Various departments in a large para-church radio ministry wanted to add product that would promote and/or support their efforts. Marketing was always looking for new items to offer and their forecasts were often too optimistic. The warehouse was already full of several thousand SKU a value of over $6M and there was little room for expansion without renting additional space. Even through the warehouse was full the order fill rate was less than 70% due to back-orders caused by a handful of items each month. The EVP's asked me to take a look at the problem and make recommendations. Here is what happened:
- With over 6,000 sku in a 50,000 square foot facility the warehouse was over 95% utilized.
- Inbound shipments created bottlenecks at the dock since many of the put-away locations available did not match the storage requirements for the item received.
- Many inventory items had a short life expectancy. Marketing would forecast 1000 and actual movement would come in at 50 over a few days and then stop leaving 950 on the shelves for an indefinite period of time.
- Purchasing received significant discounts of up to 75% off retail but returns were not allowed.
- On the other hand demand could spike significantly due to the nature of a celebrity hosted radio broadcast and a small forecast of 250 could end up with actual movement of 5,000 or more.
- The inventory measured their success based on the % of titles not on back order vs actual order fill rate.
- Auditors were questioning the millions in inventory that did not appear to moving from year to year.
- The executive team had set a customer service policy that insured a 90% fill rate or better.
- The CFO was putting pressure on the Inventory department to purge excess inventory.
- Vendors often took weeks to ship inventory once an order was placed.
- The forecasting department claimed to have 90%+ accuracy (after 5 weeks) The average life cycle was 6 weeks.
- Tension existed between departments that wanted to add inventory items in order to expand the reach and potential income and those that wanted to reduce and eliminate all but the most profitable items.
- Interviews were conducted with all parties associated with the supply chain and inventory management.
- A task force was created to evaluate forecast accuracy and determine the life expectancy of an item.
- Metrics were revised and a dashboard created for each department.
- Collaboration with vendors helped to reduce their cycle time by 2-3 weeks.
- Print on demand was implemented for older and/or back-listed items.
- Arrangements were made with a large book distributor to ship selected items on our behalf. They carried over 100,000 Christian titles which all became available to offer.
- Software was designed and implemented to allow orders to be split based on the most efficient warehouse to ship from.
- Excess inventory was eliminated through sales and in some cases donations to other ministries.
- Inventory on hand dropped from $5M to less than $3M.
- Order fill rate increased to 90-98%.
- Saved over $75,000/yr by not having to process and ship back-orders separately.
- The number of SKU stored on site dropped to less than 3k while the total items offered increased to tens of thousands.
- Each department was able to accomplish their objectives without compromising each others performance.