3/30/2024 0 Comments High inventory turns![]() More specifically, as it regards your focus on improving inventory turns, the ability to develop an understanding of total acquisition/ownership cost and how your supplier can impact total cost and improved inventory turns is surely one of my top criteria. But, every good supplier may not make for a good partner, so some criteria must be met. In recent years, partnership has become a popular term to describe the type of relationship of trust that companies have, or want to have, with their suppliers. Our thought-leadership white paper " Lean Principles in Wholesale Distribution Supply Chains – Do You Pull or Push?" explains this in more detail. ![]() It's a concept that is only now making its way into smaller enterprises and emphasizes less reliance on demand forecasts (which are not usually very accurate anyway), replenishing inventory based on what was actually sold (the customer's buy signal), reducing replenishment order cycle times (compressing time), and reducing those buffer inventories you maintain to guard against uncertainty. Many Fortune 500 companies have or are in the process of transitioning to a "Pull" approach to inventory and supply chain management, versus the "Pushing" of inventory into their stocking locations. As I mentioned earlier, it requires a change in thinking. What can you do? Take a different approach. Maybe you can't be just exactly like Wal-Mart, but I think you get the message as to direction. The point is, through their lean supply chains, Wal-Mart sells product way in advance of having to pay suppliers for it. Minimize inventory at every point in your supply chain and drive the waste out.īecome more like Wal-Mart (yes, I know, they are different). You need to optimize your inventory supply chain, make your internal processes leaner and optimize your supply chain relationship with your suppliers. Rather, why not "lean" the processes that may be impacted? In other words, improved inventory turns can be obtained and sustained in a truly waste-free "lean enterprise" where "lean" becomes a key tool.įirst, take an end-to-end view. So, the argument, "I'll have to hire more people to handle the additional transaction load" doesn't resonate. But, going back to the first example, there would have to be one heck of an increase in transaction costs to suck-up the annual savings and one-time cash savings. So, I guess there is a point of diminishing returns. Consider this extreme example: a company that buys inventory only once per year is getting a cheaper overall price (total cost of acquisition/ownership) than a more frequent buyer. It does, however, require a change in thinking, a plan and a timeline.Īnyone even remotely involved in inventory management knows that increasing inventory turns generates more free cash flow, but comes at a price (increased transaction costs, more receiving, inspecting, put-away, maybe even having to pay more invoices). Yet, improving your supply chain strategy can have the most positive impact. The traditional areas of focus – such as eliminating/reducing slow-moving and obsolete inventory, better forecasting and improving your technology utilization – are all good candidates, as are a myriad of other possible initiatives. ![]() Surely, focusing on your processes can yield positive results. Sometimes it's because "we've always done things this way." Often, the rules were established to cover flawed processes that lead to excess inventory, excess inventory carrying costs, and the pressure on cash. Rules usually evolve over time and often may not be re-evaluated for many years. What Are The Rules Within Your Inventory Supply Chain? In effect, you are being paid every 90 days! Would you be OK with getting your paycheck that infrequently? Let's say you turn inventory four time per year. Just by improving one turn, a typical wholesale-distributor can save hundreds of thousands of dollars! Consider this example: XYZ Company There are large savings as a result of optimizing inventory and improving inventory practices. I may be over estimating the inventory turns of a typical wholesale-distributor, as I recently visited with a few with 2.5 to 3.0 turns per year! Four Inventory Turns Per Year Doesn't Cut It Anymore!
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