Synchronisation

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What’s happening in the UK drinks industry?

Market trends and factors:

❑ Beer consumption declining slowly (1% pa)

❑ Shift from pubs to home consumption (on to off trade)

Last year: 3% reduction in on-trade volumes offset by 2% growth in off trade

Margins smaller in off trade

Supermarket buyers - no brand loyalty - squeezing margins

❑ Shift from pints to PPLs eg Miller, Bud

❑ Emergence of ‘Pub Groups’, like the Supermarkets, squeezing margin

❑ Pub chains ‘doing’ supply chain management

❑ Sector is a laggard in service performance

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Typical supply chain- the ring of stock

Supply chain diagnostic:❑ Too much stock, in the wrong place❑ Expensive, poor quality supply chain❑ Arcane working practices❑ No central visibility or control

Pub

Pub

Pub

Pub

PubPub

Fully stocked depotBrewery

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More advanced supply chain

Brewery

Pub

Pub

Pub

Pub

PubPub

RDC Stockless depot

Features:❑ Lower stock levels held further up supply chain❑ Central control of inventory and service❑ Short response times❑ Smaller total asset base

Stock

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Advantages of stockholding hubs

❑ Move stock buffer further up supply chain, from a local to regional level

❑ Bring real demand closer to manufacturing

❑ Strip out unnecessary network costs due to demand distortion

However,

Maintaining service requires a synchronised supply chain

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What is synchronisation?

❑ In principle; moving the supply chain from “push” to “pull”, creating a make to order supply chain

❑ In practice; making today what was sold yesterday, or

brew to forecast, package to sales :

❑ Pre-Requisites include

a daily supply chain planning cycle

removing internal sources of ‘demand distortion’

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Getting Production closer to Sales

❑ Synchronisation is a technique that couples final production and distribution to customer sales.

Supply chain driven by manufacturing push

Manufacturing synchronised to sales

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Moving the ‘De-Coupling’ Point

De-coupling point

PackagingFiltration

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

ColdCondit -ioning

BrightBeer

Replenishment Stock in Depot

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Internal Demand Distortion

❑ Factors distorting demand, preventing synchronisation include :

Sub-optimal supply chain planning by sequential process owners

Lack of trust

Conformance to plan

Manufacturing and packaging batch sizes

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LBA Sales Depot. Order DRP Production PackagingFunctions

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Required changes to planning cycle

❑ Weekly Planning Cycle- eg Brewing

M T W T F M T W T F

M T W T F M T W T F

Plan Stock

Replenish stock

Plan Stock

Replenish stock

❑ Daily Planning Cycle (Assumes 48 hr order leadtime)- eg network DRP

Reaction time to forecast changes drops 10 to 3 working days

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The impact of Synchronisation - Triple play charts for Cans

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Group canningTotal group cans - Synchronisation

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Impact on Supply Chain & Stock Deployed

Synchronisation facilitates a change in stock deployment strategy :

❑ Provides large reduction in cycle stock of major products.

❑ The requirement to hold safety stock against forecast error reduces by moving stock further up the supply chain- eg:

Forecast error by SKU at depot = 20%+

Forecast error by SKU by region = 3-6%

Forecast error by liquid level (national) = 0.5-3.0%

❑ It also requires an integrated approach to planning across supply chain functions

End to end visibility of capacity and demand

Establishing a consistent planning drumbeat throughout the supply chain

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Flexibility to adjust ‘A’ product volumes on daily pack frequency

gives large-scale finishedgoods stock reductions

Minor products will be‘packed to liquid’

to reduce CCT storagerequirement.

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

Setting up demand based production templates

What might this mean across the portfolio ?

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Setting up the demand based production templates: example

Week: 29 30 31 32Line 1 11 10 9 8Line 2 14 13 12 13Line 3 5 6 5 5Total 30 29 26 26

Total 111 Runs averaging 2,731 Hls

Current Plan Rules

Week: 29 30 31 32Line 1 17 17 17 17Line 2 5 5 5 5Line 3 7 7 7 7

Total 29 29 29 29

Total 116 Runs averaging 2,613 Hls

Synchronised Plan Rules

❑ Example synchronised planning rules

A’s : 81% : Avg volume over 10,000 Hls per week : Daily

B’s : 7% : 5,000 - 10,000 Hls per week : Twice per week

C’s : 12% :Less than 5,000 Hls per week : Every week

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The imperative to trial

It is essential to trial synchronisation prior to making any major process changes to demonstrate:

❑ Synchronisation principles in practice- this fosters confidence

❑ Significant stock reduction of a limited product range by

removing internal demand distortion

using the synchronisation template in daily planning

❑ Weak links in the current supply chain, for example

linkage between distribution, production and material plans

flexibility to changes in forecast

production conformance to plan reliability

forecast accuracy

Lessons learned from trials are of vital importance when rolling out synchronisation

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Synchronisation trials showed stock reduction was possible…..

...but the trials required:❑ consistent data integrity across several systems❑ synchronised manufacturing and network operations❑ significant planning input to manage

Stock reduction trial

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Data from actual trial

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Systems support for integrated planning

❑ In this case, trials demonstrated that synchronisation principles worked in practice, however:

Using current systems these trials are very resource hungry

Managing data across functional boundaries required an integrated system

❑ The key business requirements of the integrated supply chain system were defined...

Global visibility of stock and orders

Single set of numbers

Automation of highly labour intensive planning process

Stock management from maturation vessels to secondary depots

Returns management

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Supply chain systems to support synchronisation

The benefits of synchronisation are enabled by an APS system to support integrated supply chain planning interfaces to the existing IT landsacpe

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ColdConditioning

Physical Supply Chain

Transactional data fed to ERP systems

Demand capture fed from ERP systems

Brewing Packaging Finished GoodsStorage

NetworkReplenishment

SecondaryDistribution

Advanced Planning and Scheduling system

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MRP

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Summary of planning process

One single supply chain plan in multiple time buckets…

Plan to ForecastRespond to Orders

Packaging schedule• 0-48hours• by hour• by SKU• by line• volumes

synchronised to orders

Constrained capacity horizon

• 3-28 days• by day• by SKU• by line• synchronisation

template applied • activity driven by

forecast

Rough cut horizon• 5-13 weeks• by week• by pack type &

size• by liquid type• by line• synchronisation

template applied• task smoothed

against capacity

IBM Horizon• 4-24 months (or 2

FY ends)• by period• by volume• by liquid type• by pack type &

size• by line• constrained only

by major resource

0 28d 13w2xFY end48h

• Brewing• Materials

procurement• Capacity planning

• Synchronised packaging

• Depot replenishment• Availability to promise

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Conclusion

Synchronisation is a key enabler of a low cost, responsive supply chain….

…it delivers benefits beyond inventory savings

... it is easy to understand and trial (relatively!)

…it delivers early financial benefits