Cost Reduction - Biscuit Manufacturer - Interview Transcript Consult

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Your client is a biscuit manufacturer. over the past couple of months it has seen a dedine
in profits. Diagnose and recommend s-ofutions,
I would I e to a$k a few darifying questions before I begin to analyse the case. I would want to
understand the ent's business, What kind of bisruits does the company malce?
The company makes only 1 kind of biscuits,
Which country is the client based out of and how many factories do they have? I warrt tD
understand the sca of business a.nd extent of coYerage.
The biscuit company is based in one state of tndia with thre-e factories spead uniformt., aaoss
thestrte.
Ok.. so the company manufacturers biscuits in a particu r state of India. To understand about the
distribution process, to whom dose the company se the biscuits and are they ba:sed pa.n India?
The wpply o the biscuits is done to the wholesellers who can be from any state in India.
That's v-ery helpfu. Now since they supply the biscuits to these w·holesel ers across the country,
are their warehouses also located pan India?
Yes.You are correct. The warehouses are also S!pread uniformly across the country. I would
urge you to focus only on the cost side of their business.
I would want to analyse this prob m by looking at various components of the vakle chain in
biscuit manufacturing. Accord·ng to me, this can be broken down into raw material procurement,
processing costs, sorage & transportation, marlceting & promotions. Do you think I have missed
out on any cost bucket?
No. I would like you to ocus on stoarge and traruport.ition cost for the purpose of this problem.
Ok.. Looking into the storage costs first. Is the storage cost/packet of biscuit higher or the client
as compared to the avergae marb!t? And is this trend uniform across al the warehouses
belonging to the client?
Yes, the overall cost of storage/unit is higher for the client as comparred to the competitors.
The inventry lo$5:@S in our case are high because of the presence of high percentage o expired
biscuits,
The client's warehouse has a lot of expired goods which keep sitting in the warehouse or longer
duration and hence d to higher storage costs. Reasons for this might be poor demand prediction,
delay in s1.1pply of goods to the warehouse or incorrect process for inventory management. Does
the client have a system in place to predict the demand of biscuits?
Yes, the dient owns a software whiclh takes into account the demand in the prevfous intervals and
then predicts the demand for the next irrterval.
since the problem of expiry is uni orm across the warehouses, delay in supply to the far off
warehouses can be ruled out. There.fore, the biscuits might be getting expired due to inefficient
invenrory management system.
What are the different ways in which an inventory can be turned over and what might be goir\g
wrong here?
An inv-entory management system can be First in First out or it can be Last in First out. The problem
of expiry might arise if the inventory management system is of LIFO type.
Yes. You are correct. At present the biscuit cartons which enter the warehouse last are the ones
whiclh are sent to the retailers first. The company has employed two different transportation
agaendes to take care of moving biscuits from factory to warehouse and then from warehouse to
the retailers. Due to the laclc in coordinaiton between these two entities, a lot of biscuits were
getting S!pO Now that we haYe zeroed in on the problem area, how do you propose to S!Olve this?
As per my understanding, the cartons of biscuits Which come in last are p ed near the gate of the
warehouse and the transportation company which takes them to the retailers just picks it up from
there or the sake of convenience. Is that correct?
Yes. Please go on.
To ensure that FIFO is ollowed, either give the job to the same transportation company. second
solution could be to place the cartons that come in later behind those which have been tying in
the warehouse for some time. E\lerytime, some of the boxes are taken away to retai rs, the boxes
kep at the back should be moved in the front This will ensure that lesser bisru its get expired.

storgae cost is one area where we can reduce costs for the c ent. Storage cost can be broken
down into rental cost, labor wages and inv-entory losses. Do you want me to look into a particular
cornponent or shou I go ahead and exp re al of them?
Focus only on inventory 10$S@S for now.
Okay. so, inventory can be damaged because of three factors. First one is due to spo· ge
(Breakage, pest infestation, warehouse conditions ke moisture). second one is due to
inefficiency in turning over the inventory due to which it might get expired. Third might be
because of p llferage.