The Context:
A small greeting card wholesaler and distributor employing local merchandisers to sell to and re-stock retailers across the UK. The head office warehouse holds stock and prepares cards into bundles for delivery to merchandisers.
The Issue:
The management knew that the business held too much stock (in the warehouse and at merchandisers’ homes and vans). Therefore, we analysed the stock processes and produced a summary process map. The analysis showed that there were two anti-stock out systems in operation to avoid running out of stock lines:
- The warehouse pushed stock into the system to avoid stock outs.
- The merchandising system over-ordered stock to be sure of achieving sales without causing stock outs.
The two systems were unsynchronised and excess stock moved continually between them. However, despite lots of anecdotal evidence of slow-moving stock, merchandiser returns and merchandisers filling their garages with stock, the figure could not be quantified.
The Solution:
We applied the Vanguard model of Check-Plan-Do (a variation on Deming’s PDSA cycle). The business used process maps to identify stock flow and the system conditions that caused stock to be held at different stages.
The map and analysis allowed the company to implement a two-part solution.
- Using Pareto analysis, create a feedback loop from retail sales back to the print ordering stage using manual records for major product lines.
- Use a single measure for stock using stock turn based on retail sales.
The Results:
Over several months, stock levels and stock returns from merchandisers fell and approximate stock levels were estimated at 50% of previous levels. As a result, stock wastage reduced by around £10,000 per annum, cashflow improved and the need for credit inevitably fell.