When does Inventory Ever Go Down? (Good Case)
author: Lee Buttolph
Continuation from former blog posts on inventory management.
My second example is from my own company.
We were able to take our inventory level from $250,000 to $150,000 in a single month. It wasn’t easy but it started with my determination one day that it MUST go down… or as the original quote says “... when does inventory ever go down? When the boss says so.” (1)
How did we do it? We sold lumber and plywood to local retail lumber yards. We sold full units of lumber (eg. a bundle of 294 2x4x8’s or 70 pieces of 1/2 plywood) to many but we also sold lots of open units (eg. 10 pieces of this, 5 sheets of that, etc.). The rest of the unit that was opened for the 10 pieces or 5 sheets was put into racks and left there till someone else needed a couple pieces.
Eventually, all these open units started to accumulate in our racks and ended up being a large percentage of our inventory balance. To bring the inventory down we took a couple steps:
1. We added intelligence to our operations software to tell us when there was open units in our racks and the percentage left in the unit.
2. We took that intelligence and added it into our daily orders report that the yard foreman used to pick orders for the next day's shipments.
3. I then instructed the yard foreman to coordinate with the sales manager to ship out any full unit orders with a partial unit that was more than 1/2 full (with the sales manager’s permission since not all customers would accept it).
With this simple procedure we put $100,000 in cash back into the bank in no more than a month. In a low margin business every dollar counted. As simple as these changes were, and they were simple, they couldn’t start without the boss (me) declaring that we WILL reduce inventory.
(1) Bruner, R. F., & Yemen, G. Robb Fitzgerald at Comvia Networks.