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SCM in practice, application to FG distribution

Ilja Heitlager, Director Technology

Responsive Supply Chains

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Before we begin a statement:

Technology is the solution to a problem. To have technology add real value we

must treat root causes not only symptoms.

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What is our problem?

VivaCadena is a strategic software and service provider for companies that see their supply

chain as a strategic asset.

We offer a solution based on the concept of responsive supply chains.

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Agenda

1.Theoretical background

2.The VivaCadena Solution

3.Example

4.Questions

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Traditional supply chains

• Cost driven

• Optimize cost per unit

• Buy in big batches

• Long lead times

• Locally controlled

• Channel stuffing

• Minimum order quantities

• Result: push behavior and effects

1.Theory

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The issue with push behavior

• Lose-lose relationships

– Zero-sum thinking does not lead to value creation.

• Pushing inventory reduces the change of selling it

– A counter intuitive conclusion

• Pushing leads to forecasting

– Despite the efforts forecasting is hard

1.Theory

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Long leadtimes

Increasing leadtime

Variability

Decreasing Accuracy

1.Theory

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Oscillation

Production

Import

WW

W

W

SS

SS S

Import

WW

W

W

SS

SS S 1

4

12

144

LEADTIM

E AND M

OQ UP

OSCILLATIO

N UP

1.Theory

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Theory of Constraints

• Intra and inter company activities is a chain of operations

• “Chain is a strong as its weakest link”

• Lesson learned from production: High utilization (low costs) leads to WIP every were and traffic jam like effects

• Look at a system as a whole, no local optima

• Only optimize/exploit the weakest link

• Synchronize complete supply chain

2.Solution

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The VivaCadena solution

1.Eliminate oscillationLess batching and moq’s

2.Reduce lead timesFrequent ordering

3.Aggregate inventoryUse replenishment

4.Dynamic buffer management

5.Integrated measurements

2.Solution

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Dynamic buffer management

• Forecasting is hard

• Reducing lead times, elimination of oscillation reduces the need for forecasting

• Replenishment requires to continues evaluation of all stock positions

• Answer is to use dynamic buffer management

2.Solution

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DBM 2

Unacceptable risk of loosing sales ->

increase

Too much -> decreaseDBM looks at actual inventory fluctuations

2.Solution

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DBM simplifies evaluation

• DBM controls ideal stock levels for all inventory positions

• Two checks left

– Either we did something we should not do -> overstocked

– Either we did not something we should do -> understocked

2.Solution

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Metrics

• We can build metrics

• Inventory Value Days (IVD) =

days of overstock * value overstocked

• Throughput Value Days (TVD) =

days of understock * value understocked

• Exposure Value Days (TVD) =

days of zerostock * value

2.Solution

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Measurements?

Throughput-Operational expenses

• ROI = ----------------------------------------

Inventory

• ROI up means Throughput up, Inventory down, OE down

• Throughput up -> TVD/EVD down

• Inventory down -> IVD down

• OE down = this is a tactical decision

2.Solution

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IVD and TVD?

• IVD and TVD can be calculated per inventory position.

• These are absolute values which can be added.

• Operational metrics which lead to action

• Able to prioritize on all levels (product, store)

• Highest TVD/EVD and IVD are first to resolve

• Compare: what action to take of you know you have 98.5% service level?

2.Solution

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QUESTIONS?

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Example: Fashion Retailer

DCStores

VC - FrequentReplenishmentLT = 3 days

Manufactoring

Far east One time deliveryLT = 6~12 mths

Due to >>LTInventory is finite

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Organisation

Design

Planner

Trader

Manufactoring

DC

Warehouse

Stores

These people workwith VivaCadena

Sales

3.Example

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System architecture

RMSMerch Sys.

RDWI2

VC

msg load dbBusiness

logic

Reporting

reportsVC-Arch.

Preseasonupstream

In seasonDownstream

POS

3.Example

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QUESTIONS?

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Address

Website

E-mail

Telephone

Fax

VivaCadena bv

• Maanlander 37

• P.O. Box 2771NL-3800 GJ AmersfoortThe Netherlands

• www.vivacadena.com

• info@vivacadena.com

• +31 (0)33 450 8290

• +31 (0)20 450 8295

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