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Solution-Driven Integrated Learning Paths
Educational SessionsLeanGlobal Supply ChainBasics of Operation ManagementDemand Management, Forecasting, and S & OPProfessional AdvancementSpecial Interest Topics
Plant ToursNetworking Events/Peer InteractionMaterials for Sale at the APICS Bookstore
Make the Most of Your Educational Experience
Develop a Learning PlanAssess your learning needsUse teamworkPrepare to learnCreate your own Action Plan
Live Learning Center
Sync-to-Slidewww.softconference.com/apics
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) 269-3407 or steve.cimorelli@sccinventory.com.
Excel Tools and Techniques
For Better Inventory Management
Steve Cimorelli, CFPIMPresident, SCC Inventory Consulting, LLC
IntroductionSteve Cimorelli, CFPIM
NASA: Engineer, space shuttle programMcDonnnell Douglas: Mfg. engineer, MRP managerLearjet: Manufacturing systems managerSquare D: Operations manager, staff analystCummins: Director, global inventory planningCurrent: President, SCC Inventory Consulting, LLCPublished Author
Kanban for the supply chain; 2005Handbook of manufacturing engineering; 1995APICS magazine: 2002-2009
Learning Path / Session Type
Global Supply ChainDemand Mgt., Forecasting, S&OPLogistics and DistributionLeanBasics of Operations ManagementGreen for Good Business
Legend:PrimarySecondary
GlobalAdvancedEmerging IssuesSpecific IssuesMini Workshop
Audience Level: Intermediate
Case Study
Six Learning Paths Six Session Types
Ground Rules & ExpectationsLearn something useful… Apply immediately (next week) on-the-jobParticipateLearn from each otherAsk questionsMutual respectHave fun!Others… ?
Course Take-AwaysLearning 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
Course OutlineExcel Skills (Demo)
Importing data from text filesFormatting dataFormulas & functionsSorting
Inventory Analysis (Demo)ABC classificationEOQ calculation (Appendix)
Excel Skills (Intermediate)Joining worksheetsMore FunctionsInteractive Graphs
BREAKVariability Review
Course Outline (continue)Inventory Analysis (Intermediate)
Part usage stabilityKanban or MRP?Demand through lead timeSafety stock
Excel Skills (Advanced)Analyzing dataDecision making
Inventory Analysis (Advanced)Lead time opportunitiesLot size opportunitiesPivot Table Summary
Time Permitting…OP, Avg. Inventory, OverstockDashboards
SetupEquipment
Laptop computer with USB or CD readerAssume Microsoft Windows XP
HandoutQuick-Reference Guide (Cheat Sheet)
Source DataUSB Flash DriveData CDs Confirm data on
laptops now.
ABC Classification
Pareto Principle80% value is in 20% of the partsApplying this to ABC classification yields the following typical breakdown
ABC % Items % Annual CostA 20 80B 30 15C 50 5
100% 100%
Excel Demo (ABC Analysis)Import data from ERP systemBasic formattingMerge data using VlookupSimple calculationsSortingABC assignment
Open workbook“Item Master (Solution1).xls”
… Follow Demo
Review: Import Data Wizard
Review: FormattingSizing rows and columnsAlignmentFreeze panesNumeric formatting (comma, decimal, etc.)Currency formatting
Review: Formulas & Functions
Simple math (= / + / - / x / ÷)
Fixed vs. Variable cell references
Paste_Special_Values
Sorting DataData_Sort
Sort Icons Group discussion.
Reorganize seating as needed…
Intermediate Excel SkillsFunctions:
SumAverageStd. DeviationConcatenate
MinMaxCountCountif
Vlookup with match functionGraphing data
Exercise: Demand AnalysisOpen “FG Demand Exercise.xls”
“Daily Demand” Tab
Create functions for blank columns:
Follow Demo…
PN and warehouseTotal demandAverage dayStd. deviation
Min dayMax dayNo. days with demand
Exercise: Interactive GraphContinue “FG Demand Exercise.xls”
“Daily Demand” tab
Create drop-down menuSelect part number and warehouse
Create Vlookup table for graphEmbedded match function
Create interactive graphFollow
Demo…
Normal Distribution: Bell CurveDaily 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 < Z0.00 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() functionExample:
Normsinv(99%) = 2.33
Z = Number of Std. Deviations to the right of mean.Z = 2.05 means that 98% of days will have demand less than mean + 2.05 SD pieces.
Statistical Safety StockFormula: 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 availabilitySD = Std. deviation of daily demandLT = Lead time (square root of LT)…Caution: use same time units as demand (days, weeks, etc.)
Statistical Safety Stock
Formula: SS = SF x SD x Sqrt(LT)Example
SF = 2.33 (represents 99% service)SD = 150 piecesLT = 20 daysSS = 2.33 x 150 x Sqrt(20) = 1563 pieces
Exercise: SS CalculationsRe-Open “FG Demand Exercise.xls”
“Planning” tab
Calculate statistical safety stock…Add lead time and safety factor columnsVlookup lead timeSafety factor function (NORMSINV)Calculate safety stock
Follow Demo…
Planning MethodsMRP – ERP default method
Kanban/pullStable demand patterns (low variability)Frequent, repeatable demand
Daily level load (continuous flow)Highest volume productsVery stable demandVery frequent, repeatable demand
Planning Methods – Excel Techniques & Formulas
Kanban/pull and level load statistics
Stability: Coefficient of variation (CoV)CoV = Std. dev / meanFrequency: Number days with demand
Low CoV
Med. CoV
High CoV
Stabledemand
Normaldemand
Erraticdemand
Excel pivot tableAnalyze natural breakpoints in data
Exercise: Inventory PlanningRe-open “FG Demand Exercise.xls”
“Planning” tab
Determine planning method rules…Add CoV columnUse Pivot Tables to determine “natural break points”Establish rules for Level Load, Kanban & MRP Follow
Demo…
Review: Inventory PlanningSelect planning method for each product
Nested “If()” Statement
And() & Or() Functions
Calculate safety stock for each product
Inventory Analysis - AdvancedChallenge: Analyze inventory savings potential
Which vendors & PNs hold the greatest savings opportunity?
Establish lead time & lot size Targets by ABCCalculate inventory savings potential by PNSummarize inventory savings potential by vendor & ABCUse Pareto analysis (80/20 rule) to focus on “big bang for the buck”
Exercise: Inventory SavingsRe-Open “Item Master Solution1.xls”Add new tab: “Control Table”Create control table as follows:
Follow Demo…
ABCLead Time
(Days)Lot Size (Days)
A 5 5B 10 20C 20 60
Calculate target lot sizeCalculate inventory savings by PNSummarize savings by vendor & ABCSave-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 levels properly balanced?
Objective: Create an inventory dashboardConcepts Needed:
Reorder Point (aka Order Point)Average InventoryOverstock
Order Point & Average Inventory
Avg DLT = Avg. Daily usage X Lead timeAvg Inv = SS + ½ Lot sizeOP = 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 StatusOpen “Item Master Solution2.xls”Add columns for SS, OP, DLT, Avg Inv, overstock and shortageCreate formulas for new columnsImport available inventory dataCalculate $ value of Avg inventory, overstock & product shortPivot table: $ values by planner & vendor
FollowDemo…
Inventory DashboardData
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 filesFormatting dataFormulas & functionsSorting
Inventory Analysis (Basic)ABC classificationEOQ calculation
Excel Skills (Intermediate)Joining worksheetsMore functionsGraphs
BREAKVariability exercise
Inventory Analysis (Intermediate)Part usage stabilityKanban or MRP?Demand through lead timeSafety stock
Excel Skills (Advanced)Analyzing dataDecision making
Inventory Analysis (Advanced)Lead time opportunitiesLot size opportunitiesPivot table summaryOP, Avg. inventory, overstockDashboards
ABC Analysis – Sample Data26 Part NumbersAnnual Demand from 33 to 6410Costs from $0.55 to $125
Part Number Annual Qty Cost Annual CostA 249 53.20$ 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, but not lowest cost or quantity.
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% AQ 14,862.84 74,536.05 59% AA 13,246.80 87,782.85 69% AF 10,897.00 98,679.85 78% A 19%X 4,125.00 102,804.85 81% BO 3,438.00 106,242.85 84% BT 2,876.44 109,119.29 86% BY 2,512.50 111,631.79 88% BB 2,223.31 113,855.10 90% BR 2,218.70 116,073.80 92% BS 2,052.00 118,125.80 93% BL 1,853.50 119,979.30 95% B 31%G 897.60 120,876.90 96% CC 693.60 121,570.50 96% CM 648.60 122,219.10 97% CE 621.00 122,840.10 97% CN 599.20 123,439.30 98% CD 528.00 123,967.30 98% CI 515.90 124,483.20 98% C
W 508.84 124,992.03 99% CU 435.00 125,427.03 99% CH 424.02 125,851.05 99% CV 316.86 126,167.91 100% CP 216.44 126,384.36 100% CK 170.49 126,554.85 100% C 50%
Sort by descending annual costCalculate Cum Cost & Cum Cost %Set ABC Break PointsCalculate % Count Break Points as Sanity Check
Economic Order Qty (EOQ)
Part cost = Cost per part, considering setup and unit costFor Purchased Parts: Setup = ordering costFor make parts: Setup = Setup time X $/hourThe greater the lot size, the smaller the part cost per unit
Carrying cost = Cost of carrying parts in inventoryThe greater the lot size, the greater the carrying cost.
C a rrying C ost
P art C ost
T ota l C ost
L ot Size
E O Q = M inim u mT otal C ost$
C a rrying C ost
P art C ost
T ota l C ost
L ot Size
E O Q = M inim u mT otal C ost$
EOQ FormulaA = Annual usage (Units / Year)S = Setup or ordering cost ($)I = Inventory carrying cost
(Annual %)C = Unit cost ($ / Unit); (excluding setup)
2ASICEOQ =
2 x 10,000 x 1000.18 x 50EOQ =
= 471 pieces
Example:A = 10,000 pieces/yearS = $100I = 18% /yearC = $50
EOQ – Excel ExerciseOpen “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 partsRound to nearest 10, 100, 1000, container Qty
Follow along with instructor demo…
Course Take-AwaysLearning 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, CFPIMPresident, SCC Inventory ConsultingOffice: 321-269-3407Cell: 321-431-0195Email: steve.cimorelli@sccinventory.com
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