Internal Inventory Management, Analysis and Improvement for a CPG Company

Abstract

The sponsor company, a multinational CPG, is under pressure to reduce inventory levels of finished goods and raw and pack materials, while achieving its target sales service level. Currently, it uses a single-echelon inventory management approach. This prevents the company from achieving cross stage inventory improvements. For that reason, in our research, we analyze the benefits of pooling the variance from the customer facing demand while setting the inventory levels at the raw materials stage. We developed a model built on the sponsor company’s model, adding the link between the final demand variability with the stock policies for raw and pack materials. Through a simulation on a sample of finished goods and their raw materials, we found that that accounting for the final demand variability in both stages leads to a significant reduction of inventory levels. Our proposed inventory management procedures and guidelines help the sponsor company to reduce the inventory capital investment, without affecting its service level.