inventory

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A solution to a problem, not the other way around

April 8, 2013 in Uncategorized | 1 comment

A lot of  start-ups out there offering technology solutions  in search of problems.  We’ve worked with our share.  Some make it, many don’t. So it’s refreshing to work with companies that have problems to which they are applying technology solutions.

One such company is a customer of ours in Florida, BarMaxx.  They’re in the supply chain management business for liquor serving establishments. It turns out that such establishments–bars and restaurants–have a very real problem: shrinkage.  Which is industry-speak for booze that is poured but does not get paid for.  It’s a multi-billion dollar problem in search of a technology. BarMaxx has a solution  combining RFID technology with high precision load cells to identify the bottle being poured, calculating the quantity that was poured, and associated that with the POS system already in use.  Sounds tricky and it is, but the technology is sound, the benefits are large and the potential savings mind-numbing.

RFID-Radio Frequency Identification-technology has been around for a long time but breakthrough applications like this have been rare. Rare enough that BarMaxx has been nominated for Best Use of RFID to Enhance a Product or Service by the Seventh Annual RFID Journal Awards.  Better yet, BarMaxx is now a finalist in that category, along with Boeing and Parker-Hannifin.  Like people, companies are judged by the company (no pun intended, mostly) they keep, and that’s a pretty impressive crowd.

I wish we could take some credit for their success, but in truth we just started our engagement with them, helping them productize this great technology and take it to the next level. Hopefully including winning First Place at the big RFID show in May.  I’ll be there, rooting them on, and checking out potential vendors for the next generation, highly productized, implementation.  Which will hopefully win a few more awards, but more importantly, will solve real problems for real customers.

Cheers. Salut. Skål. Bottom’s up.

Chuck

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Inventory demons, they are a lurking

March 14, 2011 in Uncategorized | 1 comment

Everyone–ok, most all supply chain professionals, every productizaton engineer worth her or his calipers, and a fair number of business folks–know that inventory costs money, that one should minimize inventory, or better yet let someone else own it.  But there are some hidden demons lurking beneath the ripple free surface of that pond.

For example, let us think a little about a favorite trick–let someone else own the inventory, aka supplier managed inventory or some such.  This in general seems like the perfect solution except that those who will accept this tend to also want some fine print in their contract basically saying “if the inventory I own for you becomes excess or obsolete then you own it, dude.”  Understandable, and during fair weather this is a pain unfelt.  But come a storm, then besides the root cause problems–market demand downturn or whatever–you now have a sudden, unplanned cash hit to pay for that E&O inventory.  Furthermore, if trouble is over the horizon and said inventory is not on your books, there is a tendency to manage it less aggressively.  As long as it’s someone else’s money / inventory, there is less incentive to think about it / worry about it / take steps to mitigate the said risk.  Out of sight, out of mind.  Until a fell wind blows. And E&O is not the only demon here–similar issues pop up if you have the good fortune to have an upside but your supplier managed inventory is minimized or their lead times are stretched. 

The answer here is not to avoid supplier managed inventory but to remember that you need a partner who is as aggressive–or as unaggressive–as you are. That partner should be on the same page as you in terms of managing inventory and risk, and you need to keep in mind how much you have not only on your own floor, but also in your partner’s warehouse and in their pipe.  Cause that demon may yet rise from fiery depths and boil your idyllic pond into a hellacious plume of toxic steam.

Chuck

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The Eternal Battle: Inventory vs COGs, Part 2

February 25, 2011 in Uncategorized | No comments

We have a client who runs a small manufacturing business.  A year ago we convinced him to do his first physical inventory.  Not unsurprisingly it was north of 60 days and was impacting his cash flow.  At the time we discussed with him a number of aspects, including:

1. Cost of capital–in our client’s case he got no terms from his A item vendors, but he had a low interest line of credit. 

2. E&O risk (Excess and Obsolete)–this kicks in if you have a drop in demand or if the product changes.  In our client’s case  there was some mix risk but no obsolescence risk.

3. Warehousing / Storage–Some products are expensive to store or there is risk of spoilage or shrinkage.  Our client had excess warehouse space, so this was not an issue at this stage

4. Cost elasticity wrt volumes–This is a huge factor and is basically “how much do you save by buying more?”  If you buy 20% more what is the COGS (Cost of Goods Sold) savings?  For our client, his main A item had a substantial freight component that is to first order independent of volume, so there is substantial savings. 

Like most companies he has to constantly make these hard tradeoffs, and its not as easy as just saying “buy the cheapest” or “keep as little inventory as possible.” Compromise is, as they say, a mother.

As to our client, over the course of a year his business has actually grown quite nicely, and inventory is also coming down.  Which is good because otherwise he would need to beef up his working capital. He now buys in bulk where he gets discounts and to minimize freight, which tends to boost inventory, but has a better handle on his run rates and has smarter “buy triggers.”  He’s generating a little cash and paying down the LOC, and continuing to avoid any E&O.  Today his pains are more from rising costs of his A items, due to global factors, and seasonality.  He’s also evaluating alternate vendors on the biggest A items, including in his criteria transportation costs (!).

Obviously what works for one business may not work at all for another.  The key is to think about it, measure where you are and where you are going, model your alternatives, and make smart choices.

We’ll check in on him in another year.

Chuck

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Inventory demons

June 18, 2010 in Uncategorized | No comments

We recently posted on our business blog, …And Make Money, a new post on “Inventory demons lurking in the depths” concerning the hidden perils of not stressing over supplier managed inventory which may be of interest to productization professionals as well.

http://zebulonsolutions.com/makemoneyblog/?p=22

Chuck

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