Reducing stock levels saves both client and customer money
Following the economic crisis in Russia, our FMCG sector client introduced consignment stock to ensure that stock was available for customers at all times. The selling price could be adjusted as required, based on the moving exchange rate of the euro to the rouble. Later, the client kept consignment stock as a lower cost alternative to offering customers increased payment days. As a result, the total value of stock and working capital increased.
We had to reduce stock both in terms of actual value and stock days for the client to meet its targets. We had to do so without adversely effecting sales volume or reducing market competitiveness.
What we did
First, we identified the key consignment stock customers.
Next, by analysing sales information, we calculated how many weeks’ stock, at average rate of sale, each consignment stock product had.
Based on the customer’s circumstances (for example, its distance from the distribution point), we also calculated the number of weeks’ stock the customer needed to prevent an out-of-stock situation.
Finally, the customer’s need, by product, was compared to the actual.
Our analysis showed that customers had on average 30% more stock on consignment than they needed to support their businesses.
A programme to reduce stocks to actual required levels was implemented and achieved within 12 weeks.
Apart from the clear benefit to the client, this was also seen as a benefit to its customers, who were able to free up warehouse space and thereby save money.