Case Study – Sunsetting
Situation – A communication vendor primarily leased its mainstream products, reflecting the standard industry practice at the time. By aggressively “rolling-over” the flagship product, the vendor was faced with an obsolete inventory of approximately $11.0M dollars, consisting of returned lease units and obsolete parts.
An indiscriminate dumping to the older inventory could cannibalize new sales (leases), and good relations had to be maintained with parts suppliers, who were providing the some of the key components for the new product.
Solution – The task of reducing the inventory was assigned to Marketing. We lead a multi- disciplinary team composed of Marketing, Sales, Finance, Manufacturing Operations and Support, to reduce the inventory. Employing every known technique, including renegotiating contracts, adding new channels of distribution both domestically and internationally, segmenting the customer base and calling on late adopters with price incentives, and by judiciously scrapping, we were able to reduce the inventory of both finished goods and parts by 90% with minimum cost and zero sales cannibalization, in less than 18 months.
Benefit – Sales (leases) of mainstream products were not impacted by the sale of older products; new channels and customers were established; inventory costs and expenses were reduced; profit increased.