It’s no secret
that every manufacturing organization has excess MRO inventory sitting around
taking up valuable warehouse space and cost. So how do you tackle this
challenge and dispose of that unnecessary overstock?
First things
first, you’ll need to clearly identify which parts are indeed excess and are
safe to remove from the facility. This can be done through a detailed analysis
of purchase and usage data. Typically the items of interest would be those that
have been purchased and/or issued at least once during the analysis period (12-24
months) but have an on-hand quantity that exceeds the maximum inventory
stocking level specified.
Once you have
determined exactly which items are in excess and safe to remove, there are
several inventory disposition strategies to consider. Ultimately, the inventory
disposition strategy that you choose to implement will be determined by:
a) Resources Allocation
b) Timeline for Disposition
c) Dollar Value Expectation
Based on these
requirements, the following are a few of the disposition strategies that you
may want to consider:
Attrition
While this
strategy will not deliver cash returns, it will allow for excess inventory to
be used down to an efficient stocking level, reducing carrying costs and freeing up warehouse space. Based on the analysis of purchase and usage data, average
daily usage can be calculated. Using this number along with other inventory
variables, you may estimate the time that it will take for excess inventory to be used down
to an optimal stocking level. If the attrition timeline were estimated to
exceed a certain amount of days or months, you may want to consider a different
disposition strategy that can produce quicker results.
Corporate Internal Redeployment
Another strategy
that does not necessarily deliver cash returns but will allow for excess
inventory to be transferred and consumed within other sites of the corporation.
In order to make this strategy successful, you must identify other sites within
the corporation that the specified excess parts are used in. Based on usage
activity and on-hand quantities at those sites, you must determine a timeline
for usage. Does the other site have plans to purchase this part in the near
future? Does it make sense to put another site in an overmax state if the parts
will be consumed in a short period of time? There are many variables to consider with this strategy but if implemented properly, it can deliver great benefits to all sites involved.
Supplier Buy-Back
Supplier buy-backs
are always a successful disposition strategy and can often become a great
negotiating factor within a supplier tendering process. In many cases,
suppliers may agree to purchase the excess items which fall into their product
group(s) for cash or credit towards future purchases. For example, a Bearing
& Power Transmission supplier may agree to purchase any excess bearings,
belts, etc. that are new in the original unaltered box. So if you’re planning
to tender out your MRO spend, this is a great strategy to keep in mind during negotiations.
Auction
Now we’re getting
to the more lucrative disposition strategies. Auctions are a great way to
capture quick returns on that excess inventory that you’re eager to say goodbye
to. Typically auctions involve inventory being sold by the lot. The financial
return on an auction can vary, as there is no set price for inventory to be
sold at. In many cases, companies who don’t have a set dollar value in mind and
simply want to remove the inventory to free up warehouse space choose this
option.
Third-Party Liquidation
Once again, third
party liquidation can provide quick returns and allow companies to remove
excess inventory immediately. Often third party liquidation companies will
purchase excess inventory at a percentage of the market value. Upon agreement,
the third party provider will usually be responsible for gathering the
inventory from your facilities, therefore eliminating any logistical burden on
your company.
e-Commerce
Often seen as the
last resort, e-Commerce can be used to slowly sell off excess inventory online
through various sites such as eBay, Amazon, and others. The e-Commerce strategy
requires much more management as each item will be posted individually and
inquiries must be responded to on a daily basis. Once the sale has been made,
you will also have to manage the logistics, including pulling the item out of
your warehouse, putting it in the appropriate shipping package, and sending it
to the buyer.
As you can see,
there are many options for disposing of excess and unused inventory. Choosing
the right solution is key and depends on your specific objectives. If you’re
simply aiming to right-size your inventory you may want to first consider
Attrition or Corporate Internal Redeployment. If you’re looking for quick
removal and cash returns, then an auction or third-party liquidation
solution might be a great your best bet. Regardless of which solution you choose,
the important thing is that you have identified that you have excess inventory
and you’re ready to do something about it.
For more information on Inventory Optimization and Disposition Strategies, please visit www.imaltd.com or contact info@imaltd.com.
For more information on Inventory Optimization and Disposition Strategies, please visit www.imaltd.com or contact info@imaltd.com.
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