Optimize Your Inventory

Client Challenge

The client’s organization faced considerable management pressure to meet a defined target for Days Inventory Outstanding (DIO), which required a significant reduction. This target was set against a backdrop of persistent challenges that had become a recurring theme. In Q4 of each year, the organization confronted the same issue of high inventory levels and an urgent need to bring them down. This cycle of reactive measures highlighted deeper inefficiencies in planning and execution. A key contributing factor was the optimistic sales forecasting. Sales teams consistently projected higher demand, leading to elevated production volumes. Finished goods, also remained in inventory, because orders were not shipped in time, resulting in a disproportionately high share of finished goods within the total DIO. The organization operates in a heavily regulated environment, particularly concerning export and transit logistics. The process of obtaining required documentation from governments and clients was both complex and time-consuming, creating delays and reducing the organization’s agility. Also, liquidation of goods was not a viable option. Such actions would have a direct negative impact on the profit and loss statement, and the company’s financial performance was not strong enough to absorb these effects.  

H&Z Approach

The approach was structured around two parallel goals: implementing immediate measures to achieve short-term inventory reduction and establishing long-term processes to prevent the issue from recurring in subsequent years.

Short-Term Measures: Rapid Inventory Reduction

H&Z worked collaboratively with key departments, including Production Planning, Procurement, Order Management, and Sales, to identify concrete levers for reducing inventory for each inventory type – raw materials, semi-finished goods, work-in-progress (WIP), and finished goods.

The measures implemented included:

• Order stops: Halting new raw material purchases that were unlikely to be converted into finished goods and shipped within the same year
• Sales-driven reductions: Placing a strong emphasis on sales activities to decrease finished goods inventory, such as expediting the acquisition of relevant export and transit documents to enable faster shipping
• Optimization of Planned Orders: Halting conversion of planning orders into manufacturing orders for orders which would not be shipped in the same year

Long-Term Measures: Establishing Sustainable Processes

To ensure the company avoided repeating the end-of-year rally in subsequent years, H&Z facilitated the implementation of robust Sales and Operations Planning (S&OP) through a series of workshops.

Key elements of the long-term approach included:

• Role and responsibility clarification: Clearly defining accountabilities across teams to eliminate overlaps and ensure smooth coordination
• Governance structures: Establishing standardized meeting agendas, schedules, and decision-making protocols to enhance communication and transparency
• Production planning: Introducing new rules and guidelines for converting sales orders into production orders, ensuring only highly certain orders moved forward 

Results

Key Results:

• Inventory reduction of ~10 Mio. EUR and further reductions ongoing
• S&OP process harmonized and standardized, with governance, roles, and responsibilities clearly defined
• Production planning following sensible guidelines and aligned between procurement, planning, sales & order management and production