inventory strategy
DESCRIPTION
The application of inventory strategy in the project based marketTRANSCRIPT
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CASE STUDY By Meidi Imanullah, MBA
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1. Inventory
2. Case Study
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◦ Why Inventory?
◦ Inside Inventory
◦ Inventory Strategy
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Every Business needs inventory
A shortage affects ability to fulfil Customers’ demand which lead to Customer dissatisfaction and loss of sales
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◦ Why Inventory?
◦ Inside Inventory
◦ Inventory Strategy
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SKU (differentiated by packaging, size, color, type, and other configuration)
Inventory Groups; FG, RM, PM, consumable, parts
Parameters; consumption rate, demand pace & trend, lead time, demand variation, EOQ/MOQ/batch/lot size, standard cost, service level target, and criticality
Tradeoff between inventory cost versus availability
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The more SKUs to serve ex-stock, the more inventory cost The higher safety stock required, the more inventory Cost
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◦ Why Inventory?
◦ Inside Inventory
◦ Inventory Strategy
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The goal is to have enough inventory availability to support the business at the cost effective way
Must be aligned with the Business Strategy ◦ Good knowledge of market competition and
Customer expectation
Good knowledge of supply capacity and constraints
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion
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Fosroc is a world leader of Constructive Solutions in construction market industry
The market is both new constructions and building maintenance and repair projects
Timely delivery and lead time assurance is critical in serving Project
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion
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OTIF level was low
Distribution cost over budget
Fast moving SKUs were not available when needed
Slow moving was 30% of total inventory
Stock at more than 60 days of inventory
Truck shortage was common
Shipment lead time exceeded normal lead time
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion
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Issues were from 3 pillars of SC; Service Level, Inventory, and Cost
After doing why-why analysis, root of the problem mostly related to inventory availability
Inventory analysis was arranged to understand the inventory top contributors and trends
Demand analysis was arranged to identify fast moving items
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Item
Name
Annual
Value
Item
Name
Annual
Value
%
Contribution
Accummulated
Contribution
Item 01 7,318,800 Item 08 38,551,140 44% 44%
Item 02 455,400 Item 03 17,597,580 20% 64%
Item 03 17,597,580 Item 05 9,170,460 10% 74%
Item 04 4,608,000 Item 01 7,318,800 8% 83%
Item 05 9,170,460 Item 07 6,963,690 8% 90%
Item 06 897,840 Item 04 4,608,000 5% 96%
Item 07 6,963,690 Item 10 2,048,000 2% 98%
Item 08 38,551,140 Item 06 897,840 1% 99%
Item 09 411,510 Item 02 455,400 1% 100%
Item 10 2,048,000 Item 09 411,510 0% 100%
Total 88,022,420 Total 88,022,420
Pareto analysis helped to identify top contributors of Inventory and Demand
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60 SKUs contributed to 80% of inventory Further review of these SKUs were needed ◦ Demand pace & trend ◦ Demand variation ◦ EOQ/MOQ/batch/lot size ◦ Supply lead time ◦ Service level target ◦ Criticality versus Importance
Compared estimated average end stock with the actual – identifying the biggest gaps as the priority
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Identified some items having higher end stock than estimated (or calculated)
Further analysis needed to check the correctness of inventory parameter setup
Item
Name
Average
Actual Stock
Value
Average
Demand
STDEV
Demand
SL
Target
Safety
Stock
Lead
Time MOQ Min Max
Average
Stock
Estimated
Average
Stock Value
Item 08 3,212,595 430 321 97% 1,034 7 700 1,785 2,537 2,161 1,030,974
Item 03 1,466,465 351 474 97% 1,243 9 1000 2,243 3,243 2,743 1,267,163
Item 05 764,205 248 313 97% 838 12 500 1,583 2,328 1,955 457,546
Item 01 609,900 161 191 97% 519 3 400 919 1,319 1,119 479,082
Item 07 580,308 236 341 97% 877 4 400 1,277 1,677 1,477 533,206
Item 04 384,000 122 140 97% 384 5 200 584 784 684 328,468
Item 10 170,667 94 93 97% 268 11 1000 1,268 2,268 1,768 707,245
Item 06 74,820 50 51 97% 146 9 200 346 546 446 115,008
Item 02 37,950 89 130 97% 333 7 400 733 1,133 933 42,901
Item 09 34,293 13 14 97% 40 3 600 640 1,240 940 299,774
Total 7,335,202 5,261,368
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35 fast moving SKUs contributed to 80% of total value
These SKUs were good candidate of Made-to-Stock SKUs
The result were reviewed and discussed with Sales and Customer Service team ◦ Received feedbacks – certain additional SKUs were
needed
◦ Lead to additional analysis of ABC by transaction
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40 fast moving SKUs contributed to 80% of total transaction
Identified high transaction low value SKUs - were not expensive nor sold in a large quantity but frequently sold throughout the year
Not all of them were part of A class by value Identified low transaction high value SKUs too ◦ Sold only 1-2 times in a year but the value was high
Need to accommodate the ABC by transaction
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A:B:C = 80:15:5
Box size represented the number of SKUs in each box
Valu
e
Transaction
High
High Low
C-C B-C
C-B
C-A
A-C
B-B
B-A
A-B
A-A
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion
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Redefined SKUs classification based on the combination of value-transaction
Corrected inventory parameter to give better result
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To ensure that at least 80% of value and transaction can be served from inventory
Valu
e
Transaction
High
High Low
C-C B-C
C-B
C-A
A-C
B-B
MTS
MTS
MTS
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Production is started when a clear order received
Service promise based on production lead time
Valu
e
Transaction
High
High Low
C-C B-C
C-B
MTO
MTO
MTO
MTS
MTS
MTS
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Production is started when the order is approved to be served Service promise based on production lead time + RM supply lead
time
Valu
e
Transaction
High
High Low
MTA MTA
MTA
MTO
MTO
MTO
MTS
MTS
MTS
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion
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The new SKU classification and service promise was formally introduced to the sales team at annual sales meeting
Simultaneously, SC team redefined inventory parameter and configuration based on new SKU classification and inventory reduction initiative ◦ Negotiation is done with the suppliers to reduce
MOQ and or supply lead time ◦ Rearranged production planning based on min-max
and continuous review
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion
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Inventory reduction from 60 days to 40 days while supporting the demand at forecasted value
Slow moving reduction to 20%
OTIF improvement up to 90%
Were the Sales team happy?
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◦ Background
◦ Issues
◦ Review and Analysis
◦ Recommendation
◦ Implementation
◦ Result
◦ Discussion