Inventory Optimization

Supporting Organizational Continuous Improvement Initiatives with Inventory Optimization Drew Forte Director of Supply Chain Improvement, FORTE

Agenda ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],|

Definition: Inventory Optimization | ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Calculating an Accurate Carrying Cost | Observation: If inventory carrying costs are perceived low, more inventory will be carried. ,[object Object],[object Object],[object Object],[object Object],[object Object],Expense Level Receiving & Repositioning Product or Family Rent/Utilities Product or Family Shrinkage and Obsolescence Product or Family Physical and Cycle Count Product Class Insurance and Tax Average Inventory Working Capital Cost Average Inventory

Classifying Inventory | Observation: Strategic inventory planning classifications must be aligned with tactical planning processes to assure success ,[object Object],Classification Description Pro Con Gross Margin Average sales minus total delivered cost Hits the bottom line the fastest ,[object Object],[object Object],Carrying Cost Average inventory times cost to carry inventory Targets SKUs that drive inventory costs ,[object Object],[object Object],Usage Order line hits Targets handling costs Does not take into account other supply chain costs Variability Forecast error Enables fill rate strategy that targets customer service ,[object Object],[object Object]

Classifying Inventory | Variability of Demand B C A Low High Gross Margin Medium ,[object Object],Exit ,[object Object],[object Object],[object Object],[object Object],[object Object]

Total Delivered Cost Source Deliver Make Customer $ P1 $ T1 $ S1 $ R1 $ DC1 $ PW1 $ FGINV1 $ PWINV1 $ RMINV1 Total Delivered Cost = $ PW1 + $ PWINV1 + $ R1 + $ FGINV1 + $ DC1 + $ O1 Plan t P1 t T1 t S1 t PW1 t R1 t DC1 Total Mfg Cycle Time = t P1 + t T1 + Mfg t Total Customer Order Cycle Time = t R1 + t DC1 + t O1 $ O1 t O1 Simple Network – Plant Warehouse and DC Inventory

Total Delivered Cost Total Delivered Cost = $ PW1 + $ PWINV1 + $ R1 + $ FGINV1 + $ DC1 + $ O1

Example | ,[object Object],[object Object],[object Object]

Example – Speciality Chemical Company | Gross Margin Pareto * Note: 338 products delisted Gross Margin Products* % Products Order Hits Weight Stnd Cost Sales 25% 28 2% 19% 24% 26% 25% 50% 102 8% 40% 43% 44% 48% 75% 274 20% 62% 66% 68% 73% 90% 525 39% 78% 78% 84% 88% 100% 1,350 100% 100% 100% 100% 100% 15,297 26,030K $11,000k 32,000k

Inventory analysis of BASE case and scenario C017 assumptions further reveal working capital opportunities through rationalization of:  ABC product classification schema  Inventory fill rates  Stock versus make-to-order * M ade T o O rder Iterative Process - Example Variability of Demand Versus Forecast Example – Specialty Chemical Company (continued) |

Over 126 simulations have been run to date. Distribution center location scenarios of particular interest are: ,[object Object],[object Object],Iterative Process - Example Example – Specialty Chemical Company (continued)

Key Performance Indicators End-to-End Process Metrics Level 1 Metrics Level 2 Metrics Metrics Are Linked to Sub-Activities and Rollup To Executive View Target Setting Policy Setting Target Attainment

Continuously Improving | Low Weekly Inventory Flash Report Supply Chain Planning Targets to Achieve Policy A Target vs Actual Target vs Actual Target vs Actual Component Target Actual Service 98% 98.20% Base $8,249,678 $8,208,430 Safety $6,407,250 $6,375,214 Replenishment 96 Hours 93.75 Hours Target vs Actual Target vs Actual Target vs Actual Target vs Actual Target vs Actual Target vs Actual

Benefits and Typical Savings ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],|

3 Things Your Company Should Review ,[object Object],[object Object],[object Object],|

Thank You! Drew Forte Director Supply Chain Improvement, FORTE [email_address]

Inventory Optimization

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Inventory Optimization