Working Capital / Inventory Reduction CASE STUDY

Inventory reduction is about 

• getting inventory (supplies) in as late as possible, 
• adding value to it quickly, (minimising Non Value Added activities) 
• selling it as quickly as possible by delivering it and getting paid

Added value activities are 

• Changing the product or service in some way;
• something that the customer is prepared to pay for
• That is a legal or statutory requirement (Actually could be Non-Value Added, but essential)

Throughput T, Operational Expense OE, and Inventory I

T is the Throughput that you are turning into Sales £’s -

Increase amount and speed

I is the money that you invest in the system that you will sell – 

minimise or reduce 

OE is the money that you invest in the system that turn I into T – 

minimise or reduce

There are many ways of reducing Working Capital or Inventory in the business.  Here are some of the techniques that John has used :-

1. Define value in the “Eyes of the Customer”
2. Using Process Maps, Spaghetti Diagrams and Time Value Maps to reduce non value adding activities
3. Get PULL into the whole Supply Chain
4. Improve communications to reduce the "Forrester effect" or "Bull-Whip effect" in silo activities or within the supply chain, creating a “win-win-win” solution for everyone.
5. Reduce lead-time from S&OP, throughout the supply chain all the way to the Customer.
6. Take the high value items and low value items off of MRP!
7. Directly managing the schedule for the high value items
8. Implementing Vendor Managed Inventory (VMI) (see below) for the low value items, reducing the noise in the system
9. Regularly review Reorder Points, Safety Stock levels, lead-times throughout the Bill of Material
10. Reducing the number of PARTS in the Bill of Material
11. Reducing the number of LEVELS in the Bill of Material
12. Ensure that the Change Management system is robust and is working for you
13. Minimise floor space
14. 5S
15. Put wheels on everything!