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4 methods for optimizing inventory

Monster Moto's Rick Sukkar discusses inventory issues with UPS's Mark Modesti in the company's new Louisiana warehouse

Companies hold on to their existing inventory management systems for too long thinking it will help scalability. But things break with growth. "Inventory is your biggest cost in an operation," says Mark Modesti of UPS Customer Solutions. "The goal is to be as efficient as possible on the management and planning side, while balancing the amount of the investment and risk involved."

Monster Moto, a manufacturer of off-road minibikes and go-karts for kids, is kicking its new U.S-based assembly operations into high gear. With a new headquarters in Ruston, La., and 60 full-time employees, the company is feverishly working to complete extensive restructuring of operations and logistics. To make a successful transition from assembling products in China to the United States, Monster Moto partnered with UPS to help implement systems into that new workspace to keep inventory under control.

Taking cues from Monster Moto, here are four techniques businesses can use to optimize inventory processes and operations.

1. Look at inventory management. The faster a company's inventory turns over, the more potential there is for profit – that's where operational efficiencies come into play. Monster Moto imports parts from China and assembles complete products in Louisiana, which means the company had to become more accurate with how it manages inventory. "We set them up with scanners and integrated NetSuite software that relays information to and from their ERP (enterprise resource planning) system. This helps companies fully manage the manufacturing process, hold on to less inventory and obtain more data." says Modesti. "As a result, Monster Moto can cut their FTE – the workload of a full-time employed person – in half."

2. Look at inventory planning. "You don't want to put any more money into inventory than is necessary based on the risk factors," explains Modesti. Look at the inventory on hand and your fill rate, or the number of orders you're able to fulfill with your inventory currently in stock. If you want your fill rate to be 99.5 percent and you've reached it, then don't keep buying more. You've reached efficiency. Often, companies mistakenly buy more because of internal pressure by salespeople who think the company needs to "stock up" in case of a large order. Modesti recommends using Baxter Planning Systems, an inventory optimization system with advanced forecasting and geographic analysis so you stock only the parts you need in the right location.

3. Look at warehouse layout. Once inventory management and planning are addressed, you need to scrutinize your facility. Ideally, says Modesti, the setup should resemble a horseshoe from the inbound door to the outbound door. In Monster Moto's case, the company made a smart call to situate the assembly right in the middle of the warehouse with parts on one end and finished goods at the other end. Having a seamless flow helped optimize efficiency and allowed Monster Moto to incur the additional cost of expansion without having to raise prices or lose quality.

4. Look at product placement. When Modesti walked into Monster Moto's new warehouse in Ruston in 2015, he had an engineer in tow. "We walked about 20 feet in, and he said, ‘Are these your fastest sellers?' To which they replied, ‘Yeah,'" explains Modesti. "‘Then why are the rows here only two deep? You should have at least three on each side because this is closest to the outbound door, and this is where you're pulling most of your orders from,' the engineer replied." Always look at your company's trends – and not just the obvious benchmarks like the fastest seller. Look at the next-fastest seller and the slowest seller to predict how much inventory you should keep on hand to maximize profitability.

For a closer look at how Monster Moto worked with UPS to put new systems and processes in place and improve inventory management, check out this video series.

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