Turning excess stock into cash

Stronger inventory management at steel distributor and processing company John Parker & Son

Iron rods piled up

The Problem

John Parker & Son is a family business established in 1904, and is now one of the UK’s largest steel distributors and steel processing companies. As the fiunancial crisis began to take hold, Managing Director, Guy Parker, decided to start a strategic review of stock control. Guy, the great grandson of John Parker - the founder of the business - realised there was a business case for reducing stockholding to improve cash flow ahead of a predicted drop in demand.

Parker explains, ‘The software we used provided a single figure of expected usage once a month, but it offered very little else. It was also taking a day of time per month to do the calculations required to get that figure. We needed to improve overall efficiencies of stock control, but that was nearly impossible to achieve using the solution in place’.

The OR Solution

Parker started the process of looking for a software solution that would better control stock. He realised the key to turning excess stock into cash was having the ability to make better decisions about what stock was excess through more efficient forecasting, order planning and management of information.

Following initial meetings with several potential providers, INFORM (Institute for Operations Research and Management GmbH) was selected. INFORM’s add*ONE Inventory Optimiser provided the company with a total minimised cost solution for purchasing and storing goods. INFORM helps manufacturers and wholesalers reduce risk by enabling them to forecast demand more accurately, reduce inventory and improve cash flow. The OR simulation model behind the software provides an optimisation solution for planning and ordering stock based on reliable forecasting procedures.

The Value

Currently, add*ONE is successfully managing the company’s stock for several categories of different product types, from different grades of steel to the range of tools and items sold through their trade outlet. John Parker & Son has seen a reduction in average levels of stock of at least 25 per cent compared to previous years. The system has also helped to speed up decision-making significantly.

Malcolm Nicholson, purchasing manager at John Parker & Son, says, ‘We now have greater visibility of excess stock and this removes a degree of risk, helping us to make more informed decisions. This has enabled us to reduce stock levels without impacting on our service levels. To all intents and purposes, our customers are unaware that this major implementation has taken place’.

The visibility and forward planning element has been invaluable to John Parker & Son which can now easily make decisions based on forward stock profiles as well as looking backwards, which was the only information available previously. This has helped provide quality information into its financial planning process, particularly regarding cash flow.

One of the unexpected benefits of the system was the clear visibility it gave around excess stock. In an industry where the market dictates the price, John Parker & Son is able to change prices for limited times in order to clear excess stock thanks to the ability to see which products are in need of stock reduction, and by how much.

INFORM was established in Germany in 1969, in close collaboration with the OR department at Aachen University. It now employs over 350 people at its offices in Germany, the UK and the US. Its UK-based customers include Bosch Thermotechnology, Fujitsu Services, John Parker and SFS Intec. For further information, please visit www.inform-software.com.