A warehouse is much like the storage spaces we have at home – if there’s any space left, we have a tendency to fill it. As a business though, it could turn out to be quite expensive. Let’s just say that there’s cash to save in these jam packed, cram-full areas. And at the same time, why not increase delivery performance for the better?
“The more inventory a company has, the less likely they will have what they need” – Taiichi Ohno, Toyota legend
One of our long-standing clients works with advanced medical rehab equipment. They reached out to us explaining that they weren’t completely satisfied with the cash it took to keep the daily business in motion. They wanted to increase the cash flow.
Our client wasn’t on their knees, far from it actually. They were expanding and being as profitable as ever, which had created a need for reduced working capital. Reduced working capital that could lay a foundation for future, even bigger, growth. After opening the door to their warehouse and getting a glance of the stock amount inside, it was clear as day – the company was suffering from excessive stock-keeping. A pretty common, yet dangerous, illness.
“Inventory is money sitting around in another form” – Rhonda Adams, USA Today
After having gone through all of their stock and assets our thesis was confirmed. There was great potential to release capital by bisecting the number of days the products stayed in stock. As these changes also turned out to increase cash flow, that piece of money could be invested in further growth of the company.
The key in this case was: No more routine orders, only carefully thought out decisions from now on.
FOR EXAMPLE: Previously our client had mounted large sub assembly in a factory in China, later to be sent to the US or Europe for the next step of assembly and with parts that could be used for several different kinds of large sub-assemblies. Instead of continuing this multi-step assembly and transportation they now send needed parts straight to the factories, to be assembled in place. By making this change our client could stop purchasing loads of varied pre-assembled products and by that reducing their stock volume. They now assemble by order and the constant game of guessing the markets upcoming demand is finally over. Risks and working capital were reduced to minimum and the cash flow sat free increased steadily. We’d found a way to a better deal for everyone – win win, as they say!
The results speak for themselves: Our clients inventory turnover per product was cut short by 40 days on average.