The Client:
A 2nd-generation family-owned business that distributes hygiene consumable products, servicing aged care and hospitality customers in both Sydney and rural areas in NSW.
Challenge:
Faced with the strategic decision to split the business into two separate operations, considering that the two separate industries operate in very different operating models. To accurately assess this, they needed to understand their costs and margins at each location.
The company were experiencing:
- Very poor stock turns
- Poor GMROI
- Business vulnerability was measured as extreme
Intervention:
We applied our IPA methodology to help understand what changes to their inventory policy and distribution strategy were needed. The initial review highlighted the following:
- The return on inventory invested had dropped by 52% over the four years examined
- Excess stock represented 78% of their inventory holding, while 224 inventory lines were understocked
- 339 lines had greater than 3 years’ inventory and represented $2.9 mil of their inventory holding
- Plus, another insights the client was unaware of
Recommendations included:
- Different inventory policy settings based on their strategic profile
- Deployment of strategic supplier strategies
- Deployment of cycle counting regimes for improved inventory control
- Improvement in Sales & Operations Planning process S&OPÂ
Results included:
- Systems set up to manage two separate operating models – no need to separate entities
- A significant reduction in working capital is required to run the business. While exact numbers are confidential, the reduction was in the seven-figure range
- Massive improvement in stock turns and return on investment in inventory by three times
- Revenue improvements due to improved customer service and better-targeted inventory
