Dealing With Non - Reasonable and/or Sporadic Demand
|Guilherme Venanzi Almeida - Principal at Goldratt Consulting|
|Co-Presenter, Silvério de Souza - Principal at Goldratt Consulting|
|WHAT TO CHANGE?|
Today’s business environment, and especially in retail, is being impacted by 3 trends that seems to be irreversible: the increase in product portfolio, shortening of product of life cycle and reduction of customer tolerance time.
More and more customers are looking for products that satisfy their specific needs, which is leading companies to increase their product offer. As the product offering increases, customers expect to have a bigger variety/assortment of products available for choose.
Trend # 2
The continuous improvement provided by the integration of new technologies is making new products even better and cheaper, which is leading to a technological race, increasing the rate of new product launch and reducing the product life cycle. And as the rate launching increases it reinforces customer expectation for new products.
Trend # 3
Customers are less and less willing to wait for a product and service which, in practical terms, means that the tolerance time is tending to zero. For that reason companies are holding more stock closer to consumption point aiming to shorten the reaction time. As a result customers are now expect to have immediate availability.
This increase in variety/assortment coupled with the reduction of the life cycle and customer tolerance time is imposing a huge challenge in supply chain management.
The first impact is on the consumption pattern where the demand is spreading over a larger number of items. Therefore the demand for every single SKU (Stock Keeping Unit) is not just smaller (in absolute value) but period between consumption is larger. This combination leads to higher variability.
The MTA solution contemplates sizing appropriate buffer for protecting availability and prevent overstock. Taking the above into consideration, buffer sizes for each SKU are becoming smaller (tending to be 1) and more susceptible to non-reasonable and sporadic demand. So what can we do to maintain high availability without inflating the stock level unnecessarily.
WHAT TO CHANGE TO?
Even though the buffers are small, the total demand for all items represents a large share of the sales and throughput, therefore the financial performance of the companies depends on assuring a high level of availability.
The solution for this challenge contemplates a process to flag the non reasonable demand for every single SKU and assess the level of stock and buffer status of the regular provider.
In this process, we check the status of regular provider and/or the previous links of the supply chain so the availability of the regular orders are not jeopardized and concomitantly the company is able to meet large orders even in cases where the amount represents a significant portion of the buffer size.
The solution also includes a alternative modelling in which the customer's request can be met by both the MTA stock or a specific MTO order. Moreover it is necessary, in some cases, to make some adjustments in the standard DBM policies to stabilize the environment.
HOW TO CAUSE THE CHANGE?
We have developed a process and implemented in 2 companies: A dairy company with 3 factories and 7 Distribution Centers and a wholesale company and retail that operates in the Brazilian MRO (Maintenance Repair and Overhaul Operation) market with 4 Regional Distribution Centers and 6 stores.
Based on this experience we believe that the same solution can be applied to other business environments that experience the same kind of problem.
Along with these processes we developed new entities for the S&T tree to capture the logic of the solution and implementation.
A) Why was there a need for change?
The regular MTA solution requires some adjustments in order to deal with non-reasonable and sporadic demand in proper way.
B) How do you measure, refocus, sustain and grow the change?
We measure the effectiveness of the solution through the stockout levels of regular MTA orders and meeting On Time In Full (OTIF) indicators for non reasonable orders which ultimately leads to more sales. We perform Pareto analysis on the main causes for slowing down the flow in order to focus the improvement initiatives and sustain of ongoing improvement.
- How to deal better with high demand variability environments;
- How to better integrate the Supply Chain (beyond MTA);
- Taking advantage of aggregation for quick response;
- Questions 1. What is potential lost sales for not serving non reasonable demands?
- What is the impact on the Replenishment Lead Time due to this new process?
- What’s next?
Guilherme Ven Almeida - Principal at Goldratt Consulting, BSc Mechanical Engineer by Universidade Mackenzie, Executive MBA by CEDEP-INSEAD, Finance by HEC-Paris and Industrial Management by Fundação Vanzolini -EPUSP
TOCICO Praticioner Certification in Supply Chain Management and Critical Chain Project Management.
Guilherme has more than 25 years background in the industry. Out of it 20 years working in the automobile industry in Brazil, Europe and USA. Worked on several areas like operation management, project management, product development and business management.
Besides that Guilherme has a vast experience implementing improvement projects using TOC, Lean and 6 Sigma in mining, consumer goods, retail, services and Viable Vision implementation projects.
Silvério de Souza - Principal at Goldratt Consulting in Brazil. Large experience with industrial, project management and business consulting. Working over the last eight years with Theory of Constraints implementations in the areas of production, supply chain, retail, project management and finance and Viable Vision Projects in Brazil and other South American countries.
Executive MBA COOPEAD and Master in Project Management – Federal University of Rio de Janeiro – UFRJ, Certified in Supply Chain Logistics – TOCICO, PMP – PMI, Graduated in Business Administration.