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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
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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
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Distribution Image
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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Mistake №1. The importance of
pushing for major vendors
• Procurement planning
• Weekly stock norms
• Goods for promotions and
other
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Association of CBT – TOCPA Practitioners
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Failure could mean the
loss of contract
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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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
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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
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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
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Plans to increase the lost sales
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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In practice, the situation on
individual SKU may look like this
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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The balance above the buffer
disables the entire mechanism
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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Stock Norms
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
Продажи Остаток
"Keep your inventory level above X weeks of
sales"
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Solution ?
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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No �
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Association of CBT – TOCPA Practitioners
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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
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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
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CW
• The most rapid financial impact
• Easier as a control object
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Association of CBT – TOCPA Practitioners
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BUT
• More impact of transport
batches and optimizations
• More replenishment time
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Association of CBT – TOCPA Practitioners
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• Directly impacted by push policies from
suppliers
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Association of CBT – TOCPA Practitioners
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Regional warehouses create
significant fluctuations in
consumption from CW
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Association of CBT – TOCPA Practitioners
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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 ?
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For pushing suppliers no
significant improvements
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Association of CBT – TOCPA Practitioners
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Reduced motivation and trust in
technology
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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
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Mistake №3. Cost saving mentality
in the approach to transport
optimizations
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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
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Association of CBT – TOCPA Practitioners
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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
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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
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Association of CBT – TOCPA Practitioners
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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.
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Reducing the replenishment time
of is not always beneficial.
ROI = T-OE/I
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Association of CBT – TOCPA Practitioners
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Mistake №4. Failure to understand the
limits of application of dynamic buffer
management
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Association of CBT – TOCPA Practitioners
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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.
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Association of CBT – TOCPA Practitioners
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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
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Association of CBT – TOCPA Practitioners
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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
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Association of CBT – TOCPA Practitioners
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DBM does not have time to react if the
demand is subject to fluctuations of
more than 33 percent over the
replenishment period
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Association of CBT – TOCPA Practitioners
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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
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Mistake №5. Underestimating the
resistance of managers and the
importance of working with
people
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Association of CBT – TOCPA Practitioners
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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
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Association of CBT – TOCPA Practitioners
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Distrust of technology. Hidden
resistance
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Association of CBT – TOCPA Practitioners
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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
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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
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Association of CBT – TOCPA Practitioners
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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
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Association of CBT – TOCPA Practitioners
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Results: In the whole company
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Association of CBT – TOCPA Practitioners
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Results
• Inventory turns increased by 30%
• Reduction of lost sales by 20%
8 Международная Конференция
Ассоциации Практиков ТОС – TOCPA
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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
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Results: RWs
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Association of CBT – TOCPA Practitioners
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Results: Pushing supplier
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Association of CBT – TOCPA Practitioners
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Results: «good» supplier
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Association of CBT – TOCPA Practitioners
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The greatest effect -
the change of thinking
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Association of CBT – TOCPA Practitioners
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Thank you!
The 8th International Conference of the
Association of CBT – TOCPA Practitioners
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