Category: Supply Chain Management

Using Consignment Inventory to Improve Your Cash Flow

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One approach that is often overlooked for acceleration of cash flow is the use of consignment inventories. Consignment goes beyond VMI/SMI (Vendor Managed/Supplier Managed Inventory) in improving cash flow because with consignment you don’t pay for the inventory until you use it. With consignment inventory the customer takes possession of a supplier’s goods on receipt of a shipment but does not own them. The customer is responsible for maintaining these inventories as if they were their own, which means storing them in a safe and secure place and paying the insurance and other related storage costs. During a physical inventory,…
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Increase Cash Flow by Reducing Inventory

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More companies fail for lack of cash than from lack of profit. One of the largest drains on a manufacturing company’s cash is inventory. Reduce inventory and you will increase the amount of cash available to run the company. It takes cash to buy or build the inventory you are going to sell. The cash you have to spend before you can get paid is called working capital. Working capital is used to fund operations and inventory. Many companies, if not most, borrow to support their short-term cash needs. If they do not manage cash well, they can run out…
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Seven Ways To Reduce Your Inventory

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The amount of inventory required to run a business effectively is always a concern. If you have too much cash flow problems can result, too little and you run the risk of poor customer service. How can you run your business effectively and still maintain a reasonable amount of inventory? The cost of carrying inventory can run 30% or more of the value of the inventory per year. $10,000,000 of inventory can cost you $3,000,000 per year for the privilege of carrying it. This article does not attempt to tell you in detail how to reduce your inventory. Rather it…
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Cash is King- The Importance of Cash Flow Management

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Operating any business in today’s economic environment means managing cash flow. Companies looking only at their earnings and not managing cash flow cannot and will not survive in today’s economy where short term operational loans are not often readily available. This edition of the ACA newsletter is dedicated to understanding the importance of managing cash flow. This article explains the evolution of cash flow management in business operations and addresses some key concepts related to cash flow. In related articles this author along with his ACA associates provides some useful suggestions for improving cash flow through: inventory reduction, better supply…
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Can You Afford To Do Physical Inventories?

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In the last 2 newsletter articles, I focused on ABC analysis and also how to maximize your Cycle Count results. Today I would like to discuss with you the positive aspects of eliminating the need for physical inventories. Our group’s newsletter theme for this quarter is Crisis Brings Real Change. Having worked in manufacturing for the last 28 years- I can tell you that doing a physical inventory at most companies puts the company into a crisis mode. Some of these companies have now adopted a cycle count program and are enjoying the benefits of not being in a crisis…
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Supply Chain Cost Reduction

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Along with Lean and ERP, Supply Chain Management (SCM) is a hot topic in today’s world of global operations management. In the last ten years, numerous enterprises have replaced their Purchasing Manager with a Supply Chain Manager. Yet, in many of these companies, little has changed in how they conduct business with their suppliers. This article will address how to achieve real value with SCM by identifying and reducing total supply chain costs. Traditionally, cost reductions are achieved by getting suppliers to reduce their prices. To this end, we employ tactics such as competitive bidding and negotiation. But these tactics…
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Balance the Line, Save Some Time and Cut Wip– All Without the Computer

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LEAD TIME is defined as starting when the need for a product, part or service is recognized and ending when that product, part or service is available for use at the point of use. For example, manufacturing lead time would run from the time a shop order is issued until the product is available for shipment. In many manufacturing situations the bulk of this time elapses while the product is sitting around waiting for something to happen. This time is called non value added time, as opposed to value added time when the product is having work performed on it.…
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Upgrading Customer Service

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From all the indicators, it appears we are at the start of a recovery. Credit is opening up and people are starting to buy again. The key question at this point in the cycle is: how do potential customers decide if it’s you or your competition they are going to buy from? Customer service could be the deciding factor. Customer service is a major decision factor in every purchase. As I’ve said in many articles over the years, customer service comes from the combination of three areas: customer dialog, customer friendly processes, and employee commitment to customer service. You must…
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Activity Based Management– Merging Process and Measurement

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Introduction Increasing competition, both globally and locally, make it clear that businesses know accurately and understand the source of process, product and service costs within their organization. Activity Based Costing (ABC), with its focus on deconstructing overhead pools and assigning costs to products and services in a more meaningful manner, has been a giant leap forward from traditional costing models where a high percentage of cost is arbitrarily allocated to products. However, ABC models often look at cost from a financial point of view, making sure only that all costs are assigned to some product accounting “box” without a thorough…
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