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Working Capital Reduction

"There are six fundamental rules of planning, these rules apply in the simplest of job shops and the most complex supply chains." - Andy Redfern, Chartwell Partner


Industry

Consumer goods – Liquid consumer products

Support Level

1 consultant, 3 months

Objective

Regional and national warehouses were at capacity, working capital tied up in inventory was at an all time high and paradoxically, customer stock outs were frequent and damaging key accounts.  The project objective was to resolve these problems.

Results

In less than six weeks the stock outs were dramatically reduced and inventory levels were declining rapidly.


Why was chartwell brought on board?

The client had a market leading position with their packaged liquid consumer goods product, supplying all the largest national customers. Despite leading technology and Material Resource Planning (MRP) system the business was under enormous strain due to the high level of short stock where they were unable to supply their goods.  In an attempt to solve the problem stock levels were allowed to grow but the problem got worse.

Results of the 3 month project

  • Stock Outs reduced by 75 % in less than 3 months
  • Working Capital generated through inventory reduction: £2.2 million
  • Reduced manufacturing run time saved £650k worth of overtime and temporary labour

Examples of project work

What was the cause of the stock paradox?

Planning is often blamed in these situations as they are the department with first point of contact with the problem.  On a quick assessment it was clear that overall production capacity should be capable of meeting the customer demand, yet the production schedule was weeks behind.

What precisely was causing the problem?

All effective production planning can be simplified to six fundamental rules.

When the client assessed themselves against these six rules it became clear there was a problem.

 

Rule 2: List all jobs in order of production priority

When the jobs on the production schedule were assessed against the customer demand, over 40 % of the production schedule time was for product with no immediate stock requirement.

What changes were made to eliminate the problem?

When a particular packaging configuration was required, the MRP system would call up a minimum bulk liquid production of 1,000L even if the stock requirement was only for 10 % of this total quantity.

The complexity of the system removed any overview visibility and the production team would be told to produce packing sizes that were not immediately required.  This unnecessary over production wasted manufacturing capacity so urgent orders were not produced on time, whilst building up large levels of unusable stock.  The solution was a change to the algorithm in the MRP system.