Internal Inventory Management: Analysis and Improvement for a CPG - PowerPoint PPT Presentation

Internal Inventory Management: Analysis and Improvement for a CPG Company Jorge Moreno Sánchez Konstantinos Lalos 1

Agenda • Introduction • Motivation • Methodology • Model • Results • Takeaways • Q&A 2

Introduction • Sponsor Company – CPG leader enterprise – Hair care family in Mexico – Inventory management for FG at DC and RPM at production warehouse 3

Motivation CPG Companies • Growth requires capital investment • Reduce working capital $$$ • Maintain or improve service levels $$$ • Increase flexibility $$$ Sponsor company • High degree of variation in the supply chain both upstream and downstream • Single-echelon inventory management 4

Methodology • Data reduction • Segmentation – Finished Goods • Sales value ABC & Demand variance – Raw and Pack Materials • Type & Criticality • Pooling variability from final demand to upstream stages. • Simulation and Validation data sets 5

Models Proposed Currently Used Forecast Demand Forecast Demand History History History History Forecast Error Demand St.Dev Forecast Error St.Dev Calcualtion Calculation Calcualtion Demand Planners, Demand Future Forecast Marketing & Planners, Future Forecast Sales Marketing & Min St.Dev Finished Goods Stock Sales Policy (weeks) Finished Goods Stock Policy (weeks) Finished Goods Min, Avg, Max Existing Master Production Finished Risk Pooling Finished Goods Schedule (MPS) Goods Stock 2 +σ Β 2 ... √ σ Α Min, Avg, Max Levels Existing Production Master Production Finished History Schedule (MPS) Goods Stock Levels Raw and Pack Materials Stock Policy (weeks) Raw and Pack Materials Stock Policy (weeks) Existing Raw Raw and Pack Master Resource and Pack Materials materials Planning Min, Avg, Max Stock Levels Raw and Pack Materials Existing Raw Master Resource Min, Avg, Max and Pack Purchase Orders to Planning materials Suppliers Stock Levels Purchase Orders to Suppliers 6

Results • Total 11% inventory reduction Finished Goods Inventory Position 25,000 – Finished Goods SKU 1 - Proposed 20,000 Quantity SKU 1 - Used 15,000 • Inventory reduction 8% 10,000 SKU 2 - Proposed • Service level 95%* 5,000 SKU 2 - Used - 1 2 3 4 5 6 7 8 9 10 11 12 Week – Raw and Pack materials Raw and Pack Material Inventory Position • Inventory reduction 13% 100,000 • Service level 97% 80,000 Quantity 60,000 40,000 ROH 2 - proposed ROH - used 20,000 - 1 2 3 4 5 6 7 8 9 10 11 12 Week 7 *same service level used for current model.

Take away • One model does not fit all (FG & RPM) • Pool demand and variation directly from final demand to upstream stages • Build collaborative multi-echelon inventory policies and forecasts with suppliers, manufacturers and customers based on the actual consumer facing demand. 8

Q&A Thank you! 9