food & beverage supply chain

Data-driven stock replenishment for higher inventory turnover

Problem

BeverageCo. struggled with the wastage of its end-of-life products at the central warehouse. In addition to its own products, BeverageCo. also sold third-party products. BeverageCo. assorted its products into seasonal, specialities and sale-to-order segments. Furthermore, these products were often switched from one assortment to another based on their sales. Thus it would become challenging for BeverageCo. to estimate their optimum inventory level which lead to product wastage in many instances on low-service level in some.

Outcomes

600 SKUs analyzed for the project
1 Economic order quantity tool developed

ERP system uses incomplete historic data to forecast the quantities leading to wastage cost and low service-levels. How to optimise order quantity?

Senior executive

Situation

BeverageCo. maintained 500-600 SKUs at its warehouse. The ordering and inventory levels were handled based on ERP, however, this system in many cases used incomplete historic data to forecast the quantities needed for stock replenishment. This led to high wastage cost and low service-levels for many products. Thus BeverageCo. wanted to utilize a data-driven model to predict optimal order quantity of SKUs. The goal of the project was to support the ordering decision by creating a user-friendly tool to determine the optimal size and reorder level.

Our approach

SCG conducted a three-phase project:

Phase 1 – Map the current process and identify associated challenges

In this phase, the existing stock replenishment process was mapped from order placement to delivery using SIPOC and deployment diagrams. Using these tools, cross-functional flowcharts were developed that described details of the process along with the roles of involved departments and stakeholders. Process mapping helped identify areas of improvement for each stakeholder at each activity level in the replenishment process.

Phase 2 – Segmentation of products based on sales and demand

Once the process challenges were identified, SCG's agile workforce then conducted ABC-XYZ product segmentation based on the products’ contribution to sales and their predictability of demand. Based on this ABC analysis, BeverageCo. products were divided into 3 different groups. For each of these groups a separate replenishment process SOP was developed which included the recommended inventory level and stock monitoring interval.

Phase 3 – Tool creation and user training

In the final phase, SCG's agile workforce created and validated a user-friendly, excel-based EOQ tool with user guide and technical documentation for BeverageCo. The tool highlighted inventory turnover, holding cost and service levels achievable for any selected SKU. The recommended ordering quantities and timing of when to place the order could also be seen in the results sheet. Using this tool, BeverageCo. could make more accurate order replenishment decisions in its warehouse.

Results

SCG’s on-demand workforce provided BeverageCo. with a comprehensive understanding of its replenishment process. In addition, a concrete analysis tool was also provided to aid in accurate replenishment decision-making. This project accelerated progress on BeverageCo.’s inventory optimisation efforts by 6 months.

"We focused on the current state analysis with the objective to identify key areas of improvement. I was impressed by the dedication of the project team to bring outside-in view, to evaluate our concrete business activities and to find out the most essential from the big data elements."

Senior Executive

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