Inventory Analysis And Optimization Of EA Company

EA company is located in Shenzhen and is the subsidiary of A U.S.public listing company,EA company majorly produces high-speed optical connectors,since 2006,the production was transferred from oversea to Shenzhen,with the product cost reduction and rapid growth of the global telecom and datacom market,its business scale expanded,revenue grew by double digital in the past few years,naturally more and more capital was occupied,in order to enhance the capital utilization ratio and reduce the operation risk,lot of efforts has been made in the past few years.although the inventory turn-over time increased year by year,however the aging stocks did not improve,meanwhile due to the competition is more and more tough,the product margin was decreasing accordingly,to maintain the good performance of ROE(Return of Equity),the top management team also raised tighter requirement for its inventory control.Inventory management plays important roles on company's competence and financial performance,including the cash-flow and Return of Entity(ROE).Meanwhile,proper inventory level will help the company to improve its on-time delivery,therefore improve customer's satisfactory degree accordingly.This thesis will do the analysis on the existing inventory of EA company,by the ways of ABC categorization,scientific demand forecasting,define proper EOQ(Ecomonic Ordering Qty)and safety inventory,and product life cycle management,so that to work on the valid pattern and model to control the inventory in different fields: raw material,semi-finished parts,finished parts,and spare parts.So that to control the inventory level properly.First of all,we did the horizon comparison for the current inventory level,with the inventory data of its competitors and its mother company,and draw the conclusion that there is feasibility for EA company to improve its inventory.Then the ABC categorization was done for current inventory so that to define the key categories,for the raw material,worked out the Economic Ordering Quantity,and introduced Vendor Management Inventory,optimized relevant inventory.For the finished goods,adopted scientific demand forecasting,for example,index smooth forecasting,qualitative forecasting ect,so that to improve the accuracy of the demand forecast,and lead to better production plan.And among the A category finished goods,introduced product life cycle concept,subdivided the category by different product life cycle,and implement more accurate inventory management with different strategies.By implementation of above mentioned methods in EA company,its inventory level decreased dramatically,total inventory value decreased 24.85%,and the inventory turn-over times increased accordingly,and as the optimization is still on-going and did not reach its critical point with delivery performance yet,these measurements did not put negative impact to the on-time delivery,on the contrary,the on-time delivery was improved slightly from 50% to 62%,The result indicated these methods are feasible and effective for the inventory optimization of EA company.