Inventory Control Simulation Systems

Office Depot

$6M

Annual savings

Overview

To maximize revenues and maintain service quality, retail companies must track inventory using technical software to ensure it’s being sold, rather than sitting idly on store shelves or in warehouses. To address this issue, Office Depot hired Optym to review and enhance its stock-keeping unit (SKU) allocation system and design and implement a new ABC classification system.

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Business Problem

With combined annual sales of approximately $17 billion and over 2,200 retail stores across 59 countries, Office Depot is a leading global provider of workplace products, solutions and services. Until recently, however, Office Depot was facing two main challenges in meeting this high demand – low service level for highly desirable products and too much trapped and excess inventory. The company suspected that its distribution system, called Just In Time Allocation (JITA), was the root cause of these issues. It also believed that its ABC classification system, the system responsible for classifying stock-keeping units (SKUs) optimally for allocation, was amplifying the problem by not considering all major factors and objectives. Office Depot hired Optym to review its current methods and identify areas for improvement.

Our Approach

We collaborated closely with the Office Depot team to understand how the current system was performing and to identify areas for improvement. Then, we thoroughly documented the system of interest, including business requirements, current methods and drawbacks in the current system. We built a simulator for the JITA system that enabled us to define, design and check the feasibility of different scenarios before deploying them to production.

 

Next, we used the simulator to perform analyses, which offered suggestions for both short- and long-term enhancements to the current system. We identified quick-win opportunities that could be quickly pushed into production and long-term wins that demonstrated added value over time. In addition, we architected and implemented a new ABC classification system so that the managers, when ranking and classifying SKUs, could assign different priorities to certain factors and objectives.  We engineered our system to perform what-if analyses to determine how to optimally classify products, which is a major parameter in the allocation process.

Key Benefits

  1. Our novel software solution is now one of the most important analytical systems used by the Office Depot analytics team, and it has demonstrated annual savings of at least $6 million.
  2. Using our new ABC classification system, the Office Depot team can classify SKUs based on five factors rather than one. Users can also classify SKUs on locational, regional and national levels.

Results

Office Depot is using the JITA Simulator to forecast the allocation of items from cross-docks to distribution centers and stores, based on those locations’ specific needs and priorities.