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how to solve Furniture industry warehouse inventory

Jan 17, 2018

how to solve Furniture industry warehouse inventory

In this era of supply chain competition, the stock pallet racking system can sometimes affect the healthy growth of a business, and sluggish stocking is undoubtedly even a black sheep, its harmfulness can not be ignored. Dilapidated inventory literally means "stay" or "hysteresis" of the stock, generally refers to temporarily not used, may never be able to use the stock, such stocks have the devaluation, damage and other risks, too sluggish stock, and even can drag down the entire enterprise. So how long do not even if inventory is sluggish? This is no fixed standard, usually furniture companies will be more than three months of non-current inventory called sluggish. In this paper, C company as an example to talk about how furniture companies "eliminate" sluggish inventory, hoping to bring inspiration to the industry.

C company is a traditional manufacturing company dedicated to the field of furniture, has steadily developed for 20 years. But in the past five years, the company's sluggish inventory accounted for more than 5% of the total inventory, which is a very dangerous signal. In particular, sluggish inventories accounted for as much as 11.63% of inventory in 2015. Although the decline was in 2016, the effect of control was not satisfactory and the situation in 2017 is still in a steady rise. This situation has seriously affected the cash flow of C company, the effective use of inventory, sluggish inventory kept rising so that enterprises pay huge human and material resources management costs, this issue must be resolved as soon as possible.

After inquiring about the management of Company C, they listed unutilized inventories over 6 months as sluggish inventory. However, the C company for the single-type production, customer orders received after the start of preparation production, from the inventory lead to the production cycle is generally completed within one month, except for special factors, the product according to the order of production, the use of raw materials or semi-finished products basic No more than three months do not change. Meanwhile, according to the furniture industry inventory management experience, unused inventory for three months should be included in sluggish inventory management. C company inventory management for the scope of the sluggish inventory loose, making 3-6 months unused inventory did not promptly identify the causes and solutions, there are omissions in the management. After studying from June 2016 to February 2017, C company's 3-6 months inventory data, the amount has accounted for half of the inventory more than 6 months, accounting for about 5% of the total inventory, and the upward trend. 3-6 months of inventory has a tremendous impact on the company's capital and warehousing, should be divided into sluggish inventory for processing.

Many of Company C's products are exported overseas. A few years ago, due to the impact of the global economic crisis, some of their customers' orders dropped drastically. C Company was facing severe challenges in product development and customer development. With weak consumer markets in Europe and the United States, the company's management decided to abandon some of its low-margin products, increase R & D investment, change product categories and develop new products that meet the needs of the local market. Due to a large amount of research and development materials, trial production of new products, resulting in more inventory, but these stocks did not develop a reasonable management strategy, R & D unit will be no longer after the pilot product storage management tracking, and constantly occur in the production process Design changes, only the final access to customer recognition of high-quality products have further orders. Because R & D stage materials can not be used for the production and delivery negligence in time management, resulting in C company's new product material sluggish growing worse, becoming the company urgently need to solve one of the stock.

Before Messy warehouse


C company sluggish inventory is more than 6 months did not use, when the financial and warehouse are often reflected when the market has long been without demand digestion, can only wait for customers to follow-up orders which can share some of the parts, it is to suspend disposal, continue wait. These old sluggish stocks have not been dealt with promptly, the new sluggish has continued to produce, making sluggish inventory more and more. Due to sluggish inventory of the responsible unit is the warehouse, which led to long-term stockpile are not used for many reasons, most of the business, research and development, purchasing units larger, and these units did not take the corresponding inventory management sluggish management responsibilities, Only in the warehouse to track and do some reason to respond to the proposed countermeasures, the actual handling of weak. The ERP system currently used by Company C can not provide effective support for the sluggish inventory management. The basic analysis by manual analysis is not timely and accurate.

C company sluggish stock larger reason is the customer cancel the order. Due to the traditional method adopted by C company's inventory management, it can not make timely adjustment when the demand forecast changes, resulting in the pressure of inventory increasing sharply. The upstream suppliers to C companies are PO PO delivery management, did not participate in sharing C company's orders and inventory information, nor cancel the order of the company C corresponding responsibility. In other words, there is no common stock management policies and goals between Company C and its suppliers and its own inventory management. In such a situation, both Company C and its suppliers have problems with inventory.

It is suggested that Company C introduce the VMI inventory management mechanism and require suppliers to reduce the quantity delivered each time, generally only meeting the 1-3 days' usage, so that enterprises in the supply chain can share production, sales and demand information and so on. In the face of changes in market demand When it can be quickly adjusted to avoid the generation of sluggish inventory. Specifically, the implementation of VMI has the following three advantages:

After design storage racking mezzanine floor system


First, improve inventory turnover, improve service levels and customer satisfaction. In the VMI management model, suppliers can effectively reduce the uncertainty of demand forecasting, coordinate production and distribution in a timely manner, reduce the stock of safety stock, reduce the cost of warehousing and delivery, and improve the overall service level. For example, after Procter & Gamble implemented VMI for 3 months, sales volume increased 40%, central warehouse turnaround time decreased by 50%, storefront warehouse turnover time decreased by 17%, and stock-out rate reduced by 40%, greatly improving corporate services Level, reduce inventory costs and capital costs, improve operational efficiency.

Second, reduce inventory levels and spend money on core businesses. Upstream suppliers manage inventories while downstream clients can emerge from inventory traps. Downstream customers do not need to increase procurement, purchase, receipt, inspection, storage, storage and other work, can save manpower, material and financial resources to focus more resources and manpower and resources resources for improving the core competitiveness of enterprises.

Third, consolidation reduces the number of suppliers and enhances the partnership with suppliers. The implementation of VMI requires suppliers with strong economic strength and strong warehousing and cargo transport capabilities. Therefore, before implementation, the existing suppliers will inevitably be cleaned up and consolidated, greatly reducing the number of existing suppliers, so as to establish a strategic partnership with the streamlined suppliers and maintain long-term cooperation. In this case, supplier loyalty will be greatly enhanced. With stable customers, they will spend more energy on improving inventory management, enhancing their logistics management capabilities, and enhancing their close liaison and communication with downstream enterprises in the supply chain. This will make the whole supply chain stable, and all the enterprises in the supply chain can gain long-term competitive advantages and achieve win-win business.

Open up the information channel on the downstream

 C company in the upstream and downstream information is not timely communication, and some people omitted the negligence caused the material order has not been canceled or the production plan is not canceled, leaving the company unnecessary sluggish inventory. Company C should establish complete and unobstructed customer and supplier communication channels to promptly cancel the production plan and notify the supplier to cancel the outstanding orders when the customer cancels the order or company product change. At the same time, the business department should promptly respond to the customer cancel the order, with a positive attitude and customers how to compensate for the loss caused by the cancellation of the order, how to digest the inventory, and then reduce losses for the company. Purchasing Department also need to synchronize with the supplier to confirm whether the stock can be discounted and then sold back to manufacturers, cancel the delivery of orders and so on.

On the other hand, to eliminate some of the suppliers that are unable to meet the communication needs of the Company and develop new and mature high-quality suppliers, the suppliers who are willing to take the initiative to communicate and have high service standards as the main suppliers will have limited risk appetite but will have to pay Small goods suppliers with better flexibility as auxiliary suppliers. This will not only reduce the loss caused by changes in orders, but also in the production of temporary temporary transfer of goods to ensure that customers on time delivery, improve service quality.

Watch out for inventory created by the introduction of new products

Enterprises should do a good job of market research and customer survey before the development of new products. In addition, considering the conditions of the enterprises themselves, they should not blindly enter the market, resulting in a large amount of research and development materials, manpower and funds. After the project dies, leaving a pile of stock to become indigestible Sluggish material. C company in 2016 there are two products due to market less than two months, the market demand is not as expected, and hastily ended, leaving well-made stock and some of the un-invested material into a sluggish inventory. Enterprises to import new products should meet the market demand, to meet market demand, accurately determine the market demand to prevent sluggish inventory.

Improve procurement strategy

Some core components of Company C are imported from abroad, while procurement lead times are sometimes up to six months. Precisely because the procurement cycle is too long, C company nervous future out of stock can not meet customer needs, so the existing demand orders will be set safety stock. Because C company to suppliers is to determine the PO (purchase order) procurement system, once the follow-up customer orders reduced or canceled, these core components inevitably become C company pay the inventory, in consultation with the customer compensation for a long time lost To take up funds, spend dumb stock management costs.

Therefore, C company needs to improve the inventory management. For the core materials, because of its higher total inventory value, the company should strictly require that safety stock should not be set up and the method of selecting the right supplier and adjusting the purchasing strategy can be adopted. As an option for suppliers of common materials, Company C will determine that PO is changed to forecast PO, which will not only give C Company the flexibility to cancel the order space, but also will not cause inventory risk to suppliers. Even if C The company cancels the order, can still resell to other customers.

Old stock processing

Due to the frequent design changes of C Company due to the large number of new product development, the old inventory that existed in the design change can not be dealt with promptly. The obstacle mainly lies in the poor communication between R & D department, warehouse and purchasing department. R & D units in the new materials put into use, you need to inform the warehouse to clean the old inventory, and to determine whether the old inventory is delayed or not, such as extension of the need to establish new materials in the system with the old materials to establish an alternative relationship, And then can be calculated according to the system to buy material, in case more material. If the old materials can not be used, please promptly purchase to confirm whether they can be resold to suppliers, or in the market to find other buyers who need it. Must not hurry the use of new materials and ignore the handling of the old inventory, making 6 months to form a dull before analyzing the reasons, it has long been the yellow flower, can not handle.

ERP system improvements

To improve the level of customer service, Company C should phase out the existing ERP system and gradually import SAP systems that are more powerful and comply with international standards. In the SAP system can achieve a lot of new features, can effectively prevent the existence of some sluggish inventory in the future to produce again.

For example, SAP system batch management capabilities, from purchase to picking to storage have a complete record of shipping information, which shipment can be tracked from the shipment of incoming materials, but also to make the warehouse worker distinguish batch Time of purchase, and then strictly abide by the law of first in first out material. At the same time, batch management can also avoid mixing, to ensure the correctness of the materials used. In addition, under the batch management, accurate calculation of inventory age can be achieved, which is no longer the deadline starting date of inventory last transaction, so as to improve the situation that sluggish inventory has not been exposed and enhance the management of sluggish inventory information.

Improvement in management mechanism

First, clearly dull management responsibilities. Company C should clarify the responsibilities of sluggish stocks by the business department, warehouses, R & D units and purchasing department instead of merely reflecting the actual situation by the warehouse and without the responsibility of the relevant units. Such as customer order cancellation responsibility in the business department, improper design responsibility in the R & D unit, production quality abnormal responsibility in the manufacturing, warehouse management, improper responsibility in the warehouse, purchasing more responsibility for buying materials in the procurement. All relevant units should incorporate sluggish inventory into the performance appraisal indicators and set up reward and punishment system to prevent and reduce the generation of sluggish inventory.

Second, find the original supplier digestion sluggish stock. If the original supplier can buy back the original price, then it is the best and most perfect solution, but the fact is usually that even if the supplier just needs the material, it will also request a discount. Because the material sluggish too long, the quality can not be guaranteed, suppliers generally do not want to buy back. At this time, Company C can use the supplier scoring system to negotiate with the supplier and add points to suppliers willing to repurchase to evaluate supplier performance and establish long-term relationship. However, some suppliers of Company C are appointed by customers, and Company C can not prevail in the negotiation. This law only applies to those suppliers who have long-term cooperation with the Company.

Third, establish bidding mechanism. Currently, Company C has very limited channels for selling sluggish materials and no one has to deal with the resale of sluggish stocks. Proposed C companies can follow other industries bidding sales model, based on the sluggish material properties of the first classification to find long-term cooperation of distributors, when there is sluggish material, the information sent to the distributor, the bidding is willing to bid, the price is high Get the call. The company can also be based on the market price of the first to accept the reserve price, then the auction bidders.

Fourth, set up a special team to deal with sluggishness. To improve the efficiency of sluggish inventory management, Company C can set up a dedicated sluggish management team with members appointed by the finance department, warehouse department, purchasing department, business department and administrative department. The sluggish inventory is no longer issued by the finance department just like the old one Sluggish inventory schedule, the relevant units can reply the response. Now sluggish inventory management responsibility to implement the team to deal with the person who finance to reflect and supervise the unit responsible for the provision of sluggish statements of information and tracking the progress of lag processing; procurement confirmation can repurchase suppliers; business is responsible for finding distributors, And sales agreement with the distributor model; the executive is responsible for the destruction and packaging sales of indigestible sluggish inventory.

In short, in the furniture industry, high inventory is high risk, sluggish inventory of enterprise funds, storage costs, profitability have a significant impact. Therefore, the majority of furniture enterprises should actively take effective measures to avoid sluggish inventory, improve the efficiency of inventory use, increase their competitiveness.