Exploring the link between inventory and working capital through variability reduction across a food-based CPG supply chain – An empirical case study

The global uncertainties regarding the timing and type of economic recovery have made firms relentlessly focus on managing their working capital in a prudent manner. It is widely acknowledged that effective supply chain management practices can reduce operating costs and logistics expenses, significantly affecting a company’s working capital. In this case-study, based on data from a real-world company that manufactures and distributes packaged food, we explore examining the variability across the supply chain (supplier-manufacturing-distribution). We specifically focus on mapping end-to-end supply chain variabilities and analyse ways to manage demand variability and forecast accuracy, operational variabilities in plant and the role of managing changeovers and centralisation vs. decentralisation of safety stock to manage distribution variabilities. Our study clearly pointed to forecast accuracy and arrival variability at production to be the two major performance-altering variables. Improving forecast accuracy was contingent on sharing and integrating information on promotions with production planning. Other variability inducing variables included changeovers and distribution safety stocks. Managing these further improves the working capital.