Context

An food company sells consumer products worldwide for large-scale retail and B2C.

Following various improvement activities, procurement and production management was migrated from push to pull, but incorrect past management choices led to a sharp increase in finished goods stock.

Problem

The company has millions of euros tied up as finished products in warehouses.

In addition to the economic damage caused by unproductive invested capital, this low-turnover material causes high handling and management costs for its upkeep and management.

Improvement actions

Following an analysis of requirements and demand, the operations manager was equipped with a tailor-made algorithm developed ad hoc for monitoring low-turnover stock, capable of guiding him on priority actions to reduce tied-up inventory and inform commercial/operational choices .

The automation has the following functions:

  • Dynamic monitoring - the system uses data extracted from the company management system as sources and provides automatic reporting of stock levels and the days of storage for low-turnover items;
  • Historical recording - once a month, the automation records inventory in the warehouse, processes the data automatically, and provides the operations and sales manager with trend information for the reduction of inactive stock. The reporting provided enables interested parties (discounts, disposal, rework, etc.) to make decisions to reduce tied-up inventory caused by inactive stock;
  • Value-oriented approach - the algorithm has been programmed to provide multiple sets of data, including the value of the goods. This allows decision-making and execution priorities to be directed toward items with the highest economic impact and avoids focusing resources on products with high volumes but limited value.

Results

In 3 months, 87% of inactive stock that had been stuck for decades was disposed of, equivalent to the reduction of total financial assets tied up of -29%.

The activity was carried out in parallel with the administrative staff in order to rebalance the financial statements in a sustainable way. Although the margin targets set during the offer phase were not achieved in the years when these products were manufactured (more than 10 years before this improvement), the overall financial statement nevertheless turned out positive for profitability; however, the most significant result was the increase in ROI made possible by the reduction of capital invested tied up within the company.