Four out of five product lines in the electrical sector contribute just one-fifth of revenue – a situation described as ‘dangerous and unsustainable’ and exposing companies to unnecessary risk, according to a leading supply chain practitioner.
Richard Evans adds that while virtually every industry is exposed to the 80/20 rule – essentially, that 80% of products account for just 20% of revenue – he says that the electrical sector ranks as a classic example of companies risking their financial future through potentially fatal stock imbalance.
He adds that an already critical situation is made worse by the sector’s constant battle to balance the inconsistencies of local suppliers alongside a high dependence of outsourcing to the Far East.
“The net impact is an industry that’s hit harder than most by long lead times, poor stock visibility, excess in most lines with poor availability in others – crucially, the classic supply chain dilemma heightened by wide-scale exposure to the 80/20 rule.
“Looking at the issue from the opposite aspect – that is, that four out of five product lines are contributing just one-fifth of revenue – and you see the issue for what it is: dangerous and unsustainable” he says.
He adds that as the risk of a double-dip recession looms in the wake of the Government’s spending cuts, the absolute criticality of getting the inventory balance right takes on a new urgency...
“Given the situation we’re in, the industry’s surest lifeline lies in increasing visibility of stock, and companies should be looking to reduce working capital without impacting on availability as a matter of priority” he says.
Director of supply chain software developers Slimstock, Richard Evans says that when probing supply chain issues in the electro-technical field, ‘a familiar pattern’ regularly emerges – but that in most cases, planners need to look no further than improving supply chain visibility: “...in virtually every case, the solution lies in supply chain reconfiguration and optimisation” he says.
He adds that companies acknowledging the new technology are consistently reporting up to 25% reductions in inventory levels and investment, and that the concept of management by exceptions ensures that only a handful of items need attention rather than the whole product portfolio.
The situation facing a leading UK company in the sector proved typical of the situation in general...
From a central warehouse serving 27 locations delivering 15,000 order lines in lighting, electrical technical equipment, cables and consumer electrics each day, the company had been missing-out out on the flexibility to effectively manage its growth without a corresponding inventory increase – an issue generally viewed as one of the prime causes behind company failures.
Consistently falling short of its target of delivering direct from stock, research had highlighted a key failing – that its existing min-max system wasn’t effectively balancing working capital against customer satisfaction.
By integrating forecast with inventory management but with the automatic ability to calculate trends, seasonality and order advice, Slimstock’s Slim4 tool had isolated all the firm’s supply chain issues within a matter of weeks by flagging-up declining sales patterns to provide complete stock visibility.
Within six months as the company had logged a 15% inventory reduction alongside increased availability of the product assortment.
According to Richard Evans, with super-effective supply chain planning technology now readily available there is no longer any excuse for any company in the sector facing a stock-out scenario.
“With the looming financial situation, absolute stock visibility is now more essential than ever to ensure survival. Those that accept that fact will survive, those that don’t risk the very real prospect of financial failure” he says.