Supply Chain Blog

Supply Chain: Goats, Kennedy Brexit & Analytics

Posted by Dave Jordan on Thu, Jun 21, 2018

Over the years I have seen many strange sights on various forms of transport. In the Middle East I sat next to a vicious looking falcon on a flight to Bahrain. The falcon was extremely well behaved but then again so was I! In Africa a guy jumped on a tuk-tuk carrying a pig that had ceased to be.

Only last week in Bucuresti a lady brought a goat onto the underground. I guess it could have been a service goat or something similar as guide dogs are still a rarity in Romania. In fact, a guide goat could have some advantages over a dog as it is has its own built-in horn……Also, I wonder if she had to pay to take the goat on board and if so, was it half price for kids?

Whenever you see something dramatic, unusual or out of context you tend to remember that incident or time. People older than myself remember where they where when Kennedy was assassinated. In more recent history I know where I was when Princess Diana died. Only a couple of years ago I remember exactly where I was when I heard the UK had voted to leave the EU. Despite living in an EU country, I and many others where not allowed to vote.

Nobody knew at that time what would happen if UK left the EU – what a basis for a referendum - and that is still the case today although at least the exit remains certain. What will happen to customs tariffs, will UK citizens require visas to reach the sun, will the EU allow right hand drive cars on their road networks? Still nobody knows, and I don’t think anyone will until long after exit happens. However, I will predict a united Ireland, a devolved Scotland (less possibly Wales) and little England in an old tweed suit towing a ferret going cap in hand to join the EU!

Politics and Supply Chain are not common text fellows but in terms of predicting the future they have the same challenges. Hopefully, you make the best decision you can based on the information available and yet you know there is a high probability of getting the outcome completely wrong. If you want to reduce that probability of failure, then you need something over and above your standard ERP IT software.

In the last 10 years, despite investments in sophisticated ERP systems, there are still significant opportunities to improve supply chain performance. Why?

  • Often complex IT packages automate traditional ways of working which results in little improvement or, things are made worse with increased stress in the planning process.
  • The forecast is often blamed – it will never be 100% correct. The issue lies within the supply chain processes, the set-up of the IT and how existing tools are being used.
  • Managing this complexity becomes the real challenge, and to protect themselves, supply chain managers buffer supply chains with cautionary inventory and fat lead-times.

Analytics_supply_chain_forecast_planning

Business planning that puts backside protection as a key priority is destined to failure. Supply Chain Analytics changes the game to make success far more likely and when you take the analytics plunge, you will remember where you where!

Image courtesy of Concentra at Concentra.co.uk

Tags: Dave Jordan, Supply Chain, Forecasting & Demand Planning, Supply Chain Analytics

FMCG Route To Market: Until debt do us part

Posted by Dave Jordan on Wed, Jun 20, 2018

What about your company? Do you have great brands and brand awareness, a fantastic extended supply chain, an analytics package, tight financial control, top class HR, the best sales force, innovative marketing? If you tick all these boxes then life must be good, yes? Sadly, not always and some big-name companies frequently get the important distributor relationship badly wrong.

Blue chip companies with internal operational excellence continue to flounder when serving the Traditional Trade, particularly in D&E markets. Admittedly, this trade channel has reduced in importance over the past years but it still accounts for a sizeable portion of markets which are starting to return to growth. International Key Accounts and Local Key Accounts will continue to take share in urban areas but in a country as vast as Romania, for example they will not conquer the rural market in the medium term.

Producers need knowledgeable and reliable Route To Market partners to reach the smaller corner shop outlets and kiosks. There is no shortage of operators willing to be distributors for big name clients but how many of them are really equipped and ready to do the job properly? Producers are often guilty of placing their reputations and ultimately profits, in the hands of enthusiastic amateurs. In the sporting definition, true amateurs do not get paid for their work and distributors do not get paid by producers when they fail to meet targets.

Unfortunately, instead of doing something about the short-comings of distributors, producers proudly celebrate securing penalties or better terms through negotiating against poor performance. What is the point of doing that? Instead of carping on about how terrible are these "partners" why not get out there and help them?

You cannot build houses on sand yet producers expect distributors to swiftly dove-tail into their in-house processes, IT, style, ethics, reporting schedule etc. Yes, they probably exaggerated their capabilities and readiness during the selection pitch but you should be able to see through that or at least be ready to quickly assess capability.

Is it any wonder why so many distributors go under when they are not considered partners and in some cases, are believed to be a hindrance? Distributors do not deliberately make mistakes that lead to their own reduced income. They too are in business to make a few Euros to take home at the end of the month. However, when the penalties add up and the distributor gets into debt, that is when they need producer support and not a kick to the stomach.FMCG_RTM_DISTRIBUTORS_PARTNERSHIPS.jpgProducers need to look closely at the capability matrix offered by their distributors (or more importantly, potential distributors) and in most cases, this will not match up to requirements. Do something about this; build capability where it lacks and you will reap the benefits in having proactive partners going that extra kilometre to make a sale for you. 

Those FMCG producers who are in tune with distributors strengths and weaknesses AND do something about the latter will be in pole position with a Ferrari while less wise competitors are at the back of the grid with a horse and cart. The route to your market can be a lot easier than you are making it!

Image courtesy of Stuart Miles at freedigitalphotos.net

 

 

Tags: FMCG, Route to Market, Dave Jordan, Distribution

FMCG Inventory Shrinkage & Control - It's a Dog's Life

Posted by Dave Jordan on Mon, Jun 18, 2018

Do you find yellow dog biscuits stuffed in your window frames? 

Well, I’d expect such occurrences to be as rare as a squirrel with a nut allergy but I find it all the time. Our house has mosquito nets on the windows as our summers are rather hot and the little blighters bite with pure human hatred.  The nets slide up and down between 2 small, vertical brushes on either side of the window to make them impregnable to blood seeking buzzers.

Within these brushes is where I find yellow dog biscuits. Not brown or red or any other colour, only yellow canine munchies. (And while we are on this important subject, if dogs are colour blind why do we give them different coloured biscuits?) You might presume that our half Jack Russell-half Mr. Bean dog Patch is responsible. Is he hiding them away for a sneaky midday or midnight snack? Does he know about some impending global dog chow shortage? I doubt Patch is the culprit as some of these windows are 7 metres off the ground and our dog is yet to work out how to find and climb a ladder and then put the ladder away without me knowing.

FMCG Stock inventory controlSo, how do the biscuits find their way into my window frames? Not surprisingly perhaps, the biscuit thieves are birds; magpies to be precise. I guess they are storing up for a rainy day or winter or some other event. They are known to be attracted by shiny objects but I cannot see the connection with a fairly bland crunchy snack. Also, as Patch eats inside the house they cannot be my/his biscuits so the magpies are stealing them from another poor dog in the area.

The house has many windows so the amount of stolen food is quite high and as I now regularly clear out the stash, the amount really starts to add up.  Some pooch somewhere is not getting his or her full share to eat. That poor dogs’ human probably thinks their poodle is really content and eating well when in fact a magpie is regularly taking the yellow biscuits away. Of course, maybe the poodle doesn’t like the yellow ones. 

Ok Dave, what do we have here and what is this to do with Supply Chain? Let us take a look at what is happening:

1. Supply Chain inventory is not secure as stock shrinkage is occurring on an almost daily basis and yet nobody appears to notice. When did you last see your stock count?

          2. Stock is in the wrong location to serve the needs of the intended customers and consumers. When you have stock in the wrong places you will inevitably develop an overstock in your Producer warehouse network.

          3. Consumer demand is artificially high resulting in over-stocking and unnecessary spend along the Supply Chain.

          4. Ultimately, the final consumer is receiving poor Customer Service.

About the only aspect impressive in this is the quality of the logistics in getting the stolen biscuits from a dog bowl into my window frames. I will keep a look out for any stolen jewellery but I fear I will only have biccies to clear away.

Put simply, if you do not take great care with your own inventory somebody else will!

Image courtesy of bplanet at freedigitalphotos.net

 

Tags: FMCG, Logistica Management, Dave Jordan, Supply Chain, Inventory Management & Stock Control

Supply Chain Analytics smooths production planning AND reduces inventory?

Posted by Dave Jordan on Thu, Jun 14, 2018

May Day falling on a Tuesday meant a rare 4 day “weekend” break was enjoyed and the sun shone, in Romania at least. Time to dust off the BBQ for the first time this year and chill in the late April heat. We had some Romanian bred ostrich meat to grill – yes, honestly and what’s more the Romanian word for Ostrich is the perfectly apt Strut!

Everything was rather last-minute, but the salad was done, bread buns cut and buttered, potatoes wrapped in foil were ready and the Prosecco had already popped. Man dons apron with a life size image of a girl in a bikini plus a Knorr chef hat and we are ready to roll.

Well, we would be ready to roll if we had any charcoal!

SUPPLY_CHAIN_ANALYTICS_INVENTORY_PRODUCTION_PLANNINGI guess I could have popped out to the garage to pick a bag up but it ruins the flow of things and anyway I was Prosecco’d up. To a background of female tutting we resorted to another process and turned the gas on in the kitchen.

I only had 6 items to plan but goofed with one of the most important but the absence of any would have scuppered the day. Our last-minute change of plan was not dramatic but we used expensive gas rather than charcoal. This minor domestic challenge shows how unexpected shortages can impact on otherwise smooth processes.

Putting the strut steaks aside let us look at a case study where materials more critical than charcoal were causing problems and how Supply Chain Analytics played their part.

The Challenge

Despite having relatively predictable demand and high stock levels, an FMCG manufacturer still suffered stock-outs of different RM/PM and had to change production plans and schedules constantly to try and maintain service levels. As a result, operating costs were unnecessarily high, and the day-to-day running of the supply chain was absorbing a disproportionate amount of management time due to fire-fighting. Staff morale was dipping – much like mine on Sunday afternoon!

The Solution

SupplyVue took a detailed analytical look at the production sequence using the line changeover matrix and demand plan. This work sought to create the lowest cost manufacturing sequence and a set of “Golden Rules” to maximise efficiency. Using this optimum sequence, SupplyVue used production wheel methodology to create a rolling 16-week production plan. Scenarios were generated showing the trade-offs between manufacturing cost, manning and inventory levels, and between levelling capacity and inventory. In doing this, the management team was able to decide on the production policies that most aligned to their business objectives and specifically, Customer Service.

The Impact

1. A 15% reduction in changeover time through an optimised production wheel approach.

2. Levelled demand to prevent overtime and disrupting shift patterns.

3. Inventory levels plummeted through reduced cycle times and increased conformance to plan.

Supply Chain Analytics would not have saved my BBQ or my ear from a bashing, but you need something with high powered deep data diving capability to understand what is really going on in your supply chain.

Image courtesy of Peter Orseved at freedigitalphotos.net

Tags: Supply Chain, Inventory Management & Stock Control, Supply Chain Analytics, Production Planning

7 Deadly Sins: Why FMCG Distributors are Overstocked in CEE

Posted by Dave Jordan on Wed, Jun 13, 2018

How I guffaw when I hear producers complain about traditional trade distributor overstock.Make no mistake Mr. Producer, YOU put the stock there, oh yes you did! Distributors don't buy stock for something to do or a laugh and a giggle. Excess stock blocks up their warehouses and locks up their cash.

Why does this happen in even the largest companies?

1. Month, quarter and year-end push. "Targets have to be met so push as much stock as possible into the Distributors." This is simply loading and is not real sales.

2. Failed launches. Unrealistic Producer sales objectives leading to slow moving goods which sit in warehouses.

3. Old label stock. Perfectly good stock but the pack with the new artwork is being sold already and nobody wants this "old stuff".

4. Old and expired promotions. Funding support has ended so what do we do with all these left over promo packs? Don't expect sales and marketing colleagues to help.

5. Returns from customers. Still arguing about who is to pay for these returns? You should have had clear SLAs and contract in place.

6. Producer forecasting errors. Nobody wants to lose face at Producer HQ so the stock sits and gathers dust until it expires or is stolen.

7. Damaged and expired. Damages happen, get them written off AND destroyed and get over it. You can avoid expired goods - see above!

Overstocked Distributors

You might think your Distributors have a healthy 21 days of cover but in reality they are operating with a much lower level of saleable stock, ie what consumers actually want to buy.The rest sits in their books and in your stock cover numbers but it contributes nothing to sales. In fact, it negatively affects sales as stock that is in demand is available at too low levels or not at all to meet customer requirements.

"Those distributors have so much stock but my Customer Service level is rubbish".  IT IS NOT A SUPPLY CHAIN PROBLEM!

 

Tags: Dave Jordan, CEE, Traditional Trade, Distribution, Inventory Management & Stock Control

How Spreadsheets Undermine Your FMCG ERP

Posted by Dave Jordan on Mon, Jun 11, 2018

Despite what you may wish to believe the answer is probably, yes. You have invested heavily in brand new ERP software and similarly heavily in some smart, young consultancy people to run the implementation. You will have spent some timing debating and making these choices as the change to an all encompassing and integrated ERP is a huge step and at the same time a huge risk for your company.

Suddenly the flexibility to back-date or correct entries is lost or at least there is a rigid and auditable procedure to follow in order to make any adjustments. Sudden uplifts in Sales cannot be slipped in unnoticed at month-end and neither can supply shortages or marketing tardiness with promotional activity. Everything you do in a good ERP is recorded and can be seen.

ERP System ImplementationIf your ERP really is the only software being used to run your business then a hearty well done to you. However, in a surprisingly large number of companies the all important role of change management has not received the required seniority or focus.  Staff who have been using spreadsheets for maybe 10 - 15 years (it was released in 1985!) cannot and will not stop using them just because they have been trained in a new ERP.  Spreadsheets are like a cuddly teddy at bedtime; they are familiar, comforting, not demanding and always there!

An element of your decision to implement a new ERP was probably a supplier guarantee that people productivity and data accuracy would be improved. In reality you will find staff operating a covert shadow ERP on the same old spreadsheets. Detailed planning, sales and allocation decisions are being made on spreadsheets and then manually inserted into ERPs. Commonly, decisions are taken in isolation of S&OP and lack the consistency that ERP master data brings plus the all important history development for the business baseline.

Staff efficiency and data accuracy have certainly not improved; they have worsened. The tedious “cut and paste” of data into the ERP is time consuming and fraught with error. Post ERP implementation is always a rough time for businesses  as they get to grips with a new way of working but is it any wonder some stay in a continual state of intensive care?

If you pay sufficient attention to change management you can lessen the impact. Should staff not see the medium terms benefits outweighing the short term inconvenience then they will operate the shadow ERP.  The change manager has to clearly show what the ERP brings to people first and subsequently the company – not the other way around.

Of course, one solution might be to deactivate the spread sheet program on the network until ERP discipline is second nature? Now, who is brave enough to do that?

Image courtesy of HikingArtist

Tags: FMCG, Dave Jordan, Pharma, ERP/SAP, Supply Chain Analytics, Integrated Business Planning, ERP

Supply Chain Analytics helps international retailer in business turn-around

Posted by Dave Jordan on Thu, Jun 07, 2018

Many will recall that famous Four Yorkshiremen sketch first seen the At Last the 1948 Show and later Monty Python. Four dour characters recall how tough it was when they were younger with each trying to out do the others in a downwards spiral of harshness. While the claims were outrageous and equally ridiculous it had me thinking about how things have changed. If you beamed an 18-year-old back to 1970 what would they see?

  • An analogue telephone attached to a wall with a wire and to call anyone you had to literally dial the numbers with 1 finger using the rotating plastic ring.

  • If you didn’t have a telephone wired into the house you had to put your coat on and walk to a red K6 telephone box, usually in the rain and there’d be a queue. You would need to carry 2p and 10p coins to keep the call active.

  • A television which was probably a black and white model operated by valves housed in a huge rear section. To change channel (there were only 3!) you had to get off your backside, walk across the room and turn a dial, or push a button if you were posh.

  • Need to send someone a message? You did that by writing (possibly typing) on a piece of paper, putting it in an envelope, buying a stamp and popping it in 1 of the red post boxes dotted around.

  • You want to listen to music? Take the black vinyl 7 or 12-inch disk out of the sleeve and place it on the Dansette record player the size of a small suitcase. Manually lift the stylus, place it on the disk and away you go.

I could go on and on and list many examples of life in the pre-digital age. Youngsters today don’t know they’re born!

SUPPLY_CHAIN_ANALYTICS_RETAIL_GLOBALAll of the examples above would also have been used in industry in some form and business has seen equally dramatic changes to how they operate. I will focus only on 1 area here and that is Supply Chain Analytics. No more guessing at how decisions may affect your performance, a good analytics package offers you a virtual crystal ball! Let me take you through a case study.

The Challenge

A well-known international retailer was suffering high levels of inventory in warehouses and in retail outlets plus this stock was the wrong mix for the sales pattern. The company was unable to accurately coordinate the flow of goods from long lead time suppliers to outlets. As a result, expensive emergency air-freighting was used to avoid out of stocks yet, despite this cash draining initiative, working capital was well above target.

The Solution

SupplyVue Analytics reviewed the demand profiles in outlets and at an aggregated level in central warehouses. At outlet-level granularity, the demand was far too sporadic to be forecast, however, at central warehouses, product flow was sufficient to determine a reliable forecast. Analytics demonstrated that a switch to a Kanban pull approach from the central warehouses to outlets would transform inventory levels and eliminate the need for air-freight. In addition, the company implemented a complementary demand-driven replenishment mechanism from central warehouse to multiple suppliers.

The Impact

1. A sustainable 25% reduction in overall inventory levels across a complicated Supply Chain.

2. A deeper understanding of demand profile enabled the company to provide a more predictable and stable signal to suppliers which in turn raised their reliability.

3. Completely eliminated air-freight costs caused by product shortages with an associated increase in Customer Service.

So, progress in this digital age is not all bad and once you have taken a Test Drive or Pilot in Supply Chain Analytics you will wonder how on earth you previously managed. If you need further information please get out your quill and ink write a letter to Enchange!

Image courtesy of photostock at freedigitalphotos.net

Tags: Dave Jordan, CEO, Inventory Management & Stock Control, Supply Chain Analytics

FMCG – Hunker down and find Supply Chain Analytics

Posted by Dave Jordan on Wed, Jun 06, 2018

Have you ever “hunkered down”? I remember being asked to hunker down during a business game training course many years ago and I had no idea what I was supposed to do. Eventually I had to ask as failing to follow the hunker downwards request appeared to be causing a bit of a problem for the American presenter.

This hunkering failure occurred during one of the many versions of the Beer Game in which I have taken part or delivered over the years. Anyone who has been involved with supply chain activities will probably have taken part in the Beer Game, or the Moussy Game as it is sometimes known in dry countries of the Middle East.

What does the beer game do? The rules are relatively simple and in summary, the overall objective is to meet consumer demand for cases of beer in a complex, extended supply chain while controlling unplanned expense on back orders and inventory. The game involves four overlapping and inter-dependent supply chains, i.e. source, make, distribution, and a retail outlet. There is a cost penalty for holding excess stock and any backlog unfulfilled orders.

Players rely on colleagues in the other departments to do the right things at the right time for the business but frustration soon surfaces. Usually, things do not go well and players feel frustrated because they are not getting the results they expect. Assumptions are made about consumer demand and erratic patterns emerge as backlogs mount and/or massive unnecessary inventory accumulates. It was at this stage in the game I was invited to “hunker down……….”.

Does that sound like your own supply chain – not the hunkering bit? Frustration is common between departments who all aim to do the right thing but only have the necessary data and information to do the right thing for their specific area of responsibility at that specific time. Even after careful consideration and informed debate, the real effect of an adjustment can only be seen in the future.

supply_chain_analytics_fmcg_inventory_performance.jpgIF - a big if -  nothing else changes and all assumptions are correct and accurate then there is a chance the desired effect will develop as predicted. However, life is not like that and certainly not supply chain life.

 

What can happen?

1. New launches kick-in and are successful, or perhaps not.

2. Competition by definition is designed to try and disrupt your plans.

3. The weather turns out rather different to the forecast and nobody wants beer.

4. The economy takes a turn up or down, again.

5. Factories, 3PLPs and distributors all suffer performance variability.

6. Customers and consumers change their needs and habits.

Etc., etc., etc., this list really is endless. Absolutely anything can happen to turn apparently sensible decisions into foolish, future forecast failure.

Hey, what about all that expensive IT we have? Doesn’t that help us understand what is going on and what is going to happen? No, not necessarily. Common supply chain IT tells us what has happened, what is happening, where and when but not precisely why an event happened or what will happen.

Subtle differences perhaps but to up your game you need to hunker down with Supply Chain Analytics to gain a full unexpurgated understanding of how changes you make today will impact the future and more importantly, how you can change that future.

Yes, you can change the future with a classy analytics tool.

Image courtesy of Enchange at Enchange.com

Tags: Customer service, FMCG, CEO, Inventory Management & Stock Control, Supply Chain Analytics, IT

7 Top Tips for Spare Parts Management in Factories

Posted by Dave Jordan on Mon, Jun 04, 2018

Well, I find it strange anyway. Some very large companies spend countless hours and cash in finding and securing a third party logistic provider (3PLP) to take great care of their finished goods assets. The performance of the chosen 3PLP is then measured and monitored very closely using a suite of KPIs, e.g. damages and losses are recorded and usually debited to the 3PLP under the contract terms. A 3PLP is charged with “storing your stuff” as safely and cost effectively as possible and providing easy picking for dispatch.

I often wonder why some blue chip companies fail to adopt similar warehousing and logistics principles in the operation of in-house engineering stores. Depending on the industry, the value of the components can be several millions of Euros. If you do not pay attention to this area then the same things happen as they do with finished goods warehouses, including:

1. Shrinkage or more accurately, theft! Your spare parts stores will be helping to repair private cars, replenish home tool-boxes and raise personal funds through the sale of stolen goods. This might seem harsh but I have seen it first-hand and continue to in large organisations.

Bottling line resized 6002. Important parts are not in the right place. If you do not have clearly labelled storage bins you can stop production lines very quickly losing valuable operating time. At the end of the day an idle line can probably lead to more lost sales than a badly picked finished goods pallet.

3. Spare parts not replenished. If stock control is not rigorous then you will go out of stock on important items just when you need them. Sod’s Law dictates that they will also be the parts with lengthy lead times.

A few simple principles loaned from big scale warehousing will help:

  1. Operate some sort of stock management system. This can be done on Excel with some discipline but specifically designed software packages are available. You need to know where each spare part is located just like in a finished goods warehouse.
  2. Carry out cycle and annual stock counting. Keep a close eye on your high value and production-critical items by counting them on a rotating basis. Do not wait for a year-end count to reveal a gaping hole in your stock value.
  3. Carry out an ageing analysis. Many large stores are full of spares for machines that were last running when “Shep was a pup”. They are of no use to you yet they sit on a shelf and on your books as working capital. Any materials with specific shelf lives also need regular checking to ensure you are not holding something which is at best useless or at worst dangerous!
  4. Secondary store for critical items. Items of high value or those which will stop production can be held in a “store within a store”, e.g. a wire cage with 2 locks. Access to these items requires a more senior employee to be present at issuance, e.g. maintenance manager.
  5. Operate some relevant KPIs. These do not have to be wide ranging or difficult to calculate, e.g. ageing, stock rotation, shrinkage etc. An important KPI can be the value of your spares as a % of the operation asset value. Do you know yours?
  6. Order and stock only what you need. Avoid the temptation to buy in bulk as the price is keener. If you are able to calculate a forecast plus some safety stock then you can minimise your inventory and your working capital. Also, ensure that spares purchasing and receipt are spilt responsibilities or you may find you are buying items you do not actually use in the factory..………
  7. Restrict access to the spare parts stores. If you allow anyone to wander in and remove items then your stock control will be out of control, no doubt. If you require access to spares on a 24 hour basis then ensure the facility is staffed appropriately at all times. Leaving the stores unmanned and the door open should be a disciplinary offence.

When looking at factory operating efficiency people will often focus only on the production line and RM/PM supply. Take a look at how you manage spare parts and you may be able to influence your level of efficiency from an unexpected source close to home.

Image credit: Hi.WTC

Tags: Logistics Service Provider, Dave Jordan, Manufacturing Footprint, KPI, Logistics Management, Inventory Management & Stock Control, Spare Parts

Supply Chain Analytics drives dramatic spare parts inventory reduction

Posted by Dave Jordan on Thu, May 31, 2018

What business would I like to run or even own? If you had a choice what would it be? A huge global FMCG player or a niche craft brewery in Bourton-on-the-Water? What about starting a pottery in your own home as per the ages old Barclays TV ad? If I had a choice I would buy the company that makes Allen Keys for IKEA.

Every single item you buy contains an Allen Key. Cupboards, shelves, beds, kitchens, chairs. I think you even get an Allen Key when you buy their 4-packs of fresh salmon! How many Allen Keys do they “sell” in a year? The number must be in the millions worldwide; surely, it’s time for a key return initiative?

SUPPLY_CHAIN_ANALYTICS_SPARE_PARTS_INVENTORYAnyway, not all the keys are the same size as IKEA also uses a huge number of different bolts, fixings, screws and nuts and taking their success into account that is quite some inventory. I know IKEA uses a lot of third party manufacturers, but this means huge spare parts inventories are scattered across the globe. I wonder how they manage? I suspect they use some form of Supply Chain Analytics and being IKEA, the package is probably called something like Levy Pupus (it’s an anagram).

While this is not IKEA, I do have an example of how Analytics unlocked working capital and made a significant difference to 1 company with a large spare parts inventory.

The Challenge

This engineering business sold components require for new-build constructions as well as ensuring spare parts availability for subsequent repairs and maintenance. Demand signal profiles were different for each stream and with large differences between individual components, inevitably this was difficult to manage. However, supporting both business streams at high service levels was a USP of the company and therefore vital for success. Perhaps inevitably, the operation was struggling to keep inventory levels under tight control.

The Solution

Analytics was used to segment the demand between the new construction and ongoing spare parts businesses. The team then used SupplyVue to further segment demand for spares into multiple similar granular boxes and analyse the flow of parts through the chain. This analysis reset the replenishment policies and parameters and the resulting inventory availability and stock levels. The analysis revealed inconsistent and poorly matched supply and inventory parameter settings across the portfolio. This provided a significant opportunity to establish a coherent and more appropriate set of policies for each spares segment.

The Impact

1. Pockets of gross excess inventory were identified, and the analysis indicated an 80% inventory reduction was achievable. This resulted in dramatically reduced working capital, lower storage charges AND better service.

2. In addition, the application of more repetitive based replenishment methods and parameters created a much more predictable and smoother demand signal for in-house manufacturing and 3rd party suppliers.

This may be a little more complicated than my desired IKEA key supply business, but it needed a powerful analytics tool to really understand what was going on in a complicated operation.  Analytics can be a once off diagnosis or you can purchase a licence and embed something like SupplyVue into your routine business management.

Why not try a free of charge Supply Chain Health Check?

Image courtesy of hadkhanong at freedigitalphotos.net

Tags: CEO, Inventory Management & Stock Control, Supply Chain Analytics, Spare Parts