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Inventory Management
IV. INVENTORY MANAGEMENT

4.1 JIT Logistics

• Sell One Buy One Concept
• Stocking Policy
4.2 Inventory Control Parameters

4.3 MIP Setting & Ordering

JIT Method
Just in Time parts Logistics is the essence
of Inventory control at Toyota.

Order cycle Receiving Heijunka

Reduction Order

Inventory
Control

Order Placing - Parts Receiving

L/T Reduction
Sell One Buy One Concept

Just- In-Time Parts Logistic is based on the Sell

One Buy One Concept.

“It means that parts flow through the logistics

chain at the same pace as customer demand”

Sell One Buy One and JIT logistics require

• High frequency stock replenishment

• MAX-MAX Inventory control
• Clearly defined stocking policy
Basic principles.

The basic elements of JIT Parts Logistics is

frequent, small lot ordering and delivery
1. Max-Max Inventory control
“Sell One - Buy One” concept
TKM will start initially with weekly ordering
and will move to daily ordering.
Max-Max Inventory control will allow lower
safety stock and inventory at the dealership
Order Taking - Reducing Dealer Order Fluctuation
Comparison of weekly order (W/O) - MAX-MAX and MAX-MIN.

WEEKLY ORDER / MAX-MIN WEEKLY ORDER /MAX-MAX

MAX=17 MIN=13 MAX=15

20
MAX
O/H

MIN 13 MAX 15

With MAX-
MAX -MAX parts are ordered
at every order opportunity.
= order = receiving Therefore stock levels fluctuate
= on order = on hand only half as much as with MAX-
MAX -MIN.
= sales q’ty = receiving q’ty Maximum Inventory Position is also
lower with MAX-
MAX -MAX.
2. Heijunka - Ordering Stability
Heijunka means that a stable level of ordering is
obtained, resulting in a stable flow of parts
through out the logistics chain, allowing
standardized and efficient operations
To achieve Heijunka the following activities are
necessary
• Separation of Actual and Created Demand
• Stability in workshop scheduling
• Irregularity control
 1 Separating Actual Demand and Created Demand

Created Demand (Fluctuating)

Order
Quantity Total : Customer demand which is
Demand
not for immediate use by
the end user

Created
Demand Actual Demand (Stable)
: Customer demand which is for
Actual immediate use by the end user
Demand Time

• It is necessary to separate Created Demand and

Actual Demand and handle them separately.
( Dealer to TKM ) Reducing Dealer Order Fluctuation
Fluctuating Stable
( Sell One Buy One Not Followed ) ( Sell One Buy One Is Followed )
Part Numbers Ordered Part Numbers Ordered
A
A B A A A A A A
A B D A B B B B B B
A B D C B C C C C C
B C D C B D D D D D
M T W T F M T W T F
Dealer order lines/day Dealer order lines/day

M T W T F M T W T F

• Much S/S required • Little S/S required

• Fluctuation in warehouse • Little fluctuation in warehouse
work volume and work volume and
manpower requirements manpower requirements
Stocking Policy

Stocking Policy to achieve a Service Rate of 95%

1. Stock Range
Stock range is the number and type of part numbers
in dealer stock and it should be based on
a) Needs of Service [Parts Type]
b) Demand
c) Customer type
2. Stock Depth

Stock depth is the quantity for each part number in stock

• It should cover the order cycle, lead-time and
additionally some safety stock on a part number or parts
group basis.
• The formula for Maximum Inventory Position (MIP) is
used to calculate Suggested Order Quantity(SOQ).

MIP = MAD * ( O/C + L/T + S/S [ L/T + Demand ])

MAD = Monthly Average Demand

O/C = Order cycle
L/T = Lead time
S/S = Safety stock
Stocking Criteria

When to add new parts to your Stock?

• When demand occurs for the same part
continuously for 2 months or 2 times in 3 months

DEMAND N-4 N-3 N-2 N-1 N STOCK ?

PART 001 YES
PART 002 YES
PART 003 NO
Inventory Control - Parameters

1. Inventory Control Class [ICC]

2. Special Control Class [SCC]
3. Monthly Average Demand [MAD]
4. Ordering Parameters
5. Order Quantity Calculation
6. TDMS Procedure
1. General Inventory Control Class [ ICC]

Examples of ICC tables

TOPSS
- Moving Class -
MAD Criteria ( PCS )
999999.9
A1 A2 A3 A4 A5 • Matrix with quantity and demand
800 fluctuation .
B1 B2 B3 B4 B5

400
Demand Fluctuation
C1 C2 C3 C4 C5
Highest Demand - Lowest Demand
=
200 MAD
D1 D2 D3 D4 D5

100
E1 E2 E3 E4 E5 • 6 months demand history is used.

0 20 50 100 200 9999.99

Fluctuation Criteria
2. Special Inventory Control Class [ SCC]

Examples of parts which should be controlled with SCC codes

= Campaign parts, Seasonal parts, New model parts, Large parts,
High value parts, etc.

Automatic • Set-up criteria for each SCC type by product.

control SCC • The system assigns or updates
the code automatically on a P/No. basis.

Manual • Set these SCC codes, manually by item or product.

control SCC • Update must also be performed manually.
 2. Special Inventory Control Class [ SCC]

Example of SCC Classifications in TOPSS

SCC Type Product Group (Note) Purpose for Special Control

Auto
set--up
set 0-6 months Control with initial supply Q’ty
New
Special control to follow recent trend
model 7-24 months
( 3 months demand for MAD )
parts
Carefully monitor demand fluctuation trend
25 months
( 6 months demand for MAD )
Seasonal parts Control stock considering seasonal trends.

Large parts
(Large storage space required) Minimize stock volume

Parts for specified vehicles Ensure high suppliability

(i.e. Land Crusier parts)

High-value parts
High- Minimize stock investment
( Significant risk piece )
 2. Special Inventory Control Class [ SCC]

Example of SCC Classifications in TOPSS

SCC Type Product Group (Note) Purpose for Special Control

Campaign parts (Abrupt decrease

in demand before or after;
A significant increase in demand
during the campaign)
Warranty parts (Only service dept.
knows required parts, quantity
Manual and time)
Set--up
Set
Accessories
(linked to new vehicle sales)
Maintain appropriate stock volume which
follows the fluctuation trend of demand.
Maintain stock according to information
from service dept.
Procure parts and maintain stock to meet
new vehicle sales volume.

Discontinued parts Only supply these parts to customers

(production is not possible) when there is actual demand.
3. MAD [Monthly Average Demand]

SOQ = MAD x ( O/C + L/T + S/S for L/T + S/S for Demand ) - ( O/H + O/O ) + B/O

Maximum Inventory Position [MIP]

1 MAD Calculation
• Calculate MAD based on order receiving data, rather than sales data.

Sales based MAD calculation Order receipt based MAD calculation

B/O release

MAD MAD

Sales Order Receipt

B/O B/O B/O

2 1 2 3 4 5 6 7 8 9 2 1 2 3 4 5 6
Month Month

• Adopt FILL system ( FILL vs. KILL )

• Recalculate MAD monthly.
monthly
4. Ordering Parameters

SOQ = MAD x ( O/C + L/T + S/S for L/T + S/S for Demand ) - ( O/H + O/O ) + B/O

Maximum Inventory Position [MIP]

by ICC/SCC by Supplier
ORDER CYCLE
LEAD TIME
SAFETY STOCK FOR LEAD TIME
SAFETY STOCK FOR
DEMAND FLUCTUATION

• Order Cycle is the period of time between stock replenishment o rders.

Order Cycle : Monthly : 1 time / month = 1.00

Weekly : 4 times / month = 0.25
Daily : 20 working days / month = 0.05
4. Ordering Parameters

SOQ = MAD x ( O/C + L/T + S/S for L/T + S/S for Demand ) - ( O/H + O/O ) + B/O

Maximum Inventory Position [MIP]

by ICC/SCC by Supplier
ORDER CYCLE
LEAD TIME
SAFETY STOCK FOR LEAD TIME
SAFETY STOCK FOR
DEMAND FLUCTUATION
L/T = Average period from ordering to binning completion
(ex) 6 days = 0.25 months
S/S for L/T = Safety Stock used to cover fluctuation in L/T

Exceptions are
L/T not included when
S/S for L/T { determining S/S
for L/T
Average

Receipt
4. Ordering Parameters

SOQ = MAD x ( O/C + L/T + S/S for L/T + S/S for Demand ) - ( O/H + O/O ) + B/O

Maximum Inventory Position [MIP]

by ICC/SCC by Supplier
ORDER CYCLE
LEAD TIME
SAFETY STOCK FOR LEAD TIME
SAFETY STOCK FOR
DEMAND FLUCTUATION

• Safety Stock for Demand is used to cover fluctuation in customer

customer demand ( sales ).

• Level of Safety Stock for Demand is controlled by ICC/SCC.

4. Ordering Parameters

Safety Stock for Demand (Example)

S/S for Demand Level

High

Low
A1 B1 C1 D1 A2 B2 C2 D2 A3 B3 C3 D3 A4 B4 C4 D4 A5 B5 C5 D5
Fluctuation

Moving Class Level for S/S for Demand A Sales Share(%) B Target S/R(%) A x B
A Very Fast Small 45.0 99.0 45.0
B Fast Medium 25.0 98.0 25.0
C Medium Large 18.0 96.0 17.0
D Slow Medium / Large 8.0 88.0 7.0
E Very Slow Fixed Stock Q’ty 2.0 75.0 2.0
OVERALL TARGET
SERVICE RATE 96.0 %
4. Ordering Parameters

SOQ = MAD x ( O/C + L/T + S/S for L/T + S/S for Demand ) - ( O/H + O/O ) + B/O

Maximum Inventory Position [MIP]

O/H = On Hand Quantity

O/O = On Order Quantity

B/O = Back Order Quantity

5. Order Quantity Calculation & Ordering

REVIEW

SOQ = { MAD x ( O/C + L/T + S/S for L/T + S/S for Demand) } - ( O/H + O/O ) + B/O

Maximum Inventory Position

• Place orders using MAX-MAX inventory control.

Review Question :
Question : What is the Suggested Order Quantity?
(O/H=30, O/O=20, B/O=0, O/C=0.25, L/T=2.0, S/S=1.25)
Monthly Demand Results :

N N-1 N-2 N-3 N-4 N-5 6 Months

Demand Total
25 11 18 22 13 19 108

Answer : MAD = 108 pieces / 6 Months = 18

SOQ = 18 x ( 0.25 + 2.0 + 1.25 ) - ( 30 + 20 ) + 0 = 13
6. ICC Table

ICC TABLE
Safety Stock for Demand

Examples of ICC tables

TDMS
- Moving Class -
- S/S for Demand
MAD Criteria ( PCS )
999999.9 999999.9
A1 A2 A3 A4 A5 0.10 0.15 0.20 0.25 0.25
600 600
B1 B2 B3 B4 B5 0.15 0.20 0.25 0.30 0.40
300 300
C1 C2 C3 C4 C5 0.20 0.25 0.25 0.40 0.50
150 150
D1 D2 D3 D4 D5 0.25 0.25 0.30 0.30 0.40

30 30
E1 E2 E3 E4 E5 0.40 0.50 0.50 0.60 0.50
0 20 50 100 200 9999.99 0 20 50 100 200 9999.99
Fluctuation Criteria
7. Inventory Management

•Data can be collected from above reporting

menu option.
7. Inventory Management

•Inventory Trend Report Input screen .

7. Inventory Management

• Open TOPSSNT Folder in window directory in C Drive

• Then run the Inventory trend report.
 7. Inventory Management

PRC. DATE NO. OF ITEMMAD AMOUNT SERVICE RATE

B/O ITEM B/O AMOUNT
B/O STK MONTH
O/H MAIN AMOUNT O/H MAIN STK
O/H MONTH
F/O AMOUNT
O/H F/O STKO/H
MONTH
SVC AMOUNTO/H SVC STK
O/O
MONTH
SEA AMOUNT
200409 8770 211,305,807 100 0 0 0 223,370,388 0.7 0 0 23,871,628 0.1 33,165,095
200410 10827 213,722,236 100 0 0 0 216,185,505 0.7 0 0 8,162,043 0 41,992,144
200411 10831 213,947,351 100 0 0 0 201,708,126 0.7 0 0 5,869,218 0 26,249,843
200412 10834 215,006,925 100 0 0 0 192,774,810 0.7 0 0 12,763,671 0.1 23,285,923
200501 10839 221,650,833 100 0 0 0 177,786,277 0.6 0 0 9,344,065 0 16,734,386
200502 14933 218,870,240 100 0 0 0 190,275,204 0.6 0 0 14,409,229 0.1 23,226,037
200503 14946 227,761,334 100 0 0 0 229,424,561 0.8 0 0 1,668,136 0 26,809,227
200504 14972 219,804,735 100 0 0 0 254,188,148 0.9 0 0 14,318,590 0.1 31,260,408
200505 0 - 0 0 0 0 - 0 0 0 - 0 -
200506 0 - 0 0 0 0 - 0 0 0 - 0 -
200507 0 - 0 0 0 0 - 0 0 0 - 0 -
200508 0 - 0 0 0 0 - 0 0 0 - 0 -
IPT ALL FR ALL SUPPLIER ALL ICC ALL SCC ALL SCCM ALL*** INVENTORY TREND REPORT ***

O/O SEA STK

O/OMONTH
AIR AMOUNT O/O AIR STK
O/OMONTH
F/O AMOUNT
O/O F/O STKTTLMONTH
O/H AMOUNT STD STK AMOUNT O/S ITEM O/S AMOUNT O/S STK MONTH
REPL. ITEMREPL. AMOUNT REPL. STK MONTH
0.2 15,302,144 0.1 0 0 223,370,388 278,605,811 391 99,195,650 0.5 271 178,302,701 0.8
0.2 15,345,369 0.1 0 0 216,185,505 277,346,560 392 104,918,429 0.5 280 174,241,527 0.8
0.1 15,345,369 0.1 0 0 201,708,126 279,681,819 367 95,554,661 0.4 299 179,397,572 0.8
0.1 15,329,786 0.1 0 0 192,774,810 283,942,065 365 77,368,203 0.4 297 181,299,129 0.8
0.1 15,329,786 0.1 0 0 177,786,277 285,871,304 359 63,762,357 0.3 313 181,191,449 0.8
0.1 15,310,223 0.1 0 0 190,275,204 280,616,298 403 73,026,730 0.3 306 177,777,053 0.8
0.1 15,308,023 0.1 0 0 229,424,561 288,928,228 520 117,085,085 0.5 295 178,256,888 0.8
0.1 15,309,123 0.1 0 0 254,188,148 289,463,940 546 129,914,074 0.6 309 179,508,456 0.8
0 - 0 0 0 - - 0 - 0 0 - 0
0 - 0 0 0 - - 0 - 0 0 - 0
0 - 0 0 0 - - 0 - 0 0 - 0
0 - 0 0 0 - - 0 - 0 0 - 0

• Inventory trend Report Output.

7. Inventory Management

•Inventory Analysis Report Output Screen.

7. Inventory Management

•Inventory Analysis Report Output screen.

 Cooperation with other Sections

Inventory Management
Service Sales
Demand
Control Procurement

I/C Techniques

Lean Parts Logistics