Floor Stock Outsourcing
Floor stock of B and C items is often considered to have little to no strategic or financial value for many companies, yet it takes a lot of time and effort to stay on top of it.
While generally not strategic in nature from a sourcing perspective, they are as strategic as any other components when you run out of stock, affecting production.
Do you recognize one or several of these symptoms?
A lot of time wasted in finding last-minutes, ad-hoc solutions.
The management of floor stock is looked at as a necessary evil, often not getting the much-needed focus, resulting into too many stock write-offs.
Buying the same items at multiple vendors.
Large stock of rarely used items, locking more capital than needed in your stock value.
Usually sourcing these floor stock items happens across many suppliers, many of them only used sporadically, adding complexity.
Floor stock sourcing results in many small purchase orders, each with order and administration costs.
Subsequently, these many small orders result in numerous deliveries with available transportation costs.
The resulting number of small invoices adds unnecessarily high administration.
Recognizing these common problems indicate that there is room for improvement to optimize the management of your floor stock.
It puts a burden onto the entire organization and creates unnecessary overhead, impacting multiple stakeholders
Purchasing must deal with too many different suppliers for similar items, find last-minute solutions, and has to deal with too many small orders.
Administration has to follow-up on too many suppliers, orders, and invoices.
Reception and Warehousing need to deal with too many small deliveries.
Production runs into floor stock shortages, leading to production stoppage in the worst case.
Design and planning are often unaware of the impact on sourcing and production, when selecting certain floor stock items in their design or planning.
Inventory Management is suboptimal with a too large variety and incompatibility in brands.
Goals
The overall goal in optimizing floor stock management is to simplify the internal process, reduce the supplier complexity, optimize cost and increase the predictability and reliability across all stakeholders.
Solutions and approach
Datkan starts by analyzing the current situation and detecting your floor stock needs on a project level. From the available raw data that we compile during our intake, we extract all items that were purchased in bulk and booked as general costs, as a basis for our analysis.
This typically brings several common product groups to light, such as couplings, fasteners, fittings, electrical components, labels, etcetera, for which we then document and map the inefficiencies.
Experience shows that 80% of suppliers typically deliver less then 10 items. We see that for these floor stock items stock is replenished every two day on averages, with less than 20% of the replenishment done in an optimal way.
From our analysis and experiences we develop several scenarios, from which we collaboratively select the best applicable scenario for our customer.
Our analysis across our customers shows that:
Almost 70% of items are rarely picked (less tha once a quarter),
while less than 25% is picked regulary,
and only 5% are picked very frequent.
Benefits
We see that the expected total cost of ownership savings is between 6% and 21%, depending on the chosen scenario, excluding economies of scale cost price savings.
Benefits for each stakeholder
Purchasing gains time not having to deal with the sourcing of low value items and is able to focus their valuable time on strategic suppliers.
Adminsitration has to deal with a lot less invoices and has follow-up on fewer suppliers.
Reception and warehousing can once again focus on maintaining and optimizing the stocks.
Production has more reliable floor stock availability, avoiding production issues.
Design and Planning gat a better grip on projects and are able to detect and resolve component bottlenecks sooner.
Inventory gets continuously optimized towards the real need, with technical compatibility and uniformity in brands and types.