$300M+ industrial manufacturer: rebuilding the PFEP and finding several million in working capital

Situation

A $300M+ industrial products manufacturer running multiple plants had let its inventory parameters go stale. Safety stock, reorder points, and order quantities had been set in the ERP years earlier and never revisited as demand shifted, and the lead times and supplier minimums behind that math had not been updated since supplier changes. A parallel PFEP existed only in a manually maintained spreadsheet that nobody else could reliably update, and finance and operations routinely walked into meetings quoting different total inventory numbers because neither side trusted the other's source. Nobody could say with confidence which parts were overstocked, which were at real risk of a stockout, and which should not be stocked at all.

Approach

• Rebuilt the PFEP from the ERP's own data: part master, two years of transaction history, current on-hand, and open orders for a large population of active purchased-part SKUs across the plants. The old plan ran reorder math against lead times and supplier minimums that had not been updated since supplier changes.
• Ran ABC classification by annual usage value, then layered in demand variability using the coefficient of variation, with a separate flag for parts that go long stretches with no demand, so each part landed in a stable, variable, or erratic bucket rather than a revenue tier alone.
• Recomputed safety stock, reorder points, and order quantities part by part against a tiered service-level policy set with plant operations and finance, then flagged every SKU sitting in excess or exposed to shortage risk, including undersized A and B class parts the old flat rule had been running hot on.
• Rationalized stock, non-stock, and make-to-order for the slow movers based on supplier lead time, criticality, and substitution risk, and built a before-and-after working-capital waterfall so finance and operations could finally see the same number.

Results

• Several million dollars in working capital identified for release across safety stock resizing, order quantities, reorder points, and excess disposition, partially offset by increases on a small number of previously undersized A and B class parts, without lowering target service levels.
• Roughly a quarter of on-hand excess, measured at book value, tied to a small set of slow-moving and obsolete parts, now flagged for disposition instead of sitting quietly on the shelf. Realized cash recovery depends on the disposition channel and was tracked separately from the flagged book value.
• Service level held or improved on A class parts even as overall inventory dollars came down. The old flat rule had been over-covering predictable A parts while under-covering volatile ones, and resizing safety stock by class and demand variability fixed both directions at once.