A few years ago, we were asked to assist a large apparel retailer with their supply-chain strategy. We toured the main distribution center during one of the initial visits. I noticed that the receiving dock looked especially full. I asked the manager what the dock-to-stock-time was. He proudly shared that it was 96 hours. I shared that our benchmarking showed that 24 hours was a norm, 8 hours was above average, and a few hours was world class.
The manager was somewhat defensive and said that the company had looked into systems required to reduce dock-to-stock-time but could never produce an acceptable return on investment (ROI). I asked how much inventory was sitting on the dock. It was $8 million worth of inventory. I asked the manager what range of investment proposals the company had received for the material-handling systems required to help reduce company cycle time to 24 hours. Quotes were in the range of $2 million. I did some quick math and calculated that by reducing their dock-to-stock-time by 75 percent, the company could reduce its inventory by $6 million. I then asked, “Wouldn’t it make sense to spend $2 million to take $6 million out of inventory or to reduce inventory carrying costs by $2 million per year at the 33 percent inventory carrying rate?” The manager shared that the company had only tried to compute an ROI based on labor savings alone and had not considered inventory savings. This reconsideration launched one of the nation’s most successful supply chain strategies.
Copyright: RightChain Incorporated