supply chain case solution_team aces_nitie

8/10/2019 Supply Chain Case Solution_Team Aces_NITIE

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ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

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Supply Chain Case Challenge

‘Modern TradeOpportunities?’

Team ACESITIE Mumbai

ra Saha - IE17 - [email protected] Chellani - IE111 - [email protected]

hit Assudani - IE51 - [email protected] Premchandani - IE95 - [email protected]




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EXECUTIVE SUMMARYProblem Statement:

To study the existing processes in the supply chain, identify the key issues which are hindering the fill rateperformance of ITC for modern trade and recommend changes in the supply chain strategy/processes so as toachieve a fill rate of > 95%.

Background:

Organized retail is still in the nascent stage in India ( Rs. 14,536 Cr per annum) but it is growing at a commendable13.2% per annum. MT contributes to 21 % (industry average is 9.7 %) of ITC’s “other FMCG” business, but ascompared to last year it has grown at a whopping rate of 35 %. The contribution of premium products in ITC’sMT portfolio is extremely high (>70 % for 8 product lines), but at the same time the MT environment is famousfor frequent price discounts. Hence it is of paramount importance to revisit and redesign the supply chainstrategy to focus on efficiency and responsiveness .

Methodology:

Initially, we have identified the pain areas in the order fulfillment process and their underlying causes, by means

of an Ishikawa diagram , so that these causes can be addressed in a focused manner. Next, we have documentedthe ideal flow of the order fulfillment process, incorporating changes in the as-is process that are immediatelyimplementable. The changes that need time in implementing have also been mentioned. The present orderfulfillment processes involves a lot of ambiguity and have specific “Reason Codes” tagged with them. But theymight not be sharply defined in SAP. So we have suggested a new set of Reason Codes to do away with theambiguities. Implementing this will require IT integration and People Change Management .

In order to reduce our dependency on forecasting, which is not much reliable owing to frequent promotions,we have suggested to shift the Customer Order Decoupling Point from the WSP to the Hub . This will reducethe total safety stock in the supply chain and make it more responsive. Moreover, in order to enable thecustomization of the MT supply chain, we have suggested the code conversion for MT inventory in SAP (at hub).

Stocks will flow to lower nodes as per Allocation Report based on Norms & Penetration Levels. The MT outletshave been categorized into platinum, gold & silver so as to formulate specific service offerings for each type.

In keeping with the strategy of making the supply chain more responsive, we have suggested the shift from Pushbased Distribution Requirement Planning to Pull based Multi Echelon Distribution Planning. This will nullifythe Bullwhip Effect by synchronizing the demand across all echelons. In order to support this strategy further,we have introduced the concept of zonal buffers, which will enable the inventory reduction at the hub.

Last, but not the least, we have suggested the introduction of Automatic Replenishment Process throughimplementation of Vendor Managed Inventory. This will ensure cost benefit through inventory rationalizationowing to better visibility into retailer’s demand and service improvement through better scheduling ofdeliveries .

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Pain Area identification – Root Cause Analysis:

The following issues have been identified in the current operational processes which are hindering thefill-rate performance of ITC Limited for Modern Trade:

Demystifying the fill-rate problem:

80.00%x%

y%

z%

a%

b%c%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Fill Rate No StocksMO - Sales

MO - TechnicalNo Funds

Auto ClosureNot assigned

A

Are No Stocks real NoStocks?

Are these Reason Codessharply defined?

B

B

x%

p%q%

r%

0.00% 5.00% 10.00%

No stocks

Regular SKU's

Discontinued

Promotional

A

*KA – Key Account

ITC’s current fill rate levels for MT are about 80%. But doesthis necessarily mean that for 20% of the times, the stock hasnot reached the retail outlet? There might be other reasonsfor the stock unavailability at the retailer. So, we need totrack these reasons and target them individually.

Reason Codes in SAP - To find out why a difference existed in the flowing line item, reason codes areassigned to these items. Reason codes are indicated by keys that we define in customizing.




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Order fulfillment Process Flow – How it should be:

The issue of driverunavailability can beresolved by use largecapacity trucks with

subsequent milk-runsduring festive seasons

Loading issues that occur mostlydue to inefficient or improper

usage of dock, can be improvedby dock modification i.e. using

protruding dock where 3 truckscan be simultaneously loaded




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Doing Away with ambiguity in Actionables:

Are the Reason Codes in SAP sharply defined for the ITC’s processes? And what are the actions theseReason Codes trigger?

Say, there are ‘X’ billing officers who must be punching at least ‘200X’ orders (assuming every billing officerpunches at least 200 orders in a month) which means there are more than ‘3000X’ lines every month. Forany line that cannot be serviced they have to punch in a reason code. For such an intricate process, most ofthe problems arise because of the lack of right information with billing officers i.e. what to use whenand secondly, the process is time consuming.

How about bringing simple changes with new reason codes. The new reason codes could be clearly definedafter close interaction with the business, order processing team, logistics, planning & IT ; hence thereis an overall buy-in . The new reason codes can be:

The new reason codes might require the following two changes:

Supply Chain Customization for Modern Trade:

Elements of Segmented Supply Chain

Create MT Outlet codes for Platinum & Gold

Set Norms at each of the Nodes Publish Penetration/SOQ status in BPR

Update SAP Masters with New Codes

First time Norm Filling at all Nodes

IT Change

•Reason codes created in SAP•Only available for MT•Field created for PO expiry date•Auto exception report - 24 Hrs. prior PO expiry•BIW report on fill rates with reason codes

People Change

• Deatiled presentation on Reason Codes• Billing officers trained• Business & Supply Chain sensitized on Actionables•Trigger ongoing MIS on Reason Code Report •Better information flow from KAM’s to BillingOffice

*From the sales analysis, it can be founded that X and Y number of MT Retail outlets contribute to 90% of the

business. Hence making a separate code for these Design types would cover 90% of the business.

Issues like Credit Limit of Retailers Reached can be resolved by this method where 15-20% relaxationmay be provided to Platinum MT Retail design types and 5-10% to the Gold Customers .




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Moving Towards a Responsive Supply Chain:

Stocks will flow to lower nodes as per Allocation Reportbased on Norms & Penetration Levels

Plant

SKU gets produced atthe Plant and is booked

in GT Code

At the next node PWH/RWH thesame physical SKU can be

converted to MT Stocks based onNorms. This will be a Code

SKU

GT

MT

Segmented Supply Chain will ensure Stock Availability for MT based on Auto Replenishment

ABC - FSN - XYZ classification of Premium SKUsInventory of slow moving and non-movingproducts pooled at hubs and safety stock isreduced Stock to be maintained at each echelons of thesupply chain for fast moving SKUsPull of products based on TOC replenishmentmodel

A – Premium Products; B – Intermediate Priced; C – Mass SellersF – Fast Moving Products; S – Slow Moving; N – Non-Moving

X – Uniform Demand; Y – Varying Demand; Z – Abnormal DemandAS – Slow Moving Premium; AN – Non-Moving Premium; BN – Non-

Moving Intermediate priced products

SKU classification for setting inventory norms:




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Order Planning & Fulfillment Options:

Network Optimization - Introduction of zonal buffers:

Zone formation and WSP selection for holding buffers to be based on: The same-zone WSPs must belong to the same region with similar Segments Lead Time for delivery among same-zone WSPs Estimated Demand in each WSP and hence the total cumulative demand of the Zone Proximity of Hub from each Zone

Vendor Managed Inventory:

• A WSP can source from only a Hub. In case of a

stock out at WSP, only its HUB can come to rescue.• In case of a stock out at both WSP and its Hub,no stock is available• Stock Outs are thus happening in WSPs whenother WSPs are maintaining high Inventory levels

• A WSP can source not only from a Hub butfrom another WSP belonging to the same Zone• In case of stock non -availability at both WSPand its Hub, stock might still be made availableby transferring from other WSPs with localbuffer

• PUSH based system• Integration of demand forecasts with productionscheduling & balancing stock requirements withplant & supplier capabilities• Prediction of inventory depletion & orderplacement before shortages are expected to occur• Demand distortion from the bullwhip effect as aresult of inaccuracies in forecast • No linkage of safety stock or inventory normsbetween two echelons

• PULL based replenishment with orderfulfilment based on actual sales instead ofindependent demand forecasts in each echelon

• Aims to reduce overall inventory level across thedistribution network on a global scale• Prevents bullwhip effect as a result ofsynchronization of demand across echelons• Order quantity and maximum inventory level ateach echelon determined by the orderreplenishment time and sales at each echelon

Distribution Re uirement Plannin Multi Echelon Distribution Plannin

Current Scenario Future Scenario

Trans-Shi ment

For suppliers VMI is beneficialbecause it mitigates uncertaint y ofdemand

Buyers are attracted because VMIresolves the dilemma ofconflicting performance measures:End-of-month inventory level andcustomer service level

Buyers stock up at the beginningof the month to ensure highlevels of customer service, thenlet inventory drop at the end ofthe month to “meet” their

inventory goals.

supply chain case solution_team aces_nitie

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