Supply Chain Synchronisation

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Extracting value through supply chain synchronisation<

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Supply Chain Synchronisation

  1. 1. Synchronisation
  2. 2. What’s happening in the UK drinks industry? <ul><li>Market trends and factors: </li></ul><ul><li>Beer consumption declining slowly (1% pa) </li></ul><ul><li>Shift from pubs to home consumption (on to off trade) </li></ul><ul><ul><li>Last year: 3% reduction in on-trade volumes offset by 2% growth in off trade </li></ul></ul><ul><ul><li>Margins smaller in off trade </li></ul></ul><ul><ul><li>Supermarket buyers - no brand loyalty - squeezing margins </li></ul></ul><ul><li>Shift from pints to PPLs eg Miller, Bud </li></ul><ul><li>Emergence of ‘Pub Groups’, like the Supermarkets, squeezing margin </li></ul><ul><li>Pub chains ‘doing’ supply chain management </li></ul><ul><li>Sector is a laggard in service performance </li></ul>
  3. 3. Typical supply chain- the ring of stock <ul><li>Supply chain diagnostic: </li></ul><ul><li>Too much stock, in the wrong place </li></ul><ul><li>Expensive, poor quality supply chain </li></ul><ul><li>Arcane working practices </li></ul><ul><li>No central visibility or control </li></ul>Pub Pub Pub Pub Pub Pub Fully stocked depot Brewery
  4. 4. More advanced supply chain Brewery Pub Pub Pub Pub Pub Pub RDC Stockless depot <ul><li>Features: </li></ul><ul><li>Lower stock levels held further up supply chain </li></ul><ul><li>Central control of inventory and service </li></ul><ul><li>Short response times </li></ul><ul><li>Smaller total asset base </li></ul>Stock
  5. 5. Advantages of stockholding hubs <ul><li>Move stock buffer further up supply chain, from a local to regional level </li></ul><ul><li>Bring real demand closer to manufacturing </li></ul><ul><li>Strip out unnecessary network costs due to demand distortion </li></ul><ul><li>However, </li></ul><ul><li>Maintaining service requires a synchronised supply chain </li></ul>
  6. 6. What is synchronisation? <ul><li>In principle; moving the supply chain from “push” to “pull”, creating a make to order supply chain </li></ul><ul><li>In practice; making today what was sold yesterday, or </li></ul><ul><ul><li>brew to forecast, package to sales : </li></ul></ul><ul><li>Pre-Requisites include </li></ul><ul><ul><li>a daily supply chain planning cycle </li></ul></ul><ul><ul><li>removing internal sources of ‘demand distortion’ </li></ul></ul>
  7. 7. Getting Production closer to Sales <ul><li>Synchronisation is a technique that couples final production and distribution to customer sales. </li></ul>Sales Sales Supply chain driven by manufacturing push Manufacturing synchronised to sales 0 10 20 30 40 50 60 70 80 90 100 1 2 3 4 5 6 Stocks 0 10 20 30 40 50 60 70 80 90 100 1 2 3 4 5 6 0 10 20 30 40 50 60 70 80 90 100 1 2 3 4 5 6
  8. 8. Moving the ‘De-Coupling’ Point De-coupling point Packaging Filtration Brewing and Fermentation De-coupling point Forecast drives most supply chain activities Forecast drives brewing and fermentation Filtration, packaging and replenishment driven by real customer demand Customer demand Replenishment Stock in Depot Cold Condit -ioning Bright Beer
  9. 9. Internal Demand Distortion <ul><li>Factors distorting demand, preventing synchronisation include : </li></ul><ul><ul><li>Sub-optimal supply chain planning by sequential process owners </li></ul></ul><ul><ul><li>Lack of trust </li></ul></ul><ul><ul><li>Conformance to plan </li></ul></ul><ul><ul><li>Manufacturing and packaging batch sizes </li></ul></ul>2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 LBA Sales Depot. Order DRP Production Packaging Functions No of kegs Week 8 Week 7 Week 6 Week 5 Week 4
  10. 10. Required changes to planning cycle <ul><li>Weekly Planning Cycle- eg Brewing </li></ul>Plan Stock Replenish stock Plan Stock Replenish stock <ul><li>Daily Planning Cycle (Assumes 48 hr order leadtime)- eg network DRP </li></ul>Reaction time to forecast changes drops 10 to 3 working days M T W T F M T W T F M T W T F M T W T F
  11. 11. The impact of Synchronisation - Triple play charts for Cans 1 5 9 13 17 21 25 29 33 37 41 45 49 0 50 100 150 200 250 300 350 Thousands Cases Production Stock Sales Group canning Total group cans - Actual picture 1 5 9 13 17 21 25 29 33 37 41 45 49 0 50 100 150 200 250 300 350 Thousands Cases Production Stock Sales Group canning Total group cans - Synchronisation
  12. 12. Impact on Supply Chain & Stock Deployed <ul><li>Synchronisation facilitates a change in stock deployment strategy : </li></ul><ul><li>Provides large reduction in cycle stock of major products. </li></ul><ul><li>The requirement to hold safety stock against forecast error reduces by moving stock further up the supply chain- eg: </li></ul><ul><ul><li>Forecast error by SKU at depot = 20%+ </li></ul></ul><ul><ul><li>Forecast error by SKU by region = 3-6% </li></ul></ul><ul><ul><li>Forecast error by liquid level (national) = 0.5-3.0% </li></ul></ul><ul><li>It also requires an integrated approach to planning across supply chain functions </li></ul><ul><ul><li>End to end visibility of capacity and demand </li></ul></ul><ul><ul><li>Establishing a consistent planning drumbeat throughout the supply chain </li></ul></ul>
  13. 13. Setting up demand based production templates Flexibility to adjust ‘A’ product volumes on daily pack frequency gives large-scale finished goods stock reductions Minor products will be ‘ packed to liquid’ to reduce CCT storage requirement. Product Type Make Planning Class Frequency Flexibility A Keg Daily Daily volumes varied in line with sales. Higher WIP stocks provide reactivity B + C Keg Bi-weekly or Volumes adjusted in line weekly with sales, but within fixed sequence A Bottle Bi-weekly or Volumes varied in line with weekly sales. Higher WIP stocks provide planning flexibility B + C Bottle Fortnightly/monthly Volumes adjusted at SKU fixed cycle. SKUs level, but restricted to grouped on plan by ‘liquid group’ batch size. Common liquid Fixed cycle and liquid batch restrictions apply What might this mean across the portfolio ?
  14. 14. Setting up the demand based production templates: example <ul><li>Example synchronised planning rules </li></ul><ul><ul><li>A’s : 81% : Avg volume over 10,000 Hls per week : Daily </li></ul></ul><ul><ul><li>B’s : 7% : 5,000 - 10,000 Hls per week : Twice per week </li></ul></ul><ul><ul><li>C’s : 12% : Less than 5,000 Hls per week : Every week </li></ul></ul>
  15. 15. The imperative to trial <ul><li>It is essential to trial synchronisation prior to making any major process changes to demonstrate: </li></ul><ul><li>Synchronisation principles in practice- this fosters confidence </li></ul><ul><li>Significant stock reduction of a limited product range by </li></ul><ul><ul><li>removing internal demand distortion </li></ul></ul><ul><ul><li>using the synchronisation template in daily planning </li></ul></ul><ul><li>Weak links in the current supply chain, for example </li></ul><ul><ul><li>linkage between distribution, production and material plans </li></ul></ul><ul><ul><li>flexibility to changes in forecast </li></ul></ul><ul><ul><li>production conformance to plan reliability </li></ul></ul><ul><ul><li>forecast accuracy </li></ul></ul><ul><li>Lessons learned from trials are of vital importance when rolling out synchronisation </li></ul>
  16. 16. Stock reduction trial <ul><li>Synchronisation trials showed stock reduction was possible….. </li></ul><ul><li>...but the trials required: </li></ul><ul><li>consistent data integrity across several systems </li></ul><ul><li>synchronised manufacturing and network operations </li></ul><ul><li>significant planning input to manage </li></ul>Data from actual trial 10/02 11/02 14/02 15/02 16/02 17/02 18/02 21/02 22/02 23/02 24/02 25/02 28/02 29/02 01/03 02/03 03/03 06/03 07/03 08/03 09/03 10/03 13/03 14/03 15/03 16/03 17/03 20/03 21/03 22/03 23/03 24/03 0 500 1,000 1,500 Units Stock Orders in hand Free Stock Start of trial
  17. 17. Systems support for integrated planning <ul><li>In this case, trials demonstrated that synchronisation principles worked in practice, however: </li></ul><ul><ul><li>Using current systems these trials are very resource hungry </li></ul></ul><ul><ul><li>Managing data across functional boundaries required an integrated system </li></ul></ul><ul><li>The key business requirements of the integrated supply chain system were defined... </li></ul><ul><ul><li>Global visibility of stock and orders </li></ul></ul><ul><ul><li>Single set of numbers </li></ul></ul><ul><ul><li>Automation of highly labour intensive planning process </li></ul></ul><ul><ul><li>Stock management from maturation vessels to secondary depots </li></ul></ul><ul><ul><li>Returns management </li></ul></ul>
  18. 18. Supply chain systems to support synchronisation <ul><li>The benefits of synchronisation are enabled by an APS system to support integrated supply chain planning interfaces to the existing IT landsacpe </li></ul>Customers Brewery Scheduling System TMS Primary WMS Synchronisation Physical Supply Chain Transactional data fed to ERP systems Brewing Packaging Finished Goods Storage Network Replenishment Secondary Distribution Advanced Planning and Scheduling system Suppliers MRP TMS Sec’y Cold Conditioning Demand capture fed from ERP systems
  19. 19. Summary of planning process One single supply chain plan in multiple time buckets… Plan to Forecast Respond to Orders <ul><li>Packaging schedule </li></ul><ul><li>0-48hours </li></ul><ul><li>by hour </li></ul><ul><li>by SKU </li></ul><ul><li>by line </li></ul><ul><li>volumes synchronised to orders </li></ul><ul><li>Constrained capacity horizon </li></ul><ul><li>3-28 days </li></ul><ul><li>by day </li></ul><ul><li>by SKU </li></ul><ul><li>by line </li></ul><ul><li>synchronisation template applied </li></ul><ul><li>activity driven by forecast </li></ul><ul><li>Rough cut horizon </li></ul><ul><li>5-13 weeks </li></ul><ul><li>by week </li></ul><ul><li>by pack type & size </li></ul><ul><li>by liquid type </li></ul><ul><li>by line </li></ul><ul><li>synchronisation template applied </li></ul><ul><li>task smoothed against capacity </li></ul><ul><li>IBM Horizon </li></ul><ul><li>4-24 months (or 2 FY ends) </li></ul><ul><li>by period </li></ul><ul><li>by volume </li></ul><ul><li>by liquid type </li></ul><ul><li>by pack type & size </li></ul><ul><li>by line </li></ul><ul><li>constrained only by major resource </li></ul>0 28d 13w 2xFY end 48h <ul><li>Brewing </li></ul><ul><li>Materials procurement </li></ul><ul><li>Capacity planning </li></ul><ul><li>Synchronised packaging </li></ul><ul><li>Depot replenishment </li></ul><ul><li>Availability to promise </li></ul>
  20. 20. Conclusion <ul><li>Synchronisation is a key enabler of a low cost, responsive supply chain…. </li></ul><ul><li>… it delivers benefits beyond inventory savings </li></ul><ul><li>... it is easy to understand and trial (relatively!) </li></ul><ul><li>… it delivers early financial benefits </li></ul>

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