3 steps to improve stock management and increase profits

1. INVENTORY OPTIMISATION

2. 3 steps to improve stock
management and
increase profits

3. “In theory, theory and
practice are the same. In
practice, they are not”
I. Introduction
II. Aligning strategy and operation
III. Slimstock Building Block Model
IV. What can you start tomorrow?
Why improve: make more money with your
current investment

4. Inventory management looks pretty simple
Inventory costs
versus risk for
out of stock
Inventory costs
versus ordering
costs

5. However: everyone has a different perspective
when looking at inventory

6. Aligning the inventory with
the company strategy

7. Operational
Excellence
Customer
Intimacy
Product
Leadership
Efficient supply chain Large assortment Quick and flexible supply chain
Focused assortment Reliable and flexible
supply chain
Quickly changing assortment,
many new product introducitons
Minimal inventory High service levels Minimal obsolescense
Customer
intimacy
Best service
Operational
Excellence
Best performance
Product Leadership
Technological innovations
Superior image
Time-to-market
Customer Intimacy
High Customer satisfaction
Optimal service
Integration with customer systems
Operational Excellence
High reliability
Focus portfolio
Total cost of ownership
Product
Leaderschip
Best product
The Discipline of
Market Leaders (1997)
Should result in the following
characteristics in assortment
Inventory and supply chain

8. How does this influence the daily life of a
planner/buyer?
How can I best fill the next shipping container?
Planners and purchasers need to turn their head around many decisions:
Is the trend real?
Do the annual holding costs outweigh the margin?
Is demand influenced by seasonality?
Were last months sales exceptional?
Assortment decisions….
Stocked Vs. Non-stocked?
Purchase to order?
What is the optimal order quantity?
What’s the demand profile?
What forecasting method should be applied?
What’s the MOQ?
Has there been a step change in the demand profile?
How many components do I need to manufacture kit products?

9. Supply chain management
Inventory management
Parameters
Masterdata
Portfolio
Complexity
Alignment in the supply chain
Collaboration with customer and supplier
Correct parameters
The right process and decision rules
Reliable master data
The right assortment
The base must be
right in order to
make progress

10. To manage the assortment is
a complex process

11. You need a group of processes, rules and
KPI’s designed to guide an item through all
the phases in the Product Life Cycle (PLC)
TO MANAGE THE ASSORTMENT
IS A COMPLEX PROCESS

12. Every item has a product life cycle status
New Mature End-of-life
You need to be responsive,
agile and monitor change in
demand closely
If an introduction is a success
you quickly need to scale up
supply. If an introduction fails
the risk is that inventory
becomes obsolete
In this phase, service and
costs can be optimized
There is little risk in buying
larger, economic quantities
Demand and number of
clients are decreasing, there
is a high risk of obsolescence
It is important to monitor the
phasing-out process
especially in a multi echelon
supply chain

13. Combining PLC-management with the
stock/non-stock logic creates a 6-stage model
New Mature End-of-life
Stock
Non-stock

14. New Mature End-of-life
Stock
Non-stock
Rules to define when an item moves from one
stage to another need to be clear
1 4
3
2 6
5

15. If we measure kpi’s such as stock turn or
availability we mainly look to the items in the
stock-mature stage
New Mature End-of-life
Stock
Availability = 98.5% Stock turn = 8
Non-stock
RISK
MANAGEMENT
OPTIMISE
RISK
MANAGEMENT

16. The assortment includes all the items the customer can buy from the company
The depth and width of the assortment is a strategic decision that defines how the company
is perceived in the market
For all the items in the assortment you need to make the tactical decision where you want to
supply this from:
• From supplier
• From central stock
• From local stock
• From VMI at customer
For this you need stock rules
Portfolio management

18. We sell this many times
It is a high revenue item
We make a lot of margin on this product
We have many different customers for this item
We sell this to our A-customers
I can return it to my supplier
We are the only source
Customers want this delivered the next day, but there is a long lead-time from the supplier
The product can only be bought in bulk and customers want small batches
An important supplier wants us to have this item in our assortment
There is no alternative product in our assortment
It generates traffic
How do you turn this into a process?
Reasons to stock an item:

19. The stocked index defines if an item stocked
or not …
Score 50 – 100 Stocked
Score 30 – 49 Transition
Score 0 – 29 Non Stocked
Stocked Index
Criteria Weight Boundary Score Result
Number of order lines
Turnover
Gross Margin
Number of unique customers
Number of A-customers
Service or strategic item
GMROI (earn x turn)
Supplier ranking
TOTAL
20
20
10
20
10
10
5
5
100
> 12 per year
> € 10.000
> 20%
> 5 per year
> 3
Yes
> 120%
Top 50
8 per year
€ 4.000
35%
6 per year
4
Yes
80%
In top 50
0
0
10
20
10
10
0
5
55

20. Improve data quality
Portfolio
management
Improve
data quality
Optimise

21. How to do this for thousands of records?
A B C
%turnover
% items
A B C
%orderlines
% items

22. A B C
%turnover
% items
A B C
%orderlines
% items
A
B CA
B
C
Start small, but significant
Train as you fight
Become flawless, 99,x%
Clean and complete data
Improve processes, ask 5 times why
Start with the core part of the assortment

23. How to realize your KPI’s consistently?
Portfolio
management
Operational
excellence
Optimise
Service level
differentiation
Economic
series
Lead-time
management

24. Optimise by service level differentiation
A
70%
B
20%
C
10%
X 70%
Y 20%
Z 10%
AX
AY
AZ
BX
BY
BZ
CX
CY
CZ
ABC classification: Cost Of Goods Sold XYZ classification: Order Lines

25. Optimise on service level differentiation
99%
98%
97%
98%
95%
95%
97%
95%
90%
XYZ classification: Order Lines
ABCclassification:CostOfGoodsSold

26. Optimise on service level differentiation
99%
98%
97%
98%
95%
95%
97%
95%
90%
XYZ classification: Order Lines
ABCclassification:CostOfGoodsSold
Now you have differentiated on:
Cost of goods sold & Order lines
Per block you can optimise further:
Items with a low variation get a higher service
than items with a high variation
or
More expensive items get a lower service than
cheap items

27. Optimise order quantities

28. Optimise order quantities theoretically
EOQ
Costs
Order quantity
Total costs = holding costs + ordering costs
Holding costs
𝑂𝑟𝑑𝑒𝑟 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
2
× 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 × 𝐶𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 %
Ordering costs
𝑌𝑒𝑎𝑟𝑙𝑦 𝑑𝑒𝑚𝑎𝑛𝑑
𝑂𝑟𝑑𝑒𝑟 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
× 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑓𝑜𝑟 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔
𝐸𝑂𝑄 =
2 × 𝑌𝑒𝑎𝑟𝑙𝑦 𝑑𝑒𝑚𝑎𝑛𝑑 × 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑓𝑜𝑟 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔
𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 × 𝐶𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟 %

29. Optimise order quantities
box Pallet-layer Pallet
Costs
Order quantity
EOQ
Bandwidth to
optimise logistics
By increasing the costs with
only a little bit, full pallets can
be purchased instead of pallet
layers
The EOQ is a theoretic figure.
The bandwidth to optimize
logistics closes the gap
between theory and practice

30. Lead-times consist of multiple factors:
Optimise lead-times
There is often a lot of slack in the sum of all lead-time factors
Which percentage of the total lead-time is caused by your internal process?

31. Where can you start tomorrow ?
Check stocking
rules
Check whether your current
stock and non-stock items
follow your stocking rules
Analyse performance
of your top items
Analyse the performance on
your top items (e.g. top 50%,
A-items, top 500)
Improve data
quality
Analyse, check and improve
the master data in your
system

32. Want to know more? Contact us!