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Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
Theory of Constraints Implementation in FMCG Industry : A Case Study
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Theory of Constraints Implementation in FMCG Industry : A Case Study

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An insightful presentation by VCG focusing on the 'Theory of Constraints’ philosophy to leverage the potential in its target industry clusters.

An insightful presentation by VCG focusing on the 'Theory of Constraints’ philosophy to leverage the potential in its target industry clusters.

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  • 1. LEVERAGINGTHE POTENTIALVCG employs the Theory of Constraints’ philosophy to bring about quantumjump in performance of organizations in its target industry clusters. Automobile & Consumer Retail Engineering Equipment Auto Components Goods & Construction Manufacturing www.vectorconsulting.in
  • 2. TOC SolutionsFor performance improvements in the downstream supply chain- a case study of FMCG firm202, Orion Business Park, Kapurwadi Naka, Phone: +91 22 2589 5896 Email: vcg@vectorconsulting.inGhodbunder Road, Thane (West) – 400601 Fax: +91 22 2589 5897 Web: www.vectorconsulting.in 2
  • 3. 01. The Case Study Firm’s Overview 02. Downstream supply chain and sales force 03. Shortages & Surpluses: Causes & Impacts 04. Theory of Constraints 05. TOC Project Schedule 06. Opportunity for reducing Shortages & Surpluses 07. Stock Buffers with Uncertainty and variabilityAgenda 3
  • 4. The Case Study Firm - Key Facts Sells & • Household insecticides The Firm • Shoe care products Distributes • Male hair care products Market Position Market Leader in India Downstream House CFA : 31 Supply Chain Members Distributors : 980 Sales Force Sales Officers : 470 Members Salesmen : 1698 ©2012 Vector Consulting Group. All Rights Reserved. 03
  • 5. Focus Area - Downstream Supply Chain FOCUS AREAUpstream Supply Chain Downstream Supply Chain Salesmen Sales Officer Supplier Intermediaries Firm Distributors RetailersBuy-Side Supply Chain Sell-Side Supply Chain Inbound Logistics Applications Outbound Logistics Applications ©2012 Vector Consulting Group. All Rights Reserved. 04
  • 6. Shortages & Surpluses: Impacts Impact on the Firm Shortages • 1% Lost Sales = 10% reduction in The shortages were found to be common Profits (due to shortages) in firm’s downstream supply chain • 1% Discount in Price = 20% reduction in Profits (due to surpluses) Impact on the Distributors Impact of Shortages • Lost Sales, reduction in Profits and and Surpluses reduction in ROI (due to shortages) • Volume discounts, undercutting leading to reduction in Profits (due to surpluses) Impact on the Sales Force Surpluses The surpluses were also • Lost orders, reduction in PC, TLSD and found to be common in firm’s value achievements (due to shortages) downstream supply chain • Volume discounts, undercutting leading to problems of market hygiene (due to surpluses) Impact on RetailersThese impacts determine not only the success • Loss of sales, loss of loyalty, less ROIof retailer, but also the success of the • Shelf Space constraints, highdistributor, firm and the firm’s sales force investment, less ROIperformance. ©2012 Vector Consulting Group. All Rights Reserved. 05
  • 7. Cause(s) of Shortages and Surpluses Stock Level based Order LT Surpluses on customers ordering large 100 Supply batches typically LT monthly (based on inaccurate F/Cast) ROP Actual Demand 25 Stock Level based on customers ordering daily or Order Month Month Month weekly based on LT 01 02 03 with actual Supply Shortages consumption LT Yes, BUT… the Cause and Solution hasThe KEY to achieve “profitable availability of more SKU’s” is to get been known for long time, so why don’teach link to ORDER LESS MORE FREQUENTLY (START)… rather than we see MORE Supply Chains adoptingthe traditional practice of ORDER MORE, LESS FREQUENTLY (STOP) this… especially FMCG Industry ©2012 Vector Consulting Group. All Rights Reserved. 06
  • 8. TOC’s 3 Focusing StepsStep 01 Step 02 Step 03IDENTIFY the Decide how to EXPLOIT the SUBORDINATESystem’s System’s Constraint everything toConstraint the above “Exploiting the System Constraint” means decisionAs per Dr. “Having the Right SKU, at the right placeGoldratt, “Until the (in the downstream supply chain) and right Change anyconsumer has time (when consumer is willing to buy). Policy, Measuremenbought, nobody has t and or Behaviorreally sold… that contribute to What conditions block better exploitation? current high level of The System • Shortages of Products already stocked Constraint found by the downstream supply chain both Shortages and is in market members Surpluses demand or the No. of Consumers • Unavailability of Products that sell willing to buy elsewhere but which is not stocked due to shelf-space constraints (occupied by Surpluses).YES! BUT, how to find these and will it really be a win:win to change these… ©2012 Vector Consulting Group. All Rights Reserved. 07
  • 9. TOC Project Schedule Month / Activity 1 2 3 4 5 6Project kick Off: Call to share real damage& extent of Surpluses & ShortagesTOC Evaluation: Share generic TOC analysis& solution to shortages & surplusesSimulation: Develop simulation to validatedamage of PUSH and benefits of PULLCustomized S&T: Construct customizedS&T and plan TestTest: Test impact of “Less moreFrequently” with 100 Test retail outletsin various beatsAnalyze Test Results: Analyze Test Resultsfor 100Test vs. Control Shops and agreeon next steps ©2012 Vector Consulting Group. All Rights Reserved. 08
  • 10. Reducing Shortages & Surpluses using DSR Beat cards Max Min Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Day 11 Day 12 Day 13 Day 14Name Daily Order Sales Qty. OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH SoldSKU1 15 10 45 4 41 13 28 8 20 0 20 4 16 8 8 8 37 14 23 7 16 2 14 6 8 9 -1 -1 0 0SKU2 12 10 40 2 38 5 33 6 27 6 21 2 19 1 18 5 35 7 28 2 26 6 20 6 14 6 8 7 1 5SKU3 8 5 30 2 28 3 25 2 23 3 20 1 19 3 16 6 24 4 20 3 17 4 13 5 8 1 7 3 4 4SKU4 6 5 25 1 24 1 23 3 20 3 17 2 15 1 14 3 22 2 20 1 19 4 15 3 12 2 10 3 7 3SKU5 6 6 25 2 23 2 21 3 18 3 15 2 13 3 10 2 23 1 22 2 20 2 18 4 14 3 11 1 10 1SKU6 5 5 10 2 8 2 6 2 4 2 2 2 0 1 -1 3 7 4 3 3 0 2 -2 0 -2 2 -4 1 -5 1SKU7 5 5 10 1 9 0 9 2 7 2 5 1 4 2 2 3 7 4 3 2 1 2 -1 2 -3 3 -6 2 -8 1SKU8 4 3 10 0 10 0 10 2 8 3 5 0 5 0 5 1 9 1 8 1 7 2 5 2 3 2 1 2 -1 2SKU9 3 3 5 0 5 1 4 2 2 1 1 2 -1 1 -2 1 4 2 2 1 1 1 0 1 -1 1 -2 1 -3 1SKU10 3 3 5 0 5 1 4 1 3 1 2 1 1 0 1 2 3 0 3 1 2 2 0 0 0 2 -2 1 -3 1SKU11 3 3 5 1 4 1 3 1 2 1 1 2 -1 1 -2 1 4 1 3 1 2 0 2 2 0 1 -1 2 -3 1SKU12 2 3 5 1 4 1 3 1 2 0 2 0 2 0 2 1 4 1 3 1 2 0 2 1 1 1 0 0 0 1SKU13 2 3 3 1 2 1 1 1 0 1 -1 1 -2 0 -2 1 2 1 1 1 0 1 -1 1 -2 0 -2 0 -2 0SKU14 2 2 3 0 3 0 3 1 2 1 1 1 0 0 0 0 3 0 3 1 2 0 2 1 1 1 0 1 -1 1SKU15 1 1 2 0 2 0 2 0 2 0 2 1 1 1 0 0 2 0 2 0 2 1 1 0 1 0 1 0 1 0SKU16 1 1 2 1 1 0 1 0 1 0 1 0 1 1 0 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0SKU17 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 1 -1 0SKU18 1 1 1 0 1 1 0 0 0 0 0 1 -1 0 -1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0SKU19 1 1 1 0 1 1 0 0 -1 0 -1 0 -1 1 -2 0 1 0 1 0 1 0 1 1 0 0 0 0 0 0SKU20 1 1 1 0 1 0 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1SKU21 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1 -1 0SKU22 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 0 0 0 0 0 0 1 -1 0SKU23 1 1 1 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 1 -1 1 -2 0 -2 0 SKU25 1 1 1 1 0 0 0 0 0 0 0 1 -1 0 -1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1SUM 234 19 215 34 181 36 145 27 118 24 94 24 70 37 197 44 153 27 126 29 97 37 60 38 22 27 -5 24 ©2012 Vector Consulting Group. All Rights Reserved. 09
  • 11. Sizing Buffers: for Uncertainty/Demand & Supply variabilityPlanning Rule: “Be Paranoid but not Hysterical” Too little Too muchTarget Stock Level for each SKU at each Stocking point =Maximum Demand within Reliable Replenishment Time Good Goal Units EnoughExecution Rules: Replenish up to Target level insequence of buffer status more frequently (e.g. daily)Feedback Rules: Adjust Target Level (Buffer Size) basedon Level of Buffer Penetration Time / Stock Buffer Auto Downsize Buffer Auto Upsize Buffer based on based on lack of Yellow400 level of Red-zone penetration zone penetration300200100 Actual Demand Month Month Month Month Month Month 01 02 03 04 05 06 ©2012 Vector Consulting Group. All Rights Reserved. 10
  • 12. Impact on Shortages Test Shop - Before Vs After Inventory InventoryName 12 19 26 02 09 16 23 30 06 13 20 27 03 12 19 26 02 09 16 23 30 06 13 20 27 03 Oct Oct Oct Nov Nov Oct Nov Nov Dec Dec Dec Dec Jan Oct Oct Oct Nov Nov Oct Nov Nov Dec Dec Dec Dec JanSKU1 41 28 20 20 16 8 37 23 16 14 8 -1 0 13 14 17 15 16 8 18 18 12 14 12 14 18SKU2 38 33 27 21 19 18 35 28 26 20 14 8 1 22 13 17 21 19 18 15 18 23 20 14 16 14SKU3 28 25 23 20 19 16 24 20 17 13 8 7 4 18 21 21 20 19 16 24 20 17 13 18 17 18SKU4 24 23 20 17 15 14 22 20 19 15 12 10 7 17 23 20 17 15 14 22 20 19 15 12 10 17SKU5 23 21 18 15 13 10 23 22 20 18 14 11 10 23 21 18 15 13 10 23 22 20 18 14 11 10SKU6 8 6 4 2 0 -1 7 3 0 -2 -2 -4 -5 8 6 4 8 8 7 7 8 7 8 9 8 7SKU7 9 9 7 5 4 2 7 3 1 -1 -3 -6 -8 16 12 9 15 12 14 13 11 9 10 11 12 11SKU8 10 10 8 5 5 5 9 8 7 5 3 1 -1 10 10 8 15 5 5 9 8 7 5 3 1 6SKU9 5 4 2 1 -1 -2 4 2 1 0 -1 -2 -3 15 14 12 16 7 8 4 2 1 4 8 6 4SKU10 5 4 3 2 1 1 3 3 2 0 0 -2 -3 15 4 3 2 1 1 3 3 2 3 4 4 3SKU11 4 3 2 1 -1 -2 4 3 2 2 0 -1 -3 4 3 2 1 3 4 4 3 2 2 4 5 5SKU12 4 3 2 2 2 2 4 3 2 2 1 0 0 4 3 2 2 2 2 4 3 2 2 1 3 4SKU13 2 1 0 -1 -2 -2 2 1 0 -1 -2 -2 -2 2 3 4 6 6 4 2 1 4 5 4 4 3SKU14 3 3 2 1 0 0 3 3 2 2 1 0 -1 3 3 2 1 5 4 3 3 2 2 1 4 3SKU15 2 2 2 2 1 0 2 2 2 1 1 1 1 2 2 2 2 1 5 2 2 2 1 1 1 1SKU16 1 1 1 1 1 0 2 2 2 2 2 2 2 1 1 1 1 1 4 2 2 2 2 2 2 2SKU17 1 1 1 1 1 1 1 1 1 1 1 0 -1 1 1 1 1 1 1 1 1 1 1 1 4 4SKU18 1 0 0 0 -1 -1 1 1 1 1 1 1 1 1 4 5 3 5 6 7 8 4 6 7 1 1SKU19 1 0 -1 -1 -1 -2 1 1 1 1 0 0 0 1 4 3 4 3 5 4 3 2 5 5 6 8SKU20 1 1 1 1 1 1 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 1 1 1 4 4SKU21 1 1 1 1 1 1 1 1 1 1 0 0 -1 1 1 1 1 1 1 1 1 1 1 5 5 5SKU22 1 1 1 1 1 1 1 0 0 0 0 0 -1 1 1 1 1 1 1 1 3 4 4 4 3 4SKU23 1 0 0 0 0 0 1 0 0 0 -1 -2 -2 1 4 4 3 4 3 3 5 6 3 5 4 6SKU24 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 4 1 1 1 1 4SKU25 0 0 0 0 -1 -1 1 1 1 1 1 0 0 3 4 3 4 3 3 1 1 1 1 1 4 5 BEFORE AFTER ©2012 Vector Consulting Group. All Rights Reserved. 11
  • 13. :) Thank You ©2012 Vector Consulting Group. All Rights Reserved.

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