Text Box: IQR is a measure of inventory performance
IQR is an abbreviation for Inventory Quality Ratio.  IQR is the only inventory measure that provides actionable information to help improve inventory performance. (See side bar)
The ratio is a calculated value that indicates the percentage of your inventory that is good. 

An IQR of 30% indicates that 30% of your inventory is “good” (active inventory) and 70% of your inventory is “bad” (excess, slow moving, or no moving).  This is useful in evaluating inventory performance and in focusing attention on areas in which inventory reductions net you the greatest financial gain.  Furthermore, “good” inventory and “not so good” inventory can be stopped from becoming “bad” inventory.
The IQR system does much more than calculate this ratio.  It provides a complete tool set to use to improve this statistic.  IQR provides unique analytical tools to effectively reduce your inventory levels and improve the performance of that inventory. 
IQR provides you ACTIONABLE information:
IQR directs your attention and efforts to the actions by which you can best improve the use of your inventory dollars.

IQR separates each part number into a actionable category 

IQR gives each planner and/or buyer their own part numbers on which they must take action.
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The Problems with Inventory Turns

Two popular measures of inventory are inventory turns and Days Inventory Outstanding, DIO. Neither of these gross measures provides any actionable information.

   The first problem is that they are just numbers with no base to compare them to. What is the perfect number of turns? What is the right number of days outstanding? If your inventory turns was calculated as 10, so what? Is that good or bad?

  There is a perfect IQR; it’s 100%.  If all your inventory is active, that is you have no excess, no slow moving and no obsolete inventory, then your IQR is 100%. If you calculate your IQR as 40%, then you know exactly how far you have to go to improve inventory performance.

   The second problem is both traditional measures are typically calculated for the entire population of inventory, but all inventory is not created equal. Inventory managers typically stratify inventory into A, B and C categories  Both inventory turns and Days Inventory Outstanding ignore the difference between A, B and C items.

  IQR is calculated for various segments of inventory. You can measure the IQR for your A items separate from your B items. You can calculate your IQR by warehouse, by plant, by buyer or many other ways. IQR is both a measure of your entire inventory’s performance and it can also be used to measure any discrete segment of your inventory down to individual part numbers.

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Part numbers are listed in order of the value of the excess. This focuses the planner’s attention on the parts that will make the biggest difference to the company’s  inventory measures and bottom line .

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To be actionable, information from an inventory measure must  define the condition of individual parts.

Each part number is assigned a IQR category. Each category has a set of actions required to address it.

Active 1 & 2 (A1 & A2)

These parts are likely to be consumed in the near future. No action need be taken on these parts.

Excess 1, 2, & 3 (E1, E2 & E3)

Some quantity of these parts maybe consumed soon but you either have too many of them or have them too soon. Action must be taken to prevent these parts from becoming slow moving or obsolete.

Actions to improve inventory management are typically taken by buyers or planners. To be actionable, an inventory metric has to present the information to the individual.

IQR segments the total inventory down to the person responsible for taking the action. With one click the buyer or planner see’s their list of parts. The individual can then focus on the part numbers assigned to them.

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Inventory Quality Ratio





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