![]() Inventory turns are calculated as the ratio of the annualized cost-of-goods-sold (COGS) and the monthly average inventory investment. Therefore, it is important to determine the efficiency of that inventory investment by measuring inventory turns or days-of-supply. High inventory investment by itself does not indicate an inventory problem, as inventory investment for a specific product correlates with the demand for that product. ![]() Inventory investment, for example as a percentage of gross or net revenue, should be calculated by item and location, based on the item’s lead time, expected demand, and Customer service targets.Īn effective Sales & Operations Planning Process and Lean Six Sigma methods such as Value Stream Mapping, Quick Changeover, and Kanban Systems can help an organization to optimize its inventory investment and achieve a positive impact on its cash flow and overall profitability while assuring that Customer service targets are being met. ![]() Every organization needs to invest in raw material, work-in-process, and finished goods inventory to assure required Customer service targets due to long lead times, fluctuation in demand, inaccuracy in demand forecasting, and the lack of manufacturing capacity. Inventory investment directly affects an organization’s profit and cash flow. In this article we will introduce 16 Supply Chain Performance Indicators an organization should consider when establishing a measurement system for their end-to-end Supply Chain processes. Figure 2 shows how Best-in-Class Lean Six Sigma Supply Chain organizations compare against their peers with respect to some key performance areas. This makes it difficult to establish an operational linkage between potential Lean Six Sigma initiatives and the high-level goals and objectives of the organization as a whole.įigure 1 shows the top pressures causing supply chain organizations to consider implementing Operational Excellence and Lean Six Sigma. One of the reasons for this is the lack of a comprehensive and systematic Supply Chain performance measurement system. While many organizations are well on their way to Operational Excellence, at least with respect to their Supply Chain, using Strategy Deployment, Balanced Scorecards, and Lean Six Sigma, and are enjoying the benefits of shorter response times, lower inventory levels, and reduced costs, others are still contemplating how to get started.
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