S.F.T. Inc.

Often, because of normal product lifecycles, and upgrades to existing engineering designs, manufacturers may find it necessary to perform an inventory impact analysis on 'E.C.O.' changes, or product lines that are near 'end of life', either of which could significantly increase the amount of obsolete or excess inventory. Such obsolete and excess inventory can fill warehouses and create storage problems for years, costing your company money. In the electronics manufacturing industry, inventory value trends downwards as prices continually fall, so high inventory turns are especially desirable for electronic manufacturing. Food industry, on the other hand, has problems with spoilage ("sell it or smell it"), so high inventory turns are also most desirable for food processing. As a result, disposing of such excess and/or obsolete inventory, whether by spoilage, or by attrition, or by selling it to the highest bidder at a fraction of its purchase price, can adversely impact profitability, possibly resulting in unfavorable quarterly reports and even a drop in stock prices. As a result, it's extremely important to minimize the amount of excess and obsolete inventory.

One effective method that can be used to minimize excess and obsolete inventory is to perform 'simulation runs' of M.R.P., using the company's M.R.P. system as a 'modeling tool', and making changes and 'educated guesses' for various parameters, such as ECO effectivity dates and 'end of life' build schedules, and then running M.R.P. on the new data to determine what the end result will be. And, by doing a full M.R.P. (as opposed to a static spreadsheet analysis), you can also see if there will be any affect on parameters outside of the narrow scope of the analysis itself. Doing a proper analysis ensures that you minimize the negative effects on excess and obsolete inventory caused by E.C.O. changes and product end-of-life, changes in M.R.P. parameters (such as order policies), and so on.

However, setting up a test database and running an M.R.P. using the company's M.R.P. software can be a time-consuming and CPU-expensive process, tying up M.I.S. resources, if the M.I.S. staff will even authorize it. Although I have coordinated such things in the past, it is most often looked at as a waste of resources by many people who don't understand the importance of an inventory modeling tool that encorporates an M.R.P. process. In those rare cases where a special need exists, such as a project to create an 'end of life' schedule for a product with expensive components already in stock that must either be built into the product (and sold at a revenue lost) or scrapped (at an even greater revenue loss). For such cases, 'M.R.P. simulation' is indispensable.

Still, using 'M.R.P. Simulation' for excess and obsolete inventory analysis is just the beginning. What about fine-tuning the order policy modifiers, or implementing Bandwidth Management for inventory control? Most existing M.R.P. systems are ill-equipped for the kinds of 'hands on' analysis that is needed to accomplish such goals. Additionally, it may be possible to minimize P.O. or assembly reschedules, caused by a sudden change in demand, if an M.R.P. simulation tool were available to try the various possible solutions and choose the one with the least negative impact on the company, especially with regards to on-time delivery of product to the customers, or excessively long customer order lead times.