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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