KEY FIGURES

• Over 1500 SKUs in inventory
• 80% inactive inventory
• Confirmed delivery lead time: ≤ 2 days
  

INITIAL SITUATION

The client is a traditional high-volume manufacturer of ready-to-assemble (RTA) furniture. The commissioned baseline analysis identified, among others, the following key challenges:

• The company operates a make-to-stock model, producing predefined batch sizes based on demand forecasts to maintain a maximum delivery lead time of two days.
• Current processes and production strategies are designed after the past capabilities and not after the actual demand.
• The company invested minimally into small batch capabilities and quick changeover equipment -> Traditional serial production with rigid equipment
• The market is facing the company with a constantly growing product portfolio
• Today’s market situation shows fast-changing trends with short product life cycles. This leads to:
• A shrinking demand per SKU (at a constant revenue)
• Many SKUs with low or no demand
• Large inventories become obsolete quickly
  

OBJECTIVES

The project was designed to establish a sustainable, demand-driven production and inventory model. The key objectives were:

1. Improve inventory health

• Reduce finished goods inventory and required warehouse space
• Lower the risk of obsolete inventory
• Release working capital tied up in inventory

2. Establish a sustainable production and planning strategy

• Align production planning and supporting processes with actual demand
• Define a long-term framework for inventory and production managementn and inventory management

3. Transition production to smaller batch sizes

• Maintain a high level of equipment utilization
• Minimize setup effort, material handling, and operational waste
  

APPROACH

The project was executed through a structured four-step approach designed to align production planning, inventory management, and manufacturing capabilities with actual demand:

1. Analyze the current state
Inventory structure, demand patterns, forecasting methods, manufacturing capabilities, minimum economic batch sizes, and the existing costing model were assessed. The analysis included an ABC classification, a review of active and inactive inventory, and a comparison of manufacturing costs with total cost of ownership.

2. Establish a manufacturing cadence
Products were assigned to defined production cycles based on demand frequency, inventory classification, and machine-related minimum batch sizes. High-volume items were scheduled more frequently, while slow-moving items were produced at longer intervals. Similar products were grouped where appropriate to reduce setup effort and improve production efficiency.

3. Define a safety stock strategy
Safety stock levels were established to balance production capacity, maintain product availability, and absorb short-term demand fluctuations. When safety stock is consumed, the replenishment quantity is adjusted during the next scheduled production cycle.

4. Implement performance tracking
Key performance indicators were defined to monitor inventory health, active and inactive inventory, discontinued stock, overall inventory levels, SKU count, and product availability. These metrics provide transparency and support continuous improvement of the production and inventory model.