Beating Down Inventory Costs

Sonoco Products Co. is doing a better job managing its inventory these days, keeping costs down by filling more orders from stock on hand and keeping its finished goods inventory to a minimum.

Historically, the $2.8 billion-a-year global industrial and consumer-packaging manufacturer has filled orders on time with inventory on hand 90% of the time. It's had to fill the rest of the orders on time via other, more costly means, such as calling in extra shifts at the factory or shipping the order via air instead of land. Now it's filling orders on time with inventory on hand 95% of the time.

Sonoco is using Optiant Inc.'s PowerChain 4.0 analysis and design software to set optimal inventory targets and run different scenarios involving lead times, costs, raw-materials inventory, and other information. The company says the tools also should help it delay the point at which it converts metal into finished product until the last possible minute, reducing its finished goods inventory for further savings.

"That's a postponement strategy; you postpone as long as you can and still meet customer demand just in time," says Bernie Campbell, VP and CIO of Sonoco. "We're looking at places where that makes sense. PowerChain allows us to evaluate multiple scenarios."

With hundreds of manufacturing operations around the world making everything from composite cans to cable reels, Sonoco boasts a complex supply chain that makes it a real challenge to manage inventory, Campbell says. The software helps the company have the right amount of inventory at the right location at the right time, says Greg Welborn, supply-chain manager for Sonoco's consumer division.

While pricing for the Optiant software varies, companies can get started for about $25,000 on some preliminary design work, according to the vendor. A divisionwide rollout can be in the $300,000 range.

This month, Optiant secured $10.5 million in its second round of funding from investors including Castile Ventures and Battery Ventures. The company counts among its customers CNH, Imation, and Kodak.