How to Revolutionise Inventory Management: A Creative Story Behind Every Coffee Business
it’s not surprising that since 1990, domestic coffee consumption in Indonesia quadrupled to 4.8 million bags in 2020. With nearly 80% of the current population being coffee-crazy, it is not hard to imagine that there are so many of them who wish to splurge on their guilty pleasures!
Kopi Kenangan, one of the country’s fastest growing grab-and-go coffee chain, recently launched its first, specially curated, Ready-To-Drink (RTD) products in 3 variants (Mantancino, Avocuddle, and Black Aren). It won the heart of coffee-addicts from all over the nation, flocking to grab them to satisfy their pleasures, and the brand is now the fastest growing F&B startup in South East Asia!
Hence, the brand has since gained enormous market share in its category. Jimmy Liedianto joined Kopi Kenangan FMCG since 2021 and oversees the end-to-end supply chain management, from the supply of raw materials to the distribution of manufactured goods and ensuring smooth flow of logistic services. With more than 3 years of experience in understanding the complexities behind every product, he has harnessed optimisation in inventory management and streamlined operations to strengthen their core practices.
He explores on ways to reduce the cost of production in Research and Development (RnD) practices to find cheaper alternatives in sourcing for scarce materials whilst preserving product quality. This ensures that the supply chain can kick off without dragging down profit margins. By tapping on the latest technologies such as Artificial Intelligence (AI) and Machine Learning (ML) for insights, they have procured more accurate forecasts on customers’ needs.
1. Over the past year, what problems of Kopi Kenangan FMCG have really been solved? How and to what extent do the problems hinder Kopi Kenangan FMCG’s success?
Okay, so as newcomer within the industry we faced many problems during our spearheading journey. But first of all, we always have the mindset to see problems as challenges that need to be solved. The key here is to be confident first that all challenges also come with solutions but also realistic enough that any actions need efforts, time, and money. So, with this mindset we will have the winning mentality to solve the problems ahead.
Actually, we faced so many challenges during our penetration on the FMCG market. But since I lead the Operations & Supply Chain, then I will focus more on the supply chain challenges. We experienced many problems, like the raw materials shortages & scarcity and increasing costs from productions, logistics, and also the raw materials. So, all these problems keep increasing our COGS to some unhealthy level that keep diminishing our profit margins. We need to act quickly and effectively.
For example, there have been national fuel cost increase in 2022 which increases various fuel in Indonesia. Since we use mainly the heavy truck with diesel engines, we were struck by 32% price increase for all of our logistics. Our Raw Materials price also increased significantly as well since they also need transportation to our factory.
2. How to solve the problems that challenges Kopi Kenangan in FMCG? How difficult is to apply the solutions?
Regarding all the challenges in supply chain processes, we need cooperation from internal and external parties. We have discussed and agreed to apply:
For internal, mostly collaborate with our Procurement and Research & Development (RnD) department regarding the raw materials scarcity and increasing costs. We ask the Procurement team to look for another supplier with cheaper costs or alternatives for scarce materials. With the RnD team, we ask them to quickly develop new formula with alternatives that doesn’t change the product’s characteristics significantly.
For external, we collaborate with existing and the new candidate of: OEM, 3PL transporter, and suppliers. We have negotiated with our existing OEM and searching for the better OEM with lower production cost. For the transporter we have come to agreement in securing acceptable prices with dedicated unit for some months. With suppliers, we agreed that they could give transparency, performance, quantity, and quality products and services. In return, we give some monetary benefits and incentives.
3. How AI-driven insights can revolutionize your Inventory Management, moving from traditional to advanced analytics-supported decision-making?
Inventory Management is the core of our FMCG planning. Every Marketing campaign, Sales and Operations (S&OP) planning, and supply chain management in the end will affect our inventory level. So, for this planning, we really need more insights in order to forecast the supply and demand needed to reach lean inventory management.
Basically, we use tried and tested traditional method to calculate this forecast. But as the Advanced Analytics grows exponentially over these recent years with Artificial Intelligence (AI) and Machine Learning (ML), we also developing ways to apply these technologies to our Inventory Management Calculations. With these technologies, we could make complex calculations to be much simpler and faster. Insights can be generated within seconds and these really helps in the decision-making process.
With harnessing the advanced analytics, we could increase our efficiency & effectivity in the demand supply forecasting for our inventory management strategy. For instance, AI / ML can make our forecast to include many considerations in order to increase our forecast accuracy. Also from time perspective, we could gain insights within seconds which is extremely fast. For example, we could predict which item is the slowest-moving product on specific area on that location, so we stock up less on that particular item, leaving more warehouse space to stock up on the faster-moving items, which leads to significant increase in our cost efficiency.
4. What are some creative ways to deal with excess inventory?
Even with our focus to lean inventory management, some variants are still able to be overstocked in some locations. These conditions are caused by endless possibilities, whether caused by promotion or marketing campaigns from competitors which leads to decline in sales, miscalculated demand from our marketing campaigns, Minimal Order Quantity (MOQ) fulfilment to remote areas to reach efficient vehicle utilization, etc.
When this happens, we need to recalculate and realign the stock level with the demand forecasts, whether there are additional promotions / marketing campaigns that will boost our sales, or we could declare that there are overstock in the area. If with the new forecast there are still excess inventories, then there are some ways to deal with this condition that we have done.
Sometimes, we donate the excess inventory to charity or disaster victims or orphanage, basically people in great needs. Sometimes, we also do localized giveaway / partnership with local partner / customers. Or maybe we could bundle our products with other items as well.
5. You are presenting a case study at this year’s eTail Asia event. Can you share what the audience can expect to hear from you and what excites you about this event?
Yes, I will share some of my journey to reach supply chain of the future. This will include mostly about what is the supply chain of the future? Why is it important and to what extent? How to reach there and what to be prepared? So maybe we could discuss and share more about the transformation of the supply chain in these rapidly growing industries.
I am really excited for the insightful topics, discussions, and the networking opportunities with industry leaders and decision makers around Asia. I am looking forward to learning how to improve the supply chain world even more and hear about thoughts regarding supply chain of the future which harness AI / ML and further automation.
Hear more from Jimmy Liedianto at Equarius Hotel, Singapore, on 15th May, 4:40PM: Case Study: Unlocking intelligent inventory management - How to narrow in on your assortment plan and inventory selection with accurate forecasting powered by machine learning and AI to have the right products at the right location, reducing costly markdowns and increase margins. Find out more here!