Cango Inventory Management System Case Study
Currently CanGo is focusing on implementing a new inventory management system by installing new technology to make things simplified and more efficient. The new ASRS systems will perform, on average, 8x the amount of work that a manual picker can perform in one hour. That translates to one ASRS will perform the same as the sum of your current staff. The idea of bringing in two machines to double your processing speed while cutting your storage space in half by storing vertical is a great first step in inventory management.
The issue arises when you take the current system and don’t remove the underlying problems, but take the current system and just make it faster. CanGo’s current inventory turnover ratio is .28, which means that CanGo currently
has in inventory approximately 3.6 years’ worth of sales. Barnes and Noble, Inc., while a much larger company, has inventory turns of approximated 3 (Barnes and Noble Financials, 2016) which is 12 times higher than CanGo.
CanGo should look at categorizing their inventory, setting safety stock levels, and ordering material based off of forecasts rather than impulse buying. By decreasing inventory to a manageable level they could free up as much as $22 Million in cash which would allow them to fund and develop other projects.
By reducing stock to 1/12th of current inventory levels, that brings up a point of whether or not:
• The warehouse couldn’t be reorganized in its current space and avoid bottle necking?
• Is the new technology necessary or is it over kill when there is reduced inventory on hand?
• How efficient and accurate are reporting, forecasting, and ordering systems?
CanGo should reduce their current inventory levels to free up cash and utilize the funds to help finance projects. A focus should be put on tracking sales, accurate reporting, and forecasts. This in turn would give the company a clearer picture on space needed, labor and personnel, upgrades and technology, among other things.
The issue arises when you take the current system and don’t remove the underlying problems, but take the current system and just make it faster. CanGo’s current inventory turnover ratio is .28, which means that CanGo currently
has in inventory approximately 3.6 years’ worth of sales. Barnes and Noble, Inc., while a much larger company, has inventory turns of approximated 3 (Barnes and Noble Financials, 2016) which is 12 times higher than CanGo.
CanGo should look at categorizing their inventory, setting safety stock levels, and ordering material based off of forecasts rather than impulse buying. By decreasing inventory to a manageable level they could free up as much as $22 Million in cash which would allow them to fund and develop other projects.
By reducing stock to 1/12th of current inventory levels, that brings up a point of whether or not:
• The warehouse couldn’t be reorganized in its current space and avoid bottle necking?
• Is the new technology necessary or is it over kill when there is reduced inventory on hand?
• How efficient and accurate are reporting, forecasting, and ordering systems?
CanGo should reduce their current inventory levels to free up cash and utilize the funds to help finance projects. A focus should be put on tracking sales, accurate reporting, and forecasts. This in turn would give the company a clearer picture on space needed, labor and personnel, upgrades and technology, among other things.