By: Dusty Alexander
Accurate forecasting for raw materials and parts acquisition by inventory managers is an essential science in manufacturing today. With manufacturers expected to move at the speed of the Internet, processing orders, purchasing supplies, producing product, and shipping finished goods out the door must be accomplished with ever-decreasing lead times and ever-increasing expectations of quality. It is a tightrope walk that inventory managers must take when assessing production needs as a result of sales orders and production throughput. While customer demand can, in some instances, be anticipated based upon prior history, increased demands or slowdowns must also be contingencies planned for with regards to inventory management. In other words, the best case scenario for inventory management is one in which materials and parts are constantly on-hand yet move very rapidly through the plant.
As a process to manage on-hand raw materials and parts, inventory turnaround is the concept that measures how long purchased inventory must sit in the shop until it is used, or in a worst case scenario made obsolete due to non-use. Frequently, it is measured as a simple ratio calculated by dividing the cost of goods sold by the average inventory. This ratio is important because gross profit is earned each time inventory is �turned over�. Of course, to any manufacturer the maintenance of high inventory levels are undesirable because they represent an investment to the company with a zero rate of return. Indeed, inventory turnaround is an integral notion within pull-production processes whereby production is a product of (�pulled� from) consumer demand. In the best case scenario, pull-production means that inventory is acquired �just in time� for use�there is no long duration maintenance of inventory on the shelves or in the bins. Inventory turnaround (also known as inventory turnover) moves at the pace of production whereby the Lean mandates for the elimination of wasted inventory are met.
To manage this sort of real-time inventory, provisions must be made to integrate real-time production data from all aspects of the manufacturing operation. System-wide integration of data provides a much more complete and clear picture of plant needs as a notion of both present and forecasted needs. To this end, enterprise resource planning (ERP) software provides the inventory manager a tool that facilitates inventory turnaround by coalescing system-wide data into one easy to read and use terminal screen view. By integrating such areas as Purchasing, Scheduling, Inventory Control, Production, and Shipping, ERP software systems assist the inventory manager in making accurate decisions with regards to inventory maintenance. To avoid tying up cash flow and inventory space by having too much on-hand material/parts at any one moment, inventory managers can use ERP software for better, more accurate forecasting. Parts and materials are acquired just in time for their use in production.
With all plant functions fully integrated through an ERP software system, inventory turnaround is sped up and maximized for greater efficiencies. And, it is these two factors in manufacturing�speed and efficiency�that are the name of the game in the modern production operation. By maximizing turnaround through proper forecasting techniques, the inventory manager contributes to the maximization of the company�s bottom-line.
Dusty Alexander is the President of Global Shop Solutions. Global Shop Solutions is the largest privately held ERP software company in the United States.
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