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Slow purchasing, quick sales: It takes excellent planning to succeed anyway!

Gremlin Electronics Inc. optimised planning and material planning

18-Jul-2017
Goetz-Andreas Kemmner (pictured)
CEO, Abels & Kemmner
Slow purchasing, quick sales: It takes excellent planning to succeed anyway!
Long replenishment time and purchasing restrictions such as container completion are a constant challenge in planning. Combined with an enormous variety of changes in the range of goods plus fluctuation in amounts and schedules of demands, this will quickly lead to overstocking or low delivery readiness, when managed in mainly manual planning processes. The trading company Gremlin Electronics Inc.*) in Great Britain has accepted this challenge and reduced stock while raising delivery readiness in the face of slow purchasing and highly fluctuating demands. With the help of some consultancy advice and the application of an APS system, demand planning and material planning improved significantly alongside with IT support.

Gremlin Electronics Inc. is one of Europe’s leading companies in the electronic industry. Product components, largely produced to the company’s own designs, are mainly purchased in China. The components are scheduled to be delivered in 60 to 150 days, as shipping containers from Asia to Britain takes about six weeks. However, to satisfy the customers’ needs with earliest possible delivery times while keeping stocking costs low, quick reactions and flexibility are essential.

Slow responses in purchasing vs. quick variations in demand
Sufficient stock is required to allow for long lead times and maintain delivery readiness: clients expect delivery within 24 hours after placing a regular order. Purchasing, however, has to order the items much further in advance. If the demand ceases or changes, those ordered items are surplus and overstock – a common situation in many companies.

If on the other hand, demand should rise, delivery problems will occur as purchasing cannot acquire the necessary materials in time. To reduce just the shipping time significantly, high airfreight charges must be paid; but even low priced sea cargo is only a bargain if the containers are filled completely. This usually means regular purchasing of surplus amounts as they exceed the current demand. Even combined shipments, merging items from a multitude of suppliers, does not always solve that problem. Once the container is on board ship, material planning cannot alter its order and overstock is inevitable.

A wide range of goods places high demands on item phase-in and phase-out
Gremlin Electronics’ range of goods includes about 3.000 items in sale plus annually about 600 items in either a phase-out or a phase-in process. Planning these phase-ins and -outs is an additional challenge which requires appropriate software support.

Intense monitoring of the phase-in process including immediate correction of planning is an established part of the routine. The art of product phase-out shows in the residual stocks of phased-out items and in the residual demands that cannot by covered anymore. DISKOVER SCO provides a range of phase-out features to simplify this task.

The system surveys the demand development and proposes items for phase-out. During the phase-out process it calculates remaining stocks and understocks of all components belonging to a phase-out item.

How to handle exceptions whilst 20,000 regular orders pour in each day
Gremlin Electronics’ customers are specialised trade and wholesale companies. Demand planning and material planning with these b2b clients requires high flexibility. The demand for continuously prompt delivery can result in severe penalties if the delivery performance falls below the agreed level. Planning is quite a task, considering that approximately 20,000 regular orders reach Gremlin Inc. on a daily basis, requiring a 24 hour delivery period for the most part.

A small part, however, has to be categorised as “exceptional”. These exceptions are sporadic, usually very high amounts of items ordered to be delivered in a defined period. Consequently planning exceptions is an important, but difficult task that the material planner has to master. Examples of such exceptions are campaigns or openings of new stores, when the customer needs large batches of certain items just once – before the campaign starts or the new store opens. If the customer alters the schedule or the amount of items needed after the order is placed, stocks inevitably increase.

Returns and allocations contribute their fair share to a rising stock-level as well; especially returns, resulting from dumping or change of product, which generally come in large batches and increase overstock.

Compared to this complex network of challenges, the seasonality of most items seems like a minor problem.

Main target: optimisation of delivery readiness while reducing costs
The main target of the project at Gremlin Inc. was to increase availability for delivery while significantly and sustainably reducing costs such as:
- stock and storage 
- airfreight 
- penaltys 
- inevitable depreciation and scrapping 

Using DISKOVER SCO, developed and distributed by SCT GmbH in Germany, Gremlin masters these challenges even with lower staffing levels. DISKOVER SCO supports Gremlin’s existing ERP-system through advanced demand planning and material planning functions.

A specific feature of DISKOVER SCO is its simulation function. It allows identifying the right demand planning and material planning strategies by simulating the whole supply chain performance on a daily basis over a certain period of time, usually the last year. Answering the question “what logistical performance would have been reached, if we had applied the strategies in question over the past year already?”, the project team was able to define the parameter settings of the ERP-system and / or of DISKOVER SCO.

Simulatively optimised rule sets for demand planning and material planning ensure an economic supply chain
Since the behaviour of items changes over time, the demand planning and material planning strategies and parameters as well as a lot of other master data have to be adapted item-specifically as well. During implementation of the DISKOVER system, a planning and master data rule set has been specified, tested and optimised by DISKOVER’s simulation function.

DISKOVER SCO automatically executes this rule set, thus enabling a rational and reliable monthly master data and parameter update for the whole range of items.

Consensus forecast based on statistics and sales information
For forecasting demand, the DISKOVER system integrates data from statistics as well as from the sales team into a so-called “consensus forecast”. Together with current stock levels, purchase orders, order requisitions and customer orders this consensus forecast is the basis for the nocturnal MRP run as well as regular MRP netchange runs over the day.

Automatic processing of exception planning and campaigns via e-mail
Sales staff can easily compile exception plans such as campaigns in MSExcelTM and send it via e-mail to the DISKOVER service. DISKOVER SCO processes the data automatically and returns an acknowledgement e-mail to the sender. This ease of use was much appreciated by the sales team.

Each time campaign information is sent to the system, it automatically e-mails a note to the responsible strategic purchasers of the campaign’s items, signalling which items are part of the campaign. Material planners are also automatically informed of the scheduled campaign and the items for which stock levels are below the required campaign volumes. If an item is out of stock, the material planner can easily switch to the item’s material planning screen by double-click and take appropriate action.

Supporting material planners with alerts and automatic material planning directions
With the help of alert screens and automatic material planning directions, the material planners manage their daily work efficiently and systematically, addressing for example:
- material shortage during replenishment time
- current stock outs
- undercuts of safety stock during replenishment time
- current undercuts of safety stock
- items with currently higher demand than forecasted backlogs of orders

Combined shipment optimisation
Combined shipment optimisation (CSO) is a major task of daily material planning. The CSO-function of DISKOVER permits aggregated order sizes of different items according to optimisation criteria specified by the material planner. This helps to achieve a combined minimal order quantity or fill a sea container in a way which keeps resulting stock coverage as low as possible.

Parameters like required replenishment quantity, minimum order value, shipping units and capacity or weight of the container are factors used by the system to calculate the best combination of order lot sizes.

Results
Shortly after implementation of DISKOVER SCO, delivery availability and stock turnover increased while inventory decreased and this encouraging development has been sustained. With optimised delivery capability and lower stock levels, Gremlin Electronics Inc. has improved its acknowledged excellent service – for the benefit of its trading partners and customers.

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