CASE STUDY

By Meidi Imanullah, MBA

1.
2.

Inventory
Case Study

Why Inventory?
Inside Inventory
Inventory Strategy

Every Business needs inventory

A shortage affects ability to fulfil Customers
demand which lead to Customer
dissatisfaction and loss of sales

Why Inventory?
Inside Inventory
Inventory Strategy

SKU (differentiated by packaging, size, color,

type, and other configuration)
Inventory Groups; FG, RM, PM, consumable,
parts
Parameters; consumption rate, demand pace
& trend, lead time, demand variation,
EOQ/MOQ/batch/lot size, standard cost,
service level target, and criticality
Tradeoff between inventory cost versus
availability

The more SKUs to serve ex-stock, the more inventory cost

The higher safety stock required, the more inventory Cost

Why Inventory?
Inside Inventory
Inventory Strategy

The goal is to have enough inventory

availability to support the business at the
cost effective way
Must be aligned with the Business Strategy
Good knowledge of market competition and
Customer expectation

Good knowledge of supply capacity and

constraints

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion

Fosroc is a world leader of Constructive

Solutions in construction market industry
The market is both new constructions and
building maintenance and repair projects
Timely delivery and lead time assurance is
critical in serving Project

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion

OTIF level was low

Distribution cost over budget
Fast moving SKUs were not available when
needed
Slow moving was 30% of total inventory
Stock at more than 60 days of inventory
Truck shortage was common
Shipment lead time exceeded normal lead
time

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion

Issues were from 3 pillars of SC; Service Level,

Inventory, and Cost
After doing why-why analysis, root of the
problem mostly related to inventory
availability
Inventory analysis was arranged to
understand the inventory top contributors
and trends
Demand analysis was arranged to identify fast
moving items

Item
Annual
Name
Value
Item 01 7,318,800
Item 02
455,400
Item 03 17,597,580
Item 04 4,608,000
Item 05 9,170,460
Item 06
897,840
Item 07 6,963,690
Item 08 38,551,140
Item 09
411,510
Item 10 2,048,000
Total
88,022,420

Item
Annual
%
Accummulated
Name
Value
Contribution Contribution
Item 08 38,551,140
44%
44%
Item 03 17,597,580
20%
64%
Item 05 9,170,460
10%
74%
Item 01 7,318,800
8%
83%
Item 07 6,963,690
8%
90%
Item 04 4,608,000
5%
96%
Item 10 2,048,000
2%
98%
Item 06
897,840
1%
99%
Item 02
455,400
1%
100%
Item 09
411,510
0%
100%
Total
88,022,420

Pareto analysis helped to identify top

contributors of Inventory and Demand

60 SKUs contributed to 80% of inventory

Further review of these SKUs were needed

Demand pace & trend

Demand variation
EOQ/MOQ/batch/lot size
Supply lead time
Service level target
Criticality versus Importance

Compared estimated average end stock with

the actual identifying the biggest gaps as
the priority

Item
Name
Item 08
Item 03
Item 05
Item 01
Item 07
Item 04
Item 10
Item 06
Item 02
Item 09
Total

Average
Actual Stock Average STDEV
SL Safety Lead
Value
Demand Demand Target Stock Time MOQ
3,212,595
430
321
97% 1,034
7 700
1,466,465
351
474
97% 1,243
9 1000
764,205
248
313
97%
838
12 500
609,900
161
191
97%
519
3 400
580,308
236
341
97%
877
4 400
384,000
122
140
97%
384
5 200
170,667
94
93
97%
268
11 1000
74,820
50
51
97%
146
9 200
37,950
89
130
97%
333
7 400
34,293
13
14
97%
40
3 600
7,335,202

Min
1,785
2,243
1,583
919
1,277
584
1,268
346
733
640

Max
2,537
3,243
2,328
1,319
1,677
784
2,268
546
1,133
1,240

Average
Stock
2,161
2,743
1,955
1,119
1,477
684
1,768
446
933
940

Estimated
Average
Stock Value
1,030,974
1,267,163
457,546
479,082
533,206
328,468
707,245
115,008
42,901
299,774
5,261,368

Identified some items having higher end stock

than estimated (or calculated)
Further analysis needed to check the correctness
of inventory parameter setup

35 fast moving SKUs contributed to 80% of

total value
These SKUs were good candidate of Made-toStock SKUs
The result were reviewed and discussed with
Sales and Customer Service team
Received feedbacks certain additional SKUs were
needed
Lead to additional analysis of ABC by transaction

40 fast moving SKUs contributed to 80% of

total transaction
Identified high transaction low value SKUs were not expensive nor sold in a large
quantity but frequently sold throughout the
year
Not all of them were part of A class by value
Identified low transaction high value SKUs too

Sold only 1-2 times in a year but the value was high

Need to accommodate the ABC by transaction

A:B:C = 80:15:5
Box size
represented the
number of SKUs
in each box

Value

High

Low

C-A

B-A

A-A

C-B

B-B

A-B

C-C

B-C

A-C

Transaction

High

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion

Redefined SKUs classification based on the

combination of value-transaction
Corrected inventory parameter to give better
result

Value

High

Low

C-A

MTS

MTS

C-B

B-B

MTS

C-C

B-C

A-C

Transaction

To ensure that at least 80% of value and

transaction can be served from inventory

High

Value

High

Low

MTO

MTS

MTS

C-B

MTO

MTS

C-C

B-C

MTO

Transaction

Production is started when a clear order received

Service promise based on production lead time

High

Value

High

Low

MTO

MTS

MTS

MTA

MTO

MTS

MTA

MTA

MTO

Transaction

High

Production is started when the order is approved to be served

Service promise based on production lead time + RM supply lead
time

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion

The new SKU classification and service

promise was formally introduced to the sales
team at annual sales meeting
Simultaneously, SC team redefined inventory
parameter and configuration based on new
SKU classification and inventory reduction
initiative

Negotiation is done with the suppliers to reduce

MOQ and or supply lead time
Rearranged production planning based on min-max
and continuous review

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion

Inventory reduction from 60 days to 40 days

while supporting the demand at forecasted
value
Slow moving reduction to 20%
OTIF improvement up to 90%

Were the Sales team happy?

Background
Issues
Review and Analysis
Recommendation
Implementation
Result
Discussion