Through a focussed operational excellence approach focussing on strengthening inventory norms using lean inventory management system, FMCG company optimises raw material inventory and reduces carrying cost, generating significant savings.
Context and Challenges
A leading FMCG food manufacturer relied on a wide range of imported and local raw materials. Despite holding large stocks, the plant frequently faced stock-outs on key items and mounting pressure on working capital. Total raw material inventory stood at USD 7.16 million (about 28,900 MT of material). Space constraints and rising slow-moving stock made storage and handling increasingly difficult. Inventory decisions were largely experience-based, with no common logic on how much to keep or when to reorder.
Our Approach
The inventory management project followed a structured three-step design, covering both imported and local raw materials.
Current Situation Analysis & Target Setting: Analysed current stocks by value and tonnage, split into imported and local categories. Setting of targets for imported RM: as 54% target reduction and 44% target reduction for Local RM
Deciding What to Keep - Runner, Repeater, Stranger (RRS): Classified all raw materials into Runners, Repeaters and Strangers based on consumption and demand pattern. This step made it clear where stock must be protected and where it could be aggressively reduced.
Deciding How Much to Keep: Inventory Management System and created clear, numeric targets for how much stock to hold for each raw material, reflecting its lead time, variability and RRS category.
Key Strategies Implemented
Inventory Segmentation & Policy Definition
- Applied RRS analysis separately to imported and local materials to align stocking policy with demand characteristics.
- Defined no-stock / low-stock policies for Strangers, and robust min–max levels for Runners and key Repeaters.
Pitch-Time Based Stock Norms
- Used pitch times (30 days imported, 15 days local) to decide base cycle stock and then added safety plus statistical buffer (standard deviation-based) to handle variability.
- Integrated these norms into a standard inventory management sheet used by Supply Chain, Procurement and Finance.
Visual, Sheet-Driven Control
- Replaced judgement-based decisions with a single planning sheet that made stock status, target levels and excess clearly visible by item.
- Enabled periodic reviews (weekly/monthly) where teams could see: “What is over norm, what is under norm and what needs action now?”
Results Achieved
Within six months of implementing the new inventory management system, the FMCG company achieved tangible financial and operational benefits:
- Inventory Value Reduction: Overall raw material stock reduced from USD 7.16M to USD 4.72M (35% reduction)
- Category-Level Improvements - Imported materials moved from USD 5.8M to 3.73, Local materials reduced from USD 1.37M to 0.92M (target 0.8M).
- Financial Impact: At a carrying cost of 20% p.a., the reduction in inventory value translates into annual savings of about USD 488,000.