K. Ekrheim demand forecasting and replenishment planning grows revenue 12%, reduces inventory by 14%, improves cashflow by 300% and increases profit 181%
Haakon Ekrheim felt his family-run business had come to the edge of a cliff – or to be more accurate, a fjörd. As managing director for the third generation of one of Norway’s only five food wholesalers, K. Ekrheim, things were not looking good. But the introduction of new demand forecasting and replenishment planning technology helped turn the business around.
Just as Norway’s economic growth turned negative in 2009, as it did in many parts of the Western world, a dissatisfied K. Ekrheim customer had complained that the food wholesaler wasn’t filling orders reliably enough. Indeed, as a proud company whose origins date to 1924, Ekrheim had seen customer service levels decline across the board, even as inventories rose.
Haakon and his inventory-replenishment team tried the conventional ways to improve customer service. But most of the methods increased inventory levels without improving order-fill rates.
The company’s inventory replenishment team was acting without focus, Ekrheim said: “When they were in doubt, they just bought more inventory.” This behaviour put a serious strain on the company’s cash flow and profit. And it did nothing to satisfy unhappy customers. Inaccurate demand forecasting was a big part of the problem, Ekrheim said. “We might as well have had no forecasting at all.
High-value, low-risk inventory investment
Ekrheim turned for help to consulting firm in Oslo, Inventory Investment AS. The firm introduced Ekrheim to Blue Ridge. Ekrheim evaluated the Blue Ridge web-based software for demand forecasting, replenishment and replenishment planning.
Blue Ridge appeared to offer a solid way to transform the company’s business at low risk. Ekrheim liked that the system could be implemented in less than 90 days. He also liked that Blue Ridge provided ease of use, so staff would use it as easily as they surf the web. The company could avoid buying new computer hardware, operating systems or database software. And it could also avoid the maintenance fees and reduce internal IT operating costs.
Working with Inventory Investment and Blue Ridge, K. Ekrheim implemented the CLARITY demand forecasting, replenishment and inventory planning system. They completed the work on schedule and within budget, in about 90 days.
Not everything went perfectly. Soon after the company implemented CLARITY, it lost a major customer. It wasn’t the one that had threatened to leave; this one was even bigger. This customer left because of a change in market dynamics and because of K. Ekrheim’s strengthening relationship with the other major customer.
Focus brings redemption
K. Ekrheim quickly found itself in a position where it could land with piles of excess inventory. And, with the loss of revenue from the company’s big customer, cashflow would be under even more pressure. Ekrheim and his replenishment team applied their skill and experience, powered by the Blue Ridge replenishment-planning system, to bleed inventories down without compromising service to their remaining customers.
The company’s efforts worked. Forecast accuracy improved. Inventories came down and freed up cash. Service levels improved and the company began growing much faster than Norway’s economy. Profit has increased dramatically. And details of what the company has achieved since 2009 include an increase in revenue of 12%, a 300% improvement in cashflow and lower operating costs as a percentage of revenue.
Service levels improved by 1.4 percentage points from 2009 to 2011, from 97% to 98.4%. Ekrheim’s new target is 99%. And he credits his company’s relationships with Blue Ridge and Inventory Investment for turning the business back from the edge of the cliff he felt he faced in 2009.
