How to Measure and Optimize Inventory

(Sidebar to "Minimum Inventory Maximum Productivity" from the January 2008 issue of Automation World)

Manufacturing Execution System (MES) software can be a powerful tool for controlling all aspects of manufacturing, including inventory management. It does a phenomenal job of reaching into processes and extracting data from controllers and other reservoirs of information.

The problem, however, is that conventional sensors used for process control are good at just that—process control. At best, they provide users just a glimpse into the status of work-in-process inventory at a particular operation. They don’t reveal how long inventory has been sitting in a buffer someplace or at the bottom of some stack.

To gain this kind of visibility into an assembly line, manufacturers must give workpieces or containers of parts their own mechanisms for measuring the flow of inventory. The most practical means right now seems to be bar code and especially radio-frequency identification (RFID) tags. “The reading of information can be automatic,” explains Alan Wilson, vice president of Lean Manufacturing operations for SAP AG, the Walldorf, Germany-based enterprise software supplier. “There can be no human intervention.”

For this reason, SAP and other vendors are offering modules for integrating these technologies into their management software. Using information read from the tags, the modules track the progress of each unit as it makes its way through the factory, thereby measuring the inventory’s tack time and the assembly line’s speed of consumption.

“Based on the speed of consumption, the software tells you at what speed the totes should be filled, how many pieces should be in the totes and how many totes should be at the side of the line,” says Wilson. “It creates a real-time feedback loop to ‘right-size’ the materials in the entire supply chain.”

He reports that the technique typically reduces work-in-process inventory by between 40 percent and 60 percent. “There are some automotive companies approaching 50 and 60 turns through the entire supply chain—that is, from receipt to shipment of finished goods,” he concludes.

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