Inventory Optimization

Do you think you have too much inventory? Do you have to order larger quantities since you buy products from overseas? Is your warehouse capacity maxed out and you still experience stock outs? Is your transportation cost increasing and service level decreasing in spite of opening new warehouses? If you have inventory problems, we can help.

We understand that inventory is the lifeblood of an organization. However, too high or too low an inventory will strip off the competitive advantage and will have negative impacts to the balance sheet, income statement and a company’s cash flow.

Companies carry inventory to achieve a desired service level regardless of the demand and supply uncertainties. As supply chains become more complex, three major factors contribute to increasing the uncertainties.

• A global supplier base that increases the sourcing lead time and its variability, consequently increasing the supply uncertainty
• Consumer driven markets that shorten product life cycle, enhance product proliferation and seasonality creating more obsolete products
• Competition that necessitate continuously improving service levels but reducing product costs

Uncertainties can be managed through proper planning of capacity, time and inventory. However, most companies opt to address uncertainties with inventory primarily because it is the easiest. Unfortunately, it is not always the most efficient way. Inventory buffers create too much cycle stock, safety stock and obsolete stock resulting in substantial tied up cash. The slow mover and obsolete stocks will eventually take more warehouse space from the fast movers and profitable products creating undesirable stock outs and requiring additional warehouse space. The additional warehouse space, labor and transportation result in increased operational costs and declining service levels: a double edged sword that hurts the top and bottom line and makes companies vulnerable to competition. 

At TOTALogistix, our inventory solution starts with identifying the required service levels. We then classify and estimate the level of different inventories in the system based on type and purpose of the inventory. The different types of inventories include raw materials, work in process, postponement, finished good, etc and the different purpose inventory include cycle stock, safety stock, pipeline stock, prebuild stock, promotion stock, obsolete stock, etc. We then follow the 3 step approach to right size the inventory while achieving the required service level.

Step 1: Estimate the right level of inventories with existing policies, structures and  procedures to attain a desired service level

Step 2: Change internal inventory policies, structures and procedures within the organization to further reduce inventory investment

Step 3: Promote external efficiencies with customers and suppliers by implementing CPFR (Collaborative Planning Forecasting and replenishment), VMI (Vendor Managed Inventory), etc to further drive down inventory levels

The inventory vs. service level plot shows the impact on inventory levels and improvements in service levels associated with the 3 broad steps. Our experienced analysts use state of the art modeling tools to combine data based analysis with valuable human insights to provide high impact solutions that will differentiate you from your competition and will give you an edge in the short and long run.

Project Timeframe: We typically start with a pilot project in one product group, take you through the whole process, demonstrate the value and then move to all other SKUs. The pilot project takes 25 – 35 days.

For more information, please contact Mike Cue, ext 120

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