Inventory and Purchasing Optimization:Summit’s Journey to Increasing Customer Service LevelsSaleem Tajuddin Summit Electric Supply

SESSION CODE: WD662

Electrical Distributor with 30 branches in Texas, Louisiana, Arizona, and New Mexico.

Revenues approx. $500M with 500 employees.

Went live with SAP in 2007

On ECC 6.0

Had previously optimized purchasing using own Load Builder solution in SAP.

Implemented GAINS last year to optimize Inventory and Purchasing processes.

Who is Summit?

Survival in Business Jungle

“Customer is King”

Our survival and profitability depends on how happy we keep our

customers, and how we go about doing it, differentiates us, and

makes us unique.

Why augment our SAP ERP with GAINSGeneral Adaptive INventory System

Implementation Steps

GAINS Portal – Dashboard

Demand Planning – “Kicking Forecasting up a notch”

Inventory and Replenishment Optimization

Increasing Customer Service Levels

Key Learning Points

BG – Before GAINS

Clipping Consumption

Monthly Forecasting

Monthly ABC

Monthly LT updates

Load Build with ROP and Vendor

Constraints

Manual process for sharing slow/dead

inventory

Stocking based on ROP and Vendor

constraints

AG – After GAINS

Raw historical data

Dynamic Forecasting

Dynamic ABC classification

Dynamic LT Updates

ARO suggestions with Vendor and STO in

parallel

Automated process for inventory sharing

Stocking policy and Inventory parameters

based on optimizing Total Annual Cost

Why Augment SAP with GAINS

Implementation Steps:

GAINS Implementation

EEP: Executive

Evaluation Process

IIPSE: Inventory Investment Profit and

Service EvaluationProject Kickoff

Data Mapping

Data Extracts

Inbound data from SAP

Hardware/Network

GAINS ServerOutbound data to

SAP

Study with real time data to determine the current state of supply chain,

and financial impact of implementing GAINS.

Summit Business objectives:

Reduce inventory related working capital while:

- Maintaining &/or improving pre-expedite Service Levels

- Reducing receiving & expediting activities

IIPSE: Inventory Investment, Profit and Service Evaluation

Improve planning and efficiency through more automated processes such as:

- Forecasting : Dynamically generate Monthly/Weekly/As needed Forecasts for all

planned SKULs [SKUs at a location].

- Inventory policy: Optimize inventory for each stocking SKUL, minimize dead and

slow movers, generate ABC classes for each SKUL, calculate Service Levels,

calculate and populate ROP field in SAP

- Multi-echelon planning: Parent/Child location relationships

- Replenishment planning: Approved GAINS Replenishment Orders [AROs] to

automatically create POs or STOs

Improve Customer Service Levels

IIPSE: Inventory Investment, Profit and Service Evaluation

Projected an average 30% inventory savings through decrease in inventory for active items.

Significant Carrying Cost reduction through inventory reductions.

Receiving Cost reductions due to selectively increased order quantities for low cost or high average inventory items.

Surplus/Obsolescence reductions via dynamic and trending inventory policy.

Increased productivity through reliable exception based planning.

Proactive inventory sharing [when profitable] between Plants.

IIPSE Results

Inbound to GAINS

Key fields mapped to GAINS

Nightly extracts from SAP:

Full Item/Material Master

Demand

Supply

Vendor

Vendor Returns

Near Real Time Extracts for

changes

Material Master

Demand

Outbound to SAP

GAINS approved AROs become

POs/STOs

Forecasts – Monthly, Weekly,

Nightly, User initiated- update

ROP

Safety Stock

ABC Classification

Lead Time

Service Levels

Data Mapping and Flow

Inbound Data Flows

Outbound Data Flows

GAINS Forecast Models

GAINS Forecasting Analysis (Mature, Active Items)

GAINS Portal

Demand Planning – Forecast Review

Replenishment Planning – Vendor Review

Replenishment Planning – Transfer Review

GAINS Inventory Policy Analysis

BEST PRACTICES – Lessons Learned

Set Realistic Goals: Timeline, Service Levels, etc.

Get Business Users involved during implementation process.

Return on Investment – Purchasing

Purchasing Efficiency

1) 4-6 man hours/day

2) 20% reduction in department

Relevant item data on single screen

Prioritized buy list by Vendor or stock transfer by Plant

Flexible procurement settings – Faster issuance of POs/STOs

Return on Investment - Inventory

8-10%Reduction in

Inventory Costs

Demand Planning with

Optimizing Total Annual Cost

Dead/Slow Moving

Inventory Visibility

Vendor and Stock Transfer

buy list in parallel

Return on Investment – Customer Service Level

Purchasing Efficiencies

Inventory Optimization

Customer Service Level % increased from 92% to 99%

KEY LEARNINGS - Summary

20% reduction in staff. Able to manage larger workload in spite of increase in # of Plants. Increased Buyer/Planner efficiency.

Better utilization of dead and slow moving stock via automated Stock Transfer suggestions.

Inventory reduction/optimization – stocking materials based on Total Annual Cost.

Increase Service Levels of A [Stock] items from 92% to 99%. Reduction in material stock outs.

Increased Customer Service Levels =

Customer Satisfaction = Customer Loyalty

STAY INFORMED

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Tom Wailgum: @twailgum

Chris Kanaracus: @chriskanaracus

Craig Powers: @Powers_ASUG

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