Strategic Supply Chain Review

Client: Fast Moving Consumer Goods Manufacturer

Background

A supply chain review of our client showed opportunity to reduce distribution and inventory costs without degrading current service levels. Moreover, manufacturing planning can be improved by using an optimal production lot size, and adequate stocking policies.

Challenge

• A new 3PL partnership had been established 2 years ago with the aim of replicating the old distribution network, without doing any network improvement analysis
• Global VMI raw material stocking policies were globally set and did not align local demand and supply needs
• Manufacturing Lot sizes were based on the annual demand, without considering the production change over costs

Approach

A project was commissioned aimed at quantifying the benefits identified on different streams:

• Distribution Network optimisation and finished goods inventory analysis:
  - Design of a single period optimisation model of the network. Different scenarios have then been created to estimate the saving opportunities of a range of initiatives
  - Establishment of optimal inventory from the manufacturing site through the network, based on simulation & analysis
• Manufacturing lot size optimisation:
  - Optimal lot size calculation for each product as a trade-off between setup costs, inventory and carrying costs
• Raw Material Inventory analysis:
  - Establishment of optimal inventory level, based on simulation and analysis

Outcome

• Distribution cost reductions up to $1.1m pa are available (7.3% of variable costs)
• Finished goods inventory can be reduced by 18% with the optimised distribution network. However the increase of the manufacturing lot sizes reduce this opportunity at 6.2% reduction. New safety stock policies will improve factory schedule achievement / reduce expediting
• The implementation of the optimal lot sizes represents a setup time reduction of 37.6%, and increases annual production by 4%
• The maximum raw materials inventory reduction has been identified at $28.6M. However, as there is no visibility of the supply variability, the recommended saving is estimated at $19.31m
• The inventory analysis on the externally supplied packaging materials represents an opportunity of $1.1m savings, from 52 to 45.5 days of cover