By pulling these SMG products out, and creating new pick lines, one SMG and four FMG (Fast Moving Goods) in each of the current facilities, both picking operations will be immediately improved. In addition, the picking productivity benefits can also accrue assuming all products were in a consolidated pick line in the previous four full line facilities.
An example would be that these have been pulled back from four locations to one resulting in roughly a 50% inventory reduction, which is significant. These SKUs would then be serviced from 1 or 2 more centralized Slow Moving Distribution Centers with the appropriate Square Root Law of Inventory applying depending on how many existing locations these products were held at. Typically, Pareto's Law ( the 80/20 rule, which by the way, we need to discuss if it really is relevant in this day and age) can assist in this regard with the slower moving 80% of products which might represent 20% of sales volume being pulled from the current DC network. Specifically, Slow Moving Goods (SMG) and Network Centralization, just to give you some ideas where you may begin with direct application to your own organization (or client).Ī Slow Moving Goods strategy consists of the seg&sort of a product range by velocity. However, it is important when looking at such opportunities, not to do so in isolation, but to take into account all aspects including DC Cost, Transport Cost, as well as Customer Lead Times and Replenishment before any final decisions are made. There are large potential benefits to reducing the number of locations and on the flip side, also significant inventory increase penalties to adding to the number of stocking locations.
You simply have to trust the facts as stated. Since I am someone who just knows enough to be dangerous on these type of issues, especially when working directly with mathematical minutiae, I am not equipped to review the detailed method of calculation.
This will reduce inventory carrying costs, which may be slightly offset by more costly transport options to meet a customer's service requirements. The significance of The Square Root Law is that a company operating five warehouses, which then centralizes into one warehouse, can theoretically reduce inventory carried in stock by 55 percent. Maister in his 1975, International Journal of Physical Distribution article entitled "centralization of Inventories and The Square Root Law." Whoa! I'm surprised I was even able to type that. The Square Root Law was mathematically proven by D.H. The Square Root Law states that The Total Inventory in a System is proportional to the Square Root of the Number of Locations at which a product is stocked.
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