The Challenge

A growing consumer-products business had accumulated more than $3.6 million in inventory.

Too much cash was tied up in slow-moving, obsolete, short-dated and damaged products. Conservative safety-stock levels added more inventory, while the planning process focused primarily on meeting demand and production requirements without adequately connecting forecasting, inventory and cash.

The business needed to reduce inventory without creating service problems.

What We Found

The problem wasn't simply that the company had too much inventory. It was where the inventory was and why it was there.

Inventory decisions were being made SKU by SKU without enough differentiation between the products driving the business and those contributing relatively little. Safety stocks weren't consistently aligned with service requirements, and there wasn't a disciplined process for identifying and disposing of inventory unlikely to sell through normally.

The S&OP process needed to do more than balance demand and supply. It needed to help determine where the company should invest its working capital.

What We Did

We rebuilt the S&OP process to incorporate inventory and working-capital discipline.

Pareto analysis helped identify the products that warranted the greatest inventory investment. Safety stocks were reviewed and adjusted based on demand, lead times and service requirements rather than applying the same philosophy across the portfolio.

We also established a more formal process for identifying and disposing of excess, obsolete, short-dated and damaged inventory through closeouts, promotions, write-downs and other appropriate actions.

Supplier payment terms were incorporated into the planning process so purchasing and inventory decisions could be considered alongside their cash-flow impact.

The Result

Inventory decreased from approximately $3.65 million to $2.28 million in nine months, a reduction of approximately 37%.

That released approximately $1.37 million in working capital while maintaining appropriate product availability.

Inventory turns improved from approximately 4x to 6x, while approximately $120,000 in annual obsolete inventory costs were eliminated.

More importantly, inventory became part of the company's broader operating and financial planning process rather than simply a purchasing or warehouse metric.