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Case Study:

Gaining Team Consensus in Project Planning - Part 1 Page 3

We need to accommodate our customers' requirement for broad availability of parts, otherwise they will find someone else who will meet their needs.

We need to control our operating expenses in order to provide competitively priced parts, otherwise our customers and potential customers will shop elsewhere.

There is some common ground underneath this conflict. Let's try to exploit it to develop a direction for solution. The key seems to be the right part at the right price at the right time.

The team developed the following “Direction of Solution” from analyzing the “cloud”: The key to breaking the conflict revolves around "quality" of inventory and not the dollar "size" of the inventory.

1.The size of an inventory alone is not as important as the quality of the inventory. Ways that inventory quality can be measured are by backorder frequency, inventory turns, and the size of the inventory as a percentage of revenue.

2. Revenue growth is a function of inventory quality. Poor inventory quality will choke off or significantly retard revenue growth. Revenue growth is one key indicator of customers taking advantage of our services, customers will utilize us more if we are helping them to be successful and less or not at all if they don't perceive that we are helping them. 

3. Although the size of our inventory can be controlled as a percentage of revenue, if we expect the relative size of our revenue to grow then we must expect the relative size of our inventory to grow. One possible way to reduce the pressure to grow the size of our inventory is to shrink our supply or replenishment cycle time for parts.

4. Slow moving inventory, excessive surplus inventory and obsolete inventory all contribute to poor inventory quality.

5. To improve current inventory quality we must reduce the existing slow moving inventory, excessive surplus inventory and obsolete inventory.

6.To improve our future inventory quality we must address the causes of each of these contributors to poor quality and eliminate or significantly reduce those causes.

7. Customer parts requirements can be difficult to accurately forecast and poor forecasting accuracy is a key cause of slow moving inventory and excessive surplus inventory. We therefore must do a better job of matching real customer demand to our parts availability and stocking levels.

8. A way to eliminate existing slow moving inventory and excessive surplus inventory would be to identify new customers who could utilize that inventory now, and to market our services to those customers.

9. A way to eliminate obsolete inventory would be to identify new customers who could utilize that inventory, they still have a need for older parts, and to market our services to those customers.

10. Some existing slow moving inventory and excessive surplus inventory can be exchanged with suppliers while some can be wholesaled to other distributors. Our over stock may be someone else's shortage.

11. Some obsolete inventory can be scrapped while some will have to be written off completely. At some point we must cut our losses short and clear out the residue because storage space and other holding costs can be saved.

Continued on page 4

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