Working Capital Reduction: Liquid Consumer Products
£2.2m in working capital and £650k in overtime and temp labour costs recovered in 3 months
Consumer goods – Liquid Consumer Products
3 months, 1 consultant leading multiple client teams
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.
- Stock Outs reduced by 75% in less than 3 months
- Working Capital generated through inventory reduction: £2.2m
- Reduced manufacturing run time saved £650k worth of overtime and temporary labour
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.
Identifying the Root Cause of Stock Outs
"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
- From the Opportunity Scan, it was clear that overall production capacity should be capable of meeting the customer demand, yet the production schedule was weeks behind - yet the cause of this was unknown
- By comparing the six planning rules to the current S&OP processes, it was discovered jobs over 40 % of the production schedule time was for product with no immediate stock requirement.
- Investigating further into how these orders had been generated, the team discovered that 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.
Implementing Lasting Solutions
- The complexity of the system meant that it was not clear to the planners what the demands they loaded into the system were generating in production, and not clear to production what the customer demands were that had generated their works orders.
- This disconnect meant that planning were consistently fighting to add more configurations into a bloated schedule, and production were scrambling to make oversize orders with little demand sitting behind them
- This unnecessary over-production wasted manufacturing capacity so urgent orders were not produced on time, whilst building up large levels of unusable stock.
- By working with the key stakeholders of the clients S&OP processes, a update to the MRP algorithm linking sales orders and production orders was devised.
- Implementing this solution reduced stock-outs by 75% in three months, and the trend where slow moving stock would multiply was reversed, freeing up £2.2m in working capital
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