Cost Cutting Ideas: Reducing Metals Inventory

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We welcome guest columnist Ara Surenian, CEO of Cadent Resources Inc, a firm that implements solutions to optimize demand and supply.

As Supply Chain and Business Leaders, we do not have to be reminded about just how tough things are in this economy.   Sales are most likely down with the dramatic drop in the fourth quarter of 2008 and the slump has continued thus far in 2009.   No one knows how long this is going to last or what markets will look like when a recovery arrives.

With the sudden drop in sales, most companies have inventory concerns.   This is especially true if products are imported, or contain components, from Asia.   For many, orders were already processed and on the water when the sales fell.   As a result, inventory levels rose too high.

Not only may inventory levels be too high but they are also likely imbalanced.   Customer and consumers alike, if they are buying at all, are looking for the lower priced, lower margin, value products in our portfolios.   As the sales mix has shifted, our inventory balance has as well.   We may have too little inventory in what is selling and too much of what isn’t.   While we’re swimming in some inventory and experiencing stock outs in others, our customer service is probably suffering.

When was the last time our re-order points and order quantities, the basic inventory management parameters, were recalculated?   If we cannot answer this question, such recalculations are way overdue.   Recalculating re-order points and order quantities is not part of a normal business protocol and we may even think this happens automatically in our MRP systems.   This is simply not the case.

These parameters must be updated on a regular basis.   The more volatile the economy, the more frequently this must be done.   With cutbacks and layoffs, we may have lost skilled staff in materials management who should be managing these tasks.

As a service to MetalMiner readers, Cadent Resources, Inc. will offer a free assessment to any distributor or manufacturer who may be interested in evaluating their reorder points.   We will upload your data to our DemandCaster demand management tool and provide a reorder point assessment of your top 100 items.   The assessment includes a comparison of current reorder points against a statistically calculated level that takes into account the volatility and change in demand.   If the analysis points to differences you can then take action accordingly to address this very important cost influencing parameter.

By clicking here on the “Reorder Point Data Extraction Worksheet” you can prepare your data for analysis or feel free to contact us toll free at 866.865.2714 ext. 1 to learn more.   All data will be kept in strict confidence.   A non-disclosure agreement can be executed at your request.

–Ara Surenian

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