Improving the service level of a Fast
Moving Consumer Goods Company
with inventory control
Improving the service level of a Fast
Moving Consumer Goods Company
with inventory control
Author:
Margriet Angenent Organisation:
Fast Moving Consumer Goods Company University:
University of Groningen
Faculty of Economics and Business Master Business Administration
Specialisation in Operations & Supply Chains Supervisors:
Mm. G. Welker Mr. B. Brinkman Date:
Management Summary
In this summary a short overview of the research conducted at a FMCG company will be presented. The research objective was: to analyse the service level of the FMCG company and find ways to improve the service level by examining the inventory control.
The company is an organisation with many competitors. Because customers have become more demanding throughout the years and are willing to receive more services it is necessary for the company to remain competitive. The company wants to remain competitive by focusing on the delivery reliability. In this research the indicator service level will be used to measure the delivery reliability.
During the preliminary problem analysis the actual situation at the company is analysed in order to find possible problems in the organisation. After observing the operations, the viewed problems were shown to the employees of the logistics department in order to determine which problems should be discussed into detail. In the observation phase seven problems were found within the company in: delivery reliability, performance of the plants, forecast accuracy, administration stock is not equal to physical stock, broad product catalogues, communication, use of subcontractors. The delivery reliability can be seen as the main problem, because all the others have influence on the delivery reliability. Besides this reason, the delivery reliability is also mentioned as main problem by the employees.
In the current situation the service level of the company is below the service level objective. The focus will be on the service level as the main problem in this research. The way how the service level can be improved will be discussed in this thesis.
The next step is studying which variables can have influence on the service level. It appeared that there are nine causes which can lead to out-of-stocks. The out-of-stocks can be responsible for a decline in the service level. The nine causes can be found in the following issues: production, forecast (deviation of 25% of the planning), warehouse, subcontracting, reorder point (SOV), Product Logistics, quality problems, wrong customer order and transport. Because it is not possible to focus on all causes in this research, the causes reorder point and warehouse will be discussed in more detail. The reason for discussing these two causes is that both can be influenced by a demand manager and have a significant influence on out-of-stocks. The reorder point and the warehouse will be covered in inventory control. The focus in the further research is to improve the service level by inventory control.
A solution for the service level problem should be found within the inventory control and ways to improve the service level with inventory control should become clear in the research. The inventory control is analysed with the following elements: the inventory level, the different perspectives on keeping inventory, the adequacy of inventory control systems, the adequacy of determining the reorder point and the safety stock and the warehouse operations regarding inventory. These elements are chosen, because firstly it is assumed that these can have influence on the inventory control and secondly by analysing these elements, the reasons for possible problems of the company can be found.
of goods, storage, preparation of goods and stock management can be remarked as reasons for the problem.
With these reasons in mind, solutions have to be found to improve the situation at the company. In the redesign the following specification is given to improve the situation: to design an inventory control system, which can make distinction between different products, has unambiguous inventory rules for the different products, has clear rules for deciding the reorder point and safety stock and has its own policy for each product class.
After the description of possible improvements of problems in the current situation, it can be said that the company should introduce an inventory control system. By introducing an inventory control system most reasons for the problems of the company will and can be captured.
There are more inventory control systems which can meet the specification of the redesign or parts of it, but in this research the ABC classification is chosen, because of the following reasons:
• It can meet the specification and can solve problems of the company in the inventory control. It is possible to classify the references in respectively the A, B and C classes. The classes have different policies, methods, counting frequencies, order quantities, safety stocks and inventory rules.
• The company mentioned in the beginning of the research the wish for an ABC classification
Because of these two reasons the ABC classification will be introduced in the research and will be discussed in more detail.
There are several ways of introducing an ABC classification. With the help of interviews with managers of different departments within the company, an idea was received what for them should be respectively an A, B and C reference. For the company and their managers an ABC classification based on sold units and besides on the criteria criticality and pillars can be used to divide the classes. These criteria agree with the meanings of the managers of the different departments.
