Client Case Study – Inventory Management
How do we reduce inventory levels?
A manufacturer of computer peripheral devices was look-ing to improve its balance sheet and P & L by reducing in-ventory and the associated carrying costs, while improving customer service. The products required to support differ-ent customer channels varied from expensive long-lead time engineered systems to relatively low-value standalone units that supported personal computers. The company needed to completely revamp its inventory, manufacturing and product support policies, procedures and practices to reflect the dramatic and fast changes to its product line.
The two main questions that needed answered were:
- What would the impact be on profit from the disposal of obsolete inventory in order to improve the balance sheet?
- How do we institute a program to prevent the buildup of obsolete inventories by disposing of slow movers on a regular basis?
Establish performed a logistics cost/performance bench-mark for all of the divisions showing that inventory carrying costs were extremely high. The bulk of the problem was in inventory management, there were problems managing the broad mix of products required as well as large amounts of obsolete and slow-moving inventory.
A cross functional team was formed that included mem-bers from Operations, Marketing, Sales and Finance to evaluate and dispose of excess and obsolete inventories.
The process of creating inventory was benchmarked to “best-practices” to identify improvement opportunities in purchasing, materials management, inventory planning and management, and the manufacturing operations.
In purchasing and materials management it was recom-mended that the total purchasing power of the corporation be leveraged to obtain more favorable purchasing and con-signment agreements by centralizing the purchasing func-tion. At the same time, local materials management func-tions could be strengthened to improve requisitioning and materials usage and upstream supply chain partnerships were established to improve material flow and reduce pur-chased parts inventories.
In inventory planning and management, a centralized logis-tics function was recommended. Written policies and pro-cedures were developed for inventory planning, manage-ment and reporting, and a new forecasting and inventory planning business process and information system was im-plemented. All inventories are now managed more inten-sively to avoid excess and obsolete inventories and active inventories are deployed and re-deployed based on well defined forecast requirements.
The promotion process was also brought under control to avoid sudden unanticipated demand on the plants, and manufacturing performance criteria was changed from low-est unit cost and high absorption to meeting the schedule in time and quantity to improve customer service levels.
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