Every business has the drive to minimise finished goods stocks. The classic approach is to trade off more changeovers with a lower stockholding. The increased changeovers can lead to pressure on Production and this can be part of the drive to rationalise the production mix and “cut off” the tail of lesser produced SKU’s. Losing the small runners as we know can have major, though difficult to quantify impact on the customers who now may move some or all their custom to a competitor.

There is however a way of reducing finished stocks that does not involve increasing changeovers.

This is achieved by modelling the product spectrum and historical ordering pattern to optimising the production scheduling to minimise stockholding.

This is a two stage process.

• Optimise the production schedule without increasing the number of changeovers.
• Optimise the safety stock on each item to minimise the overall stockholding.

Depending on the company, step 1 or step 2 may produce the biggest gains. For a typical make to stock business the savings range between 20-40% reduced stock.

Each step is best explained with an example.

1. Optimise the production schedule

The company in question has 10 lines running on dayshift only, producing a range of building consumables. There are a total of 1200 SKU’s of which 360 are made to stock on a two week production cycle. The changeovers between products ranges from 1 minute for a label change, to 2 hours. The average is 15 minutes. With 200 changeovers a week over 12.5% of all time is lost to changeovers. Reducing the duration of the changeovers was tackled in a separate part of the project. The value of the stock was £750,000.

The model showed that optimum cycle was to make the large runners every week, the medium runners every 2 weeks and the small runners every 4 to 32 weeks. This reduced the theoretical required stockholding by 30%.

 
Below is demonstration of the principles for a simplified line.

For some SKU’s this increased the minimum holding, for most it was reduced.  The average space was reduced from 11.5 days to 8.5 days, a 26% reduction. A revised warehouse layout was implemented which resulted in a 21% reduction in stock which was sufficient to prevent the new warehouse being built.

Further options to reduce stockholding

Further reduction can be achieved in both the above examples by better forecasting or increasing the number of changeovers. The cost of lost production time for extra changeovers can be directly calculated, but in both cases the cost was more than the benefit of the reduced stock so was not pursued. 

Summary

In both of the above cases in excess of a 20% reduction in finished goods stocks was achieved by changing the production scheduling and optimising the safety stock. There was no increase in changeovers in either company.

In both cases the warehouse models became the planning tools for the organisation that automatically produced the optimum schedule. They also allow the stockholding to continually be optimised as the market changes and products are added or removed.

For a typical make to stock business the savings range between 20-40% reduced stock.