Inventory Management

= Special Cases Handling =

TOYOTA MOTOR CORPORATION

Parts & Accessories Div.
 Life Cycle of a P/No.

Life Cycle of a Part Number

Sales Qty

Time

Phase In Phase Out

New Model Parts Demand run-
(NMP) Stable Demand Period out period

Carefully record Faster phase out by

lost sales SOQ review of very
slow moving parts

Initial
demand SOQ Special sales
forecast Calculation Staging & scrapping
I. New Model Parts Handling
 0~6 months
1. Parts Life Cycle
N1

SALES
QTY Max demand

Initial demand
forecast

Cover the first 6 months

demand by New Model
Parts Supply
Base on
SOQ calculation

TIME
Stocking period
Phase In Phase Out
 2. Why should we set SCC for New Model Parts?

1. Demand for new model parts very unstable for each period.

2. Initial order qty maybe not correct due to different demand

for each model.

3. To prevent over stock and short stock.

4. To maintain customer satisfaction with new models.

 3. SCC Setting for New Model Parts

Sales
Qty
N3
N2
Stable Demand
N1

Months
0 6 12 24

period how to set ordering parameter SCC

0~6 months
Control by initial supply Qty N1
( 0.5 year )
7~12 months
Control by latest 3 months N2
( 0.5~1 year )
13~24 months
Control by 6 months MAD N3
( 1~2 year )
 0~6 months
4. Period for SCC N1
N1

Key Points
1. Set Initial Supply Qty as MIP
2. Set upper and lower warning points.
3. Reset Initial Supply Qty in system.

M I P Qty – (O/H + O/O) + B/O

SOQ = Initial Supply

No sales history to calculate the MIP

 Set initial order quantity as MIP.
MIP (Maximum Inventory Position) = MAD x Order Parameters
 5. Responsibility for NMPL Issue

TMC is responsible for issuing all New Model Parts Lists (NMPL)
– Regardless of source of parts & vehicle production

<Supply Method>
– Standard: Dist. must place NMP order after checking spec.
& color
– Automatic: NMP order created automatically by TMC’s
system for Distributors
(Spec. & color check for auto. supply done by TMC’s NMPS system)
 6. New Model Parts Supply (NMPS) Schedule

Standard supply

POLE/HUB Local
CBU CKD TMC (i.e. TMAP) Distributor supplier

N-5 NMPS
Vehicle information
N-4 announcement

NMPL issuing
N-3 N-4 Order creation
(JSP,MSP,LSP)

Order Receiving Order Receiving

N-2 N-3 (JSP) Order Receiving NMP order placing
(LSP)
(MSP)
N N

N+1 N+1 Parts Inventory

Vehicle launch arrival Control For
N1 period

N+5 N+5 Inventory

Control for
N2 period
N+11 N+11
Inventory
Control for
N+23 N+23 N3 period
 7. Recommend Qty for Initial Stock

Revised PNC factor

Actual demand by PNC Vehicle Units
X 100 X
Actual vehicle sales units 100

Recommended Qty (6 months initial stock)

3 Stage
Supply
Delivery 1st 2nd 3rd

20% 30% 50%

 8. Without NMPL…

Stable
Qty
Parts Demand
Catalog

Stock Replenishment
Initial Stock
Order
N1 N2 N3
Months
0 3 6 12 24

No demand Demand history available

history for MAD calculation

Period MIP Calculation SCC

0 – 3 months Use initial supply qty (forecast) N1
4 – 6 months N1
Use latest 3 months MAD (weighted)
7 – 12 months N2
13 – 24 months Use 6 months MAD (weighted) N3
 0~6 months
9. Period for SCC N1
N1

Initial supply stock warning

Demand should occur if sold qty is Expected
Qty outside range after three months demand
line

Upper
warning point + 50%

- 50%

Lower
warning point

Sales start 3 months 6 months

date

Placing order
 7~12 months
10. Period for SCC N2
N2

Key Points
1. Apply latest 3 months MAD
2. Increase weighting for N month
3. Apply more percentage on fast-moving parts
4. Change the parameter of Safety Stock for Demand

SOQ = MIP – ( O/H + O/O ) + B/O

Weight MAD for latest 3 months x Order Parameter

N-2 N-1 N total MAD

demand 6 9 12 27 9 Original
X
weighted factor 0.5 (50%) 1.0 (100%) 1.5 (150%)
After
new demand = 3 9 18 30 10 weight
 13~24 months
11. Period for SCC N3 N3

Key Points
1. Apply latest 6 months MAD
2. Apply more percentage on N month
3. Apply more percentage on fast-moving parts
4. Change the parameter of Safety Stock for Demand

SOQ = MIP – ( O/H + O/O ) + B/O

Weight MAD for latest 6 months x Order Parameter

 12. Summary

Before vehicle launch After vehicle launch

Accurate
Carefully control
PNC Factor
N1 period, monitor
or
N2, N3 periods
Sales History
continuously
(per model)

Prevent over/short/dead stock

Reduce stock investment

High service rate

II. Sales Promotion Campaign
Handling
 1. Key Success Factor

 Attention to parts supply is vital.

Campaign awareness, standardized orders, etc.

Parts Parts
Marketing Supply

Good balance between marketing and supply is essential.

 2-1. Annual Sales Promotion Campaign Plans

Organization Example
●Parts Division Parts Division

<PARTS MARKETING DEPT.>

<LOGISTICS DEPT.> PARTS
LOGISTICS
●Sales Division MARKETING
DEPT.
DEPT.
・・・

 Logistics Dept must understand annual sales promotion

campaign plan including purpose, contents and targets.

 Logistics Dept must know dealers’ campaign plans, if any.

 Please inform TMC of the annual sales promotion campaign

plan.
 2-2. Before conducting campaign

 Parts Marketing Dept should forecast monthly or weekly

demand of campaign parts based on the target.

 Logistics Dept should contact Parts Marketing Dept to get

the forecast for campaign parts.

 Logistics Dept should establish ordering plan and place firm

orders with lead time and cut-off date awareness.

 Logistics Dept cannot place orders with huge quantity by

stock replenishment order.
 2-3. Monitoring and Evaluation

 Compare actual sales results with forecasted demand.

 If not suitable, adjust order quantity.

 Utilize demand forecast and actual results for next campaign.

 Evaluate campaign itself (sales, profit etc.)

III. SSC (Special Service Campaign)
Parts Handling
1. Flow of SSC Parts Preparation
 2. Key points for SSC parts preparation

1. Timely Sharing (Information/Parts)

Share the SSC scheme between Dist and dlr

2. Parts Preparation
Establish SSC scheme in accordance with suppliers’
production capacity and parts delivery timing
1) Dlr  Dist.
Follow correctly allocation and timing
2) Dist.  TMC/Pole/Hub
Order based on T/I （appropriate qty and timing）

3. Inventory Control
Synchronize with parts procurement/supply speed,
based on service information on suppliers’ production
adjustment and allocation by dlr.
IV. Seasonal Parts Handling
 1. Examples of Seasonal Demand

Thailand: Canada:
Wiper (2004 sales result) Winter tire (2004 sales result)
20,000 30,000

18,000
25,000
16,000

14,000
20,000

12,000

10,000 15,000

8,000
10,000
6,000

4,000
5,000

2,000

0 0

Oct

Nov
Apr

Jun

Aug
Jul
Pcs

May

Dec
Mar
Jan

Feb

Sep
Nov
Oct

Dec
Jul
Jan

Feb

Jun

Aug
Apr

May

Sep
Mar

Pcs
Month Month
 2. Possible issues

<Customer>
• Dissatisfied with Toyota
because of lack of parts
Demand
Demand Parts arrival
High & Order at Dist. <Dist.>
• Increased B/O
VOR will increase
Too late. • Increased Distributor stock as
 Excess stock order placed after demand
reflected in SOQ calculation.

Low <TMC>
• Receive many VOR orders
1 2 3 4 5 6 7 8 9 10 11 12 Bulk order split
Month (increase in labor at TMC)
Procurement
L/T Longer L/T
 3. How to approach

Placing the order predicting

seasonal demand fluctuation. Demand Parts arrival
High +
1) Calculate Seasonal Order Demand
Parameter
2) Calculate order using
Seasonal Parameter
3) Place order before peak Just In Time
demand considering L/T
4) Monitor Low
1 2 3 4 5 6 7 8 9 10 11 12
Month
Procurement L/T
 4. Seasonal Parameter Calculation

3 Years Total for each Month … (a)

Seasonal Parameter (S/P) =
3 Years Monthly Average … (b)

Ex.) Wiper blade & rubber

(pcs)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

2002 2,235 2,615 5,011 6,529 14,657 13,175 12,104 12,936 15,427 9,603 6,360 5,819 106,471

2003 3,769 3,563 6,409 6,888 11,721 13,719 16,571 14,405 13,026 12,626 5,004 3,931 111,632

2004 3,451 4,746 5,411 5,979 15,409 17,474 15,043 15,335 15,737 10,970 5,267 3,168 117,990

336,093
(a) 3 years
(b) 3 years
total for 9,455 10,924 16,831 19,396 41,787 44,368 43,718 42,676 44,190 33,199 16,631 12,918
monthly
given
average
month
= 28,008 ]
Seasonal
0.34 0.39 0.60 0.69 1.49 1.58 1.56 1.52 1.58 1.19 0.59 0.46 12.00
Parameter

S/P for Jan = 3 year total of Jan / 3 year total monthly average
= 9,455 / 28,008 = 0.337
 5. Monitoring

• Monitor actual demand compared to forecast

Demand
Procurement L/T
(Q’ty)
Order (Plan): Dot line
Order (Actual): Yellow

Demand (Forecast)
Demand (Actual): Red

1 2 3 4 5 6 7 8 9 10 11 12
Month
V. Holiday Special Handling
(Build-Up Order)
 1. Why Build-Up Order is needed?

• To maintain heijunka in warehouse operations before and after a holiday

Without build-up order before a supplier holiday:

Huge order to supplier after Huge qty of parts to be

holiday due to break in received and binned after
ordering during holiday holiday

Reduced S/R, More overtime needed after

Increased Cost & holiday especially for
Reduced Profit Receiving & Binning
 2. Why Build-Up Order is needed?

Without build-up order before Dist. holiday:

Huge order to supplier after Huge orders from dlr/branches

holiday due to break in ordering before or after holiday (depends
during holiday on dlr/branch behavior)

Huge qty of parts to be picked and

Huge qty of parts to be received
shipped to dlr/branches before or
and binned after holiday
after holiday

Reduced S/R,
More overtime needed before
Increased Cost &
and/or after holiday
Reduced Profit
 3. How to decide the Build-Up Order P/No’s?

 Option 1: By MAD basis

– E.g. TMC recommend Dist. to build-up orders before TMC
holiday for P/No. with more than 20 pcs MAD

 Option 2: By ICC grouping P/No.

– Dist. should decide chosen classes based on MAD definition in
ICC matrix considering TMC recommendation for 20 pcs MAD
P/No.

 The main point to keep in mind when deciding the P/No. is:
 No need to build up orders for low demand P/No.
 Avoid unnecessary excess stock which may become dead
stock in future
 4. How to set a build-up parameter plan?

Reason for order build-up  Heijunka of warehouse operations

A. General rules for spreading out parameter increase:

• Limit increase to 0.04~0.06 (roughly 1 day’s extra order)
• Calculate increase period by counting back from start of holiday

B. Advice for spreading out parameter increase

• From Dist. to Supplier  Weekly or every two weeks
• From Dlr/Branch to Dist.
 Categorize by volume, chose high volume dlr/branches
 Make daily plan (each day one or more of chosen dlr/branchs)
C. When to reduce build-up and return to original level
• For Supplier holidays  Just before supplier holiday starts
• For Dist. holidays  Just before Dist. holiday starts
VI. Dead Stock Prevention
 1. Why eliminate Dead Stock?

High maintenance cost

F
High Stock Month
G
Shortage of W/H space
H

I Less cash flow

LESS PROFIT
 2. Reason of Dead Stock

Main reasons of Dead Stock occurrence are:

1. Inappropriate Inventory Management during the life cycle of

the P/No’s.
In general,
 TMC recommends the application of correct Order
Parameters for very fast to slow moving P/No., then let the
system order automatically.
 Concentrate on reviewing very slow moving P/No. orders.

2. Inappropriate handling of Irregular Demand.

TMC recommends using the SCC function and carefully
analyzing the generated reports to monitor irregular demand.
 3. Message

Very difficult to completely eliminate dead stock.

However, through planning and step-by-step Kaizen you can
make big improvements.

TMC recommend the following:

1. Apply S1B1 and JIT concepts with Lean Parts Logistics to
minimize excess stock
2. Pay attention to special case parts and handle them
carefully
3. Maintain close communication between Parts Div. & all
other divisions
 Bydoing these things, you can minimize the occurrence of
dead stock
VII. Dead Stock Scrapping
 1. Definition of Dead Stock
- Objectives of Scrapping -

1) Quality Problem 2) Excess Stock

- Aging (Deterioration) - Out of Demand
- Substitution
Sales Stock
Q’ty Q’ty

Excess Stock Dead Stock

Stable Demand
Period

Phase In Phase Out

NMP Period Demand Run-out
Period
 2. Philosophy of Scrapping

1) Quality Problem 2) Excess Stock

- Aging (Deterioration) - Out of Demand
- Substitution
Sales Stock
Q’ty Minimum Q’ty
Dead Stock Prevention Activities
Level of
Dead Stock

Stable Demand
Period

Phase In Phase Out

SCRAP
 3. Scrapping Preparation – Manager’s Viewpoint
1) Preparation
1. Clarify background/purpose
2. Review profit & loss analysis
3. Review history of yearly/monthly
scrapping activities
2) Freezing
<Target>
Dead stock which is waiting for
scrapping
<Purpose>
Warehouse storage & operational
efficiency; convenience of next
scrapping activity
<Action>
Gather target items and stage at
one location for non-moving parts
4. System
(organization & structure)
5. Get top management approval
6. Periodic implementation
3) Disposal
1. Establish parts scrapping
procedures (SOP) including
disposal method.
2. Select outsourcing agent
carefully (if necessary) and
dispatch inspector from your
company to attend & confirm
disposal completion.
 4. Example: TMC’s Scrapping Policy

• Dead Stock due to Excess Stock (Out of Demand)

– Definition: Long-term demand estimation basis
– Implementation Cycle: 1 time/year
– Approval: Top Management of TMC Logistics Group
• Dead Stock due to Logistics Quality Problems
– Definition: Quality standard basis
– Implementation Cycle: Monthly at each Parts Center
– Approval: Warehouse Managers
– Monthly report to TMC SPLD General Manager
 THANK YOU
FOR YOUR ATTENTION