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Slow-and Non-Moving Inventory

Slow-Moving Inventory: Action

We conclude this discussion with a summary of what an action plan for managing slow-moving inventory might include. Keep in mind that you have to tackle this along two fronts — reduction and prevention — to succeed.

How Big is the Problem (Opportunity)?

Without question, your first step should be to determine the size (by location) and composition of your non-moving and slow-moving, non-critical item inventory and the potential reduction you might be able to achieve. Note that this step requires the identification of "critical" slow-movers since there is generally nothing much you can do about these (other than working towards reclassifying some of them as non-critical).

Some organizations have their inventory under very tight and effective management. In this case, step 1 is the only step, by simply confirming the performance of their current system. In general, however, you will want to have a good feel for the reduction opportunity savings available so that you can decide whether any further action is cost-justified.

Cost-justification requires at least a rough estimate of what it might cost to carry out a reduction+prevention program. For this, you need at least an outline of an action plan and some idea of what it will cost to implement. The result will be a net savings, and probably payback, estimates.

Process Design Notes

You will want to begin building a long-term management process for slow-movers from the outset as part of the initial program. Doing so will leave you with an established process after the initiating program has concluded. Here are a few thoughts on how to go about this ...

Critical Item Identification

This tedious chore has to be done but only once, thankfully. You only have to decide on criticality (as discussed earlier) for items with low turnover, not for your entire Item Master. For many items, criticality will be obvious. This leaves some residual number that require careful thought and discussion with users. There are some simple email-based mechanics that can be used here instead of meetings.

Action Plan Development

Developing an action plan is fairly straightforward. It will probably include items such as:

  • Critical item identification
  • Prioritization of the target item list
  • Opportunity estimation
  • Process definition
  • Standardization potential and mechanics
  • Pilot implementation
  • Pilot assessment and process refinement
  • Routine implementation

Establishing a realistic time frame and tentatively assigning resources to each action item will allow you to make a working estimate of the program cost and duration.

Prioritization

If your opportunity assessment finds that you have a substantial, cost-justified reduction potential available, then the next step is to reorder the slow-moving item list in terms of descending net reduction potential.

You want to work from top to bottom of this list, selecting a small number of items from the residual list top each period. This will shorten the payback period and provide the always welcome evidence of significant early results.

Standardization

An action plan sub-task, probably carried out as part of the program activity, is to check each item for standardization potential. Can the item be grouped with equivalent or alternate items and the group subjected to a standardization analysis? If so, you will probably end up moving the group out of the main program and into a branch intended to carry out the fairly lengthy sub-process of developing standards.

Vendor Stocking

If an item has very low turnover — one or two units a year, establish its maximum access lead time and compare that to both normal and expedited purchasing-as-needed policies. You may be able to eliminate this item entirely and rely on vendor stock, with occasional expedited delivery expense.

Stock Consolidation

For items stocked in multiple locations, you probably want to look first at possible consolidation opportunities. Access lead time, and factors such as access labor cost, enter into a relocation analysis. You may be able to consolidate items for an entire department or facility to reduce the point-of-use location count. If you get lucky, you may even be able to drop down to a single stocking location. This may require some emergency need handling procedures.

Replenishment Policy

Using PAR and reorder point for replenishing slow-moving items can be very costly, as noted earlier. Demand for slow-movers is statistically very different from normally flowing items. Unless your slow-movers are primarily low-cost items, you may want to develop a special replenishment policy for the high-cost slow-movers.

Demand Forecasting

PAR-driven ordering instead of forecast-driven ordering is very commonly used today. PAR-levels, unfortunately, are often poorly set, resulting in too-frequent, low unit-of-measure orders and regular stockouts. Space constraints may force PAR settings to be well below an optimal value.

As just noted, PAR/reorder-point ordering can be very costly if your slow-movers are expensive, as they nearly always are in healthcare. You may want to consider ordering these from forecasts instead of PAR-based ordering.

Routine Write-Offs

Rather than accumulate dead inventory for a large, "one-time" write-off that can visibly impact earnings, consider creating a monthly line item expense for this purpose. This is much the same as your bad debt provision. Reduced supply chain expenses from your slow-moving inventory management program may easily cover this added routine expense.

 

Slow-Movers

How We Can Help You

While much if not all of this can often be handled with internal resources, some organizations may want to consider having an expert external resource as part of their team.

If so, here are some ideas on ways we might be able to assist you:

1. Opportunity Estimation
    Turnover analysis
    Critical item flagging
    Action plan outlining
    Opportunity estimation
    Prioritization for action

2. Program Facilitation
    Action planning
    Process mapping
    Pilot implementation
    Process refinement
    Process metrics

3. Process Resource
    Coaching
    Analytical resource
    ► Analytical tools

Contact us for more information on any of these.