INVENTORY STRATIFICATION

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Inventory Stratification

Research Project 

Best Practices H Actionable Results H Education

Distributor Process Framework SUPPLY CHAIN PLANNING

SOURCE

SUPPLIER

STORE

STOCK

SELL

SHIP

CUSTOMER

SUPPORT SERVICES

INVENTORY PROFITABILITY

Stratification Model

Education & Roadmap

Optimizing Distributor Profitability

A B

Best Practices to a Stronger Bottom Line

C D INVENTORY MOVEMENT

Sample Results $41.3 MM

100%

$188.1 MM

$39.6 MM

$16.3 MM

$5.1 MM

$23.3 MM

80%

$14.5 MM

$ 54.4 MM

60%

F. Barry Lawrence • Senthil Gunasekaran • Pradip Krishnadevarajan

$5.2 MM

$10.3 MM

$8.5 MM

40% $10.3 MM

$81.3 MM $16.7 MM

20% $3.7 MM

0%

$4.3 MM

$12.8 MM

$2.3 MM

AVG. INV ($)

TOTAL SALES ($)

TOTAL GM ($)

D C B A NEW

Inventory stratification is the process of ranking inventory items based on relevant factors applicable to the business environment. The purpose is to classify items into a certain number of categories (typically less than five) so that working capital can be managed optimally.

Representative Project Outcomes

“Through knowledge learned from the inventory management program, attended by all our management and key salespersons, we have reduced our total inventory levels by over 20%.”

Inventory Stratification

CLIENT REVENUE

DISTRIBUTION CHANNEL

PROJECT AREA

PROJECT OUTCOME Inventory Reduction/ Re-deployment

Service Level

Metals Distribution

$ 1 Billion

17%

Pipe, Valve and Fitting

$ 1 Billion

12%

7%

Oil & Gas Equipment Mfg.

$ 1 Billion

20%

6%

Paper Manufacturing

$ 220 MM

10%

3%

Chemicals Distribution

$ 125 MM

33%

Hardware

$ 125 MM

35%

3%

Fluid Power Equipment

$ 125 MM

33%

8%

Building Materials

$ 80 MM

22%

4%

Inventory Strategies

Brent A. Burns, Vice President, ISC Building Materials, LP

“We collaborated with Texas A&M on an inventory stratification project which has resulted in a successful classification of our inventory based on item level profitability. We have already seen a significant reduction in capital employed and expect to benefit from further decreases.”

Key Take-Aways Reduce obsolescence and right-size inventory investments Maximize your ROI on inventory

Kevin C. Reid, Vice President - Procurement, ThyssenKrupp Materials, N. A.

Balance customer service Optimize safety stock investment

“I was impressed with the overall program at TAMU. When I look back to the program, I was impressed with the Item Stratification segmentation of Critical (A&B) Items and (C) Items.”

Minimize total relevant cost Manage item-level profitability Effective use of IT & human resources

Randy Thomas, Regional Manager, Wilson Supply

INDUST RIAL DI ST R I BUT I O N P R O G RA M 204 Fermier Hall, 3367 TAMU, College Station, TX 77843-3367

PH

979-845-4984

FX

979-845-4980

WEB

http://id.tamu.edu