Inventory Analysis Identified $115M of Working Capital Improvement and a $22M Reduction of Inventory

$1B revenue business that manufacturers and supplies replacement parts for the automotive aftermarket.

The Challenge

A large manufacturer of car parts required significant working capital for acquisition growth and requested support to identify and develop a future inventory model to reduce working capital as well as identify root-cause drivers of current excess inventory.

Our Approach

Through a detailed inventory analysis, we conducted the following:

• Process mapping to understand process requirements by different departments
• Data review of over 11M rows of transactional data history to ensure clean and accurate data analysis and modeling
• Current-state data analysis to understand inputs and outputs of inventory as a function of demand requirements
• Current-state data analysis including inventory and purchase order history to understand drivers of excess inventory
• Future inventory stocking model based upon demand and supply variability to optimize inventory levels as a function of service

The Results

Through our analysis, we identified the following issues:

• Insufficient safety stock algorithms based upon days of supply rather than demand and supply variability
• Uncontrollable return process that results in incremental addition of excess and obsolete inventory
• Warranty and RTS finished good returns that resulted in incremental addition of excess and obsolete inventory
• Manual purchasing processes that resulted in inaccurate purchase quantities against historical and future demand

From there, we developed a detailed one-year implementation plan that included a project plan and risk assessment and would lead to $115M of working capital improvements and a $22M reduction of inventory.