In a previous post I described four key attributes of spare parts inventory optimization. These attributes impose constraints on spare parts inventory optimization but you can overcome these constraints through the application of Inventory Cash Release® Process and the 7 Actions for Inventory Reduction (if you missed that article you can read it here).
Over this series of blog posts I will work through each of the ‘7 Actions’, however, it is really important that before I do that you first need to understand the step-by-step process. This is fundamental for spare parts inventory optimization and applying the Inventory Cash Release® Process.
First – Download the Flowchart
To help you follow this explanation of the basic framework I have set up a flow chart for you to download. You can do that here: ICRFlowChart. The following descriptions refer to that chart.
The Inventory Cash Release® Process
Start at the position marked as A.
A: Having compiled your list of SKUs [click for definition] based on the ‘dollar valued held’ you start the review by focusing on the SKU at the top of your list. This is the SKU in which you have the most funds invested.
B: Consider if you can apply Action #1 to this SKU. At this stage you don’t need to definitively know the answer. Just decide if you think it is a possibility worth pursuing. If the answer is ‘yes,’ move on to C; if the answer if ‘no,’ move on to E.
C: Identify your plan for this ‘action’. In my book Smart Inventory Solutions there are checklists for each action that you can use as the basis of your plans.
D: Consider if you could apply any further action to this SKU. If the answer is ‘yes,’ move on to E; if the answer is ‘no,’ move onto G.
E: Repeat the logic of steps B, C, and D for each of the 7 Actions. This will systematically work you through each of the 7 Actions and their applicability to this specific SKU. Remember that at this stage you are still considering just the one SKU.
F: After you have considered each of the 7 Actions for this SKU you might realize that you cannot apply any action — this is OK, this is likely to be the case for at least half of your items.
G: At this point you should document the decisions and actions determined thus far.
H: Now turn your attention to the next SKU on the list and consider if the value of the SKU is sufficient for you to spend further effort reviewing the item. During this process you will reach a point where you decide that the time and expense spent in review is greater than the benefit that you could realize. If you decide to continue the process go back to step B and consider the next SKU. If you decide to stop the process then move onto step I.
I: By this step you will have reviewed all of the SKUs that matter and the application of each of the 7 Actions. Now compile your overall plan for implementation, including time lines, responsibilities and reporting on progress – and get on with implementation!
If you liked this article you might also be interested in our most popular ebook The 5 Myths of Inventory Reduction. You can download a complimentary copy here
If you missed the previous article explaining the overall framework for spare parts inventory optimization you can access that article at the SparePartsKnowHow.com blog: The Inventory Cash Release Process
Detailed Article, Checklist, and Explanation of the ‘7 Actions’
For members there is an extended version of this article (with more detail) plus an accompanying checklist for implementation. You will find these in the Operations Section of the Resource Library. You can also read about each of the 7 Actions for Inventory Reduction by following these links: