Dive Brief:

• Stanley Black & Decker will significantly reduce its manufacturing footprint and trim its product portfolio by 40%, part of a sweeping plan to reduce bloated inventory levels and generate $1.5 billion in cost savings over the next three years.
• The home toolmaker will reduce sourcing complexity by cutting SKUs and redesigning many of its products to standardize components, president and CEO Donald Allan said on a Q2 earnings call last week. 
• The company also aims to optimize its distribution network and scale back its operating footprint by 30%. “There is significant opportunity to reduce complexity, eliminate logistical inefficiencies, increase scale for our manufacturing and serve our customers better,” said Allan.

Dive Insight:

Stanley Black & Decker is transforming its supply chain as it works “with a sense of urgency” to generate cash flow, according to vice president of business development and interim CFO Corbin Walburger. 

The toolmaker found itself saddled with extra product after easing consumer demand pushed retailers to slow purchases. The company ended Q2 with $6.6 billion in inventory, which is higher than historical levels and a $400 million increase from the prior quarter.

Stanley Black & Decker has already begun curtailing production of finished inventory as it looks to normalize inventory levels, according to Walburger, a move that is expected to raise costs over the next three to four quarters. Over time, the company will reposition manufacturing, sourcing and distribution closer to the end customer to shorten lead times and reduce reliance on safety stock.

“So, you have a choice: Maintain very high levels of inventory due to the long supply chain, or have your supply chain closer to your customer, elevate your agility and resiliency to better serve those customers,” Allan said. “We believe being closer to the customer is the right answer.”

The company is looking to pare down its network of 120 manufacturing facilities, with Allan noting the business plans to “simplify and consolidate our regional footprints around high performing industry core, technology enabled sites.” To secure supply, Stanley Black & Decker will leverage more contract manufacturing and deepen relationships with suppliers.

Beyond cutting costs, the transformation plan is meant to insulate the company from long term disruption and position the toolmaker to bring products to market faster. Standardizing components means that products will be built around “common building blocks,” allowing the company to make more high-scale purchases and shorten product cycles.

“Our success with this transformation will build a more sustainable, agile and efficient supply chain that is resilient in an ever-changing and dynamic operating environment,” Allan said.