FreeFlow At Risk Inventory Management

By adopting a proactive, routine asset remarketing process you can generate cash AND reduce warehousing expenses, standard cost revisions and other carrying costs associated with at risk inventory.

You recognize it, across all stages of the product life cycle: excess or non- saleable inventory stemming from over- optimistic demand forecasts, inventory stuck in sales channels, excess active inventory on the road to obsolescence, channel and customer returns, inventory that needs to be refurbished. Are you doing everything possible to use this idle inventory to help your company’s bottom-line performance?

By adopting a proactive, routine asset remarketing process you can generate cash AND reduce warehousing expenses, standard cost revisions and other carrying costs associated with at risk inventory. This cash isn’t treated as revenue: It is used to offset inventory reserves and will directly impact your P&L. This paper will help your team understand how to wring the most cash possible out of your own at risk inventory.

You’ll learn: How you can improve recoveries on customer returns AND dramatically reduce your reverse logistics cash-to-cash cycle Why moving remarketing efforts earlier in the product lifecycle yields the most impact How to manage this effort What to look for in an asset remarketing partner At Risk Inventory Across the Product Lifecycle Product profitability peaks early then erodes as products age. Progressive remarketing can restore profitability if managed proactively across all stages of the product lifecycle. Did you know? In most companies, 20% of all inventory falls into an “At Risk” category during one or more stages of the product lifecycle.

In the reverse supply chain, the cash-to-cash cycle marks the time between when your company issues a credit on a customer return to the moment you put cash in the bank from recovering that asset. This cycle can be lengthy—from 10 weeks to well over three-quarters of a year, depending on how and where rework is done on the returned product prior to remarketing. You can escape this cash-flow quagmire.

Here are some points to evaluate:

What is the cost-benefit of reworking your returns? You may assume you’ll get the most cash from factory-refurbished product, even if you have to ship the product back to your offshore ODM. But there is a healthy market in the “as-is” returns business, and selling “raw” returns eliminates the cost, risk and cycle time of product refurbishment. There IS a similarly vibrant market for factory-certified refurbished product, so make this decision carefully—know your costs, your processing times and the cash-flow impact of extended cycle times. Can you collapse two or more process steps under a single vendor? You may be able to sidestep the receipt of returns altogether and have your remarketing partner receive, sort, disposition and remarket them. This will also reduce cycle time. Which products suffer the steepest price erosion, and which offer the highest margin? Having the data to answer to these and similar questions will help you determine what products should have priority in the reverse logistics chain.

Here is what you can do immediately to help your company generate more cash from at risk inventory.

1. Take the lead to improve recoveries on returns. Short-term improvements can be initiated through a simple discovery discussion with your inventory manager, using the questions provided. Taking a close look at your existing process will lead to uncovering ways the reverse logistics cash-to-cash cycle time can be reduced over the long term.

2. Engage your counterparts in Sale and Finance. Developing a strategy to implement proactive inventory reduction programs for excess active inventory will require their input—and blessing. Meet with them separately, informally, and chances are you’ll find them more than willing to investigate a no-risk process to address an age-old problem.

3. Identify inventory thresholds. Once you have key stakeholders (Sales, Finance and Supply Chain) in conceptual agreement, you should begin identifying the inventory thresholds beyond which action must be taken, the frequency for reviewing those inventory levels, and the means by which you’ll make inventory visible to the Sales force. If you have a well-established Sales & Operations Planning (S&OP) process, this may be the right process on which to base this program 1 Clearly categorize excess inventory by age (i.e. 6-12 months, less than 12 months, etc.) 2 Review historical recovery trends and extrapolate a forecast P&L impact, assuming all inventory is purged 3 Seek business unit approval for recovery levels 4 Set these recovery levels as reserve prices 5 Go to market and release only when reserve prices are matched or exceeded 6 If reserve prices are not met, seek approval for exceptions before creating orders on the system.

Building more discipline into your asset recovery efforts will generate more cash in the short term, AND it will lead to a permanent positive impact on your company’s P&L. By applying the concepts discussed in this white paper, At Risk Inventory expert FreeFlow has typically improved recovery in many consumer electronics companies by 20 percent in the first year. Visit these links to read more about how FreeFlow has worked with companies including Apple, Logitech, Microsoft and SanDisk to improve financial predictability and maximize recovery at all stages of the product life cycle. Learn why Gray Williams, VP of Supply Chain at Logitech, is pleased with the improvement to the bottom line and to their asset recovery process as a result of their partnership with FreeFlow. www.freeflow.com/logitech.htm

Bill Paganini, Sr. Operations Director at SanDisk leveraged FreeFlow’s experience and expertise to get up and running quickly. More: www.freeflow.com/sandisk.htm Check out www.FreeFlow.com to learn more about lifecycle at risk inventory management. Or you can talk to one of FreeFlow’s experts - call (888) 616-5407 or email them at info@freeflow.com.

Disclaimer: Article published with permission from FreeFlow (contact P.C. at +353 61 514 546 for details).