When a leading forestry products manufacturer saw the need to address excess stock and improve inventory optimization, it partnered with NTT DATA’s supply chain experts to refine stock visibility and reduce working capital. The project involved two organizations with various plants and logistics centers across Europe and aimed to increase service levels by enhancing stock visibility and optimizing inventory.
The manufacturer’s inventory management policies and needs varied between different units within the company. In some operations, inventory management was extremely responsive, but another organization replenished its stock according to quarterly plans based on estimated demand. An existing vendor managed inventory (VMI) agreement in place with a customer came with strict service level requirements. Safety stock targets only applied to some parts of the portfolio.
In addition, COVID-19’s impact presented its own issues. The company tended toward precautionary excess stock levels, but this only somewhat eased the effects of pandemic demand disruptions on its network. At first, coronavirus lockdowns reduced demand, but after the initial lockdowns ended, demand recovered and led to depleted inventory and decreased service levels.
The need to improve inventory management policies and optimize for product demand across various locations became imperative.
- Identified optimized stock level for each SKU at each location
- Created analytics tools to maintain visibility into current and future stock levels
- Transformed service levels while reducing total inventory value
The project included several business cases with similar challenges. The issues shared a pervasive lack of visibility into the supply chain as a plausible cause. Insufficient capability to understand end-to-end inventory, from materials to finished goods, led to mounting uncertainties in operation planning.
Optimizing the inventory mix raised service levels while lowering costs
After determining inventory parameters, it was clear that existing stock levels captured significant amounts of capital within several locations. The excess value trapped in lingering inventory was startling. Nearly €1.5M of value per location was waiting to be recovered through stock level optimization. In some distribution centers, total stock levels were high but not out of the ordinary. There were, however, obvious problems with the mix of SKUs, leading to excessive levels of inventory for some slow-moving items and frequent stockouts for fast movers. By adjusting safety stock levels to match localized demand for each SKU at each distribution center, the company improved service levels while reducing the total value of the inventory needed to achieve these benefits.
NTT DATA proposed an integrated demand and supply planning process to cover all suitable time horizons, creating specific planning analytics tools to maintain visibility into current and future stock levels. These tools matched demand with supply, particularly in the short term. A systematic approach to replenishment is necessary to maintain optimal stock targets, and a proactive collaboration with the company’s biggest customers further improved demand planning accuracy, which aided in operational planning and inventory management.
Leveraging digital assets to create value
A critical ingredient of this success was leveraging NTT DATA’s proprietary Inventory Optimization as a Service (IOaaS) toolset, along with the bespoke analytical tools developed during the assignment. The project team began with a diagnostic analysis to improve understanding of current and past stock patterns. The teams looked at inbound and outbound material flows, stock profiles and actual safety stock changes over various periods and applied the results of preliminary analysis to create segmentation and identify different demand patterns and seasonalities.
Digital assets were used to find the optimal stock levels and meet service-level requirements while considering characteristics and variations in both demand and supply. After adding data on holding costs, ordering costs and stock-out costs, the solution quantified the financial benefits of stock optimization and found the financially optimized stock level for each SKU at each location.
About this case study
A global forestry products manufacturer increases service levels and recovers capital with supply chain services.