Overview
Following a global downturn in sales, an international agricultural equipment manufacturer needed to get a handle on working capital and inventory levels which had risen significantly.
Improving working capital management was imperative, and an external consulting team led by one of Novo Altum’s directors who has extensive experience in this area was engaged to deliver a robust change programme.
Overall, the strategy he implemented halved the inventory position from its record high within just three months. In the months thereafter, inventory continued to decline before stabilising at about 15% of the level at the start of the project, freeing up capital to improve business performance.
The Challenge
The challenge was two-fold. Any programme our consultant devised would need to assess the current inventory and then find innovative ways to reduce it to a manageable and cost effective level.
It would also require significant changes to the client’s business operations, from customer service / sales, to manufacturing processes, and the finance function, to ensure that in the future, inventory remained far more tightly aligned to demand.
The Solution
Working closely with the internal staff, the first step was to conduct an extensive analysis of companywide data to determine the extent of the inventory. The consultant then directed a major stock reduction programme. Interventions included incentivising sales in a way targeted to reduce finished goods stock and a disposal programme using online auctions and brokers.
To better fit the inventory with demand going forward, scheduling systems were enhanced, lead times in the manufacturing process were shortened using lean tools and techniques, and customer service quality improved to reduce overproduction against “orders” which subsequently turned out to be invalid for whatever reason.
Finally, the budgeting and forecasting systems and processes were also overhauled, to ensure more timely and up-to-date refreshes of information and the use of better data to drive the forecasting process.
Results
In just three months, this solution resulted in the company’s inventory position being cut in half from what had previously been record levels. The strategy also enabled the client to maintain sustainable change: in the following months, inventory levels continued to decline and are now stable at about 15% of the original levels at the start of the project.
