Changsha Hing special General Electric Co.Ltd Since its establishment in 2001, it has acted as an agent for lenny, cable & pu, wanke, Siemens, blyvesch, kawayi and other top brands in the world, serving the rail transit, construction machinery, artificial intelligence equipment, new energy, biological medical and other industries, purchasing and selling more than 3,500 kinds of materials in total, with an average annual rolling material of more than 1,000 pieces.

In front of the VIP customers each big project type, are "order driven, there are no corresponding forecast in ERP system, according to the project schedule demand delivery", such as law, how to develop "the highest demand forecasting accuracy", "scientific and reasonable inventory planning", eventually improve the supply chain, make up the lack of congenital plan ", in order to reduce the risk of supply chain inventory "become a top-down management issues.

Recently, the company's internal organization study, serious study of the inventory "quartering" and explore the rationality of inventory.

The object of quartering is the inventory of the whole supply chain, including in-transit and in-warehouse. In-transit inventory is not in our warehouse, but it is also our inventory, because the order has been placed, the supplier will deliver sooner or later. (from "three lines of defense in supply chain: demand forecasting, inventory planning, and supply chain execution", China machine press)

The following is an example of components, familiar with the inventory quartering.

1. Turnover inventory: it refers to the manufacturing cycle and transportation time of parts and components needed to maintain the normal turnover of customers' production. The risk of such inventory is relatively low, and design change and demand change are the biggest risk sources.

2. Safety inventory: it is set up to cope with the uncertainty of demand and supply. In an information system, where the security inventory is located, it will drive supply all the time. Therefore, the safety inventory is not "safe", and the demand changes. If the safety inventory level is not adjusted in time, the surplus or shortage of materials will eventually form.

3. Excess inventory: in theory, once the turnover and safety inventory are exceeded, it is excess inventory. In practice, due to various reasons, such as inventory mismatch, customer order delay, enterprises will always have a certain amount of excess inventory. Therefore, a certain range of excess inventory is not terrible, such as 2-3 months can be consumed; The scary part is that beyond that, the risk of a dullness becomes greater and becomes risk inventory.

4. Risk inventory: all inventories are at risk, but the part that exceeds turnover, safety and excess inventory is the most at risk, which is specially set as "risk inventory" for differential treatment. For the enterprise, from top to bottom, must pay special attention to risk inventory.

A company statistics company products in storage and in transit inventory combined with tens of millions of yuan, in the annual turnover of more than 100 million operating conditions, feel that all in storage and in transit are based on the customer's project schedule and inventory, so the amount is about reasonable. But according to the quartering method, strictly speaking, only inventory turnover is truly "reasonable". And even the turnover inventory, because the turnover cycle is unreasonable and become unreasonable. Safety stocks make sense because we live in an imperfect world and need them to cope with uncertainty about demand and supply. But, the stock plan unifies, the safety stock level setting is unreasonable, the safety stock is unreasonable. The excess inventory seems unreasonable, but there are also some reasonable points, such as customers' delayed delivery of goods, uneven sets of materials, etc., which are related to our planning and execution ability. Risk inventories are even more irrational. Of course, sometimes due to strategic procurement, such as bulk purchase of raw materials, such risk inventory will also have some rationality.

This also shows once again that it is very difficult to answer the question whether the inventory is reasonable or not. There is no black and white answer, and we must analyze it on a case-by-case basis. The inventory quartering method provides us with an analytical framework to identify and judge the risks of different inventories.

And talking about how much inventory is reasonable is a false proposition, at least not going anywhere. Or, in absolute terms, it doesn't make much sense to argue that stocks are justified. However, from the perspective of relative quantity, it is of great value to discuss the increment of inventory, that is, to take the inventory at a certain point in time as the base, and then judge whether the change of inventory is reasonable according to the change of business volume.

We know that to do business, you have to have inventory. As business volumes rise, so will inventories, but at a slower pace than business growth. For example, if the business grows by 20%, the inventory increment should be less than 20%. Otherwise, where are the economies of scale? And the marginal turnover rate of inventory is the turnover rate to be achieved for the new unit increment of business and the newly added inventory, which is a more effective indicator for assessing inventory control.

How is the marginal turnover of inventory calculated? Assume a two-stage inventory system: a master and a sub-master. The general warehouse will put 4 weeks of inventory, and the sub-warehouse 3 weeks, which adds up to 7 weeks of inventory. The inventory turnover is 7.4 times (52 weeks divided by 7 weeks). Because of economies of scale, for new businesses, it is assumed that the total warehouse will increase its inventory by 3 weeks and the sub-warehouse by 2 weeks, which will add up to 5 weeks. This also means that the marginal turnover rate of inventory is 10.4 times (52 weeks divided by 5 weeks). This means that if the business grew in the past year, the incremental part of the product cost is $300 million, and your inventory increase must not exceed $28.85 million ($300 million divided by $1.04).

And why for new business, the marginal increment of inventory will decrease? This goes back to the composition of inventory: working stock and safety stock. Turnover inventory is proportional to the volume of business, that is, the cycle times the average demand. It is clear that there is no diminishing or increasing marginal benefit in the working inventory, while there is safety inventory -- the more business there is, the smaller the relative change will be and the less safety inventory is needed. This is economies of scale and must be reflected in the results of supply chain planning and operations.

There are, of course, two basic premises: the new business is a net increase in sales of existing products, and the supply network remains unchanged. In reality, these two assumptions are often difficult to achieve. For example, some enterprises increase the complexity of products by importing more new products or new models. And these new products or models are often targeted at some differentiated needs, with lower economies of scale. In addition, in order to increase sales, enterprises often enter some "leftover" areas, nationalization or globalization. This has been accompanied by complications in the supply network, such as adding more warehouses and distribution centers and more inventory points. Like new products and models, these inventory points often lead to diminishing economies of scale, with the attendant lower marginal return on inventory.

So in practice, we just have to keep in mind that all shortages end in surpluses; Most of the excess is caused when there is a shortage. The planning purchasing team is at the forefront. When the inventory increases, the relative rationality should be analyzed regularly. The data of each department should be comprehensively analyzed to reduce the risk inventory as much as possible.