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--We are living in a world of

--speed,
--immediate accessibility,
--instant gratification.
--To keep up with the demand, manufacturers have to
--procure raw materials,
--build components,
--assemble finished goods,
--physically ship
them across the world.
--Yet they are challenged
--shorter and shorter lead times,
--an unlimited range of finished goods SKUs,
--selling goods and procuring materials globally
--unending pressure to do more with less.
This concept of speed when applied to material replenishment has come to be kno
wn as Inventory Velocity .

Inventory turns vs. Inventory velocity


The good news about inventory turns is that it can be easily computed at the cor
porate level.The bad news is that it is difficult to control or improve it.
--inventory comprises so many variations
--(beyond the categories of finished goods, work in process, and raw materials
),
--such as high-priced, fast-moving, slow-moving, one-off, long lead time, long
transit time, standard, custom-made, etc.
--Layering the company s business model variations on top of this
order, build to order, made to stock,

engineered to

--selling through distribution, direct to OEMs, moving goods through retail ch


annels, local customers, global customers it becomes virtually impossible to mon
itor,
control and manage the inventory purely by corporate mandates.

This leads us into the domain of inventory velocity.


--Management consultants have been emphasizing that if one can measure, one can
improve.
-- So, what is the single most important measurement of inventory?
--It is the speed at which the inventory is being churned into cash.
--The factors that affect this speed are
--consumption rate,
--lead times,
--product lot sizes
--replenishment frequency.
--The fastest speed can be accomplished when the consumption rate synchronizes w
ith replenishment frequency, and lead times and lot sizes are kept at a minimum.
Why are these factors relevant?
--Synchronizing replenishment frequency with consumption will ensure that the sp
eed of material movement is fluid and therefore minimizes on-hand inventory stag
nation.
--Long lead times can have a multiplier effect on inventory.
--higher inventory in the pipeline, but it increases the computation of the sa
fety stock.
--Large lot sizes have a similar impact on the on-hand inventory.
Example: Imagine you are consuming 50 pieces of a raw material every day and the
lead time to get it from the supplier is 5 days.
--If the lot size is 500 pieces, then each order cycle will be carrying up to an
additional 5 days of inventory.
--Changing one of the factors can easily lead to improvement in inventory veloci
ty, while changing all three can lead to substantial inventory savings.

Currently, most business systems in large corporations do not provide this level
of detail.
--The information stored in ERP/MRP/supply chain systems is largely after the fa
ct.
--These systems carry the inventory data but not the inventory cycle data.
--Since the materials, purchasing and logistics functions act as silos, it is no
t easy to extract raw data and perform analytics to identify the improvement are
as.

Recommendation
--A recommended approach would be to build or use a collaborative real- time sys
tem that can store and track this data.
--Starting small by taking one type of inventory (finished goods or raw material
s) is advisable.
--If the raw-material inventory is the first to be tackled, then it is essential
to identify key suppliers of high-value parts and engage them in this process.
--Once the measurement is done, the parameters for improvement should be identif
ied (examples: reduction in lead time or smaller lot sizes or frequent delivery)
and
desired goals should be set