Inventory Model

“Eureka”
By
Muhammad Akram Ali
 Inventory Model

 First develop the lead time calculation model.

 Identify the parameters that constitute the lead time
from Hilton’s perspective
 Dependent on the lead time model; Create the lead time
calculation template.
 Workout lead times for all materials on the above
template.
 Please ensure that the slacks / buffers in between the
activities are removed from the lead time parameters.
 Update the calculated lead times into master data of the
material master.
 Segmentation of materials

 Segment the materials according to their Cost of Consumption and Frequency of usage.
 All the materials in a particular inventory type must fall into the following 4 segments.

 1 – HV / HF ------------- A

 2 – LV / HF ------------- B

 3 – HV / LF ------------- C

 4 – LV / LF ------------- D
 New way of Segmentation

HV / LF ( C ) HV / HF ( A)

Yearly Consumption Value

Based on forecast

LV / LF ( D) LV / HF ( B)

Consumption in batches/year based on forecast

 Storage profile Two Months stock

One Months stock

A 15 days stock
B Segmentation Zero stock cover
C
D

One Month Procurement

Two Months
Quantity

Three Months

Six Months
 Inventory Model Eureka

 Now we build an inventory model around the following three dimensions:

 A) Material Segment (classification; A, B, C, D).

 B) Storage Profile
 C) Procurement Quantity (MOQ).

 In the inventory model that is designed B and C will define the additional properties
to be associated with the material segment A (classification).
 Inventory model Eureka

 Procurement quantities of the materials will be according to their respective

classification:
 MRP run would produce the requisitions according to the following pattern.

 1 – HV / HF ------------- A ……….. One months average consumption.

 2 – LV / HF ------------- B ……….. 2 months average consumption

 3 – HV / LF ------------- C ……….. 3 months average consumption

 4 – LV / LF ------------- D ……….. 6 months average consumption.

 Inventory model Eureka

 The third dimension will define the stock coverage profile of the material and it will be
related to the material segment (Classification).
 MRP run would produce the requisitions for stock coverage according to the following
pattern.

 1 – HV / HF ------------- A ……….. Two months stock coverage.

 2 – LV / HF ------------- B ……….. One month stock coverage.

 3 – HV / LF ------------- C ……….. 15 days stock coverage.

 4 – LV / LF ------------- D ……….. Zero stock coverage.

 Inventory model Eureka

 The ordering process (procurement) will be managed by the

combination of the material classification; material Procurement
Quantity and the material coverage profile.
 The Sales Forecast will trigger the production processes
 Stock coverage profile will trigger the procurement process for the
safety stock.
 The procurement quantities will be determined by the segmentation
classification in conjunction with the stock coverage profile.
 Average monthly consumption will form the basis of the quantities to
be procured through the MRP requisitions.
 Inventory model : Eureka

 By deploying this inventory management model we plan to enjoy the following

benefits

 A – Reduction in the number of Purchase orders

 B – Stock out situations will be arrested (non existent)

 C – We hope to procure inventories in the right inventory size (there is always room for
improvement).

 D – Predetermined inventory levels of the materials will be maintained provided we

procure according to the suggestions by the system.
Right size the inventory….

 By deploying Eureka; use this inventory management model to right size the inventory; we
need to regularly review the following:

 A – Lead times for the procurement of the material

 B – Revisit the Classification of the materials; if classification of the material is changed,

we need to change the corresponding procurement quantity and the related stock
coverage profile.

 C – Revisit the procurement quantities in the material master.

 D – Revisit the inventory levels of the materials maintained in the system.

 E – Try to use the full quantities in the requisitions as suggested by the system. If you use
What to do when new products are inducted

 For materials newly added to the material master we will need to do the following:

 A – Purchasing should provide us with the correct lead time for procurement of the material.

 B – The purchasing cost and annual consumption will need to be determined (use the sales
forecast for the next 12 months to get these values).

 C – Classify / Segment the material as A; B; C; or D.

 D – According to the classification segment, update the system with the procurement quantity
and its associated stock coverage profile.
Thank
you