each product Nested If() Statement And() & Or() Functions Calculate safety stock for each product Inventory Analysis - Advanced Challenge: Analyze inventory savings potential Which vendors & PNs hold the greatest savings opportunity? Establish lead time & lot size Targets by ABC Calculate inventory savings potential by PN Summarize inventory savings potential by vendor & ABC Use Pareto analysis (80/20 rule) to focus on big bang for the buck

13 Exercise: Inventory Savings Re-Open Item Master Solution1.xls Add new tab: Control Table Create control table as follows: ABC Lead Time (Days) Lot Size (Days) A 5 5 B C Follow Demo Calculate target lot size Calculate inventory savings by PN Summarize savings by vendor & ABC Save-As: Item Master Solution2.xls Saw Tooth: Average Inventory Quantity Depicts Inventory Usage & Replenishment over time. OP Avg Inv DLT LS SS LT Time Avg Inv = SS + ½ Lot size Inventory Analysis - Dashboard Challenge: Are current inventory levels properly balanced? Objective: Create an inventory dashboard Concepts Needed: Reorder Point (aka Order Point) Average Inventory Overstock

14 Order Point & Average Inventory Quantity Depicts Inventory Usage & Replenishment over time. OP Avg Inv DLT LS SS LT Time Avg DLT = Avg. Daily usage X Lead time Avg Inv = SS + ½ Lot size OP = SS + DLT Overstock Quantity OP SS LT Theoretical Max Inv = OP + Lot Size Any Inventory above Max is considered Overstock. No customer demand for several days after breaking OP. Replenishment occurs on-time within LT. Time Overstock Threshold = OP + LS Exercise: Inventory Status Open Item Master Solution2.xls Add columns for SS, OP, DLT, Avg Inv, overstock and shortage Create formulas for new columns Import available inventory data Calculate $ value of Avg inventory, overstock & product short Pivot table: $ values by planner & vendor Follow Demo

15 Inventory Dashboard Data Dept/ Vendor Sum of Theoretical Target $ Sum of Actual $ Sum of Overstock $ Sum of Shortage $ AAA $ 59 $ 22 $ 17 $ (22) CSTG $ 13,638 $ 12,225 $ - $ - DDD $ 6 $ 23 $ 11 $ - KKK $ 139 $ 184 $ - $ - NNN $ 25 $ 40 $ - $ - PPP $ 665 $ 651 $ 11 $ - SSS $ 12,646 $ 21,921 $ 6,129 $ (2,940) STMP $ 1,634 $ 3,028 $ - $ - Grand Total $ 28,811 $ 38,093 $ 6,170 $ (2,962) Ref: Item Master Solution3.xls Excel Skills (Basic) Importing data from text files Formatting data Formulas & functions Sorting Inventory Analysis (Basic) ABC classification EOQ calculation Excel Skills (Intermediate) Joining worksheets More functions Graphs BREAK Variability exercise Course Review Inventory Analysis (Intermediate) Part usage stability Kanban or MRP? Demand through lead time Safety stock Excel Skills (Advanced) Analyzing data Decision making Inventory Analysis (Advanced) Lead time opportunities Lot size opportunities Pivot table summary OP, Avg. inventory, overstock Dashboards

16 ABC Analysis Sample Data Part Number Annual Qty Cost Annual Cost A $ 13, $ 2, B C D E F , G H I J , K L , M N O , P Q , R , S , T , U V W X , Y , Z , Part Numbers Annual Demand from 33 to 6410 Costs from $0.55 to $125 Lowest annual cost, but not lowest cost or quantity. Highest annual cost, but not highest cost or quantity. ABC Analysis: Step-by-Step Part Number Annual Cost Cum Cost Cum % ABC %Cnt Z $ 36, $ 36, % A 47% A J 23, , Q 14, , % A A 13, , % A F 10, , % A 19% X 4, , % B O 3, , % B T 2, , % B Y 2, , % B B 2, , % B R 2, , % B S 2, , % B L 1, , % B 31% G , % C C , % C M , % C E , % C N , % C D , % C I , % C W , % C U , % C H , % C V , % C P , % C K , % C 50% Sort by descending annual cost Calculate Cum Cost & Cum Cost % Set ABC Break Points Calculate % Count Break Points as Sanity Check

17 $ Economic Order Qty (EOQ) EOQ = Minimum Total Cost Total Cost Carrying Cost Lot Size Part Cost Part cost = Cost per part, considering setup and unit cost For Purchased Parts: Setup = ordering cost For make parts: Setup = Setup time X $/hour The greater the lot size, the smaller the part cost per unit Carrying cost = Cost of carrying parts in inventory The greater the lot size, the greater the carrying cost. EOQ Formula EOQ = 2AS IC A = Annual usage (Units / Year) S = Setup or ordering cost ($) I = Inventory carrying cost (Annual %) C = Unit cost ($ / Unit); (excluding setup) Example: A = 10,000 pieces/year S = $100 EOQ = I = 18% /year C = $50 = 471 pieces 2 x 10,000 x x 50 EOQ Excel Exercise Open EOQ Exercise.xls Import setup & run times for make parts Create Excel file: Routing Data.xls Use if statement to calculate setup cost Fixed $50 for buy parts (Note: Reality may be more complex!) Assume $50/hour for Make parts Calculate EOQ for all parts Round to nearest 10, 100, 1000, container Qty Follow along with instructor demo

18 Course Take-Aways Learning Objectives Learn and practice Excel techniques for analyzing inventory data. Understand techniques for analyzing demand pattern statistics. Develop interactive chart; graphically portray demand data over time. Analyze inventory savings opportunities; summarize by vendor, ABC, planner, etc. Create an inventory management dashboard Presenter Contact Information Steve Cimorelli, CFPIM President, SCC Inventory Consulting Office: Cell: