|Organization: Industrial metal products manufacturer||Need: Update operations to scrutinize purchasing habits and address customized stock||Outcome: Turns increased 50%, which boosted operating profits and improved cashflow|
Understanding the situation
A large industrial metal manufacturer in the Midwest — including eight subsidiaries, six distribution centers, and numerous distributors — lost a major customer and was left with unexpected, customized inventory. Its leaders realized they needed faster product turnover and process changes for standard and custom parts.
Exploring the challenge
In this industry, large customers typically use one vendor for both custom and commodity parts. The manufacturer worked with suppliers to purchase custom, pre-stamped products for its large customers and stocked off-the-shelf parts for related applications.
However, when this customer unexpectedly took its business elsewhere, the manufacturer was left with $40 million in finished goods on shelves, $9 million of which was customized — and they could not sell it to others.
The manufacturer needed a way to reduce custom inventory, scrutinize purchasing habits, and design a plan to improve product turns.
The CLA inventory management team analyzed turnover to determine how much cash was associated with non-moving, slow-moving, and low-margin parts. Non-custom parts were discounted and sold. The profits went straight to the bottom line and boosted operating cashflow. Then they limited purchasing expensive, higher-margin standard parts that turn only once per year and tie up cash.
Finally, the team created capacity to handle custom parts in-house. The manufacturer now purchases off-the-shelf bulk items and, after a sale is made, finishes the final assembly and customization of parts “on demand,” eliminating the need for custom inventory and reducing the risk of being stuck with parts that cannot be sold.
As a result, the CLA team assisted the manufacturer in identifying operational changes that would help improve turnover 50% from twice a year to three times a year, improve cashflow, and streamline production efficiency.
Identify operational changes that could help increase product turnover and boost cashflow