excel tools and techniques for better inventory
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7/17/2019 Excel Tools and Techniques for Better Inventory
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Solution-Driven IntegratedLearning 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 YourEducational 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
www.softconference.com/apics
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Steve Cimorelli, CFPIM, is an independentconsultant and owner of SCC InventoryConsulting. He holds a degree inengineering and has 30 years of experiencein aerospace, industrial equipment,commercial manufacturing, distribution, andsupply chain management. From 2005 to2008, Cimorelli served as Director, GlobalInventory Planning for Cummins Filtration.He can be reached at (321) 269-3407 orsteve.cimorelli@sccinventory.com.
Excel Tools andTechniques
For Better InventoryManagement
Steve Cimorelli, CFPIM
President, SCC Inventory Consulting, LLC
IntroductionSteve 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: 2002-2009
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Learning Path / Session Type
Global Supply Chain
Demand Mgt.,
Forecasting, S&OP Logistics and Distribution
Lean
Basics of OperationsManagement
Green for Good Business
Legend:
Primary
Secondary
Global
Advanced
Emerging Issues
Specific Issues
Mini Workshop
Audience Level:
Intermediate
Case Study
Six Learning Paths Six Session Types
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 foranalyzing 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
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Course OutlineExcel 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 (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 onlaptops now.
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ABC Classification
Pareto Principle
80% value is in 20% of the parts
Applying this to ABC classificationyields the following typical breakdown
ABC % Item s % Annual Cost
A 20 80
B 30 15
C 50 5
100% 100%
Excel Demo (ABC Analysis)
Import data from ERP system
Basic formatting
Merge data using Vlookup
Simple calculations Sorting
ABC assignmentOpen workbook
“Item Master (Solution1).xls”… Follow Demo
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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 seatingas needed…
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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:
FollowDemo…
PN and warehouse
Total demand
Average day
Std. deviation
Min day
Max day
No. days withdemand
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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
FollowDemo…
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Normal Distribution: Bell Curve
Daily demand for a product
0
20
40
60
80
100
120
140
160
1 3 5 7 9 11 13 15 17 19 21 23 25
Mean
+ 1 SD- 1 SD
- 2 SD
- 3 SD
+ 2 SD
+ 3 SD
Z-Score
Z Prob < Z
0.00 50%
0.67 75%
1.28 90%
1.64 95%
1.88 97%
2.05 98%
2.33 99%
2.58 99.5%
3.09 99.9%
Excel: Normsinv() function Example:
Normsinv(99%) = 2.33
Z = Number of Std. Deviations to the right of mean.
Z = 2.05 means that 98% of days will have demandless than mean + 2.05 SD pieces.
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 willprovide 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.)
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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
FollowDemo…
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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 – ExcelTechniques & Formulas
Kanban/pull and levelload statistics
Stability: Coefficient ofvariation (CoV)
CoV = Std. dev / mean
Frequency: Number dayswith demand
Low CoV
Med. CoV
High CoV
Stable
demand
Normaldemand
Erraticdemand
Excel pivot table
Analyze naturalbreakpoints in data
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 FollowDemo…
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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”
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Exercise: Inventory Savings Re-Open “Item Master Solution1.xls”
Add new tab: “Control Table”
Create control table as follows:
Follow
Demo…ABC
Lead Time
(Days)
Lot Size
(Days)
A 5 5B 10 20C 20 60
Calculate target lot size
Calculate inventory savings by PN
Summarize savings by vendor & ABC
Save-As: “Item Master Solution2.xls”
Saw Tooth: Average Inventory
Avg Inv = SS + ½ Lot size
SS
LT
LS
Quantity
Time
DLT
OP
Depicts Inventory Usage & Replenishment over time.
Avg Inv
Inventory Analysis -Dashboard
Challenge: Are current inventory levelsproperly balanced?
Objective: Create an inventory
dashboard
Concepts Needed:
Reorder Point (aka Order Point)
Average Inventory
Overstock
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Order Point & Average Inventory
Avg DLT = Avg. Daily usage X Lead time
Avg Inv = SS + ½ Lot size
OP = SS + DLT
SS
LT
LS
Quantity
Time
DLT
OP
Depicts Inventory Usage & Replenishment over time.
Avg Inv
Overstock
Overstock Threshold = OP + LS
SS
LT
Quantity
Time
OP
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.
1 2 3
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
FollowDemo…
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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”
Course ReviewExcel 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
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
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ABC Analysis – Sample Data
26 Part Numbers
Annual Demandfrom 33 to 6410
Costs from $0.55to $125
P art Numb er Annual Qty Cos t Annu al Cost
A 249 53.20$ 13,246.80$B 409 5.44 2,223.31
C 204 3.40 693.60
D 352 1.50 528.00
E 270 2.30 621.00
F 6410 1.70 10,897.00
G 264 3.40 897.60
H 57 7.44 424.02 I 77 6.70 515.90
J 428 53.75 23,005.00
K 247 0.69 170.49 L 337 5.50 1,853.50
M 282 2.30 648.60
N 535 1.12 599.20
O 573 6.00 3,438.00
P 35 6.18 216.44
Q 270 55.05 14,862.84
R 4034 0.55 2,218.70
S 450 4.56 2,052.00
T 529 5.44 2,876.44
U 750 0.58 435.00
V 54 5.87 316.86
W 145 3.51 508.84 X 33 125.00 4,125.00
Y 2010 1.25 2,512.50
Z 1819 20.16 36,668.21
Lowest annual cost, butnot lowest cost orquantity.
Highest annual cost,but not highest cost
or quantity.
ABC Analysis: Step-by-StepPart Number Annual Cost Cum Cost Cum % ABC %Cnt
Z 36,668.21$ 36,668.21$ 29% AJ 23,005.00 59,673.21 47% A
Q 14,862.84 74,536.05 59% A
A 13,246.80 87,782.85 69% A
F 10,897.00 98,679.85 78% A 19%
X 4,125.00 102,804.85 81% B
O 3,438.00 106,242.85 84% B
T 2,876.44 109,119.29 86% B
Y 2,512.50 111,631.79 88% B
B 2,223.31 113,855.10 90% B
R 2,218.70 116,073.80 92% BS 2,052.00 118,125.80 93% B
L 1,853.50 119,979.30 95% B 31%
G 897.60 120,876.90 96% C
C 693.60 121,570.50 96% C
M 648.60 122,219.10 97% C
E 621.00 122,840.10 97% C
N 599.20 123,439.30 98% C
D 528.00 123,967.30 98% C
I 515.90 124,483.20 98% C
W 508.84 124,992.03 99% C
U 435.00 125,427.03 99% C
H 424.02 125,851.05 99% C
V 316.86 126,167.91 100% C
P 216.44 126,384.36 100% C
K 170.49 126,554.85 100% C 50%
Sort by descendingannual cost
Calculate Cum Cost& Cum Cost %
Set ABC Break
Points
Calculate % CountBreak Points asSanity Check
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Economic Order Qty (EOQ)
Part cost = Cost per part, considering setup and unit cost
For Purchased Parts: Setup = ordering cost
For make parts: Setup = Setup time X $/hour
The greater the lot size, the smaller the part cost per unit
Carrying cost = Cost of carrying parts in inventory
The greater the lot size, the greater the carrying cost.
Carrying Cost
Part Cost
Tota l Cost
Lot S ize
E OQ = M i n im u m
Tota l Cost$
Carry ing Cost
Part Cost
Tota l Cost
Lot S ize
E OQ = M i n im u m
Tota l Cost$
EOQ Formula
A = Annual usage (Units / Year) S = Setup or ordering cost ($) I = Inventory carrying cost
(Annual %) C = Unit cost ($ / Unit); (excluding setup)
2AS
ICEOQ =
2 x 10,000 x 100
0.18 x 50EOQ =
= 471 pieces
Example:
A = 10,000 pieces/year
S = $100
I = 18% /year
C = $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 bemore complex!)
Assume $50/hour for “Make” parts
Calculate EOQ for all parts
Round to nearest 10, 100, 1000, container Qty
Follow along withinstructor demo…
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Course Take-Aways
Learning Objectives
Learn and practice Excel techniques foranalyzing inventory data.
Understand techniques for analyzing demandpattern statistics.
Develop interactive chart; graphically portraydemand 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: 321-269-3407
Cell: 321-431-0195
Email: steve.cimorelli@sccinventory.com
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