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CASE STUDY Better Returns Through Optimal Inventory
CLIENT: Steel Manufacturer, Warehouse and Supply Chain
International sourcing of components and finished goods.
LOCATION: Sydney, Australia
THE CHALLENGE:
The client was concerned about the number of “lost sales” through stock outs.
This prompted an assessment of the level of inventory. This assessment showed several things:
• High levels of total inventory, but individual lines were experiencing shortages
• Demand trends were not clearly known
• The total value of inventory was a concern
• There was a large amount of slow moving and dead stock.
The pertinent question was; “What is the level of inventory required to service our customers?”
Assessing and unlocking the considerable savings available depended on the answer to this question.
THE SOLUTION:
Several of the more advanced statistical tools available in the Lean Six Sigma toolkit were used to attack the problem.
• Customer demand data was analysed to determine distribution of demand levels by SKU (Stock Keeping Unit)
• Seasonal patterns were identified
• Variation in demand was quantified and modelled
• Trends in demand were determined and demand forecast processes were constructed
• Service levels were reviewed and applied to product categories
• Safety Stock levels were determined
• Inventory data was analysed to determine re-‐order points
• Lead times and re-‐order quantities were reviewed and adjusted where possible and appropriate.
THE RESULT:
The use of statistics unlocked the value contained in the data already available within the organisation.
By starting with customer demand, the optimisation of inventory levels by product category achieved savings in the order of $4,000,000.
Slow moving and dead stock was reduced by a factor of 10.
