Because inventory
management aims to ensure availability, the focus is primarily on
eliminating stock outs, where the availability promise is not met.
Inventory
reduction focuses on cash and eliminating any unnecessary investment
in inventory with no change in the inventory risk profile. The logic
is this: any stock out triggers an action to restock and to typically
overstock in order to avoid a future stock out. Therefore,
opportunities exist for inventory reduction that will not increase
risk. Where the inventory is already overstocked there is no trigger
to take action, hence a specific program of activity is required.
Eventually,
inventory management must lead to an over investment of cash in
inventory as people seek to eliminate stock outs, whereas, inventory
reduction results in a minimized investment of cash while maintaining
the availability promise.
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3. What is the difference between
inventory optimization and inventory reduction?
Inventory
optimization uses the existing constraints to calculate the required
level of inventory for a desired level of availability.
Inventory
reduction challenges the constraints to ensure that the result is an
improvement to ‘what could be’, not just a recalculation of ‘what is’.
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4.
Why can’t we just use an inventory optimization program and gain those
improvements?
Of course many
companies will gain a benefit from using an inventory optimization
program, however, the real issues are: is the benefit maximized, and
is it sustainable?
On its own an
inventory optimization program cannot achieve the same level of
benefit as an inventory reduction program. This is because
optimization programs just calculate the ‘what is’ and so only
optimize an element of the total equation. Inventory reduction works
on the ‘what could be’ and so minimizes the whole inventory
investment.
With respect to
sustainability, the ongoing achievement of a minimized inventory
results from a change in the policies, procedures, measures and
reporting that drive the inventory result. Optimization programs are
calculation tools that don’t address these issues. An inventory
reduction program ensures that all the relevant members of your team
understand the impact of their decisions on inventory outcomes and
sets up the policies, procedures, measures and reporting to ensure a
sustainable result. Fundamentally, optimization is a tool that may be
used in an inventory reduction program. In fact, if you use (or sell)
an optimization program you should invest in our inventory reduction
system to gain the long term impact!
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5. There
are lots of optimization programs but only one inventory reduction
system, surely if your process was better, everyone would copy it?
Inventory
optimization programs are very popular and have been around for many
years but as mentioned above they are limited in their application. At
Initiate Action we were the first to specifically identify the ‘7
Actions for Inventory Reduction’ and to promote the requirement that
sustainable results need a change in culture.
Optimization is
based on maths and statistics and because of this it is easy to
package it as a simple software program.
Our inventory reduction system is both a training and action program
that educates your team and creates the culture change required to
ensure that the inventory reduction is sustainable. Optimization alone
does not provide the basis for the changes in inventory management
that prevent the inventory increasing again.
People are
trying to copy the system – but why bother when you can license it!
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6. So, what are
the specific differences between a typical inventory optimization
program and your inventory reduction system?
There are five
very specific differences:
i. There
are 7 actions that can be taken to reduce an inventory investment –
our system applies all seven actions for inventory reduction. A
typical optimization program applies just one.
ii. Our
inventory reduction system focuses on cash release without impacting
availability so we focus where the bulk of the investment is tied up.
Optimization programs are ‘availability based’ and identify changes to
improve availability across all inventory, no matter what level of
investment there is. Our approach is much more effective and
efficient in the use of your team’s time and energy.
iii.
Optimization
programs assume that your company must invest in its own inventory and
calculates how much. Our inventory reduction system starts by applying
what we call a ‘zero inventory mindset’. This requires that all
inventory investment be justified against several criteria and any
investment above zero must be justified. This justification is more
than just optimization on an economic basis. This mindset difference
is central to the
Inventory
Cash ReleaseTM
System - ICRTM06 and is a
huge difference between the two approaches.
iv.
Optimization
programs are calculators that assume that availability and demand are
essentially fixed. Our inventory reduction system does not make these
assumptions and directs the company to review other potential
initiatives with suppliers.
v.
Optimization
programs are calculation tools; our inventory reduction system is an
implementation program that identifies opportunities and then acts on
the policies, processes, measures and reporting required for
sustaining the result.
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7. What
are the options in learning and applying the inventory reduction
material?
The book
Smart Inventory Solutions explains the ‘7 Actions for Inventory
Reduction’, which are the backbone of the program. This can be
purchased in hard cover
directly from the publisher
(Industrial Press),
online at our website, or at major bookstores.
We also conduct
both public and in house training
in the application of the ‘7 Actions’.
You could also
purchase the
Inventory
Cash ReleaseTM
System - ICRTM06
on
CD. This system can be implemented using your own in house resources
or with the assistance of a number of support packages. Contact us for
more information.
Finally, there
is our
online e-learning program.
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8. Can’t
I just buy the book rather than the whole system?
You certainly
can just buy the book and this would be an excellent investment.
However, while the book gives you insight into the ‘7 Actions for
Inventory Reduction’, it does not explain the whole system nor does it
provide the tools required to implement the system. Having said that,
the book has helped many companies to recognize the actions they can
apply and achieve inventory reduction.
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9. What is on
the
Inventory
Cash ReleaseTM
System - ICRTM06 disc?
The disc
contains everything that is needed to implement the inventory
reduction system. It includes a facilitator guide to show you how to
manage the implementation, workshop workbooks for both the Opportunity
Identification workshop and the Achieving Sustainability workshop, a
copy of the Smart Inventory Solutions book for each member of
your implementation team and pre formatted spreadsheets to help you
track your actions and results.
All of this is
included in electronic format on a single CD.
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10. Do
I need a consultant to implement the system?
No, assuming
that you have a team member that can facilitate the workshops and
drive the program you do not need to use external resources to
implement the system.
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11. But,
if I do want assistance, what are my options?
There are several
options that vary from providing some guidance for your facilitator,
through to training your facilitator, through to providing the full
service of facilitation and program management.
Also we are
currently identifying new members of our
Global Partner
Network in
many countries that can assist you with your implementation program.
Contact us for more information.
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12. How
long does it take to implement the system?
We recommend
that the implementation program be undertaken over a period of 14
weeks. This provides sufficient time for your team to do the work
required (remembering that this is a part time activity for them)
while maintaining the focus on the program.
Actually making
all of the changes required and achieving your result will take longer
but the results have been shown to continue for years after the
implementation is complete!
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