Case studies for inventory management

  • Focus of the inventory management Study

    An assignment was conducted for a manufacturing company, focussing on their inventory management process, we looked at the following aspects of the manufacturing company:

    • Demand forecasting at the product / sales person level:
      • Variances between forecasts, revised forecasts and actuals
      • Stocking at the locations to enable quick customer service

    • Inventory best practises:
      • Inventory classifications and record keeping
      • Inventory as a % of sales, compared to industry standards
      • Inventory ordering and tracking processes
  • On completion of the study, we reported the following findings (specific cases):

    • Inventory as a % of sales was 32%, compared to 20% as industry standards
    • Some locations were over stocked, while some locations had stock outs
    • Old, aged and obsolete inventory was not disposed for 2 years, leading to extra warehousing space, security and management costs etc
    • There was a large differential between the book inventory and selected physical inventory of Category A items and some Category B items
    • Huge differences in forecasts and actual shipping quantities – no review mechanism to identify the reasons for the same
    • The Bill of Materials had not been updated for 1 year
    • No new / alternate vendors were identified for procurement of key items
    • Some pricing data entry errors, leading to wrong inventory in the systens
  • Buy in obtained from the management for implementation of key steps

    • Identifying a Production, Planning and Control department to analyse forecasts, procurement and production cycles to reduce wastages, look for new vendors and build in purchasing inefficiencies
    • A target to reduce the inventory to 20% of sales, within 6 months
    • Revising the BOM to enable procurement efficiencies and reducing the COGS
    • A quarterly process for taking a physical count, reconciling the same and identifying the reasons for the differences
    • Analysing the causes for inventory build-up and taking steps to reduce the inventory
    • Taking steps to liquidate the old and obsolete inventory
    • Having a maker and checker system so data entry errors were reduced, bar coding, wherever possible
    • A 3 way checking with the PO, Invoice and GRN to reduce clerical errors