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INVENTORY MANAGEMENT &

INTERNAL REPORT
Contents

Product Design

Computer Files

Receiving

Put Away

Picking & Shipping

Inventory Storage

2
KPIs for Product Design
Percentage of New Parts Used in New
Products
 Encourage to design products that share components
with existing products.
 May not include fittings and fasteners in the bill of
materials.
 The formula is as follows:

Number of new parts in bill material


Total number of parts in bill material

3
KPIs for Product Design

Percentage of Existing Parts Reused


in New Products
 The inverse of the preceding measurement can be
used to determine the proportion of existing parts that
are used in new products. The formula is as follows:

Number of Existing Parts in bill material


Total number of parts in bill material

4
KPIs for Computer files
Bill of Material Accuracy
 Engineering department release a bill of materials for
each product that it designs.
 The logistics staff uses this information to ensure that
the correct parts are available
 Require the accuracy at least at 98% for avoiding
stoppages caused by missing parts. The formula is as
follows:

Number of accurate parts listed in bill material


Total number of parts in listed bill material

5
KPIs for Computer files

Item Master File Accuracy


 The item master file contains all of the descriptive
information about each inventory item, such as its unit
of measure and cubic volume.
 This information must be correct
 Conduct an audit of a random sample of all item
master records, verifying each field in the selected
batch. The calculation is as follows:

Total number of records reviewed having 100% accuracy information


Total number of records sampled

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KPIs for Receiving

On-Time Parts Delivery Percentage


 One of the key performance measures for rating a
supplier is its ability to deliver ordered parts on time,
because a late delivery can shut down a production line.
 Subtract the requested arrival date from the actual
arrival date.
 The basic formula is as follows:

(Actual arrival date) – (Requested arrival date)

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KPIs for Receiving
Incoming Components Correct
Quantity Percentage
 If the quantity of items received in comparison to the
amount ordered is too low, then the company may be
faced with a parts shortage in its production
operation.
 If the quantity is too high, then it may find itself with
more inventory than it can use.
 The formula is as follows:

Quantity of orders with correct parts quantity delivered


Total quantity of order delivered
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KPIs for Receiving
Percentage of Receipts Authorized by
Purchase Orders
 When orders arrives without any accompanying purchase
order. It will take a few hours or days to find out who
ordered them.
 maintain a receiving log summarize the number of receipt
line items authorized by open purchase orders by the total
number of receipt line items in the log. The formula is as
follows:

Receipt line itemes authorized by open purchase orders


Total receipt line items

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KPIs for Receiving
Percentage of Purchase Orders
Released with Full Lead Time
 If the purchasing department is not preparing purchase
orders on time, they will be forcing suppliers to deliver in
less than standard lead times or incur expensive
overnight air freight to bring items in on time.
 one should track the proportion of purchase orders
released with full lead time. The calculation is as
follows:

Purchase order lines release with full lead time


Total purchase orde lines released
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KPIs for Putaway

Putaway Accuracy
 The ability of the receiving staff to put received items
away into stock locations correctly, including the proper
recording of the transaction, is critical to all subsequent
inventory transactions. The formula is as follows:

Number of accurate putaway transactions


Total number of putaway transactions

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KPIs for Putaway

Putaway Cycle Time


 The accuracy of a putaway, is certainly important, but
can take so long that it impacts the ability of a company
to turn around items for shipment to customers or
delivery to the shop floor
 It is best to report the putaway cycle time and putaway
accuracy measurements together. The calculation are
as follows:
Sum for all receiving transactions [(Putaway date/time)-(Receipt date/time)]
Number of receipts during measurement period

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KPIs for Production

Scrap Percentage
 The scrap percentage is one of the most closely
watched performance measurements in the factory.
 The formula is as follows:

(Actual cost of goods sold)-(Standard cost of goods sold)


Standard cost of goods sold

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KPIs for Production
Actual direct labor 145,000
Actual direct materials 580,000
Actual overhead 870,000
Standard direct labor 142,000
Standard direct materials 542,000
Standard overhead 745,000
Standard scrap 12,000
 Act dir labor + Act dir material  –  Std dir labor + Std dir materials – Std scrap 
Std dir labor + Std dir materials – Std scrap 
 $145, 000  $580, 000  –  $142, 000  $542, 000 – $12, 000 
 $142, 000  $542, 000 – $12, 000 
$745, 000 – $672, 000
  10%
$672, 000
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KPIs for Picking

Average Picking Time


 It is equal to the difference the time at which an order
was completed from the time when a picker received
the order
 In the absence of computer system, the best
approach is to divide the total number of orders
completed during the measurement period by the
total man-hours of picking time during the period. The
calculation is as follows:

Total number of orders completed


(Total man-hours worked by picking staff)+(Total man-hours worked by contract staff)

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KPIs for Picking
Picking Accuracy for Assembled
Products
 The picking accuracy of assembled products is
considered important for those companies that ship
kits.
 Conduct an audit of a sample of completed kits,
counting as an error every kit where the quantity of
parts is incorrect, as well as an error for every kit
where the quantity is correct, but the types of parts
included are incorrect

Number of quantity errors+number of part error


100% 
(Total number of product kit sampled)
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KPIs for Picking
Average Picking Cost
 To measure the average picking cost, divide the total
picking cost by the number of order lines picked.
 The total picking cost should include the fully burdened
labor cost of the picking staff, plus the depreciation on
any incremental improvements in warehouse equipment
or racking specifically intended to improve picking
efficiency or accuracy.

Fully burdened picking staff wages+ Depreciation on picking equipment and storage
(Total order lines picked)
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KPIs for Shipping

Order Lines Shipped per Labor Hour


 The best way to determine the efficiency of the
shipping function is to compare the number of order
line items filled to the total labor hours expended in
this activity.

Total order lines shipped


Total labor hours used to ship orders

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KPIs for Shipping

Shipping Accuracy
 Shipping accuracy information comes from the
customer, who lodges complaints about incorrect
order fulfillment.

Total order lines shipped-Incorrect order lines reported by customers


Total order line shipped

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KPIs for Shipping

Warehouse Order Cycle Time


 To calculate the warehouse order cycle time, subtract
the date and time of the order receipt into the
company order entry system from the delivery date
and time of the last line item left open on the order

Date and time of last line item delivery- Date and time of order receipt

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KPIs for Shipping

Delivery Promise Slippage


 An extremely common occurrence is for the customer
support staff to convince a customer to take a delivery
later than the originally promised date, and then enter
the revised promised date into the computer system
as though it were the original promised date. Then,
when the order is finally delivered, the delivery is
measured as being on time, because it matched the
revised promised date.

Sum for all delivery transaction[(Delivery Date/Time)-(Original promised date time)]


Total number of deliveries

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KPIs for Shipping

Average Back Order Length


 To measure the average back order length, compile a
list of all customer orders that were not shipped on
time and summarize from this list the total number of
days that each order has gone past the customer
receipt date without being shipped. Then divide this
total number of days by the total number of back-
ordered customer orders
Sum of the[Number of day past the required customer receipt day for each order]
Total number of back-ordered customer orders

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KPIs for Shipping

Dock Door Utilization


 One should track dock door utilization to determine if
the current number of doors is optimal.
 To measure dock door utilization, multiply the
average dock time per trailer by the number of trailers
docked during the measurement period
(Average dock time per trailer)  (Number of trailers docked)
(Number of hours in measurement period)  (Number of dock door)

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KPIs for Inventory

Inventory Accuracy
 Company must ensure that not only the quantity and
location of a raw material is correct, but also that its
units of measure and part number are accurate. If any
of these four items are wrong, there is a strong
chance that the production process will be negatively
impacted

Number of accurate test items


Number of items sampled

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KPIs for Shipping

Inventory Availability
 To measure inventory availability, divide the total
number of completed orders received by customers
no later than their required date during the
measurement period by the total number of
completed orders that customers should have
received during the measurement period.
Total number of completed orders received by customer by required date
Total number of orders that should have been completed

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KPIs for Shipping

Inventory Turnover
 Inventory Turnover is the number of replenishments
per year. Using 365 divided by Inventory Turnover we
obtain the length of the replenishment cycle. Another
equivalent formula is
 COGS = beginning inventory + the total amount of
purchases − the ending inventory.

Cost of goods sold


Inventory cost

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KPIs for Storage Utilities

Percentage of Warehouse Stock


Locations Utilized
 To measure the percentage of warehouse stock
locations utilized, divide the number of stock locations
containing any amount of inventory by the total
number of stock locations in the warehouse. The
calculation is as follows:

Number of utilized stock locations


Total number of stock location in the warehouse

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KPIs for Storage Utilities

Storage Density Percentage


 To measure the storage density percentage, divide
the cubic volume of all storage locations by the total
warehouse square footage and the square footage for
all external staging areas. The calculation is as
follows:

Cubic volume of available storage space


Total warehouse square footage + External staging area square footage

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KPIs for Storage Utilities

Inventory per Square Foot of Storage


Space
 To measure the amount of inventory per square foot
of storage space, divide the cubic volume of all
inventory on hand by the total warehouse square
footage, plus the square footage of all external
staging areas. The calculation follows:

Cubic volume of inventory on hand


Total warehouse square footage + External staging area square footage

29
KPIs for Storage Utilities

Storage Cost per Item


 At this simplified level, the calculation is as follows

Total warehouse expenses


Total stock keeping units on hand

 Thus, a better approach is to adopt an activity-based


costing (ABC) approach to measuring the storage
cost per item.
 Under ABC, costs are accumulated by activity (such
as by putaway or picking transaction), and then costs
are charged out to individual SKUs based on their use
of these transactions
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KPIs for Storage Utilities

Average Pallet Inventory per SKU


 To measure the average amount of pallet space
required for each SKU, first divide the forecasted unit
sales by the historical or planned turnover for each
SKU, yielding the average number of units on hand at
any time. Then divide this by the number of units per
pallet, yielding the average number of pallets on
hand. The calculation is as follows:
Forecasted SKU unit sales
Turnover  Units per pallet

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KPIs for Inactive, Obsolete & Surplus Inventory

Obsolete Inventory Percentage


 A company needs to know the proportion of its
inventory that is obsolete, for several reasons.
 Summarize the cost of all inventory items having no
recent usage, and divide by the total inventory
valuation.

Cost of inventory items with no recent usage


Total inventory cost

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KPIs for Inactive, Obsolete & Surplus Inventory

Percentage of Inventory More Than


XX Days Old
 A company may not have any obsolete inventory, but
it may have a sufficient amount of older inventory that
it is concerned about the possibility of obsolescence
at some point in the future

Dollars of inventory more than XX day olds


Total dollars of inventory

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KPIs for Inactive, Obsolete & Surplus Inventory

Percentage of Returnable Inventory


 Review the inventory occasionally in order to
determine what proportion of it can be returned to
suppliers for cash or credit
 Summarize all inventory items for which suppliers
have indicated that they will accept a return in
exchange for cash or credit

Dollars of returnable inventory


Total dollars of inventory

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