Effective inventory management & deployment for highly volatile demand

A leading consumer and industrial parts manufacturer had difficulty deploying inventory across their 8 facilities in US. Out of territory shipments hovered around 35% and customer lead times were higher than desired. Our solution involved segmenting the items across multiple dimensions by facility. Standard inventory policies were established by segment driven by desired service levels. A combination of cycle and safety stock requirement is calculated at an item level based on forecast accuracy, demand volatility and supply volatility. Ongoing requirements across facilities, by item was estimated on a weekly basis and sent as requirements for production scheduling. A deployment quantity by item by facility is estimated based on finished goods quantities at the end of production run, while maximizing the creation of full truckloads.

Benefits include

  • A 70% reduction in Out of Territory shipments for the fast movers in year 1
  • About 15% increase in production capacity due to consolidated runs by item and about 10% reduction in warehouse space
  • 5% reduction in freight costs due to better outbound truck utilization
  • There was no net increase in overall inventory value held

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