Steel distributor boosts cash flow with 25pc cut in stockholdings

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Steel distributor and processer John Parker & Son has boosted cash flow by reducing stockholding by 25 per cent after implementing Inform’s add*ONE inventory optimisation system.

The company buys steel from the UK and the rest of the world and stores thousands of products at its facilities in Canterbury, Shoreham, Cambridge and Andover.

At the end of 2008, when the recession began to take hold, managing director Guy Parker started a strategic review of stock control. He realised there was a business case for reducing stockholding to improve cash flow ahead of a predicted drop in demand, however, he needed to better understand and control stock levels. Plus the company was in the process of building its new Shoreham facility.

At the time, John Parker & Son was using an off-the-shelf software package that cost £100 three years earlier and interfaced at a basic level with the AS400 system in place to manage stock and process customer orders.

Parker says: “The software we used provided a single figure of expected usage once a month, but it offered very little else. It was also taking a day of time per month to do the calculations required to get that figure.

“We realised that with the planned construction of the new warehouse at Shoreham we needed to improve overall efficiencies of stock control. Longer-term, we planned to hold only ten to 20 days’ worth of stock in Canterbury, and the rest at Shoreham, which could be ordered into Canterbury as and when required. This would reduce the cost of goods received and transported by third parties, but was nearly impossible to achieve using the solution in place.”

John Parker & Son selected Inform’s add*ONE Inventory Optimiser for purchasing and storing goods, based on real-time forecasting.

It analyses historic data, looking at every demand fluctuation to a best-fit model that creates a forecast and states how accurate it is. Using the variability in accuracy by product, the system re-calculates a safety stock daily to ensure that the right amount of stock will be in place to meet customer orders.

The system then uses the supplier and manufacturing lead times and constraints, as well as key cost information, to calculate the economic order quantity and rhythm of supply, resulting in the optimisation of the cycle stock.

The add*ONE Inventory Optimiser software recalculates each individual forecast via information sent from the warehouses every night. Everything that happens during the day goes through detailed analysis and exception messages prompt the planner to re-plan only where necessary.

Parker has seen a reduction in average levels of stock of at least 25 per cent compared to the previous year.

Purchasing manager Malcolm Nicholson says: “We now have greater visibility of excess stock and this removes a degree of risk, helping us to make more informed decisions. That has enabled us to reduce our stock levels without impacting on our service levels.”

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