Client Case Study: Inventory

Management
How Do We Reduce Inventory Levels?
A manufacturer of computer peripheral devices was looking to improve its balance
sheet and P & L by reducing inventory and the associated carrying costs, while
improving customer service. The products required to support different 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:

1. What would the impact be on profit from the disposal of obsolete invento ry
in order to improve the balance sheet?
2. How do we institute a program to prevent the buildup of obsolete inventories
by disposing of slow movers on a regular basis?

Establish 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 members 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 recommended that the total

purchasing power of the corporation be leveraged to obtain more favorable
purchasing and consignment agreements by centralizing the purchasing function.
At the same time, local materials management functions could be strengthened to
improve requisitioning and materials usage and upstream supply chain partnerships
were established to improve material flow and reduce purchased parts inventories.

In inventory planning and management, a centralized logistics function was

recommended. Written policies and procedures were developed for inventory
planning, management and reporting, and a new forecasting and inventory pla nning
business process and information system was implemented. All inventories are now
managed more intensively 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 lowest unit cost and high absorption to meeting the schedule in time
and quantity to improve customer service levels.