A growing building supplies manufacturer was running out of room and wanted to convert warehouse space to make room for a new product line. The plan was to change from traditional pallet fork trucks and pallet racks to expensive Very Narrow Aisle lifts and racks at a cost of almost $500,000. This was a significant capital expenditure for a small business with annual revenues of $30 million.
While compressing the warehouse footprint by going to Very Narrow Aisle warehouse concepts would have freed up the needed space for the new production equipment, it would come at a steep cost and would only buy just a couple of years of breathing room. Rather than suggesting other solutions Flow conducted training on inventory turns analysis, demand segmentation calculations, inventory aging analysis, and calculating appropriate statistical safety stock.
After working with key leadership to understand the inventory transactions and calculating consumption, demand standard deviation, and new order points, the business leaders realized that if they purged the dead inventory and tightened up their purchasing parameters, they could comfortably reduce their inventory by 50%, in effect doubling inventory turns. Now they wouldn’t need as much warehouse space, and so the project to move to Very Narrow Aisles was cancelled, saving precious capital that was used toward paying down debt. Cash flow also dramatically improved as they burned off their excess inventory.