SITUATION

A leading North American consumer durables distributor faced significant liquidity issues due to unproductive inventory resulting from aggressive buying habits.

 About 15% of their on-hand inventory was either discontinued or inactive, and their existing Oracle-based pricing system was inadequate for managing clearance pricing.

The distributor, generating $5B in revenue, struggled with a substantial portion of its inventory needing to be more productive. Aggressive buying habits led to approximately 15% of on-hand quantities being discontinued or inactive, tying up significant liquidity. This unproductive inventory posed a major challenge as the existing Oracle-based pricing system was not designed for effective clearance price management.

ACTION

Revology Analytics partnered with the company to develop a Clearance Strategy and implement an automated Markdown Price Optimization solution, resulting in a nationwide rollout.

Revology Analytics engaged in a comprehensive four-month process to address the company’s unproductive inventory challenge. Initially, we defined the problem, quantified the opportunity, and formed a cross-functional team comprising members from Pricing, Finance, Supply Chain, and IT.

This team broke down the problem into sub-components and identified critical data elements needed for a dynamic clearance pricing solution.

OBSTACLES

The company faced a forecasted EBITDA shortfall due to $150 million in unproductive inventory.

The absence of a clearance pricing process caused friction with Customer Development Managers (CDMs) and logistical challenges at Distribution Centers.

One of the critical obstacles was the forecasted EBITDA shortfall resulting from $150 million tied up in unproductive inventory. This dormant inventory negatively impacted the company’s liquidity and borrowing base, as banks were unwilling to lend against obsolete or dormant inventory. This financial strain necessitated immediate action to reclaim tied-up capital.

The absence of a structured clearance pricing process caused significant friction between the company’s Customer Development Managers (CDMs) and their customers.

RESULTS

The Markdown Optimization Solution improved inventory liquidity by 30%, increased Gross Profit by 5% annually, and saved significant labor hours for the pricing and sales teams.

Implementing the Markdown Optimization Solution gave the company a systematic approach to managing its $150 million unproductive inventory problem. The solution improved inventory liquidity by 30%, freeing up capital and enhancing the company’s financial flexibility.

Additionally, the company experienced a 5% annual increase in Gross Profit, demonstrating the financial efficacy of the dynamic markdown strategy. The automated solution saved over 80 weekly work hours for six Pricing Analysts and Managers, allowing them to focus on more strategic tasks.