Safety stock calculations and inventory analysis: a practical approach for the FMCG case in a South-East Asian country

Abstract

With cut-throat competition in the marketplace, companies today have to look towards new ways to reduce their costs to survive. Inventory is one of the biggest areas tying up a firm’s working capital. This article discusses how a firm should look to optimize its existing inventory and how should it go about setting its safety stock levels. Our major emphasis is on the different parameters that are required for safety stock calculations using a probabilistic normal distribution model. For validation, we have taken a case of a major fast-moving consumer goods (FMCG) company and its operations in South East Asia. We have applied the model to calculate safety stock levels of over 100 SKUs at this company and shown how the model helps achieve inventory optimization effectively and efficiently. The resulting cost benefits are also shown.