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Inventory Management Best
Practices in a Wholesaler’s
Environment
Patrick Larmon
President and CEO
Bunzl Distribution USA, Inc.
Why Inventory Management is So Critical
• Inventory may represent your largest asset
• You have committed a significant amount of resources to
managing it
• With gross margin pressure continuing, it is critical to
improve inventory turns in order to increase your return
on net assets
• Improving low inventory turns can actually improve your
service levels
• Service levels are critical to maintaining and growing
your sales levels and contribute to increased growth
Inventory Structure
Classify your inventory to understand what’s important to your company
Modern Inventory Management Research has shown…
• Class A items—Top 5%-10% items account for 70% sales
• Class B items—Next 10% items account for 20% sales
• Class C items—Next 65% items account for 9.9 % sales
• Class D items—Next 15-20% items account for < 0.1% sales
Research further indicates that in most businesses the item’s volatility is
correlated to the item’s classification
– Top 5–10% of your items have less volatility than the next 10%
– Volatility of the bottom 20% items typically is the highest
General Concepts for Better Turns and
Service Levels
Manage your items based on their class
• Class A items
•
–
Concentrate your efforts on turning them faster
–
Bring in full pallets or unitized increments
–
Reduce your safety stock levels if volatility is low
Class B & C items
–
Buy in full pallets when possible, even if the amount is equal to two
month’s worth of inventory
–
If a pallet is over two months worth of product, then buy the item in layer
quantities
–
If you buy in layers, communicate with your warehouse so they can
move those items into smaller bins
General Concepts for Better Turns and
Service Levels
For all vendors periodically…
• Validate your pricing minimums
• Review lead time accuracy (stated versus actual)
• Over time both lead times and pricing brackets change
Results that Create Value for Your Company
• Higher inventory turns = less working capital = higher RONA
• Higher service levels since items are always in stock
• Improved buy-in opportunities
Better COGS and reduced expenses
• Higher stock replenishment and more efficient receiving and putaway
• Reduced pressure on warehouse space
• Develop yourself as an inventory management expert
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