Empowering operations to sustainably optimise inventory – Actionable Insights Impact Case Study

Engagement Situation:

The client was a producer of animal care products with own production in Europe and Asia. Annual revenue was at 150m EUR.

The Global Head of Operations Planning had run several initiatives to sustainably reduce slow moving inventory but found that the issue kept coming up. At the time of our project slow moving inventory (stock turn < 1) was at 6.4m EUR, or 4.3% of revenue.

Actionable Insights - Data Analytics:

Using our Actionable Insights 5 Step Analysis Framework we were able to confirm that:

a.) The slow moving inventory was actually caused through recent purchase activities - previous inventory clean up measures had been successful.

Over 80% of slow moving inventory had been purchased in the last 6 months.

b.) That although we still identified some root-causes the performance of the purchasing team - specifically attributed to a specific buyer who had been under review already prior to our engagement - the majority of slow moving inventory was caused by two factor:

1.) Forecasting inaccuracies were the main root-cause for slow moving inventory, and

2.) Inaccurate inventory information, which contributed significantly in this case.

Actionable Insights - Process Walk-throughs:

The data derived from our analyses enabled the management team to move forward from previously unsubstantiated blame games about the responsibility for the continuous reoccurrence of slow moving inventory and start to address them as a team.

The process walk-throughs showed the following:

1.) Forecasting inaccuracies:

Sales both by account and by product group were surprisingly volatile due to low brand loyalty on the retailer side and often short-term tendered promotion requests.

This had resulted in low mutual trust in the forecasting process and continued to cause friction between sales and operations. Unfortunately the majority of the management team was used to industries with better sales predictability and blamed sales for providing poor forecasts. Sales on the other hand was used to receive blame despite their best efforts and tended to over-forecast to prevent stockouts.

Due to the friction between the departments there was limited alignment communication to adjust forecasts.

2.) Inaccurate inventory information:

The company was managing warehousing operations in 3 locations, which were old and not equipped for the volume and volatility in product mix. The company experienced a high rate of picking errors together with influxes of returns from promotion returns and wrong product returns.

The manual errors in the warehouse as well as a lack of integration between the warehousing system and the central ERP system caused significant inaccuracies in inventory levels.

The management team had been aware of the warehousing issues but not brought them in connection with the slow moving inventory issue.

Actionable Insights Impact:

1.) Seeing the validated and quantified root-causes for the slow moving inventory together with the confirmation that the sales volatility did not allow for the expected long-term, reliable forecasts, the management team formed an action group to:

a.) Identify forecasting requirements by product groups (based on production lead times and factory location)

b.) Implement a rolling forecast model with frequent update meetings between category manager, account manager and operations planning.

2.) The management team decided to hire a logistics consultancy to evaluate different options to improve warehousing operations and information flow.

Due to the complexity of the projects resulting from our Actionable Insights project the client was not able to commit to precise improvement targets, but the management team felt confident that they finally had a clear and common understanding of the root-causes, allowing them to sustainably reduce slow moving inventory as a team.