Redesign of Inventory Control System Improves Customer Service Resulting in Revenue, Profitability, and Cash Flow Growth
A mid-market, multi-channel consumer products company with more than 30 product categories, 7000+ active SKUs, and involving extensive supply chains and two dozen global factories, was experiencing difficulty maintaining inventory for delivery of at-once orders (including direct-to-consumer orders) because of reserved inventory for pre-orders. These pre-orders were collected six to twelve months before delivery was requested. The situation resulted in numerous missed sales opportunities and falling consumer satisfaction with the brand, and allowed international competitors to establish or improve their positions in the domestic marketplace.
The company’s CFO and IT director, now a NextLevel team member, worked with the planning and customer service functions to design and implement a customization to the company’s existing ERP software that automatically reallocated all current inventory and planned receipts on a nightly basis. The algorithms took into account product lead time and various other customer and order parameters, with the solution designed to maximize currently available inventory while also making sure pre-orders were adequately fulfilled. The project team also designed and built a manual user interface that allowed managers to override the automated algorithms on an as-needed basis.
Implementation, training and ongoing monitoring of inventory and order fulfillment resulted in the following within eighteen months of implementation:
- Orders refused due to lack of inventory availability fell by 41%.
- The annual revenue increase attributed to these system improvements was roughly 4%, with overall gross margin improvement of more than 1% due to the improved availability of inventory to fulfill consumer orders at retail price points.
- A second phase of the project began monitoring pre-orders and unallocated inventory at future dates to identify future excess inventory positions, allowing management to adjust production activities or promotional activities as needed to reduce overall inventory levels by roughly 10%, further improving the company’s cash flow.
- Consumer sentiment toward the brand reversed trend and improved the company’s market share.