Less is More: Simplifying Inventory Tactics

Abstract

Millions of small and medium-sized enterprises (SMEs) fail every year in the United States, and in many instances the root cause of failure is more often due to operational inefficiencies than external factors. One way SMEs can overcome operational inefficiencies is by implementing inventory management strategies, such as modularization and postponement, to increase profitability, production efficiency, and forecast accuracy. The sponsoring company for this project is a small consumer packaged goods (CPG) company that recently implemented a modularization and postponement strategy to its main product. We quantified the impact of the new strategy by measuring six key performance indicators (KPIs) before and after implementation through statistical analysis and Monte Carlo simulation analysis. Our analysis found that the new strategy increased profitability by 14.57%, increased production efficiency by 50%, decreased MAPE by 42.2% and increased warehouse capacity by 52.6%. Modularization and postponement can be successfully implemented in SMEs, and these strategies increase profitability and reduce operational inefficiencies.