For companies with revenues under 100 billion KRW, managing a high number of SKUs and experiencing rapid growth often leads to neglected internal controls due to limited resources and lack of awareness. This frequently results in insufficient efforts to enhance bottom-line efficiency, a critical component of corporate value improvement. During deal negotiations, such shortcomings can directly impact valuation. A common issue is the lack of trust in inventory management and cost valuation.
Looxent collaborated with a leading domestic fire safety product manufacturer facing this challenge. While the company had reached a sale agreement with a private equity firm, valuation confirmation was delayed due to concerns over profit reliability. The root causes included inadequate inventory tracking for numerous SKUs and the absence of monthly inventory valuation. As a result, gross profit was estimated based on forecasted costs rather than actual performance. Together, Looxent, the manufacturer, and the private equity firm embarked on a project to verify inventory levels, assess inventory valuation, and establish a reliable cost of goods sold (COGS) analysis framework.
Structured Inventory Audits as the Foundation
The client managed approximately 2.2 million raw material items across 500 categories and 330,000 finished products across 500 SKUs, making an accurate inventory count a challenging task. Proper preparation was essential to ensure effectiveness. Looxent worked with the client to allocate sufficient staff for each warehouse and required pre-audit counts for work-in-progress inventory, attaching detailed physical inventory labels by material. Sampling preparation included grouping materials and products while analyzing sales, shipment records, and unit costs to prioritize key items.
The inventory audit proceeded without issue, allowing Looxent to identify discrepancies between physical inventory and system records. The findings were used to educate staff on the importance of inventory tracking and implement measures for improved accuracy.
Tailored Inventory Optimization Strategies
The audit revealed that while inventory count discrepancies were minimal, excessive inventory levels were common. The company’s regulatory requirements necessitated frequent new product launches, increasing the likelihood of obsolete inventory. However, the client lacked proper inventory health management practices. Analysis revealed many items with excessive inventory days or no movement in recent months.
Looxent identified key causes, such as poor end-of-life product management, non-compliance with procurement processes, and errors in sales planning. Solutions were developed, focusing on sequential implementation to accommodate the company’s limited IT infrastructure and resources. Four immediate actions were proposed, each with detailed execution plans that were practical for the client to implement.
Streamlined Profitability Analysis with an Excel Model
Accurate profitability calculation is essential not only for valuation but also for managing acquired companies effectively. Without reliable profit data, identifying operational issues becomes impossible. Looxent designed a user-friendly Excel model that allowed the client to calculate gross profit based on actual results, requiring input only for sales and cost performance. Additionally, a product-specific profit analysis model was developed to guide differentiated sales strategies based on profitability.
During the model development, systemic issues in inventory tracking and BOM management were uncovered, highlighting the need for stronger controls. The resulting tools not only improved profit analysis reliability but also facilitated discussions around sales strategies and internal management issues.
Key Outcomes and Client Feedback
This project provided the client with a newfound understanding of the importance of inventory management. The impact of inventory tracking, excess, and obsolete stock on profitability became clear, shifting the perception of inventory control from being the sole responsibility of specific departments to a company-wide initiative.
Accurate profit calculations and robust inventory management are critical not only for corporate valuation but also for effective post-acquisition management. Looxent’s rapid delivery of inventory counting, management solutions, and profit analysis tools, combined with active engagement with staff, was positively received. These efforts have laid the foundation for sustained value improvement and operational excellence.
For companies with revenues under 100 billion KRW, managing a high number of SKUs and experiencing rapid growth often leads to neglected internal controls due to limited resources and lack of awareness. This frequently results in insufficient efforts to enhance bottom-line efficiency, a critical component of corporate value improvement. During deal negotiations, such shortcomings can directly impact valuation. A common issue is the lack of trust in inventory management and cost valuation.
Looxent collaborated with a leading domestic fire safety product manufacturer facing this challenge. While the company had reached a sale agreement with a private equity firm, valuation confirmation was delayed due to concerns over profit reliability. The root causes included inadequate inventory tracking for numerous SKUs and the absence of monthly inventory valuation. As a result, gross profit was estimated based on forecasted costs rather than actual performance. Together, Looxent, the manufacturer, and the private equity firm embarked on a project to verify inventory levels, assess inventory valuation, and establish a reliable cost of goods sold (COGS) analysis framework.
Structured Inventory Audits as the Foundation
The client managed approximately 2.2 million raw material items across 500 categories and 330,000 finished products across 500 SKUs, making an accurate inventory count a challenging task. Proper preparation was essential to ensure effectiveness. Looxent worked with the client to allocate sufficient staff for each warehouse and required pre-audit counts for work-in-progress inventory, attaching detailed physical inventory labels by material. Sampling preparation included grouping materials and products while analyzing sales, shipment records, and unit costs to prioritize key items.
The inventory audit proceeded without issue, allowing Looxent to identify discrepancies between physical inventory and system records. The findings were used to educate staff on the importance of inventory tracking and implement measures for improved accuracy.
Tailored Inventory Optimization Strategies
The audit revealed that while inventory count discrepancies were minimal, excessive inventory levels were common. The company’s regulatory requirements necessitated frequent new product launches, increasing the likelihood of obsolete inventory. However, the client lacked proper inventory health management practices. Analysis revealed many items with excessive inventory days or no movement in recent months.
Looxent identified key causes, such as poor end-of-life product management, non-compliance with procurement processes, and errors in sales planning. Solutions were developed, focusing on sequential implementation to accommodate the company’s limited IT infrastructure and resources. Four immediate actions were proposed, each with detailed execution plans that were practical for the client to implement.
Streamlined Profitability Analysis with an Excel Model
Accurate profitability calculation is essential not only for valuation but also for managing acquired companies effectively. Without reliable profit data, identifying operational issues becomes impossible. Looxent designed a user-friendly Excel model that allowed the client to calculate gross profit based on actual results, requiring input only for sales and cost performance. Additionally, a product-specific profit analysis model was developed to guide differentiated sales strategies based on profitability.
During the model development, systemic issues in inventory tracking and BOM management were uncovered, highlighting the need for stronger controls. The resulting tools not only improved profit analysis reliability but also facilitated discussions around sales strategies and internal management issues.
Key Outcomes and Client Feedback
This project provided the client with a newfound understanding of the importance of inventory management. The impact of inventory tracking, excess, and obsolete stock on profitability became clear, shifting the perception of inventory control from being the sole responsibility of specific departments to a company-wide initiative.
Accurate profit calculations and robust inventory management are critical not only for corporate valuation but also for effective post-acquisition management. Looxent’s rapid delivery of inventory counting, management solutions, and profit analysis tools, combined with active engagement with staff, was positively received. These efforts have laid the foundation for sustained value improvement and operational excellence.