Inventory Management Best Practices in a Wholesaler’s Environment

1. Inventory Management Best Practices in a Wholesaler’s Environment Patrick Larmon President and CEO Bunzl Distribution USA, Inc.

2. Why Inventory Management is So Critical • Inventory may represent your largest asset • You have committed a significant amount of resources to managing it • With gross margin pressure continuing, it is critical to improve inventory turns in order to increase your return on net assets • Improving low inventory turns can actually improve your service levels • Service levels are critical to maintaining and growing your sales levels and contribute to increased growth

3. Inventory Structure Classify your inventory to understand what’s important to your company Modern Inventory Management Research has shown… • Class A items—Top 5%-10% items account for 70% sales • Class B items—Next 10% items account for 20% sales • Class C items—Next 65% items account for 9.9 % sales • Class D items—Next 15-20% items account for < 0.1% sales Research further indicates that in most businesses the item’s volatility is correlated to the item’s classification • Top 5–10% of your items have less volatility than the next 10% • Volatility of the bottom 20% items typically is the highest

4. General Concepts for Better Turns and Service Levels • Manage your items based on their class • Class A items • Concentrate your efforts on turning them faster • Bring in full pallets or unitized increments • Reduce your safety stock levels if volatility is low • Class B & C items • Buy in full pallets when possible, even if the amount is equal to two month’s worth of inventory • If a pallet is over two months worth of product, then buy the item in layer quantities • If you buy in layers, communicate with your warehouse so they can move those items into smaller bins

5. General Concepts for Better Turns and Service Levels For all vendors periodically… • Validate your pricing minimums • Review lead time accuracy (stated versus actual) • Over time both lead times and pricing brackets change

6. Results that Create Value for Your Company • Higher inventory turns = less working capital = higher RONA • Higher service levels since items are always in stock • Improved buy-in opportunities Better COGS and reduced expenses • Higher stock replenishment and more efficient receiving and put-away • Reduced pressure on warehouse space • Develop yourself as an inventory management expert