Want To Save Money On CapEx? Look To Your Inventory

Consultants In Supply Chain: How Inventory Strategy May Hold The Secret To Reduced CapEx Needs

It’s been a crazy couple of years for manufacturing and supply chain, with near-constant disruptions, predictability has become all-but a thing of the past.

In the face of unpredictability and with the potential for a tighter availability of cash in the near future, we wanted to share a story about a company that did some deep analytics on their inventory needs for start-up construction by leveraging advanced technologies and was able to save almost 7-figures of required capital investment.

The Importance of Inventory Management in Supply Chain

Inventory management is a cornerstone of effective supply chain management. It directly influences the efficiency and effectiveness of the entire supply chain, from raw materials to finished products. By maintaining optimal inventory levels, businesses can reduce the risk of stockouts and overstocking, which in turn enhances customer satisfaction. Effective inventory management also minimizes waste, reduces costs, and boosts profitability. In today’s fast-paced and competitive business environment, the ability to respond swiftly to changing market conditions and customer demands is crucial. This agility is largely driven by robust inventory management practices, making it more important than ever for businesses to prioritize this aspect of their supply chain strategy.

CapEx For Warehousing – Look First To Inventory Management Needs

A Plant-Based Protein Food Manufacturer’s Supply Chain Strategy and Start-Up Costs

We had the opportunity to work with a company that was developing an innovative meat alternative and was building a new facility for production. Cross-functional teams played a crucial role in managing the start-up costs and ensuring effective communication and project management. The raw materials and finished goods required refrigeration for storage and the cost of refrigeration had become a hot topic because it was a key driver of capital expense and cost of the project. Refrigerators are expensive to build.

There was dissent within the organization because the assumptions for how much inventory would need to be held under certain business conditions were best-guesses. The problem was that incremental increases in inventory needs increased the size of the refrigerators, which increased the costs in a non-linear way.

The Data-Driven Inventory Approach with Advanced Technologies

We coached them on the underlying assumptions for what drives the need for inventory, emphasizing how a background in business administration can help in understanding these assumptions, and then provided statistical analysis that enabled a level of confidence in the inventory requirements under those business assumptions.

As it turns out, their production and raw material consumption assumptions showed that they could most likely operate their production with 10 days of raw material versus the 14 days they had originally assumed. This 4 day reduction in need allowed them to downsize the requirements for that refrigerator. Running the same analysis on the finished goods freezer led to similar results: A realization that the storage requirements would not be as high as assumed, so the freezer requirements could be reduced.

A Tale of CapEx Avoidance

These data-driven reductions in freezer sizes allowed the company to avoid $900,000 in capital expense on the refrigerators.

Additionally, related services, such as technical consulting, can further enhance the efficiency and effectiveness of supply chain management.

Benefits of Optimized Inventory Management

Optimized inventory management offers a multitude of benefits that can significantly enhance a business’s operations and bottom line. Here are some key advantages:

• Improved Customer Satisfaction: By ensuring that the right products are available when customers need them, businesses can meet demand more effectively, leading to higher customer satisfaction and loyalty.

• Reduced Costs: Excess inventory ties up capital and incurs storage costs, while stockouts can lead to lost sales. Optimized inventory management helps balance these factors, reducing overall costs and improving profitability.

• Enhanced Efficiency: Streamlined inventory processes reduce waste and improve productivity, allowing businesses to operate more efficiently.

• Increased Supply Chain Resilience: With optimized inventory management, businesses are better equipped to handle supply chain disruptions and risks, maintaining operational continuity even in the face of unexpected events.

By focusing on these areas, businesses can not only enhance their supply chain capabilities but also achieve a more sustainable and resilient supply chain.

Using Inventory Analysis for Risk Mitigation to Avoid Unnecessary Expense

If you’re considering space needs either in your current facilities, or you’re needing to expand, consider a data-driven approach to the inventory you will need to support your objectives and minimize costs. Incorporating sustainable supply chains can help in minimizing costs and enhancing operational efficiency. You might find some great cost-mitigation opportunities.

What other supply chain strategies can help your company save money and reduce inventory issues?

Our supply chain and operations advisors are experienced in many manufacturing and distribution companies. We help find the best way to optimize your supply chain management and get the results you want.

Expert Guidance from Supply Chain Consultants

Supply chain consultants are invaluable partners in the quest for optimized inventory management and overall supply chain excellence. These experts bring a wealth of knowledge and experience in supply chain management, offering tailored solutions that align with a business’s unique needs and goals. By collaborating with a supply chain consultant, businesses can:

• Develop Tailored Strategies: Create customized inventory management strategies that address specific challenges and objectives.

• Implement Effective Processes: Establish robust inventory management processes and systems that enhance efficiency and accuracy.

• Improve Visibility: Gain better visibility and transparency across the supply chain, enabling more informed decision-making.

• Enhance Resilience: Strengthen the ability to respond to disruptions and risks, ensuring continuous improvement and sustainable supply chain performance.

Working with supply chain consulting firms can provide businesses with the expertise and support needed to navigate the complexities of modern supply chains, ultimately driving better outcomes and long-term success.