Want To Save Money On CapEx? Look To Your Inventory

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.

Some businesses have experienced exponential growth and, along with it, the need for capital investments in equipment or infrastructure.

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 and was able to save almost 7-figures of required capital investment.

CapEx For Warehousing – Look First To Inventory Needs

A Plant-Based Protein Food Manufacturer’s 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.  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

We coached them on the underlying assumptions for what drives the need for inventory 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.

Using Inventory Analysis 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.  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.