Benefits of inventory optimisation

Home Inventory optimisation Benefits of inventory optimisation

Why is the optimised inventory approach so powerful?

At the heart of much of the frustration and even conflict between different departments lies the reconciliation of the of the strategic goals with the operational complexity of making it happen.

It’s all very well for the FD to say he wants £1m taken out of the inventory, but if you have 10,000 parts and all of them have different reasons for having a certain amount of inventory, which ones do you reduce? Do you reduce them all, or do you reduce 2 or 2000?

And in addition MRP systems want you to define maybe up to 15 parameters – the batch size (the minimum order quantity), whether or not you buy in multiples (e.g. in boxes of 10), whether or not you want to hold safety stock, what lead time you are using, and so on.

15 parameters multiplied by 10,000 parts gives you 150,000 parameters to manage. That’s complex.

You may only have to reduce the inventory by £1m, but in order to do it you have to decide which of the 150,000 parameters to alter – and then alter them.

The advanced techniques that we have developed allow you to sum up what you’ve got into a single number, manipulate it, and then break it back down again, so you can actually specify at a detailed level what is needed – and so optimise the inventory.

How your processes are it risk with inventory reduction:

  • Customer process

    Failure to deliver
    Losing business
    Losing profits

  • Manufacturing process

    Increasing shortages
    Loss of schedule control
    Incurring extra overtime

  • Supplier process

    More panic orders
    Pay premium prices for rush orders

  • Financial process

    Inventory being scrapped
    Obsolescence
    Increased costs
    Reduced revenues

How your processes will benefit from inventory optimisation:

  • Customer process

    Deliver as promised
    Improve COTIF
    Increase business
    Increase profits

  • Manufacturing process

    Improve manufacturing efficiency

  • Supplier process

    Make consistent demand on your suppliers
    Improve supplier performance

  • Financial process

    Make effective and appropriate use of resources

Many businesses see inventory as a liability and excess inventory a mark of business failure.

But consider this: Inventory helps you meet your customers’ demands. If your production is disrupted by lack of inventory, your customer suffers – along with your bottom line.

For us, and increasingly for our clients, inventory optimisation is the key. This requires a continuous focus on improvement, which ensures a balanced inventory holding and a profitable bottom line.

Can more inventory save you money?

Yes, sometimes it can. Our analysis at Plastics Omnium, a main automotive plastics supplier, saw a modest increase in inventory investment payoff with a three-times saving in production costs.

In this instance, by increasing inventory, our client stabilised the manufacturing process and delivered perfect products to the customer on time.

What about less inventory?

Obviously, more inventory is not the answer for every business.

Our analysis for a major aerospace component supplier produced a 16% reduction in inventory and a bottom line saving of £500K.

What about customer service?

Are you losing business because you don’t hold the right inventory to meet customer demand?

When we helped a large garden products manufacturer optimise their inventory, customer service – and by that we mean orders, virtually tripled.