A leading consumer products company dealing in cosmetics and other personal care products was seeking ways to: _ Reduce inventory levels across their forward supply chain _ Improve Inventory Record Accuracy at their storage points _ Accurately track damaged goods at various points in the supply chain The above problems together were a significant burden to the company. Implementation of best practices after a detailed business analysis resulted in the following benefits: _ Inventory Record Accuracy improved to 95% within 2 months Stock levels reduced by about 30% across stocking points in the supply chain _ Complete visibility was achieved in the supply chain with respect to damaged goods inventory Organisation Background: The firm was a leading consumer products company dealing in cosmetics and personal care products with its head office located overseas. The company had a supply chain network of 3 factories with bonded stock rooms (BSR) attached for dispatch to the depots and 35 depots for servicing distributors. Goods move from the factory to the BSR. BSR dispatches stocks to Mother CFAs (depot).
Other depots receive stocks from the Mother depot and sell them to distributors. Key Concerns for the Company: 1. To reduce inventory level at the BSR and depots. 2. To improve inventory accuracy at stocking points including both BSRs and depots 3. To identify the damaged stocks across the chain and initiate action in a timely manner A study was completed focusing on the 1. Inventory-related issues at BSRs and depots. These included: _ Inventory holding as a proportion of sales _ Practices employed for track goods in the warehouse Proportion of fast and slow moving stocks to the total inventory _ Linkages of factory dispatches to BSR with patterns of BSR dispatches to depots _ Accuracy of inventory records especially of fast selling lines 2. Demand Planning process. The study looked at: _ Forecast Accuracy and process of reviewing and revising forecasts _ Level of safety stock at each location combined with process to review and reset the same _ Linkages of forecasts and consequent dispatches with relevant available closing stocks at depots Findings Key Business Indicators 1. Total average inventory holding at BSRs was 8. weeks of sales 2. Average inventory holding at the depots was 6. 5 weeks of sales 3. Depots were holding _ High inventory of old/withdrawn stocks _ Damaged stocks for a long time (over 3 months) 4. Book and physical stocks had discrepancy of over 30% Conclusions 1. High Inventory Levels: Inventory levels were very high across the distribution chain on account of: _ Sales and dispatch forecasts that were not in line with actual primary / secondary sales _ There was no process to periodically review and refine the Annual Forecasts, in line with market feedback Stocking across all points in the distribution chain was driven by a push-oriented system that did not have provisions to be tuned to market requirements _ Actual safety stocks maintained at depots were significantly higher that target safety stocks agreed at the beginning of the year. No system was in place to monitor and correct the same during the year _ Stock allocation from depots was manual. Orders received from distributors were manually processes and no process was in place to automatically collate orders and allocate stocks 2. High Levels of Old / Withdrawn /
Damaged / Slow-moving stocks: Dead stocks were allowed to accumulate in the system mainly because: _ There was an absence of visibility into inventory details across stocking points _ The process to monitor and act on dead stocks was not adhered to _ Records of slow-moving / old / withdrawn / damaged stocks were not maintained methodically at the stocking points. Records were inaccurate. _ Communication of details of dead stocks to the relevant teams was based on manually filed reports which was time-taking and open to error 3. Inaccuracy in inventory records: The organisation did not have a clear policy on periodic reconciliation of physical stock with book records _ Inaccuracies grew over time, compounded with process failure on accounting for dead stocks Advised Actions to be taken for Improvements: 1. A process of regularly checking the physical and the book records of stocks using cycle count method rather than traditional method. 2. A Software Solution should be implemented for the following purposes: • Calculating safety stock level on the basis of number of weeks of sales target. • Automatically allocating stocks using FIFO at the depots. Accounting the Cycle count process. • To help in assisting communication of closing stock data from the BSR and depots to the logistics department. • Computing the forecast using consolidated orders. • Communication of damaged and un-saleable stock quantity to commercial department 3. Demand planning and forecasting should be made a periodic activity using the software solution to support forecasting with market orders and actual sales. The process of setting safety stocks at depots should be made dynamic as well as periodic, based on updated sales data. 4. Rules to be set to act on damaged or old or dead stocks.
Action to be taken to be clearly defined to liquidate or destroy these stocks. Responsible and accountable person to be decided in the organization to monitor and authorize activities in this regard based on information provided by the software. 5. Use a mechanism to ensure all information related to stocks is regularly updated and available, like using Kanban or Tag Cards for racks. 6. Training the staff to update and maintain the Kanban or Tag Cards. Benefits 1. The book stocks will correctly reflect the physical stocks. 2. The company can achieve significant reduction in stock level and stock value holding. . More accurate demand planning, stock allocation and production as a result of the clarity of saleable and damaged stock quantities. 4. Reduction of old and damaged stocks, ensuring fresher stocks are available in the market, by reducing inventory levels and by better stock management at the depots. 5. Better management of damaged and un-saleable stocks: • Sales realization on salvage value and selling damaged stocks at discounted prices. • Timely destruction of unusable products. • Timely action in the areas of transport, handling, stock management and product development to reduce damages to products.