Abstract
Many multinational companies have adopted ERP systems to make sure material is available on time and inventory levels are low. However most of the companies are unable to choose between the most suitable master data configuration such that common objectives are achieved. Objective of this project was to develop a master data configuration to optimize inventory in such a way that material availability for production is high and inbound logistics costs were low with very low inventory levels. To apply this methodology as a case study we selected MTO, FMCG Company which has been using SAP as its ERP system. Initially at two stages the master data configurations were changed and performance was monitored subsequently. ABC analysis was done to identify the top materials which will be in “A” category in terms of consumption value. After that different master data configurations were adopted at three stages for each of the selected materials and the performance was monitored accordingly. The basic criteria’s for measuring performance were average inventory value, material availability, inbound logistics costs and consumption percentage vs purchases. Finally the best master data configuration was identified based on said performance measures. It was found that majority of the time EOQ theory is correct and it can be used for any FMCG, MTO business models. On the other hand, ROL theory is not practical to use in a FMCG, MTO business model if the demand variation is high. It was also found that MTO, FMCG company material master data should be planned based on SAP MRP planning and for regular items Safety stocks should be maintained based on past consumption and for irregular items safety stocks should not be kept to minimize inventory. This method can be adopted by any company to improve their material availability rate, inventory and reduce inbound logistics cost. The project resulted in 1.2 million USD reduction in inventory within a years’ time, an inbound logistics were reduced by closer to 100000 USD and material availability rate was increased by closer to 20% for an X company which was operating under FMCG, MTO environment. The project was successful because of the efficient material master data planning in SAP. Main limitation of the application is that if a regular item becomes obsolete the entire safety stock allocated for that particular item will be obsolete leading to inventory issues. KEYWORDS: ERP Systems, Inventory, Inbound logistics cost, MTO, FMCG, SAP
Highlights
Competition in industries has led to high inventory levels to reduce the final product lead time
Many companies have adopted ERP systems they were unable to choose between master data configurations which are most appropriate for the given material groups which have led to high inventory levels and stock out situations
The main result obtained by this project is the development of a material master data configuration for a MTO,FMCG company which reduced inventory, increase material availability before beginning of production month and reduce inbound logistics cost
Summary
Competition in industries has led to high inventory levels to reduce the final product lead time. Many companies have adopted ERP systems they were unable to choose between master data configurations which are most appropriate for the given material groups which have led to high inventory levels and stock out situations. On the other hand some companies using JIT inventory management concepts have ended up purchasing at high prices which has led to high Cost of Goods Sold (COGS) and to low Gross Profit (GP) levels. These companies are having continuous inflows of materials which has led to high inbound logistics costs which intern has led to financial losses
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