Case 5: Balance Sheet Improvement and Inventory Reduction"Anything that is measured and watched is improved." ~ Bob Parsons, GoDaddy Founder |
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| Situation | When the 2008 recession hit, a multi-branch/state distributor of forestry equipment tied to housing construction experienced sharp revenue decline. | |
| Background |
- Parts inventory increased over the years as new equipment was introduced and older
equipment was phased out
- Excess parts were not returned to the supplier and became obsolete - Excess parts in one branch were not stock-balanced to other branches - Order quantity for active parts was not sufficiently monitored |
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Analysis & Action: Our Process |
- Met with senior management and the firm’s software system provider to assess viability
of the inventory management software; we determined that it could be a workable
software if used properly - Conducted analysis by branch: sales rate, min-max, monthly sales, etc. - “Reset” parameters by considering part sales rate and OEM order rules - Established procedures for exchanging overstocked parts between slow and active branches - Helped obtain some credit with OEM suppliers for slow/obsolete parts |
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| Result | Reduced overall parts inventory by $1.75M, increasing turns from four to seven in six months, without any negative impact on sales. | |