What would I’ve done differently

now – learning from one

implementation

Anton Lopatin, «Негоциант-стандарт», Russia

October 2013

26-27 October 2013, Moscow

www.tocpractice.com

8th International Conference of the

TOC Practitioners Alliance - TOCPA

Anton Lopatin

• «Негоциант-стандарт»,

Vladivostok, Project Manager

• Distribution, warehouse logistics,

procurement logistics, business

analysis, IT

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

alopatin.ru

Distribution Image

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Mistake №1. The importance of

pushing for major vendors

• Procurement planning

• Weekly stock norms

• Goods for promotions and

other

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Failure could mean the

loss of contract

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Procurement Plans

• During the quarter, you have to buy

Х in money (tonnes, containers).

We assume that this is how much

of our products you have to sell for

a period (usually a quarter).

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Purchasing plans are always

inflated, as resulted from the

sales plan

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Ice-hockey stick effect

Purchaising planning increases the

forecasting horizon

• The manager has to "guess" the demand

for goods in the far future

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Plans to increase the lost sales

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

In practice, the situation on

individual SKU may look like this

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

The balance above the buffer

disables the entire mechanism

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Stock Norms

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Продажи Остаток

"Keep your inventory level above X weeks of

sales"

Solution ?

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

No �

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

What to do?

• In the first focus on non-pushing suppliers

• For pushing suppliers begin to measure the

reliability without changing the way of

ordering

• Change discussion from “levels of inventory”

to “availability level”

• Suggest a pilot project (?)

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Mistake №2. Where to start the

implementation?

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

RW

Regional Wh Regional Wh Regional Wh Regional Wh

CW

• The most rapid financial impact

• Easier as a control object

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

BUT

• More impact of transport

batches and optimizations

• More replenishment time

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

• Directly impacted by push policies from

suppliers

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Regional warehouses create

significant fluctuations in

consumption from CW

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

People are forced to perform many

tedious tasks around the system

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Supplier increased the

required inventory

levels - recalculate the

buffers

How to order

Inventory for

Suppliers Holiday’s

plan ?

For pushing suppliers no

significant improvements

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Reduced motivation and trust in

technology

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

It is better to start the implementation

process with the regional warehouses

• Less impact of push from the supplier

• Less transportation batches

• Possibility to implement technology without

compromises and with lower impact of mistakes

• Eliminate artificial fluctuations of consumption

cause by regional warehouses

• People see a quick results and their motivation is

increasing

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Mistake №3. Cost saving mentality

in the approach to transport

optimizations

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Why?

• High cost of shipping to the Far East from the

European part

• Many suppliers pay for transportation

• Limitations of thinking and common practice

in the distribution

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Managers have tried to work with

the current restrictions instead to

actively review them

• The minimum order batch

• Shipments of full containers

• Separate shipments for each group

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

It took some time to discover that

many of the restrictions are not real

• Ordering and transporting assembled containers for different groups

• Negotiated with suppliers and found out that many of the minimum order batches for SKUs were not relevant

• Started to use more flexible (and more expensive) logistics providers

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Why it took so long?

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Reducing the replenishment time

was not perceived as a important task.

Reducing the replenishment time

of is not always beneficial.

ROI = T-OE/I

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Mistake №4. Failure to understand the

limits of application of dynamic buffer

management

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

The decisions outside the

system are hard to avoid

• Price for one of our regular SKU, will increase

by 8 percent from next month. We can save by

ordering BIG quantity now at the old (still low)

price.

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

The introduction of DBM does not

mean getting rid of the need to

forecast

• Seasons, trends

• Plans from suppliers

• One-time decisions using the information about which the system does not know

– Stock

– Competitors

– Others

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

DBM reacts to slow to sudden

changes in demand

• For example: the sales in the last month – 10, in this month –100.

– Average sales – 55

– The algorithms that take into account trends (egHolt Winters) show more

– DBM will increase the buffer to 13

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

DBM does not have time to react if the

demand is subject to fluctuations of

more than 33 percent over the

replenishment period

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

You should not rely too much on the

the system, you need regular control

procedures

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Mistake №5. Underestimating the

resistance of managers and the

importance of working with

people

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

There are plenty of non-regular tasks

that are contrary to the logic of TOC

• Ordering extra-amount before the price increase

• Fulfilling purchasing plans

• Calculate the seasonal profiles

• Suppliers request to purchase goods for promotions

• Purchase goods from more expensive local supplier market, to avoid stockouts

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Distrust of technology. Hidden

resistance

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Perseverance

in applying old practices

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Looking at the old

ordering tool just in case.

New system does not

takes into account our

uniqueness

Changing the conventional ways of

thinking requires a special

attention to the work with people

• Pay special attention to the training, to make sure that everyone fully understands the idea

• Play beer-game

• Ensure commitment from key employees

• Select for the first steps of RW to get a quick results

• Control decisions to be taken by the system, deactivate the old ordering tool for groups where there are no restrictions from the supplier

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

The effect of the change in

thinking

• The harmful effects of batches

• Margin vs ROI

• Focus on inventory turns and lost sales

• Measuring the reliability of the supplier

• Awareness of the importance of the

replenishment time

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Results: In the whole company

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Results

• Inventory turns increased by 30%

• Reduction of lost sales by 20%

8 Международная Конференция

Ассоциации Практиков ТОС – TOCPA

Despite of

• Inventory management team has changed 3

times during a year

• Sticking to the push-plans of the suppliers

• Sticking to the minimum levels of inventory

from the suppliers

• Big order batches and long transportation

time

• Unreliable suppliers

8 Международная Конференция

Ассоциации Практиков ТОС – TOCPA

Results: RWs

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Results: Pushing supplier

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Results: «good» supplier

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

The greatest effect -

the change of thinking

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

Thank you!

The 8th International Conference of the

Association of CBT – TOCPA Practitioners

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