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MANAGEMENT + SYSTEMS Some distributors have found it useful to add an item


description column and package quantity column. The report should be run by location for our purposes. There are benefi ts to a company-wide report, but not for improving turns. From this simple inventory movement analysis report, we can formulate a plan of attack designed to reduce the average inventory value without jeopardising our customer service level. With this client, my fi rst suggestion was to rank the report


by the number of hits in descending order. His fi rst task was to segregate any item with less than 4 annual hits. These items are clearly not the favourites of your customer base. Since your customers don’t seem to be supporting them with their wallets, should we be carrying them with our wallets?


“How much money do you have sitting idle?”


The simplest answer would be to convert all these items to


non-stock status. This doesn’t mean that we can’t sell them. These items would just be sourced rather than stocked. Since they are so infrequently purchased, the additional time spent on sourcing should be minimal. Before we get out the broad sword and kill all of these items, we need to identify a few potential exceptions. Some of these items might be part of a greater whole. I tend to view repair parts in this manner. Keeping a few on hand is probably a good idea. You may have a contractual obligation with a customer. Just make sure it is one that pays you on a regular basis. You may have an obnoxiously high gross margin on the item when it is sold. As long as you don’t break it in the several months it sits on the shelf before you sell it, I can live with this one. All others should be converted to non-stock. Let the liquidation proceedings begin. My next suggestion with this client was to look at the surplus


inventory from the last column of the hits report. I asked him to rank the remaining items, after moving the slow and dead to non-stock status, by months of inventory on hand. The next


step is to isolate the SKUs with several months of inventory on hand. I generally isolate anything with more than 8 or 9 months of inventory on hand. This is the fi rst shot. I can dig deeper, meaning 6 or 7 months on hand, if I don’t have enough targets. For most distributors, 9 months is a good start. Take this newly isolated group and re-rank the items by


current on hand invested in descending order. Start looking at the big dollars. Why do I have this much on hand? Is it because of a manufacturer package size? Did I buy at a higher quantity to get a lower price? Are my buyers using gut feel versus the inventory replenishment system we paid for? Is there a bad min or max number in the system? Do some research and fi nd out what is causing the infl ation. Take appropriate corrective action. In order to set a goal for yourself, take a snapshot of the slow


and the dead items. How much money do you have sitting idle? If you reduced your average inventory value by this amount, what would your inventory turns be? This is a good fi rst goal. Determining the surplus dollars is a bit more challenging


depending on your software. First, you would need to know the maximum quantity on hand, for any given SKU, for optimal replenishment. Then you would subtract this from the current dollars on hand. This may be more analysis than you are ready to handle. If you are able to determine an amount of dollars in surplus, subtract this from the new average inventory value. Re-run the turns calculation and see where it takes you. If the spread between your current inventory turns and your


fi rst goal is greater than one full turn, don’t expect to hit your goal in the fi rst 12 months. It often takes more than a year to improve one full turn. Set a goal of half or three quarters for that fi rst 12 months. A great deal will depend on your ability to convert these captured assets into cash. Liquidation of inventory is a whole other subject of discussion. I will freely admit that there are additional methods of


improving turns. Consider these methods the low hanging fruit. This analysis will yield the largest group of captive dollars. Once you feel like you have exhausted these fi rst two areas, let me know. I will be happy to introduce you to some of my advanced digging tools. Good luck.


About the Author: Jason Bader is the managing partner of The Distribution Team, a fi rm that specialises in helping


distributors become more profi table through operating effi ciencies. The fi rst 20 years of his career were spent working in distributor operations. Today, he is a regular speaker at industry events and spends much of his time working with individual distribution companies. For more information, email him at Jason@Distributionteam.com. Also visit The Distribution Team’s website at www.thedistributionteam.com


A matter of feeling ...


Since 1974 SPECIALINSERT has been a leading European manufacturer and distributor of fastening system covering applications for metal sheets, full parts, plastic and composite material.


MAERNE DI MARTELLAGO VENEZIA


Tel. +39 02.6468476 TORINO


MILANO Advanced fastenening systems export@specialinsert.it - www.specialinsert.it - export@specialinsert.it - www.specialinsert.it ISO 9001 - Cert. n° 0742


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