The Shelf Life management of finished goods is a balancing act between production scheduling, marketing hopes, sales projections and actual sales. For a new product launch, the estimates of production volumes are built into production schedules for manufacturing facilities.
To fulfill these production projections, the procurement department must contract with suppliers for the necessary ingredients and packaging materials. Based upon the production schedule, delivery schedules are communicated to the suppliers for “just in time” delivery.
The manufacturing facility strives to maximize the percent utilization of every production line in the facility for optimal performance.
What if the production for a shift is substandard? One option may be to rework if possible, if the deviation is severe, then the product is destroyed. If the product is destroyed, you have to find line time to manufacture the product again which is a huge blow to the facility’s finances. If rework, you have to find line time and resources to correct the deviation which is an added cost to the facilities. Another option may be to sell the substandard production in the company store or secondary market at a reduced cost and hope you can cover the manufacturing cost. You still have to find line time to replace this lost production.
While the substandard production is still on hold, the clock is ticking on the shelf life. The held stock is taking up valuable warehouse space as well. As you can see, resolution of held stock should be a high priority event for the facility.
What if the product launch does not perform as well in the market as expected by Marketing? What do you do with the unsold finished goods inventory? You could try and sell the product through the market with BoGo’s sales before the product hits old age criteria.
Another trick is to manage out the ingredients and packaging materials that were contracted with the suppliers which you still own. Those decisions need to be made very quickly. If you were very special with these materials and they can only be used in the product launched, well good luck. Repurposing of the ingredient can be done with incremental product development work which has to be prioritized against existing new product development. Remember, the clock is ticking on those materials against the shelf life criteria.
So, rather than dealing with these issues, how about using your existing ingredient and packaging material database during product development. Justify why you have to have that “special” material. During the development of the new product, assure that the materials used in the Bill of Materials have a second “home” for usage. Have existing relationships with your suppliers who may be willing to find other customers for your unused materials would greatly enhance your cost avoidance, provided, of course, you do not wait too long and leave little or no shelf life.
You could wait and charge the “old age” goods to “cost of sales” bucket. Where the losses will not hit the factory finances but while the factory looks good, the company looks worse. Not really a great choice for everyone involved with the project.
Cost avoidance is just as important as special cost-saving projects, you just do not get the recognition usually.