PACKING MATERIAL AVAILABILITY IMPROVEMENTS
08 SUPPLY PLANNING CASE STUDY
Packaging Material Availability Improvements for a Leading Contract Manufacturer
A leading contract manufacturer of Healthcare Products in the U.K. employed Orchestr8 to assess their problem of not having the correct packaging material available to service their customer’s demands despite having an increasing level of packaging inventory.
The assessment identified the following issues:
- Poor customer demand management
- Instable internal manufacturing plan
- Strained supplier relationships
- Lack of inventory holding policies and strategies
- Warehouse congestion
- Independent planning process
- Poor internal communications
Orchestr8 proposed the following solutions:
- Implement a collaborative Sales and Operations Planning process between the manufacturer and their customers
- Adopt a manufacturing strategy based on true customer requirements rather than forecasted requirements
- Understand supplier capabilities and explore process improvements with them
- Align inventory holding policies to customer service agreements and suppliers capabilities
- Define a warehousing strategy which supports the inventory holding policies
- Develop a standard planning process with automation where possible
- Encourage collaboration between all stakeholders throughout the products life cycle
The key stakeholders at the manufacturer accepted many of the issues, however had an immediate requirement to reduce packaging inventory and improve material availability therefore the assessment resulted in a pilot exercise where Orchestr8 where tasked with addressing this immediate requirement.
A cross section of suppliers, which accounted for 35% of packaging material, were identified- this included manufacturers of containers (bottles, jars and tubes), closures and cardboard packaging.
The main objectives of the pilot were to:
- Increase supplier demand/schedule stability
- Reduce inventory on hand and increase turns
- Increase internal material availability
- Define a process that could be adopted by the existing planning department
The approach that was taken was one whereby Orchestr8 would adopt the planning role for the ‘active’ items supplied by this group of suppliers.
Orchestr8 were empowered to define the processes to be used and embed them with the suppliers until such a point where the processes would be transitioned back into the control of the manufacturer. This provided Orchestr8 with the opportunity to utilise their standard methodologies and toolkit and to define and refine the process to ensure that the benefits would be sustainable when handed back.
To achieve this, Orchestr8 implemented a strategy which included a Sales and Operations Planning process to not only collate the future customer requirements but to help implement a process of collaboration between all parties; the customer, the manufacturer and the suppliers, in an attempt to understand how the previous plan had fared and to help identify potential future obstacles- forward contingency planning.
This information was imported into Orchestr8’s proprietary inventory management software– Oper8. This allowed them to analyse the behaviour of each item and identify the best stocking policy for each SKU.
The immediate benefits of this process is one where by understanding this level of detail, a policy of whether to stock an item or not can be made with confidence – i.e. a frequently used component with an ongoing future requirement can be stocked to ensure availability when required, and an infrequently used item can be requested from the supplier when required.
This level of analysis was shared with the supply base in order that they would have an appreciation of what’s expected of them over the forthcoming weeks. The sharing of this information helped build up the suppliers’ confidence in the plan and through time would lead to open discussions with regards to lead-time and batch size amendments.
The process of conditioning the supply chain and defining the inventory policies for all items became a monthly activity. This then left the daily execution process as one where the system would assess the inventory available in stock, compare it to what was on order and then recommend the replenishment order quantity to maintain each items individual stocking policy. This process is an automated one therefore eliminating the non-value adding activities often associated with inventory planning, thus allowing the ‘planner’ to focus on more important activities such as product life cycle and promotions management.
Also, given that the supply chain had been conditioned with the planning parameters being reviewed on a monthly basis, their dependency of their EPR software’s MRP function (Materials Requirements Planning) reduced. This point alone reduced the amount of ‘order maintenance’ which ultimately led to supplier schedule stability, and by satisfying this criteria, resulted in further confidence in the plan resulting in more favourable lead-times and minimum order quantities being offered by the supply base.
The results for those items under O8 control satisfied the criteria defined for the pilot, the table below shows some of the high level results where the benefits were realised.
|Improvement||Financial / Operational Benefit|
|Inventory Turns had risen from 4 to 7.6 in 16 months for external purchases||£1million / Correct order – demand balance|
|Inventory reduced by 50% for on site-produced packaging||Production synchronised with demand|
|Obsolescence reduced by 15%||£600k / Closer linkage with order quantity and demand|
|Supplier schedule stability increased to 97% (For every 100 orders raised only 3 are amended)||Reduced stress on the supplier relationship, urgencies can now be managed.|
|Pallet space savings of 3,000||Closer coupling of supply to demand, potential to lower inventory benefit|
|Average lead times reduced by 5 days||£1million / Correct order – demand balance|
|Minimum order quantities remained static but call off quantities reduced||Suppliers are protecting their MOQ but are willing to deliver in smaller batches.|
Further to this, there have been other benefits gained:
- The implementation of a standard planning and execution process
- Consistent signals and messages are exchanged by all parties
- A proactive approach to potential demand spikes promoted through questioning and collaboration
- Reduced daily work load as a result of the monthly conditioning process
- Recognition that there are alternative ways of operating
- Staff motivation through positive results and a sense of being involved in something beneficial
The Next Steps
Performing the initial process control from an external source proved to be very effective during the pilot. Orchestr8 staff were fully aware of what the pilot was trying to achieve and they added stability and a questioning voice to the process. The experiences gained, equipped them to train by example and demonstrate the methods used to deliver visible measurable benefits when transferring the operation back to the client as a proven working solution.
Given that the initial project was focused on a subset of packaging suppliers, the task of transferring the management of these back to the client would mean that all 400+ suppliers would have to be managed through the Oper8 systems to continue building on the benefits of having one standard planning process. It was agreed that this would be a two stage process; stage 1, would be a partial implementation into the Orchestr8 process where all daily planning would be conducted within Oper8, and stage 2, where key suppliers would then be transferred into the full Orchestr8 process which included ‘ monthly conditioning’.
As the client adopted the initial pilot and stage 1 suppliers, Orchestr8 supported and attended all stage 2 transition meetings, a process which is still ongoing.
An additional outcome of the pilot was the awakening to the fact that by focussing on understanding the true demand signals within the business, the client has achieved their goals of supplying a more stable demand signal further down the chain to their supply base, which in turn promoted more stability and flexibility within their own manufacturing site. Given this it was therefore agreed to then take the project one step further and apply the Orchestr8 approach to their manufacturing plant.
This resulted in another successful pilot where the production of plastic bottles (blow moulded and extrusion) was improved with a significant reduction in inventory (c. 2m units) with a leadtime reduction from 4 weeks to 1 week – this being achievable not only by the conditioning process, but with Orchestr8’s unique capacity planning toolkit contained within Oper8. Production change overs also declined and no internal service issues were experienced. This has now rolled out to all work centres within this facility.
Armed with all of this evidence and a desire to improve their business, the client has now enlisted the support of Orchestr8 to implement their unique approach within their main production facility. As with the bottles, this was piloted using one work centre with multiple production lines and with on hand inventory reducing, service levels being maintained, if not improved, and collaboration between all parties is helping to build strong working partnerships, Orchestr8 are now rolling the approach out to all production work centres within the facility which will in turn increase the internal benefits beyond the £5 million already realised.
The implementation described above has been a joint effort with the planning team and the purchasing team who together helped some of the suppliers through the early transitional stages and contributed to the success of the project.
The case study also illustrates the benefits that can be realised by taking a non-traditional view of your supply chain and making every effort to connect all the links.
Simple solutions are the most effective and the “one solution fits all approach” is the wrong approach, that’s why Orchestr8 have developed their solution to include a toolkit and support structure which allows you to focus on the complex parts of your business and eliminate the non-value adding activities which many organisation seem to focus on.
The Orchestr8 Approach:
If you can relate to the issues mentioned here and are looking for a method to solve them contact us and let us explain more about what we do.