Excel Tools and Techniques for Better Inventory ... - Source - Apics

Solution-Driven Integrated Learning Paths ƒ Educational Sessions ƒ ƒ ƒ ƒ ƒ ƒ

Lean Global Supply Chain Basics of Operation Management Demand Management, Forecasting, and S & OP Professional Advancement Special Interest Topics

ƒ Plant Tours ƒ Networking Events/Peer Interaction ƒ Materials for Sale at the APICS Bookstore

Make the Most of Your Educational Experience ƒ ƒ ƒ ƒ ƒ

Develop a Learning Plan Assess your learning needs Use teamwork Prepare to learn Create your own Action Plan

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Steve Cimorelli, CFPIM, is an independent consultant and owner of SCC Inventory Consulting. He holds a degree in engineering and has 30 years of experience in aerospace, industrial equipment, commercial manufacturing, distribution, and supply chain management. From 2005 to 2008, Cimorelli served as Director, Global Inventory Planning for Cummins Filtration. He can be reached at (321) 269-3407 or [email protected].

Excel Tools and Techniques For Better Inventory Management Steve Cimorelli, CFPIM President, SCC Inventory Consulting, LLC

Introduction Steve Cimorelli, CFPIM ƒ ƒ ƒ ƒ ƒ ƒ ƒ

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 ƒ Kanban for the supply chain; 2005 ƒ Handbook of manufacturing engineering; 1995 ƒ APICS magazine: 2002-2009

Learning Path / Session Type Six Learning Paths

Six Session Types

ƒ Global Supply Chain ƒ Demand Mgt.,

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Forecasting, S&OP Logistics and Distribution Lean Basics of Operations Management Green for Good Business

Global Advanced Emerging Issues Specific Issues Mini Workshop ƒ Audience Level: Intermediate

ƒ Case Study

ƒ Legend: ƒ Primary ƒ Secondary

Ground Rules & Expectations ƒ Learn something useful… Apply immediately (next week) on-the-job

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Participate Learn from each other Ask questions Mutual respect Have fun! Others… ?

Course Take-Aways Learning Objectives ƒ Learn and practice Excel techniques for analyzing inventory data. ƒ Understand techniques for analyzing demand pattern statistics. ƒ Develop interactive chart; graphically portray demand data over time. ƒ Analyze inventory savings opportunities; summarize by vendor, ABC, planner, etc. ƒ Create an inventory management dashboard

Course Outline Excel Skills (Demo) ƒ Importing data from text files ƒ Formatting data ƒ Formulas & functions ƒ Sorting Inventory Analysis (Demo)

ƒ ABC classification ƒ EOQ calculation (Appendix) Excel Skills (Intermediate)

ƒ Joining worksheets ƒ More Functions ƒ Interactive Graphs BREAK

ƒ Variability Review

Course Outline (continue) Inventory Analysis (Intermediate) ƒ Part usage stability ƒ Kanban or MRP? ƒ Demand through lead time ƒ Safety stock Excel Skills (Advanced)

ƒ Analyzing data ƒ Decision making

Inventory Analysis (Advanced)

ƒ Lead time opportunities ƒ Lot size opportunities ƒ Pivot Table Summary Time Permitting…

ƒ OP, Avg. Inventory, Overstock ƒ Dashboards

Setup ƒ Equipment ƒ Laptop computer with USB or CD reader ƒ Assume Microsoft Windows XP

ƒ Handout ƒ Quick-Reference Guide (Cheat Sheet)

ƒ Source Data ƒ USB Flash Drive ƒ Data CDs

¾ Confirm data on laptops now.

ABC Classification Pareto Principle ƒ 80% value is in 20% of the parts ƒ Applying this to ABC classification yields the following typical breakdown ABC A B C

% Items % Annual Cost 20 80 30 15 50 5 100% 100%

Excel Demo (ABC Analysis) ƒ ƒ ƒ ƒ ƒ ƒ

Import data from ERP system Basic formatting Merge data using Vlookup Simple calculations Sorting ABC assignment

Open workbook “Item Master (Solution1).xls” … Follow Demo

Review: Import Data Wizard

Review: Formatting ƒ Sizing rows and columns ƒ Alignment ƒ Freeze panes ƒ Numeric formatting (comma, decimal, etc.)

ƒ Currency formatting

Review: Formulas & Functions ƒ Simple math (= / + / - / x / ÷) ƒ Fixed vs. Variable cell references ƒ Paste_Special_Values ƒ Sorting Data ƒ Data_Sort ƒ Sort Icons

Group discussion. Reorganize seating as needed…

Intermediate Excel Skills ƒ Functions: ƒ Sum ƒ Average ƒ Std. Deviation ƒ Concatenate

ƒ Min ƒ Max ƒ Count ƒ Countif

ƒ Vlookup with match function ƒ Graphing data

Exercise: Demand Analysis ƒ Open “FG Demand Exercise.xls” ƒ “Daily Demand” Tab

ƒ Create functions for blank columns: ƒ ƒ ƒ ƒ

PN and warehouse ƒ Min day ƒ Max day Total demand ƒ No. days with Average day demand Std. deviation

Follow Demo…

Exercise: Interactive Graph ƒ Continue “FG Demand Exercise.xls” ƒ “Daily Demand” tab

ƒ Create drop-down menu ƒ Select part number and warehouse

ƒ Create Vlookup table for graph ƒ Embedded match function

ƒ Create interactive graph

Follow Demo…

Normal Distribution: Bell Curve ƒ Daily demand for a product 160

Mean

140 120 100 - 1 SD

+ 1 SD

80 60 40 - 2 SD

+ 2 SD

20 - 3 SD

0 1

3

5

+ 3 SD

7

9

11

13

15

17

19

21

23

25

Z-Score ƒ Z = Number of Std. Deviations to the right of mean. ƒ Z = 2.05 means that 98% of days will have demand less than mean + 2.05 SD pieces.

Excel: Normsinv() function ƒ Example: ƒ Normsinv(99%) = 2.33

Z 0.00 0.67 1.28 1.64 1.88 2.05 2.33 2.58 3.09

Prob < Z 50% 75% 90% 95% 97% 98% 99% 99.5% 99.9%

Statistical Safety Stock ƒ Formula: SS = SF x SD x Sqrt(LT) ƒ SS = Safety stock (for a PN) ƒ SF = Safety factor (Z-Score) Represents the probability that demand will be less than a certain value; i.e. SS will provide X% part availability ƒ SD = Std. deviation of daily demand ƒ LT = Lead time (square root of LT)… Caution: use same time units as demand (days, weeks, etc.)

Statistical Safety Stock ƒ Formula: SS = SF x SD x Sqrt(LT) ƒ Example ƒ ƒ ƒ ƒ

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 ƒ Re-Open “FG Demand Exercise.xls” ƒ “Planning” tab

ƒ Calculate statistical safety stock… ƒ Add lead time and safety factor columns ƒ Vlookup lead time ƒ Safety factor function (NORMSINV) ƒ Calculate safety stock

Follow Demo…

Planning Methods ƒ MRP – ERP default method ƒ Kanban/pull ƒ Stable demand patterns (low variability) ƒ Frequent, repeatable demand

ƒ Daily level load (continuous flow) ƒ Highest volume products ƒ Very stable demand ƒ Very frequent, repeatable demand

Planning Methods – Excel Techniques & Formulas ƒ Kanban/pull and level load statistics ƒ Stability: Coefficient of variation (CoV) CoV = Std. dev / mean ƒ Frequency: Number days with demand

ƒ Excel pivot table

Low CoV Stable demand

Med. CoV

High CoV

ƒ Analyze natural breakpoints in data

Normal demand

Erratic demand

Exercise: Inventory Planning ƒ Re-open “FG Demand Exercise.xls” ƒ “Planning” tab

ƒ Determine planning method rules… ƒ Add CoV column ƒ Use Pivot Tables to determine “natural break points” ƒ Establish rules for Level Load, Kanban & MRP Follow

Demo…

Review: Inventory Planning ƒ Select planning method for each product ƒ Nested “If()” Statement ƒ And() & Or() Functions

ƒ Calculate safety stock for each product

Inventory Analysis - Advanced Challenge: Analyze inventory savings potential ƒ Which vendors & PNs hold the greatest savings opportunity? ƒ Establish lead time & lot size Targets by ABC ƒ Calculate inventory savings potential by PN ƒ Summarize inventory savings potential by vendor & ABC ƒ Use Pareto analysis (80/20 rule) to focus on “big bang for the buck”

Exercise: Inventory Savings ƒ Re-Open “Item Master Solution1.xls” ƒ Add new tab: “Control Table” ƒ Create control table as follows: ABC A B C

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Lead Time (Days) 5 10 20

Lot Size (Days) 5 20 60

Follow Demo…

Calculate target lot size Calculate inventory savings by PN Summarize savings by vendor & ABC Save-As: “Item Master Solution2.xls”

Saw Tooth: Average Inventory Quantity Depicts Inventory Usage & Replenishment over time. OP Avg Inv DLT

LS

SS

LT

Time

ƒ Avg Inv = SS + ½ Lot size

Inventory Analysis Dashboard Challenge: Are current inventory levels properly balanced? Objective: Create an inventory dashboard ƒ Concepts Needed: ƒ Reorder Point (aka Order Point) ƒ Average Inventory ƒ Overstock

Order Point & Average Inventory Quantity Depicts Inventory Usage & Replenishment over time. OP Avg Inv DLT

LS

SS

Time

LT

ƒ Avg DLT = Avg. Daily usage X Lead time ƒ Avg Inv = SS + ½ Lot size ƒ OP = SS + DLT

Overstock Quantity Theoretical Max Inv = OP + Lot Size Any Inventory above Max is considered “Overstock”. 1

2

3

OP No customer demand for several days after breaking OP. Replenishment occurs on-time within LT.

SS

Time LT

ƒ Overstock Threshold = OP + LS

Exercise: Inventory Status ƒ Open “Item Master Solution2.xls” ƒ Add columns for SS, OP, DLT, Avg Inv, overstock and shortage

ƒ Create formulas for new columns ƒ Import available inventory data ƒ Calculate $ value of Avg inventory, overstock & product short

ƒ Pivot table: $ values by planner & vendor

Follow Demo…

Inventory Dashboard Data

Dept/ Vendor AAA CSTG DDD KKK NNN PPP SSS STMP Grand Total

Sum of Theoretical Target $ $ 59 $ 13,638 $ 6 $ 139 $ 25 $ 665 $ 12,646 $ 1,634 $ 28,811

Sum of Actual $ $ 22 $ 12,225 $ 23 $ 184 $ 40 $ 651 $ 21,921 $ 3,028 $ 38,093

Sum of Overstock $ $ 17 $ $ 11 $ $ $ 11 $ 6,129 $ $ 6,170

Sum of Shortage $ $ (22) $ $ $ $ $ $ (2,940) $ $ (2,962)

ƒ Ref: “Item Master Solution3.xls”

Course Review Excel Skills (Basic) ƒ Importing data from text files ƒ Formatting data ƒ Formulas & functions ƒ Sorting Inventory Analysis (Basic)

ƒ ABC classification ƒ EOQ calculation

Excel Skills (Intermediate)

ƒ Joining worksheets ƒ More functions ƒ Graphs BREAK

ƒ Variability exercise

Inventory Analysis (Intermediate) Part usage stability Kanban or MRP? Demand through lead time Safety stock

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Excel Skills (Advanced)

ƒ Analyzing data ƒ Decision making

Inventory Analysis (Advanced) Lead time opportunities Lot size opportunities Pivot table summary OP, Avg. inventory, overstock Dashboards

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ABC Analysis – Sample Data Part Numb er A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Annual Qty 249 $ 409 204 352 270 6410 264 57 77 428 247 337 282 535 573 35 270 4034 450 529 750 54 145 33 2010 1819

Cost 53.20 5.44 3.40 1.50 2.30 1.70 3.40 7.44 6.70 53.75 0.69 5.50 2.30 1.12 6.00 6.18 55.05 0.55 4.56 5.44 0.58 5.87 3.51 125.00 1.25 20.16

Annu al Cost $ 13,246.80 2,223.31 693.60 528.00 621.00 10,897.00 897.60 424.02 515.90 23,005.00 170.49 1,853.50 648.60 599.20 3,438.00 216.44 14,862.84 2,218.70 2,052.00 2,876.44 435.00 316.86 508.84 4,125.00 2,512.50 36,668.21

ƒ 26 Part Numbers ƒ Annual Demand from 33 to 6410

ƒ Costs from $0.55 to $125 Lowest annual cost, but not lowest cost or quantity. Highest annual cost, but not highest cost or quantity.

ABC Analysis: Step-by-Step Part Number Annual Cost Z $ 36,668.21 J 23,005.00 Q 14,862.84 A 13,246.80 F 10,897.00 X 4,125.00 O 3,438.00 T 2,876.44 Y 2,512.50 B 2,223.31 R 2,218.70 S 2,052.00 L 1,853.50 G 897.60 C 693.60 M 648.60 E 621.00 N 599.20 D 528.00 I 515.90 W 508.84 U 435.00 H 424.02 V 316.86 P 216.44 K 170.49

Cum Cost Cum % ABC %Cnt $ 36,668.21 29% A 59,673.21 47% A 74,536.05 59% A 87,782.85 69% A 98,679.85 78% A 19% 102,804.85 81% B 106,242.85 84% B 109,119.29 86% B 111,631.79 88% B 113,855.10 90% B 116,073.80 92% B 118,125.80 93% B 119,979.30 95% B 31% 120,876.90 96% C 121,570.50 96% C 122,219.10 97% C 122,840.10 97% C 123,439.30 98% C 123,967.30 98% C 124,483.20 98% C 124,992.03 99% C 125,427.03 99% C 125,851.05 99% C 126,167.91 100% C 126,384.36 100% C 126,554.85 100% C 50%

ƒ Sort by descending annual cost

ƒ Calculate Cum Cost & Cum Cost %

ƒ Set ABC Break Points

ƒ Calculate % Count Break Points as Sanity Check

Economic Order Qty (EOQ) E O Q = M inim u m T o t a l C o st

$

T o ta l C o st C a rr y ing C o st

P a r t C o st L o t Size

ƒ Part cost = Cost per part, considering setup and unit cost ƒ For Purchased Parts: Setup = ordering cost ƒ For make parts: Setup = Setup time X $/hour ¾ The greater the lot size, the smaller the part cost per unit

ƒ Carrying cost = Cost of carrying parts in inventory ¾ The greater the lot size, the greater the carrying cost.

EOQ Formula EOQ =

2AS IC

ƒ A = Annual usage (Units / Year) ƒ S = Setup or ordering cost ($) ƒ I = Inventory carrying cost (Annual %)

ƒ C = Unit cost ($ / Unit); (excluding setup)

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Example: A = 10,000 pieces/year S = $100 EOQ = I = 18% /year C = $50

2 x 10,000 x 100 0.18 x 50

= 471 pieces

EOQ – Excel Exercise ƒ Open “EOQ Exercise.xls” ƒ Import setup & run times for make parts ƒ Create Excel file: “Routing Data.xls”

ƒ Use “if” statement to calculate setup cost ƒ Fixed $50 for “buy” parts (Note: Reality may be more complex!) ƒ Assume $50/hour for “Make” parts

ƒ Calculate EOQ for all parts ƒ Round to nearest 10, 100, 1000, container Qty

Follow along with instructor demo…

Course Take-Aways Learning Objectives ƒ Learn and practice Excel techniques for analyzing inventory data. ƒ Understand techniques for analyzing demand pattern statistics. ƒ Develop interactive chart; graphically portray demand data over time. ƒ Analyze inventory savings opportunities; summarize by vendor, ABC, planner, etc. ƒ Create an inventory management dashboard

Presenter Contact Information ƒ Steve Cimorelli, CFPIM President, SCC Inventory Consulting ƒ Office: 321-269-3407 ƒ Cell: 321-431-0195 ƒ Email: [email protected]