Inventory Management and Strategies that Support Your

Business Strategy

November 2011

Phil Mitchell, Associate Professor

Department of Forest Biomaterials

North Carolina State University

Inventory Types

Raw Materials

Parts

Sub-Assembly

Work-In-Process

White Woods Inventory

Finished Goods

In 2006,

warehouse in

China for finished

furniture goods

1000 feet long,

80 feet high, 300

wide. Since

then, the size

has doubled.

Distressed

Inventory Types (where it is held)

•Raw Materials

•Parts Inventory

•Sub-Assembly Inventory

•Work-in-Process

•Buffer Inventory

•White Woods Inventory

• Finished Goods Inventory

•Distressed Inventory

Increasing

Flexibility

Increasing

Cost

Inventory Concerns Need to be Balanced

• Replenishment lead time

• Inventory carrying costs

• Economy of scale / bulk buying

• Inventory forecasting

• Inventory valuation/future valuation

• Physical space requirements

• Maintenance of quality

Traditional Inventory System

The traditional manufacturing system operates on the “just in case” concept pushing product through the manufacturing system and providing inventory buffers between suppliers and the factory, within the factory, and between customers and the factory, hence called a push system. Batch manufacturing used by many wood products value added manufacturers is a push system.

Just-In-Time Inventory System

Also known as the Pull System, it was developed to provide what was needed, when it was needed, and in the quantity needed. A pull system initiates production in response to a present demand. It is a “don’t call me, I’ll call you” system.

A push system initiates production in response to an anticipated demand (forecast which is often wrong). Often this involves an MRP system. It is a “ready or not, here I come” system.

Inventory Reduction

From Meier 2005

• Which is less wasteful?

• Which is more comfortable to work with?

Ideal Environments for Pull

•Uniform use of product

•Regular, cyclical final assembly schedule

•Small lot production

•Quick setups

•Sufficient capacity

•Few bottlenecks

•High conformance quality

•Reliable processes

•Stable processes

•Few engineering changes

•Flexible workforce skills

Ideal Environments for Push

•Volatility in design

•products

•processes

•Uncertainty in the supply base

•Volatility in demand

•volumes

•order sizes

•customer modifications

Low Inventory Management Ideas

• Raw materials

• Vendor stocking plan

• Large quantity purchases

• Purchase exact quantities

• Buffer inventory (component supermarket): standard

blanks before machining; standardized parts before

assembly; assembled products ready to be finished

• Single-piece flow implies one piece at a time, creating

factory flow with no storage stop.

• Finished goods ready to ship – works best for volume

manufacturer that has few product options.

Inventory thoughts

• Just in Time or Just in Case

• Raw materials, parts, frames/cases/white goods inventory, finished goods inventory

• Of above inventories, increasing cost goes in one direction while increasing flexibility goes in the other.

• Bad things happen to wood inventory