Four Star Industries Singapore – Matching Supply with Demand Report

Four Star Industries Singapore – Matching Supply with Demand Report

To balance the current issue of demand supply mismatch Four Star will have to evaluate their lead time leverage, production flexibility and inventory levels. The goal is to streamline manufacturing, production scheduling, inventory management and order fulfillment processes. Below are the possible improvements that Four Star can make in order to be competitive in a growing market, alleviate operating losses, and streamline manufacturing processes.
Reduce # of SKUs:

The first method identified as a possible improvement, is to reduce the number of SKUs from the current 230 back to between 20 and 80. By doing this, Four Star would be able to decrease the amount of required finished goods inventory. More specifically, the number of SKUs that they would have to hold 2 weeks worth of safety stock. This reduction in SKUs would lower the number of stock outs as well as the amount of overstocking. They would also be able to consolidate the ordering of raw materials and reduce the cycle stock inventory. The raw materials have a large lead time and because of this they are required to hold enough inventory for each production cycle. If they reduce SKUs that have higher cost materials, they would be able to improve their ordering and inventory costs for raw materials. Lastly, if they had fewer SKUs they would be able to decrease the number of different batches and changes in machine setup required in production. This would help to reduce the number of mistakes that result in wastage and overstocking.

One major concern about decreasing the number of SKUs this drastically, would result in a significant amount of lost sales, particularly with the large distributors (LDs). Due to the competitive nature of the mattress market, LDs are demanding custom or exclusive mattresses from their manufacturers. Since, these LDs also have a number of options of manufacturers, it is crucial for Four Stars to continue to meet this demand. Just one LD, Novena, makes up 25% of Four Stars’ sales. However, we believe Four Stars can be strategic about which SKUs to discontinue to mitigate this risk and maintain good relationships with their LDs.

Given these advantages and disadvantages from reducing the number of SKUs, we recommend that Four Star go forward with this option and begin to evaluate which SKUs should be discontinued. However, we do recommend that Four Star does a in depth profitability analysis of each SKU to better determine how many and which SKUs should be discontinued.

Minimum Order Quantity for Dealers: One of the options from the case study is to require minimum order quantity from dealers.  Ultimately, we don’t feel this solution is feasible as the dealers would not accept it, however, we would offer this option for slow moving items that are profitable. For items that dealers want to feature on a sale, the items we currently struggle with stock outs on, we would partner with dealers and provide this option if these sales are profitable.  If they are not profitable, we would discontinue this practice and no longer offer those SKUs.  

Reduce Safety Stock Requirement: Our recommendation on safety stock goes hand-in-hand with the recommendation made on number of SKUs held. The reduction of safety stock on finished goods would provide many benefits towards the end goal of alleviating operating losses. By holding less safety stock, Four Star would be able to reduce their holding costs. While the case only provided an average and no additional detail on the slow-moving 210 SKUs, as mentioned above, it is likely that some SKUs are very quick moving while others sit on the shelf for a good deal of time before being purchased by dealers. The high moving SKUs are susceptible to stock outs which increase the cost to expedite and thus lower operating margins and could also contribute to lost sales if the dealers choose to go to alternate manufacturers. The slow moving SKUs, while they might be beneficial to the overall portfolio offering, take time in manufacturing away from the high moving SKUs and also collect dust and contribute to holding costs in finished goods while waiting to be purchased.