Optimization of Stock Cover in Nestlé Portugal José Diogo de Faria Leal Sacadura Botte Thesis to obtain the Master of Science Degree in Engineering and Industrial Management Supervisors: Dr. Roberto Dominguez Prof. Ana Paula Ferreira Dias Barbosa Póvoa Examination Committee Chairperson: Prof. Susana Isabel Carvalho Relvas Supervisor: Prof. Ana Paula Ferreira Dias Barbosa Póvoa Member of the Comittee: Prof. Inês Marques Proença Junho 2018 Index List of Figures …………………………………………………………………………………………iv List of Tables …………………………………………………………………………..……………... v List of Acronyms ……………………………………………………………………………………... vi Acknowledgements …………………………………………………………………………………. viii Summary ……………………………………………………………………………………………… ix 1. Introduction ........................................................................................................................................ 1 1.1. Context of the Problem ............................................................................................................ 1 1.2. Main Objective and Methodology ........................................................................................... 2 2. Nestlé S.A. ........................................................................................................................................ 3 2.1. History Nestlé Globally ............................................................................................................. 3 2.2. History Nestlé Portugal ............................................................................................................ 4 2.3. Organizational Structure of Nestlé Portugal ......................................................................... 5 2.4. Businesses of Nestlé Portugal: ............................................................................................... 6 2.5. Logistics in Nestlé ..................................................................................................................... 7 2.6. Physical Logistics ...................................................................................................................... 7 2.7. Demand and Supply Operations ............................................................................................ 8 2.8. Key Performance Indicators – KPIs ..................................................................................... 10 2.8.1 Stock Cover ....................................................................................................................... 10 2.8.2. Case Fill Rate (CFR) ....................................................................................................... 11 2.8.3. Demand Plan Accuracy (DPA) ...................................................................................... 11 2.8.4. Bias .................................................................................................................................... 11 2.9 Problem definition and Conclusions ...................................................................................... 12 3. State of art ....................................................................................................................................... 13 3.1. Introduction .............................................................................................................................. 13 3.2. Supply Chain Management ................................................................................................... 13 3.3. Stock/Inventory Management ............................................................................................... 14 3.3.1. Optimization of Inventory/Stock ..................................................................................... 15 3.3.2. Classification of Inventory – ABC analysis .................................................................. 15 3.3.3. Inventory Management policy ........................................................................................ 16 3.4. Demand Forecasting .............................................................................................................. 17 3.4.1. Forecasting Uncertainties ............................................................................................... 18 3.5. Safety stock ............................................................................................................................. 19 3.5.1. Determination of safety stock by Schönsleben (2004): ............................................. 19 3.5.2. Determination of safety stock by Thomopoulos (2013): ............................................ 20 ii 3.5.3. Determination of safety stock by QuickMBA (2010): ................................................. 21 3.6. Lead time .................................................................................................................................. 22 3.7. Stock Cover ............................................................................................................................. 23 3.8. Conclusions of the State of Art ............................................................................................. 24 4. Selecting Critical Categories for analysis ................................................................................... 26 4.1. Data Gathering and Analysis ................................................................................................ 26 4.2. Analyzing Stock ....................................................................................................................... 26 4.2.1. Analyzing Beverages: ..................................................................................................... 29 4.2.2. Analyzing Food: ............................................................................................................... 31 4.3. Conclusions of Selected Categories for analysis ............................................................... 32 5. Understanding Stocks and the tool Unbundlor .......................................................................... 33 5.1 Understanding Finished goods stock .................................................................................... 33 5.2 The Unbundlor – How it operates .......................................................................................... 35 5.3 How inputs of the Unbundlor affect stock policies .............................................................. 36 5.4 Conclusions of the Unbundlor ................................................................................................ 37 6. Data Analysis .................................................................................................................................. 38 6.1 Analysing Case Fill Rate ......................................................................................................... 38 6.2 DPA, Bias and Minimum Lot Size ......................................................................................... 39 6.2.1 Soluble Cereal Drinks Analysis .......................................................................................... 39 6.2.2 Nescafe Dolce Gusto Analysis ........................................................................................... 48 6.2.3 Chocolate Base Analysis ..................................................................................................... 54 6.2.4. Dairy and Cereals Analysis ................................................................................................ 58 7. Improvement proposals ................................................................................................................. 67 7.1 Process and Problems related with sales forecast ............................................................. 67 7.2 Improvement Proposals .......................................................................................................... 69 7.3 General Conclusions ............................................................................................................... 72 8. Bibliography .................................................................................................................................... 74 9. Attachment 1 ................................................................................................................................... 77 9.1 Brands and businesses of Nestlé .......................................................................................... 77 iii List of Figures Figure 1 – Company Structure (Nestlé, 2014b) ……………………………………………………5 Figure 2 – Sales in 2014 (Nestlé 2015)……..… …………………………………………………..6 Figure 3 – Nestlé’s facilities in Portugal (Nestlé, 2016b) ……………………. …………………..7 Figure 4 - Demand and Supply Structure (Nestlé, 2014b) …….…………………… .……………8 Figure 5 – CAPDo Approach (Macca, 2012) ………………………… ………………………….10 Figure 6 – Average Stock in 2016 in PUM …………………………………….………………….26 Figure 7 – Positioning of Each Category in 2016 …………….. …………………………..……..27 Figure 8 – Average Stock in 2016 (PUM) – Beverages …………...…………………………….29 Figure 9 – Positioning of Each Subcategory (Beverages) ……………... ………………………30 Figure 10 – Average Stock in 2016 (PUM) – Food ………..……………………………………..30 Figure 11 - Positioning of Each Subcategory (Food) ……………………………………………31 Figure 12 - Finished goods components ………………………………………………………….33 Figure 13- Trade-off between Minimum Stock Cover, DPA and Service Level ……...……….34 Figure 14 – Cycle Stock…………………………………………………………………………….34 Figure 15 - Stock Cover evolution with Case Fill Rate …………………………………………..38