The Min-Max approach to inventory management is a ….docVIP

Gordon Graham Notes Why Do Distributors Need a Good Inventory System? Most distributors carry 30 to 40 percent more items and dollars in inventory than they need! Usage – The Most Important Element of Information USAGE!!! The single most important prediction a distributor makes is how much of a stock item will be used in the future. Used for inventory control purposes, means all withdrawals from stock at a specific company location in sales to customers, replenishment of other branches, and internal company needs. Typically defined as an average number per month. For 80% of your stock items, the monthly usage rate is most accurately developed by selecting the last 6 months of history, totaling figures, and dividing by six. Seasonal items: For every principle, there are exceptions. An item is seasonal when 80% of the annual sales volume falls in six (or less) consecutive months. Non-recurring transfers from one branch to another should not be counted. Safety allowance is calculated only on the regular sales. Conditions that should cause history disqualification: Unusual sales or transfers in a month. Stockouts that last as long as 2 weeks during a month. Items with only a single customer, or where one customer dominates the sales. Items with very low sales per year (less than ? unit per month.) These 4 conditions account for 95% of the headaches in inventory control of stocked items….but are found at any one time in only some 20% or less of the items in stock. The computer inserts a flag to disqualify the history. The rule: When the last month’s posted history is equal to the total of the previous 5 month’s figures, the last month showed at least 5 units sold, and the item unit cost is significant.  More Information Required For Good Inventory Control “K” Factor = Total annual costs / avg inventory value. This factor represents the handling costs for inventory. The material handling expense total omits those activities that could be labeled sales-generated