“I have too much inventory and too little inventory … at the same time!”
This is how you may realize your business is imbalanced: You have too much of some inventories that clog-up your operations and your working capital, and not enough of other inventories and it’s causing you to miss customer shipment dates. This realization is painful because the imbalance is costing you money:
How do you to ensure less downtime and fewer customer disappointments?
Consider this real-world example:
A Company wanted to improve their On Time / In Full (OTIF) shipment performance and reduce their operational costs at the same time.
They carried around 500 products in a diverse spectrum of high-demand, high-margin specialties as well as “commoditized”, lower-margin offerings. The production was highly coupled; meaning that producing one type of product impacted the production of another type of product. Additionally, warehouse space was limited so excessive inventory of unneeded products meant less space for the valuable products.
The Company realized that in order to grow their revenues and profits they were going to need to behave differently. They knew their competitors were fairly unreliable and could realize a competitive advantage by improving service levels and product availability on their specialty products. They needed to be able to better predict how business would operate.
With the help of an Advisor, the Company implemented an Integrated Sales & Operations Planning process. Each month, they spent time discussing their sales and new business pipeline and reviewing their forecasts to ensure they had gathered as much commercial intel as possible to understand their anticipated shipments. They then passed these insights to their Supply Chain & Operations teams who were able to analyze what and when they would be able to make products to restock inventories and Made-To-Order shipments. These teams could better anticipate when they would have a capacity constraint somewhere in the chain so that decisions could be made proactively. This “Supply Plan” was then passed to the Finance team that was able to create a profit forecast, thereby enabling the management team to be able to see into the future and address gaps to their desired earnings targets. As information was passed throughout the process, key decision makers were able to better understand how their business worked.
As a result the Company was able to improve its On Time/In Full shipment performance from 66% to 88% within one year, and then up to 93% in the next year. They were able to reduce their obsolete inventory write-offs by 50% and improve annual warehouse costs by 20%. They were able to employ strategies that allowed them to “flex” their capacity to accommodate fluctuations in demand and maintain a high service level.
Within a year, profits went from zero to $11 million, growing to $20 million the next year and $43 million in 5 years.
A final benefit was that their teams were not overwhelmed with fighting day-to-day fires so were able to focus on other efficiency projects such as unlocking additional capacity to enable growth in their higher margin products (Debottlenecking – see related Case Study).
They were able to do this because of their access to deep expertise and best-practices and their commitment to improvement.
Adherence to the Integrated Sales & Operations Planning process, establishment and tracking of key metrics, relentless improvement of key Supply Chain Management & Planning capabilities and driving focused performance via metrics.