May 23, 2016
Critical Path Method (CPM) of inventory management
By: Jack Barry

Shakespeare’s time horseshoe nails were inventoried as insignificant bin or “C” items, but as poor King Richard found out “…for want of a horseshoe nail the kingdom was lost.” The lesson is the value of inventoried item is often determined by what the impact of its lost is or non-availability, not just volume or cost.

Inventory is often segmented and managed as independent discrete items. Even in an MRP environment of parent-child relationships inventory is not understood as sub-element of an over-all process or final assembly.

While marginally acceptable in finished goods, this perspective ignores the inter-relationship of inventory items. Categorizations of raw materials and work-in-progress inventory as “A”; “B”, and “C” based on individual or accumulative value or risk ignores that the time and place value of inventory changes based on those factors.

A lowly €2.00 coil while classified as a “C” item, if not at the right place or time, can easily compromise the ability to complete a process or product and turn itself into a highly critical “A” item while simultaneously degrading other “A” and “B” items into waste.

This blog proposes the techniques of Critical Path Methods (CPM) as an improved approach for inventory management and reductions. It argues that the approach of Operational Sequence & Situation (OSS) pull techniques can be improved by incorporating the CPM approach.

CPM, more common in project management, seeks to create the most effective path (or progress) by identifying those sub-elements, which if not completed in the required time sequences become the bottlenecks or barriers to the actual or critical timelines. Thus even insignificant tasks (or parts), if on the critical path, can determine the over-all progress of the entire project.

In the environment of manufacturing or operational processes the similarities are striking and have the same effect. Thus in a hundred-part manufacturing bill of materials (BOM) or operational process, if any of the required inventory materials are missing, in time or place, it can effectively turn the other 99 parts into non-value added waste or the progress is compromised.

An alternative approach is to use the existing techniques and software of project management.

Starting with a reverse bill of materials and standard shop floor controls, a manufacturing operation should “tag” inventories not as primary financial classifications, but rather their placement along the various critical paths of their parent BOMs. Existing software, using standard MRP parent/child part number relationships, can easily accomplish this task.

Thus, that lowly €2.00 coil is also identified as a component to be installed in step 187 sequenced to arrive not earlier than Oct. 3 nor later than Oct. 5 in work order 4042 for a 10,000 horsepower marine diesel engine model AY6ER83 that has a finished cost value of €17,000. The impact value of the coil is potentially a negative risk or disruption value of €17,000.

Linkages to the Master Production Schedule (MPS) and Shop Floor Capacity Plans would establish current and updated projections of inventory usage profiles.

Inventories not included in these critical paths could be degraded to replenishment based on a MRP push or Kanban pull systems where their low process value would support low-levels of management attention; for example, pre-expended bin items.

The CPM method would pull inventory replenishment based on place and time within the over-all process and less on the traditional work center factory release concept. This would be less dependent on Economic Order Quantity (EOQ) and Safety Stock contingency buffers resulting in both inventory reductions and better accuracy in management.

How would that concept reduce your inventory waste and improve productivity? 

About Accenture Academy

Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.


Popular Tags

    More blogs on this topic