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Inventory control Kellogg’s have adopted new organizational structure to implement more streamlined inventory practices. The Kellogg company has been using large – scale linear program, the Kellogg Planning System (KPS), for more than a decade to guide its operational (weekly), production, inventory, and distribution decisions for breakfast cereal. In addition, KPS helps Kellogg to make tactical decisions on budgeting, capacity expansion, capacity reassignment and other similar issues.

KPS uses optimization to find best long-term, cost-minimizing, integrated production, inventory, and distribution plan within the limits of modeling assumptions and data accuracy (YouSigma 2008). By managing the supply chain to reduce inventory, companies can decrease facility, material handling, and storage equipment requirements. Using information technology infrastructure like Kellogg’s company can change how to schedule production, often without capital investment, and dramatically reduce work –in-progress (WIP) inventory and material handling needs.

Transport and warehouse facilities Storing stock and transporting it are key activities that link all three parts of the supply chain. Kellogg’s employs specialist transportation and storage companies to be responsible for all the logistics aspects of its business. One of Kellogg’s partners, TDG, stores and transports pallets of Kellogg’s cereals. This allows Kellogg’s to concentrate on its specialist area of manufacturing cereals and other food products. Kellogg’s also shares transportation with another manufacturer, Kimberley Clark.

This has reduced distribution costs, helping keep Kellogg’s products competitive. The system helps reduce the number of part-full or empty vehicles on the road. Computerized warehousing means that products are manufactured efficiently, then transported straight from the warehouse to retail customers. This avoids delay to customers. TDG keeps the warehouse costs low through computerized heating and specialist transportation skills. The computerized stockholding shows immediately when shelves are empty.

This then automatically generates orders to the manufacturing to replenish stocks. This minimizes waste and the lower costs have increased Kellogg’s profits. This also helps the company to keep prices competitive, which keep customers happy and loyal. The effect on the environment is good too as heating and fuel costs are minimized.

References: YouSigma 2008, Kellogg;s Supply Chain Management to Reduce Invetory Cost, viewed at 5th May 2011, available from: http://www. yousigma. com/benchmarking/kelloggssupplychainmanagementtoreduceinventorycosts. html