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From Overstock to Opportunity: Transfer materials

Balance scale with truck in one pan and a warehouse on the other
Image generated by AI through a prompt generated by another AI when given the text of this blog post

Our client is a global leader in the Food and Beverage industry boasting over $60 billion in annual revenues. For a while now they use the GenLots order AI, which automatically optimises order size and timing in the background, reducing 20% of inventories in the process.

Having fully optimized the ordering process for external materials, a logical next step for our client was to ask the question: should we order at the supplier at all?

To provide some context, Brazil is a significant market for our client and was first to implement GenLots. With over 30 production sites, multiple locations often have an overstock of the same material. Instead of placing new orders, could transferring materials from an overstocked site be better? This is in the end a trade-off between transportation and capital costs. 

GenLots, with its advanced model for calculating and comparing the total cost of various ordering strategies, was ideally suited to address this challenge.

Our approach

After a first validation of the basic premise through some example calculations, we embarked on a 3-Month project where we: 

  • Changed our Algorithm to
    • Check if another site is in overstock
    • Determine if transferring is more cost-effective than ordering from a supplier. Considering availability, transport cost, inventory savings and lead times
  • Developed a module that leveraged the Google Maps API to compute distances, transportation costs, and lead times between sites. As a result, the client only needed to provide a handful of data: site addresses, transport cost per kilometre per truck, and lead times based on varying distances.
  • Integrated these modifications into the existing API and ensured our infrastructure could support the added computational load.

Results

Everything worked seamlessly. A specific example:

Shows example transfer which makes sense
An example of a transfer which makes sense
  • Transferring materials in this example leads to an average decrease in Inventory at the source site by USD 250k, translating to approximately $6,160 in savings over 90 days, considering a 10% Core working capital cost.
  • However, organizing transportation for a full truckload incurred a cost of $179 for the relatively short distance of 137 km.
  • Therefore, the total savings will be around $ 6,135 – the transfer will happen

Presently, less than 3% of order recommendations involve transfers, mitigating initial concerns of overwhelming the organisation with too many requests.

Even with this low number of transfers, the initial intuition has been confirmed. The outcome? Several million dollars less inventory and annual savings of hundreds of thousands of dollars. 

The fact that the solution doesn’t change change existing processes, allows immediate deployment to other regions where GenLots is implemented. This project was profitable from its inception, and future clients will benefit from this new feature right out of the box.

 

Client cases, Product releases

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