TOC3 Australia

Distribution Logistics – Inventory and Warehouse Management

Do you want to dramatically improve Profits and Cash Flow?

If you could get the right stock at the right place, in the right quantity, at the right time for the right price would that help?

Can you simultaneously reduce inventory in the system and increase the level of customer service?

Have you given thought to the impact of these problems on your bottom line and stress levels?

How long have these problems been around?

Would you agree if these problems were easy to remove we would have done so already!

You may be surprised to learn that many companies are prospering with increased customer service, higher inventory turns and higher profits. At the same time inventories in the system reduced by as much as 50%.

• Up to 100% availability of stock whilst holding 50% or less inventory
• 50% or more cash released back into the system
• Higher inventory turns
• Increased sales and profits
• Higher margins

Results that some of our clients report:

• Inventories cut 60% ($30m) in Australian operations (steel industry), Inventory turns doubled and on time delivery to customers >95%, 2010
• Inventories cut 45% (>$60m) Singapore steel company, 2009
• From average 40 days stock to 12 days stock in finished goods - Domestic Refrigeration, 2008
• 48% inventory reduction in FG supply chain = $20m within 18 months - Domestic Refrigeration, 2008
• 60% reduction in FG stock from >$1m to <$400k - Commercial Bakeware, 2006
• Sales turnover increased in regional supply centres due to increased availability, 2011
• Increased FG's availability helped increase sales approximately 10% in mining/construction components supply company, 2012

Why do we have inventory?

Inventory is used to de-couple supply from demand wherever the time to make and transport new products exceeds the tolerance time of the consumer to be without the product. This is fairly obvious.

If it’s not there the consumer will go elsewhere to find what they want. How much inventory to hold has always been the issue given we cannot accurately forecast demand.

Traditionally we tend to place (push) inventory as close to the point of consumption based on our best guess or best forecast (much the same) assuming that this is the place where we can best serve our customers.

We rely on forecasts for planning and scheduling. We set batch sizes at the economic reorder point (EOQ) that sets the min – max reorder points in MRP systems. We do this because production needs to operate efficiently and cost per unit is a prime measure. Meanwhile customers don’t read our forecasts, uncertainty and variability strike at the worst times, and ultimately we find ourselves facing the devastating symptoms listed above! So how come? 

What is the Theory of Constraints Replenishment Approach?

Replenishment is a demand-pull system. The idea is simple – frequently replace what you sold (or consumed) without creating the above list of deadly symptoms. Not so easy unless you know how. Our current way of thinking and practice prevents this. We need a completely different perspective based in irrefutable logic and TOC provides this.

At TOC³ we can help you transform your business by installing the Theory of Constraints 6 step Replenishment approach. No additional software is required.

If you would like to find out more please sign up here and receive a free Business Transformation pack.

Recommended reading:

The Race, Eli Goldratt & Jeff Cox

It’s Not Luck Eli Goldratt.