Optimizing Inventory Control for a Fire Protection Systems Manufacturer

Background

In this case study, we delve into the journey of a leading Fire Protection Systems Manufacturing company in India. The company faced significant challenges with inventory management, which impacted cash flow and operational efficiency. Various factors contributed to the build-up of inventory, including uncontrolled buying, consumption in anticipation of business, order cancellations, lack of an inventory tracking system, and improper material storage. The most critical issue was the lack of awareness about the impact of inventory on cash flow and overall business health.

To address these challenges, we undertook several improvement initiatives to maintain low but sufficient inventory levels, resulting in fantastic outcomes.

Transformation Journey

Purchase Authorization & Control

The first step was to halt the purchasing of items for stock and only allow purchases against client orders. We enforced a system where stock orders required authorization from top management. This measure ensured purchases were made at the right price and time.

Stop Buying in Anticipation

We stopped buying materials in anticipation of business. Instead, we focused on obtaining better and more accurate sales projections from the sales team. These projections were used to provide purchase forecasts to vendors, particularly for long lead items, so they could stock materials at their end.

Stock at Vendor

We began holding materials at the vendor’s end, giving dispatch clearance for Just-In-Time delivery for further processing. This strategy was not intended to burden the vendors but to partner with them in our growth journey. By aligning our needs with their capacity, we ensured a steady supply without overstocking.

Housekeeping

We organized the storage of materials to make locating components and checking availability easier. Simple steps such as labeling storage spaces, bins, and trays, and maintaining a consumption register improved our inventory management. Although we weren’t yet matching physical stock with tally records perfectly, we were making significant progress.

Minimum Order Levels (MOL) / Minimum Order Quantity (MOQ):

With proper storage and tracking in place, we established minimum order levels for B & C category items. ‘A’ category items continued to be ordered strictly against client orders, ensuring critical items were always available without overstocking.

Safeguard Against Order Cancellation

We educated our sales team on the importance of negotiating better payment terms and introduced safeguarding clauses to protect against the consequences of order cancellations. This strategy reduced the risk of inventory buildup from canceled orders.

Standardization

We initiated a standardization exercise to reduce the variety of components needed in stock. By standardizing components such as pump models, bar sizes, frame sizes, hardware, automation logic, plate thicknesses, reactor sizes, tank sizes, cables, pipes, and fittings, we optimized inventory levels and reduced the need for stocking a wide variety of items.

Outsourcing

To further reduce inventory management concerns, we outsourced some manufacturing activities. This approach allowed us to focus on quality control and design while leaving production, labor, staff, inventory, and infrastructure management to our partners. This strategy proved effective in maintaining lean inventory levels.

Monitoring Ratios

After optimizing inventory levels, we introduced tools to monitor inventory control effectively. Analyzing ratios such as inventory turnover and average inventory days helped us gauge the efficiency of our inventory management practices. These metrics provided insights into how well our team was managing inventory without daily oversight.

Outcome

Through these targeted strategies, the company successfully optimized its inventory control, resulting in:

• Improved Cash Flow: By reducing excess inventory, significant funds were freed up, enhancing cash flow.
• Enhanced Operational Efficiency: Better organization and tracking of materials led to smoother operations and timely deliveries.
• Reduced Wastage: Proper storage and handling reduced damages and wastage, further contributing to cost savings.
• Stronger Vendor Relationships: Collaborating with vendors for Just-In-Time delivery and better forecasts strengthened our partnerships.

This transformation highlights the importance of inventory control in maintaining cash flow and operational efficiency. By implementing structured processes and leveraging practical methods, the company achieved significant improvements. For businesses facing similar challenges, this case study demonstrates that effective inventory management is achievable with the right approach and strategies. If you need support in optimizing inventory control or any other area of your business, reach out for a complementary brainstorming session. Let’s work together to find the best solutions for your business challenges.