Finding the optimal buffer stock levels to maintain may often feel more art than science. Keep too much stock, and that’s capital unnecessarily trapped in your warehouse. Keep too little stock, and you lose out on potential revenue and face frustrated customers. As the world moves faster and manufacturers seek to move more towards reactive made-to-order modes of production versus made-to-stock, manufacturers need new tools to better manage their production and stock levels.
SITUATION: A multi-national snack foods company maintains ~100 SKUs for a particular geography and introduces new products every quarter. Monthly S&OP meetings determine long-term production plans with targets for production, inventory, and demand across all SKUs. Executives determine minimum buffer stock levels to maintain based on historical experience and gut feel.
CHALLENGE: The true optimal buffer stock to maintain changes based on seasonality, shifting customer preferences, and a slew of other variables. Whenever one of these variables, such as a demand forecast amendment, raw material delivery delay, or production stoppage happens, production struggles to react quickly and make tradeoffs based on quantitative evidence. This inability leads to more buffer stock to be held across the board.
SOLUTION: All variables needed to automatically generate and update a production plan are modeled out, including SKUs, raw materials, production lines, warehouse space, and operating times. As demand forecast and inventory figures are inputted and updated, production plans will adjust accordingly in real-time. Faster reaction times and the ability to quantitatively weigh tradeoffs means less buffer stock can be held.