A supplier of cleaning and sanitizing products to the food and beverage, healthcare, and hospitality sectors was experiencing excessive inventory costs and lower than average inventory turns. The company had high levels of finished goods inventory and was facing a significant capital investment to overcome warehouse capacity constraints. The company's service levels were dropping due to stock outs.
It was determined that there was no "one size fits all" forecast model for the business. A new system was put in place utilizing three different methods of control; two based on demand forecasts and one based on actual demand. One group of products is able to be forecasted on a linear historical basis while a second group can be forecast based on a weighted seasonal model. The remaining group of products cannot be forecast, therefore a re-order point, re-order quantity inventory control system was put in place.
- The new forecast system resulted in a 50% reduction in finished goods inventory.
- The inventory reduction freed up significant warehouse capacity and allowed the company to avoid significant warehouse expansion capital costs.
- In addition, the company's service levels have returned their historical levels, which are best in class in the industry.