What you own is costing you money – inventory challenges for the food industry

By Enabliser John

For food manufacturers, one of the biggest (if not the biggest) costs of operating is inventory – raw materials and finished goods.

Inventory costs a lot to acquire (often in the top two assets by value), a lot to keep (frequently 20-40% of the cost to acquire) and has a direct impact on customer satisfaction (stockouts cause delays and mean angry customers). For food manufacturers there are the extra complications of shelf life and expiry as well as seasonality in both demand and raw materials pricing and availability.

The ideal amount of inventory is, of course, zero however the reality of business makes that an impossible dream. Uncertainties in demand, uncertainties in supply, lead times that are greater than satisfactory service times, demand & supply quantities that are not equal and limitations on order frequency are just some of the things that make inventory a necessary evil.

Of course, for businesses without solid and well-implemented systems there are compounding factors that make inventory optimisation still more challenging. Absent the right tools, many businesses lack the ability to identify and action the underlying causes that limit their ability to reduce inventory levels including excessive handling steps, poor or burdensome quality processes, uneven capacity planning, inability to react to breakdowns or the downstream impacts of crashing a schedule for an emergency customer order.

Some of my earlier posts have touched on these issues (take a look at my earlier post on factory scheduling for some related thoughts) and over my next few posts I’ll move through each of the links in an Inventory Optimisation project, explaining how Enabling’s customers can create remarkable cost savings whilst simultaneously improving service delivery.

In my very next post I’ll look at the starting point in any inventory optimisation project – forecasting - and in the following two I’ll follow the chain through the last couple of links (stock policy and MRP/DRP).

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