Improving inventory management to increase profitability

Abstract

ShopSabre, a leading designer and manufacturer of computer numerical control (CNC) routers and plasma tables, is experiencing robust growth, with revenues growing an average of 40% each year since 2015. Due to this growth, ShopSabre maintains an average backlog of 130-140 machines and an average lead time regularly exceeding 12 weeks. With each machine bringing in an average of $40,000 in revenue, half of which upon shipment, the backlog can easily account for over $2 million in unreceived revenue.

One cause of the large backlog is a lack of parts and subsequent work stoppages. Apart from a monthly physical inventory, ShopSabre does not have the means to assess inventory on hand at any given time. There are few common systems across sales, purchasing, and production, resulting in occasional miscommunication as well as a lack of data comparing cost of goods sold to revenue on ShopSabre’s built-to-order machines.

This research develops a perpetual inventory system across departments by first gaining a deep understanding of existing inventory and processes, then building bills of materials for all ShopSabre products, and finally integrating existing processes into a common inventory system. The research then takes preliminary data from the system to demonstrate possible applications and improvements.

As of the conclusion of on-site research, ShopSabre is fulfilling machine orders with historically low lead times of four to five weeks for routers and seven weeks for plasmas/23s, marking ShopSabre’s first year under 10-12-week lead times.