Inventory Management Best Practices in a Wholesalers 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 whats important to your company Modern Inventory Management Research has shown Class A itemsTop 5%-10% items account for 70% sales Class B itemsNext 10% items account for 20% sales Class C itemsNext 65% items account for 9.9 % sales Class D itemsNext 15-20% items account for < 0.1% sales Research further indicates that in most businesses the items volatility is correlated to the items classification Top 510% of your items have less volatility than the next 10% Volatility of the bottom 20% items typically is the highest 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 months 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 put- away Reduced pressure on warehouse space Develop yourself as an inventory management expert