Case

Shorter lead times and 30% inventory reduction

With support from our management consultants, Fagersta stainless got shorter lead times and 30% inventory reduction within 3 months from the project start.

About Fagersta Stainless

Fagersta Stainless is a business unit in global stainless steel group Outokumpu, and a leading producer of stainless wire rods and drawn wires. Fagersta serves customers worldwide and has a reputation of delivering high quality throughout the value chain. 

  • Industry: Steel
  • Turnover: 1,6 billion SEK
  • Markets served: Global
  • Service: Cash release through inventory optimization
"The Management consultants did a great job managing the project and implementation with focus, a hands-on approach, and speed – which is why we can see the results today. We needed to do a fast and focused project, and needed to add analytical power that was lacking in the company."

Mats Benson
General Manager, Fagersta Stainless

Challenge - Inventory build-up and delivering services free of charge called for action as volumes decreased

The client operates in a traditional, cost-driven industry with a highly competitive business environment. A history of declining sales volumes in combination with the outbreak of the Covid-19 pandemic quickly led to inventory build-up, resulting in capital tie-up and a need for reduction of stock levels. As in most process industries, factory utilization was of great importance in order to maintain profitability, and the decrease of demand had led to a need for increased flexibility and shortened lead-times to capture higher customer value.

 

 

Steel as a raw material comes in a variety of grades, and suppliers required purchases to be made in large bulk sizes, charges. This led to challenging inventory steering since steel grades and products were often highly customized. Customer MOQs (Minimum order quantities) and the complex production process made it difficult to optimize raw material inventory. With a decrease of customer demand and a high share of customer-dedicated inventory, lower product availability, high stock levels, and finished goods inventory.

What was done – Inventory reduction and cash release.

Scope: Increasing efficiency of logistics and planning system, with resulting inventory reduction and cash release.

The first step was to analyze inventory flows and simulate the effects of changed ordering processes on delivery precision and stock levels, as well as identify and realize quick-wins. This was done through 

 

  • Review of re-ordering points for stock replenishment and matching customer forecasts, resulting in a short-term reduction of material need. This was passed on to the supplier order book by re-evaluating placed and planned orders, in order to reschedule the order book with a focus on customers’ need for priority
  • Analysis of products based on order frequency, resulting in decreased stock levels for less frequently ordered products in order to prioritize products with higher frequency. Products in customer-specific stocks were offered to other customers and material deemed obsolete was scrapped, resulting in a positive cash flow from the recycling value
  • Analysis of flows and capacity constraints was performed to identify optimal levels for WIP inventory and ensure the right capacity
  • Review of the dispatch planning process, resulting in minimized time in stock, the longer planning horizon for booking transports, and improved month-end planning
  • An improved customer offering was developed to enable increased service levels in line with customer needs. Lead times were differentiated and shorter lead times enabled for a large share of the high-frequent assortment.

Effect - Results within 3 months from project start

 

  • Inventory reduced by 30% within 3 months from project start
  • Shortened lead times for frequent products
  • Increased flow efficiency
 
"As a result of the project, the organization learned to constantly evaluate our ways of working, which was especially important in the dramatic market changes caused by the Covid-19 pandemic"

Mats Benson
General Manager, Fagersta Stainless

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Erik Påhlson
Manager of services in Profitability Management
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