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MANAGEMENT + SYSTEMS

Hunting for cash in the warehouse

by Jason Bader, principal The Distribution Team

Everyone is talking about lean manufacturing, lean distribution, lean operations and a whole lot of other fancy terms designed to make the person discussing the subject look a whole lot smarter. But doesn’t lean boil down to trimming the fat? I guess it doesn’t sound as MBA when you say it that way.

A

nother way of looking at the lean concept is something we, at The Distribution Team, have been doing for almost 20 years – hunting for cash. I kind of like the ring of that. Sounds like an adventure. Let’s face it, pouring

over operating expenses and looking for areas to cut isn’t going to get the troops excited. So let’s put on the pith helmet, sling a rifle over our shoulder and drop a little lead in those cash eating critters running all over your company. The inventory in the warehouse is a great place to start looking

for cash. Over the course of this article, I will throw out a few ways to find money through some really simple reporting. Also over the course of this article, don’t be surprised if you find yourself muttering, “Has this guy been sneaking around our place?”

Reduce the number of shelves When we get a new warehouse, the first thing we want to do

is load it with shelves. More shelves means more stuff, right? Distributors love to see a lot of stuff on the shelves. That is until someone enlightens them to the cost of carrying inventory; but that’s just for those bean counting folks to worry about. An empty warehouse feels counterintuitive. In a sales dominated Utopia,

“ The inventory in the warehouse is a great place to star t looking for cash.”

more stuff means more sales volume. Come on, be honest, how many of your sales people would like to see you get a smaller warehouse? The fact of the matter is that most distributors

carry 25% - 30% more inventory than they need to satisfy their customers at a really high level. The first step is to reduce the number of shelves to fill. This

has a two-fold advantage. One, your inventory stocking decision makers are going to have to start looking at product movement from a systems perspective and quit relying on their gut instincts. Two, reducing the number of shelves will open up the working space so that your operating teams can do their jobs right the first time. As distributors, we are really good at getting it right the second time – especially with a customer order; but man, does it kill our bottom line.

Reduce the number of SKUs In order to make the reduction of shelves possible, we are

going to need to rid ourselves of some of the beloved stuff. Don’t kid yourself; we get emotionally attached to inventory. This is especially apparent in the relationship between the owner of the company and the greatest thing since sliced bread they brought back from the trade show 3 years ago. Attacking the problem from a non-emotional place begins with

your distribution software. Some of you may recall me talking about my favourite inventory management report – the hits report. This report is simply a popularity contest for your SKUs. It asks the question, “how many times did this SKU, regardless of quantity sold, appear on a sales ticket in the last 12 months?” No emotion here. This is just the cold hard truth. From this report, we can determine which items have fallen

out of favour with our customer base. If the report shows zero hits in the last year, we may want to question our reasons for keeping it on the shelf. In fact, we might want to take a really hard look at anything with less than four hits in the last year. There may be some good reasons to keep a handful of these SKUs, but “just in case inventory” is not part of a cash hunter’s vocabulary.

Reducing the quantity on hand Once we figure out what stays and what goes, we need to

start looking at our quantity on hand. The hits report can help us in this phase of our hunt as well. When I go hunting for cash in a distributorship, I usually find a tonne of opportunity in the slower moving inventory. I often discover that the SKUs in the

132 Fastener + Fixing Magazine • Issue 68 March 2011

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