3M cuts inventory by $370m

4 May 2020

Conglomerate 3M’s consolidation of supply chain operations has enabled the company to cut inventory by $370m.

The company, which makes products across a range of industries from health to automotive, said a consolidation of manufacturing, supply chain and customer operations into a “seamless end-to-end enterprise operations organisation” had enabled it to reduce inventory.

The company has an existing target to reduce inventories by $500m and in an earnings call analysts were told it “still sees opportunities in the coming years for us to operate our supply chain even more efficiently and gather even more of that $500 million inventory reduction through our cash flow in the coming years”.

3M said it was “taking aggressive cost reduction while minimising employee impact” and had produced estimated cost savings of $350-$400m in the second quarter of 2020.

CEO Mike Roman said the consolidation had cut “production planning cycle times by 70% across our portfolio of businesses” and it will be able to achieve “significant inventory reductions”.

While demand for N95 masks and healthcare equipment has seen a significant rise due to coronavirus, other items are seeing a demand slump, Roman said.

To meet this 3M had significantly ramped up production in some areas but cut inventory elsewhere, he said.

Following the SARS outbreak the early 2000s 3M invested in extra “surge” capacity for its N95 masks, a capacity that has been little used, except for emergencies such as H1N1, the Japanese tsunami and wildfires in California and Australia.​

“When the virus broke out, we were able to immediately activate our surge capacity and maximise production to support the public health response,” Roman said.

However rising demand for many healthcare products was not enough to offset drops elsewhere.

Many hospitals have postponed elective procedures while car factory and office closures strongly affected 3M, knocking sales down about 20% in the Americas through late April.

3M N95 masks were at the centre of a diplomatic storm in early April when the US government halted a shipment of nearly 3m of the specialized masks from being exported to Ontario.

This led to fears that Canada’s most populous province would run out of supplies for medical staff.

Finally a deal was reached which allowed the company to import finished masks from its factories in China and continue to export to Canada and other countries.

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