Since the economic downturn of 2008, companies determined to remain sustainable have had to embrace a number of innovative strategies to maintain profit margins. Cargo Carriers Divisional Director IT & Supply Chain, Dawid Janse van Rensburg, believes that supply-chain management is an area that ought to receive more attention, because the efficient control of stock to avoid both overstocking and stock-outs makes an immediate difference to both the balance sheet and the income statement.
He has good evidence to back up that belief; over the past few years, Cargo Carriers has run pilot simulations using the Symphony software system on several companies, in sectors as diverse as minerals, retail clothing, food container manufacturing, hardware and wine distribution. In all cases, the simulations showed that dynamic buffer management of the inventory in supply chains improves profitability – sometimes in ways the client had not even considered.
“We pick a sample selection of their product lines, and we need the stocking and sales data for those lines going back a full year,” says Dawid, “then we input all that data and run the simulation for a period of one year, tracking the performance of the simulation against actual results achieved by the company running its supply chain as usual. We recently worked with a large wine distributor. Before we started their main worry was stock-outs on popular lines; they weren’t really concerned about overstocking. But remember, this is a cash-to-cash business, they only get their money when they sell the wine. So having stock in the warehouse that isn’t moving is simply taking up space without making any return.
In the meantime, another line is experiencing high demand, but you don’t have enough space to store it – do you hire more warehouse space? It’s much more cost-effective to make sure your warehouse isn’t full of stock you don’t want or need. Apart from anything else, it frees up working capital that would otherwise be locked up in unsold stock.”
Revealing the actual value of lost sales
“The programme has an algorithm that allows us to put an actual monetary value on sales that are lost due to stock-outs,” Janse van Rensburg continues. “In the wine distributor’s case, they were quite surprised to see that they were losing a lot more sales to stock-outs than they had thought. Using Symphony, they can ensure they have the optimal mix in the warehouse at all times.
It lets you see the cost of holding inventory per sale, the amount of stock reduction you can achieve and helps reduce the sales lost through stock-outs.”
The results of the pilot simulations speak for themselves – in the case of the food-container manufacturer, the stock-out days in the simulation were 84% lower than the company’s actual results using its current system. Across the board, the simulations resulted in lower levels of inventory – a saving on warehousing costs and a boost to working capital – but still showed increased turnover and a reduction in stock-outs. It’s clear that dynamic buffer management of supply chains is one of the simplest, but most effective ways to increase profit margins.