Case Study 10: Key Strategic Moves Taken to Increase Inventory Utilization Factors in a Manufacturing Company

Inventory Utilization Factor is a key parameter in the manufacturing sector that measures in respect to how effectively a company is stocking it inventory load. In B2B environment, a company dealing with business will have an entirely different way the inventory is consumed weather its in RM, FG or SFGs form. We were hired to analyze inventory and come up with strategies to increase the utilization factor. By employing some key measures, the company over inventory reduced from AUD 19.5 million to average AUD 14.5 million , while IUF increased from 15% to 55%.

Better Demand Planning

While manufacturing earlier were working based on feedback from the project managers and planning inventory for highly likely projects based on their feedback, we noticed that the key element missing was non involvement of account managers who were in direct contact with the customers and responsible for winning contracts. Involving account managers through S&OP process ensured first hand information about projects with high probability of winning. The increase in probability of winning from 5 to 10 from 8 to 10 drastically improved utilization factor

Ripping Short Lead Time Stock Items from Stocking

Around 400 items were identified where procurement Lead time was much less than delivery lead time, in some cases, while the products, such as tapes, screws, nuts and consumables were easily available, there was no need to stock that items especially when a lot of them were available through alternative sources.

Cut MOQs for the Lower Stock Turn items

We identified around 100 stock items where it would take 12 to 14 months to finish a lot . A mechanism was put in place to to engage suppliers in forward stock planning and having blanket order purchase agreements in place. This gave suppliers an assurance and certainty at the expense of reducing MOQ which ultimately resulted in better cash flow and availability of working capital

Suppliers Consolidation

Where possible, local stockists were identified and preferred over importing directly from overseas suppliers. That helped make a better product mix and consolidate order quantities that too help reduce the MOQs

On Hand Analysis at Various Locations.

Since companies were stocking items at 29 locations including many customer sites, we found out that a huge number of items can be transported from the locations of high consumptions to the locations of of low consumptions instead of buying them

Utilizing some key strategies across organization and devising policies around help us save around AUD 5 million in inventory load.

Optimizing inventory management is a strategic move that can significantly impact a business's financial health and operational efficiency. By effectively reducing inventory costs, businesses can free up capital, improve cash flow, minimize risks associated with excess stock, and enhance overall profitability. Implementing strategies like demand forecasting, lean inventory management, and efficient warehouse operations can lead to substantial cost savings and a more sustainable business model.