CASE STUDY By Meidi Imanullah, MBA

1. Inventory

2. Case Study

◦ Why Inventory?

◦ Inside Inventory

◦ Inventory Strategy

Every Business needs inventory

A shortage affects ability to fulfil Customers’ demand which lead to Customer dissatisfaction and loss of sales

◦ Why Inventory?

◦ Inside Inventory

◦ Inventory Strategy

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

The more SKUs to serve ex-stock, the more inventory cost The higher safety stock required, the more inventory Cost

◦ Why Inventory?

◦ Inside Inventory

◦ Inventory Strategy

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

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion

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

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion

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

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion

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

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

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

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

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

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

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

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion

Redefined SKUs classification based on the combination of value-transaction

Corrected inventory parameter to give better result

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

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

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

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion

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

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion

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?

◦ Background

◦ Issues

◦ Review and Analysis

◦ Recommendation

◦ Implementation

◦ Result

◦ Discussion