excel tools and techniques for better inventory

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



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 [email protected].

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



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



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.



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



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…



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



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…



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.)



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…



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…



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”



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



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…



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



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



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…



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: [email protected]

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