In our previous Actionable Insights blog, we discussed the Equipment Cost Action Center. Next, we will provide an overview of the Purchasing Inventory Effectiveness Action Center as well as the associated key performance indicators (KPIs).

Inventory is one of the most important assets a manufacturing company has to manage. Keeping inventory levels as low as possible without affecting productivity is an effective way to trim costs. Most companies acquire inventory to meet forecasted or planned demand, but plans and reality don’t always match up, which can leave the company with excess inventory or shortages. Inventory can also become obsolete when products change or are replaced by newer models that require different components. And inventory can become defective, either from damage during transportation, storage or simply through degradation over time. Whatever the cause, excess, obsolete or defective inventory is a big drain on profitability, and companies who understand this will monitor and manage their inventory effectiveness.

QAD Adaptive ERP includes the Purchasing Inventory Effectiveness Action Center to help companies monitor their inventory health.

KPIs on the Purchasing Inventory Effectiveness Action Center

QAD Action Centers provide analytics to help both managers and users monitor metrics and KPIs. KPI highlights for the Purchasing Effectiveness Action Center include:

Obsolete and Excess Inventory Ratio by Item

This is a bar chart that shows the worst performing items in terms of excess or defective inventory. The calculation compares the count of obsolete and defective items to the total count of items. The higher the ratio, the worse the item’s performance.

Obsolete and defective items should normally make up a small portion of the on-hand inventory, so knowing which items have the worst performance allows the manager to take steps to improve performance by curtailing future purchases, selling excess inventory, or scrapping defective items. A higher reserve against obsolete inventory can mask the problem, but at a cost of reducing the company’s profit.

Obsolete and Excess Inventory Ratio by Buyer-Planner

This is a combination of a bar chart and a line chart that highlights the ratio of obsolete and defective inventory to total inventory on hand managed by each buyer-planner. This visual may help to identify buyer-planners with a better handle on buying policies and processes. In many cases, it may make sense to identify this buyer-planner’s best practices and ensure that they become standard procedures for all buyer-planners. Depending on how items are assigned to buyer-planners, it may also show commodities where the buying policies are inappropriate for current usage patterns, or if the assignment is by product line, it may highlight ineffective product life-cycle management. This graph can be skewed by high usage items which may have a large quantity on hand, so it is best to look at the ratios rather than inventory numbers. It can also be helpful when used in conjunction with the following chart, Obsolete and Excess Inventory Value by Buyer-Planner.

Obsolete and Excess Inventory Value by Buyer-Planner

Similar to the graph above, this chart shows the ratio of obsolete and excess inventory to total inventory measured by value rather than quantity. Like the chart above, this can highlight buyer-planners whose processes produce superior results so that those processes can become standard procedures. It may also highlight items or commodities where buying policies should be adjusted. High value items can skew this chart, so it is best used with items of similar value or when only the ratio is used, rather than absolute numbers or the amplitude of the graph across planners.

Each of the mentioned KPIs can be filtered by two selector widgets.

Select Buyer-Planner(s)

This selector widget enables the viewer to focus on one or more buyer-planners and the status of their assigned items’ inventory. 

Select Items

This selector widget allows managers to focus on specific items of interest to monitor the excess and obsolete inventory. This can be useful for reviewing high value items or items that are likely to become obsolete due to upcoming product changes.

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The Importance of the Purchasing Inventory Effectiveness Action Center

Minimizing excess, obsolete, and defective items is of critical importance to a company’s profitability as well as to ensure that available funds are used to purchase the most needed items. With many ERP systems, identifying excess and obsolete inventory is a difficult and cumbersome process, often requiring spreadsheets or manual calculations. The Purchasing Inventory Effectiveness Action Center eliminates this cumbersome process. It also provides an objective way to measure the performance of buyer-planners across commodities or product lines by using ratios rather than absolute values or on hand quantities.

All manufacturers must be aware of their inventory purchasing effectiveness to maximize profitability, and the QAD Purchasing Inventory Effectiveness Action Center is an important tool to help in this critical function. QAD Adaptive ERP provides the necessary insight to ensure that buyer-planners, inventory replenishment policies, inventory reserves and product lifecycle policies are optimized for maximum profitability.

Which KPIs and metrics are most important to your organization? Learn more about QAD’s predefined and highly customizable Action Centers as well as best practices for each.