Instant snapshot: Inventory “rightsizing” program softens impact of the credit crunch

10/22/2008


Inventory management specialist ToolsGroup says it has an innovative new program to help companies quickly “rightsize” their inventories, free up millions of dollars of cash, and improve free cash flow—or FCF. The new program, called Rapid Inventory Rightsizing (RIR), seeks to reduce a company’s working capital needs.
In this era of tight credit and higher cost of capital, cash is king. According to the U.S. Federal Reserve’s most recent quarterly survey of senior bank loan officers, 58 percent have tightened lending standards to large and midsize businesses, and more than 80 percent surveyed say their customers are paying more for loans.
Rightsizing inventory presents a good source of short-term working capital and improved FCF. When the composition of inventory deteriorates over time, a large financial asset is not being used efficiently. Managers find that they have too many of the items they don’t need and not enough of the items most in demand.
RIR is suited for companies with large inventories not being put to optimal use. By improving inventory targets, companies reduce global inventory levels while still maintaining excellent customer-service levels—i.e., fill rates. The program is targeted at CEOs and CFOs looking for increased liquidity or free cash flow, and supply chain executives addressing corporate mandates to reduce inventory cost while maintaining customer service metrics.
For example, a supply chain director with a Fortune 1000 consumer packaged goods company recently commented, “We achieved a 25-percent reduction in inventory and 99-percent service levels. ToolsGroup let us re-mix the stock in two months. Needless to say, our finance people were ecstatic.”
Companies typically expect to generate cash of between 10 percent and 30 percent of their inventory value, while maintaining the same or improving customer service. The program costs a small fraction of the inventory saved and cash generated. According to ToolsGroup, the program also is easy to implement because it requires no changes to the company’s distribution/supply network or technology infrastructure.
Implementation involves three steps:
1. An immediate rightsizing of the inventory to eliminate the least effective inventory and insure profit-generating and strategic products are properly served. Capital is rapidly reallocated to the most financially productive areas. Inventories that are not aligned with profits and customer service are drawn down. Because this first step can be implemented in a few weeks, it can rapidly begin generating free cash flow, often within the same quarter.
2. All inventories are adjusted to avoid excess inventory experienced in a slow down, while maintaining customer service levels. As revenues slow in certain product streams, most companies neglect to adjust their inventory targets to changing circumstances. While individual items will vary, overall inventory requirements are reduced, freeing up additional cash flow.
3. An ongoing review process, managed either inside or outside the company, to keep inventory targets aligned with changing conditions and insure a sustainable results over time.
“Using the experience we’ve gained at more than 150 corporate clients in a variety of industries, we can run an instant snapshot of a company’s inventory and immediately identify the potential savings and time-to-benefit,” says Joseph Shamir, CEO, ToolsGroup. "In today’s tightening credit environment, this ability to move quickly is critically important to our clients."





No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
Strategic outsourcing delivers efficiency; Sleeve bearing clearance; Causes of water hammer; Improve air quality; Maintenance safety; GAMS preview
World-class maintenance: The three keys to success - Deploy people, process and technology; 2016 Lubrication Guide; Why hydraulic systems get hot
Your leaks start here: Take a disciplined approach with your hydraulic system; U.S. presence at Hannover Messe a rousing success
Flexible offshore fire protection; Big Data's impact on operations; Bridging the skills gap; Identifying security risks
The digital oilfield: Utilizing Big Data can yield big savings; Virtualization a real solution; Tracking SIS performance
Getting to the bottom of subsea repairs: Older pipelines need more attention, and operators need a repair strategy; OTC preview; Offshore production difficult - and crucial
Applying network redundancy; Overcoming loop tuning challenges; PID control and networks
Putting COPS into context; Designing medium-voltage electrical systems; Planning and designing resilient, efficient data centers; The nine steps of designing generator fuel systems
Package boilers; Natural gas infrared heating; Thermal treasure; Standby generation; Natural gas supports green efforts

Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
This article collection contains several articles on the vital role that compressed air plays in manufacturing plants.
This article collection contains several articles on the Industrial Internet of Things (IIoT) and how it is transforming manufacturing.
This article collection contains several articles on strategic maintenance and understanding all the parts of your plant.
click me