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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
Telephone
Fax
VivaCadena bv
• Maanlander 37
• P.O. Box 2771NL-3800 GJ AmersfoortThe Netherlands
• www.vivacadena.com
• +31 (0)33 450 8290
• +31 (0)20 450 8295
Contact usContact us