Manage the Slow-Movers to Boost Inventory Turns
By Metal Center News Staff
on Jul 8, 2014
Managing service center inventories calls for balancing conflicting objectives--having the inventory on hand to meet all customers’ requirements versus meeting the company inventory turnover goals or dollar investment targets. Properly managing slow-moving inventory is one weapon to ease the conflict.
While looking at inventory turns in the aggregate is a valuable index for measuring overall inventory performance, it is only when inventory is examined at the individual item or part number level that the true "slow-moving" products can be identified. A generally accepted definition of a slow-moving item is one that turns less than two times in a 12-month period. Item turnover should be reviewed at least quarterly, and items with turns below two should be analyzed to determine what action is required. The first step in that analysis is to decide whether the item must be kept in inventory or can be disposed of.
Many slow-moving items need to be "kept" in order to meet customer or market requirements. Some of them may actually have excellent usage. In these cases, the problem is not with the item itself but in how it is being replenished. The focus needs to be on improving the item turnover, and that can be done in several ways: Make certain the data in your material requirements planning process is accurate. This means regularly updating the lead time, safety stock, forecast and reorder point data used to determine how much to buy and when. Periodically review the open orders to determine whether orders need to be set back or cancelled. Purchase orders should not be entered and then forgotten. If mill minimums are too large to generate acceptable turns, consider shifting your sourcing strategy from mill to distributor. Work with suppliers to develop an inventory reserve program or a consignment program.
Often slow-moving items just do not sell enough to justify being kept in inventory. These items should probably be discontinued and the material on hand disposed of. If there are future customer inquiries for these items, they can be no-quoted or the exact amount of material required can be purchased from a competitor. Disposal of these items should focus on the least costly method possible. Here are some suggested actions for disposing of material, though combinations of these actions may be required: Sell it back to the supplier. Contact previous customers and offer the product, at a discounted price, if necessary. Obtain a list of potential customers from the producing mills and offer them the product. Cross apply the material or downgrade material. Sell the material to a broker. Liquidate or scrap the material.
In addition to the "keep" or "dispose of" analysis, there are two broad categories of inventory that need to be effectively managed to minimize slow-movers: newly established items and remnants or shorts.
Often an item is destined to be slow moving when the decision is made to add it to inventory. Three general steps should be taken to reduce the likelihood of that occurring or to correct the problem as quickly as possible. First, an item should not be added just because a sales rep believes a customer might buy it. Detail should be provided on the specific customer or customers for whom the item is being added, the projected monthly demand, the required material specifications, etc. This data should be reviewed by management, which can then decide whether to add the item or not.
Consultant Gary J. Fehr has 44 years of metals industry experience, including 34 years at Ryerson. He now consults in the areas of steel procurement, inventory management, inventory valuation and new product introductions. He can be reached at firstname.lastname@example.org.