Inventory Reduction: Lessons from the Gym!

Few years ago, while wasting many uncomfortable hours in the city traffic commute you would hear yourself say WTF!

Then covid shook everything and WFH came as a welcome bargain. I gained free-time and gained weight & inches at all the wrong places. But it was all OK; my homely T-shirts were accommodative. Note: Internet was ‘always too slow’ to necessitate video to be put off during online meetings.

Only thing constant is change. Alas, this too had to pass. And, in came the crossbreed of WFO and WFH called “Hybrid working”. My gym suddenly became hyper-active in sending promotional invites enticing me to get fit again. So instead of buying a fresh set for wardrobe with loose fitting clothes, I braved the cause of cutting the inches of flab.

At my popular and busy unisex gym, I am very curiously observant. No, I am not prompting any tittle-tattle for WhatsApp forwards (LOL)! What I saw is that each person is advised a different set of regimes, and the committed ones surely were achieving desired goals and beyond.

While pushing pedals on my cycle (which was going nowhere), I could relate to the journey our businesses have traversed in last few years.

As businesses came out (somewhat bruised) from the Covid affected period, planning managers made a resolve to safe-guard customer service levels and plant operations from similar disruptions in future. One immediate action, taken by most companies, was to increase safety (read comfort) stocks. This was akin to surrendering the fort build and held tightly for many years, as Supply Chains perfected the art of JIT and well-honed inventory flow thereof.

With the recent JIC (just in case) philosophy, we have seen an increase in inventory levels across the value chain. This subsequently started showing up as SLOB, expired stock and poor inventory turns. The eagle-eyed finance partner now took flight from his vantage cabin and started hovering overhead the SC planner. His ask is truly crisp and simple: “Reduce inventory by 10% and do it fast!”.

With inventory levels higher than pre-covid times across the chain, it might seem to be an easy task. “Just cut 10% everywhere!”? It is NOT so simple.? Uneasy is the head that wears the planners’ crown. Operations are now used to the cushions of new inventory levels. Cutting it will be far more difficult than taking away the favorite toy from an infant. You do not want the child to cry out loud to disturb the new cross-functional equanimity.

You must ensure service levels and partner with sales team in achieving the BHAG (big, hairy, audacious) revenue targets, after all covid is behind us and we must make-up for the lost growth and deliver a healthy CAGR.? There comes the resounding war cry from the corner office: “Customer is spending more, and our share of wallet must improve.”

Only last quarter end, Sales head wryly said, “Inventory-inventory everywhere, not the one that I want to sell”. And you wonder what went wrong and where to start.

These are interesting times for the SC manager. “Do more (sales) with less (inventory)!”

Inventory reduction is a journey entailing lots of patience and some surgical strikes too. You need to balance the competing targets of Inventory, Service levels and Operational Costs.

And there is no silver bullet or panacea. Hakim Lukman does not have the remedy either.

Take a deep breath! Let’s assess Your business situation and Your business’ requirements specifically. Remember at the gym, there were different regimes for different body types.

To define specific goals for Your Supply Chain, it is recommended to undertake a benchmarking exercise across Service, Inventory and Cost. Overlay these findings with strategic considerations of your company. A high product innovation growth strategy will require very different Supply Chain outlay versus a stable, low-cost oriented strategy.

First you would need to manage the here & now challenge of Slow movers, Obsolete and Expired (SLOB) stocks. These need to go out of the system at the earliest. You may choose from the following list of tactical ‘clean-up’ actions:

a.?Run discount sales.

b.?Bundle slow movers along with popular SKUs.

c. Customer schemes for up-sell and cross-sell options

d. Move stocks to the depot/ market where there is demand.

e. Work with social media influencers (applicable especially for D2C)

The above would erode margin in the immediate term but are necessary to free up the idle working capital and prepare the value chain for healthier flow-through (read revenue).

In parallel, you should initiate the strategic interventions as listed below. Please choose the ones that are most relevant to your Supply Chain needs. As the culinary experts say, “Namak swadanusar!”.

a.?Make to order versus Make to stock: a higher ‘Make To Order’ will reduce inventory though it will adversely affect your speed to service customer orders.

b.?Ownership of inventory: Negotiate longer payment days for suppliers, and shorter for customers. Book inventory comes down; though cost of procurement and customer margins may go up.

c.?Target service levels: Lower service level promise will help cut safety stocks. This is advised for select category or sku classification. Traditional approach classifies based on revenue alone. It is important to add dimensions of demand variability and operating margins. This multi-dimension segmentation approach helps you devise tailored strategies for each segment.

d. Shorter Lead times: Initiatives to reduce lead times factory, transport and replenishment cycles will reduce the cycle stock.

e. Reduce demand variability: Advanced Demand Sensing is not possible. Further, you may systematically reduce month-end skews.

f. Reduce Supply variability: Improve Supply predictability, work closely with suppliers (especially high volume-value partners).

g. Optimize network design: Right number and location of factories, warehouses will help reduce the operational costs and inventory. This exercise should be done every 3years, and earlier when there are strategic changes in category/SKUs, customer market, sales geography et al.

h. Best-fit Logistics mode: While larger trucks and train mode help reduce the transport costs, these necessitate higher stock movement each time. Segmented approach (refer point c above) to be used to identify select SKUs/categories that are better transported on smaller vehicles/ PTL.

i.?KPI and Dashboarding: What is measured and tracked does improve! It is important to ensure that the correct set of KPIs are selected. Correct definition, formula, source data, report frequency is adopted. Uniform understanding of dashboard and shared ownership across functions will enable higher collaboration.

…?Let’s Unravel our Tessellations!

Do share your feedback below, and let me know which Supply Chain topic/issue you would like to know more about.

All views expressed in this article are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated.