Customer Success Stories
DAFAs supply chain is geared for profitable growth
Danish wholesaler and manufacturer DAFA aims to boost both its revenue and earnings capacity. The first step was to introduce inventory management based on ABC analyses. A group of managers are now working continually to identify more business optimization opportunities.
Once a month, a group of managers challenge each other to find ways of optimizing DAFA’s business. Figures from ABC Analyzer prepared by business controller Pernille Sehested form the basis for each group meeting.
We invited the production manager to our latest meeting. We had several products in our intermediate stocks, but our analyses showed that this made no sense: We should only produce to order. So we’re now actively focusing on changing this.
In addition to business controller Pernille Sehested, the permanent members of the working group are the inventory manager, the purchasing manager and the factory manager. A sales department representative regularly attends the meetings.
The group follows a calendar wheel indicating when each department calculates minimum inventories and runs ABC analyses. The wheel has illustrated how each group in the organization operates.
Goal: We want to boost both top line and profits margins
DAFA wanted to grow and also considered cost reduction options. The key was to introduce inventory management, where data replace gut feeling as the decision-making basis.
“In the past, we sometimes bought products for the inventory if a single customer bought a product just once. Our purchasing process is now data-driven, and everyone knows the ABC codes. The next step is to apply the same approach to analyzing and prioritizing customers,” says Pernille Sehested.
Two specific goals were to increase the stock turnover ratio to 8 and maintain delivery reliability, and the company achieved both.
ABC data strengthen purchasing
DAFA uses the classic double ABC analysis based on cost value and sales order picks.
“We’ve implemented the ABC categories so purchasers looking at the ERP system can see whether a product is categorized as AA, AB, etc, and everyone knows the underlying concept criteria, which we have illustrated on a big poster,” says Pernille Sehested.
Strategic purchasers use the ABC categories when negotiating with suppliers. They can specifically prioritize bulk discounts or delivery time and delivery reliability to give AA products, for example, a better lead time.
20% stock reduction!
Since implementing ABC Analyzer three years ago in fall 2013, DAFA has realized a number of benefits.
We gave ourselves a pat on the back when we recently achieved our goal to increase our stock turnover ratio from 6.8 to 8Pernille Sehested, Business Controller, DAFA
In less than a year DAFA has:
- Increased its stock turnover ratio from 6.8 to 8.
- Reduced stocks by 20%.
- Maintained 98% delivery reliability.
DAFA is now focusing on reducing its minimum stock of C products, which could well be special order items.
“It’s all about setting priorities. We can’t do everything, so we have to deliberately rule out some things. This can be painful, but it’s an inevitable part of any streamlining process,” says Pernille Sehested.
Wood strips: In or out?
The new, hard facts have caused some surprise:
“Before starting the project, we considered wood strips a secondary product group that we could withdraw from our range. However, they proved to be an AA product with a high contribution margin,” says Pernille Sehested.
Profitable growth: Increase revenues, reduce costs and maintain the high level of delivery reliability.
New daily routines with data and optimization in focus. Monthly management meetings ensure progress. Projects are planned with manageable “sprints”, clear goals and ongoing follow-up.
In less than a year DAFA has:
- Increased stock turnover rate from 6.8 to 8
- Reduced stocks by 20%
- Maintained 98% delivery reliability
DAFA is now focusing on shaving its minimum stock of C products, which could well be special order items.