Managing inbound inventory in a complex portfolio environment A two-echelon warehousing strategy based on root cause analysis

Abstract

As manufacturing companies grow and supply chains become increasingly more complex. This creates greater demand on warehouse operations in inventory management, storage capacity, and material availability. These challenges are examined through a case company that has experienced rapid growth in recent years. For the case company this has led to a more complex product portfolio and created challenges related to inventory accumulation, obsolete materials, and warehouse congestion. The case company currently operates with both an internal and external warehouse, but with no clear structure for storage allocation and the replenishments between the two locations. The purpose of this thesis was therefore to identify the root causes behind the current situation and propose a differentiated two-echelon warehousing strategy. The study was conducted as a single case study and by using a mixed method approach by combining interviews, observations, ERP data, and internal reports. The root cause analysis methods were used to identify the underlying causes, while ABC/XYZ classification, safety stock calculations, and replenishment analysis formed the basis for the proposed strategy. The findings showed that the main causes are inaccurate demand information, unstable production planning, uniform safety stock policies, and poor coordination between the warehouses. Based on these findings, a differentiated two-echelon warehousing strategy is proposed. The strategy introduces storage allocation criteria and replenishment rules adapted to different material categories. High-frequency materials are stored internally with calculated safety stock, while intermittent materials are primarily stored externally and replenished to the internal warehouse against a confirmed production order. The proposed strategy reduces warehouse congestion, free up pallet positions, and creates a more structured replenishment process.