Lean Production and Control

Too much rides on production planning for manufacturing companies to allow room for miscalculated speculation. And yet too many facilities base their production on a forecast that is rarely correct. As a result, these companies end up producing surplus they don’t sell and taking orders for products they didn’t make. Obviously, this impacts the company’s working capital. The solution: generating a “Need Report” under the umbrella of lean production and control to establish proper inventory levels.

Identifying Your Need

A "Need Report" is a daily report that provides a visual of the company’s inventory levels, open orders, and whether current inventory levels are below the reorder points for each product.

How to Calculate a Reorder Point

Businesses analyze each product’s past sales to determine average usage, and week-to-week variation. These reports determine reorder points (the inventory levels that trigger a signal to produce more inventory) for each product code. Here's how to calculate a reorder point:

Inventory Replenishment Time x Average Usage + Safety Stock* = Reorder Points

For example, if the Average Usage is 1000 units a week, and Inventory Replenishment is 3 weeks, then the reorder point for that unit is 3000 units plus the safety stock. Typically, the safety stock is measured as 1.65 times the standard deviation. So, if the standard deviation is 1000 units, the safety stock would equal 1650 units. The reorder point would then be 4650 units for that product.

The goal here is for production to replenish inventory before the inventory level flattens out at zero.

Reduce your Replenishment Time

Having a solid hold on inventory helps companies identify their need. From here, the principles of lean production and control increase ROI for businesses. They accomplish this in reducing the raw material batch size and the manufacturing cycle time which reduces inventory replenishment time. As a result, they find more capital available for marketing, research and development, and even capital equipment.

For those companies still managing inventory by hand, modern inventory software can make this process significantly less stressful. With planning and scheduling software, gone are the days of imprecise forecasting. It’ll help managers keep track of inventory and production time-frames. Planning and scheduling software also eliminates waste from the manufacturing cycle, providing you with the power to make sound business decisions and increase ROI across the board.

*Safety stock is based on the amount of demand variation.