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Internal Inventory Management: Analysis and Improvement for a CPG Company

Jorge Moreno Sánchez Konstantinos Lalos

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

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Introduction

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

warehouse

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MotivationCPG 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

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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

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Models

Future Forecast

Master Production Schedule (MPS)

Master Resource Planning

Demand Planners,

Marketing & SalesFinished Goods Stock

Policy (weeks)

Existing Finished

Goods Stock Levels

Purchase Orders to Suppliers

Raw and Pack Materials Stock Policy

(weeks)

Existing Raw and Pack materials

Stock Levels

Finished GoodsMin, Avg, Max

Raw and Pack Materials

Min, Avg, Max

Demand History

Forecast History

Forecast Error Calcualtion

Production History

Future Forecast

Master Production Schedule (MPS)

Master Resource Planning

Demand Planners,

Marketing & Sales

Finished Goods Stock Policy (weeks)

Existing Finished

Goods Stock Levels

Purchase Orders to Suppliers

Raw and Pack Materials Stock Policy

(weeks)

Existing Raw and Pack materials

Stock Levels

Finished GoodsMin, Avg, Max

Raw and Pack Materials

Min, Avg, Max

Demand History

Forecast History

Forecast Error St.Dev Calcualtion

Min St.Dev

Demand St.Dev Calculation

Risk Pooling √ σΑ

2+σΒ2...

Currently Used Proposed

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Results• Total 11% inventory

reduction– Finished Goods• Inventory reduction 8%• Service level 95%*

– Raw and Pack materials• Inventory reduction 13%• Service level 97%

-

20,000

40,000

60,000

80,000

100,000

1 2 3 4 5 6 7 8 9 10 11 12Q

uant

ity

Week

Raw and Pack Material Inventory Position

ROH 2 - proposed

ROH - used

-

5,000

10,000

15,000

20,000

25,000

1 2 3 4 5 6 7 8 9 10 11 12

Qua

ntity

Week

Finished Goods Inventory Position

SKU 1 - Proposed

SKU 1 - Used

SKU 2 - Proposed

SKU 2 - Used

*same service level used for current model.

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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.

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Q&A

Thank you!