When the pandemic began, surging demand for medical devices to treat COVID-19 prompted manufacturers to ramp up production. We worked with a medical device company whose inaccurate demand forecasts overestimated the size of the demand for ventilators, resulting in overproduction and the company locking up over $160m in excess inventory.
We used Faculty Frontier to generate hyper-accurate demand forecasts, enabling them to create more precise production plans to mitigate overproduction and set far lower SKU-specific safety stock targets to slash the inventory they hold.
A medical device company dedicated to providing equipment for respiratory care. They offer over 27,000 products in more than 100 countries.
Inaccurate demand forecasts resulted in the overproduction of medical devices, like ventilators, generating a significant financial crisis. The company had locked up millions worth of capital in excess inventory and halted cash flow.
By April 2020, it was clear that many medical device manufacturers misjudged the expected demand for devices to treat COVID-19, resulting in a glut of ventilators. For our customer, this had led to $160m worth of excess inventory stored on-site, ultimately crippling the company’s cash flow and leading to a huge financial crisis.
The pandemic exacerbated several of their pre-existing problems:
- Poor-quality algorithms generated forecasts that couldn’t handle demand spikes, and these algorithms were skewed by adjustments from commercial teams;
- This led to suboptimal planning that simply sought to ‘smooth out’ production plans to avoid spikes and overestimated safety stock;
- Disconnected executive and operational teams led to an inaccurate view of stock, so the company couldn’t set realistic safety stock targets.
They needed to dramatically improve inventory management across the entire company to alleviate this financial crisis and mitigate excess inventory in the future. But their ‘top-down’ approach to planning wasn’t moving excess inventory fast enough. The company also attempted to improve its forecasting to prevent overproduction, but without a data science team, progress was too slow. All the company could rely on was ‘quick wins’ to find additional savings, and these were nearly depleted.
Frontier transformed demand and supply planning for consumables by correcting inaccurate forecasts, creating production plans that actively reduced inventory levels, and whittling down safety stock levels.
In October 2021, we rapidly deployed our technology to generate accurate demand forecasts to reduce the company’s excess inventory, optimise planning from the ‘bottom-up’ and improve its future inventory management.
We improved demand forecasts
Our high-quality algorithms generated forecasts that produced a range of likely outcomes, allowing planners to make data-driven decisions. This gave them far greater confidence in forecasts and pushed back against adjustments recommended by commercial teams.
We improved production planning
Thanks to more accurate predictions of demand, the company was less likely to overproduce and was able to create optimal production plans that accounted for current inventory levels. For example, if demand for SKU X was 6,000 units but they had 4,000 in stock, a production plan would recommend producing only 3,000 units to shift the excess inventory while still leaving a buffer of safety stock.
We connected executive and operational teams
We gave executives a far more targeted view of operational data by surfacing alerts showing products consistently overproduced, enabling them to simulate key decisions across the supply chain (e.g. “what if we moved production capacity to this production line?”). This helped the company prepare for supply chain shocks.
Via Frontier the medical device company can now optimise inventory allocation for every SKU individually and at the right frequency (i.e. daily, weekly, monthly) depending on the product type and the business need. This enables the company to swap their blanket safety stock levels of 13 weeks for much lower SKU-specific targets (an average of 5.5 weeks), helping to avoid ‘stock-outs’ without the extra carrying costs.
Faculty Frontier could unlock $52m in savings across two years by helping the company manage trade-offs between inventory and service. Significant cash flow problems will be improved by better inventory allocation.
Within six weeks we had corrected the cause of the problem, providing our customer with a sustainable solution that could unearth huge savings with every production plan. The robust scenario planning capabilities can help the executive team prepare for demand and supply shocks, putting the company in a far better position to handle future volatility.
of capital locked up in excess inventory
average reduction in safety stock in weeks