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RE-ORDER POINT AND INVENTORY ANALYSIS
VISALIA DC
Kushaan ShahSummer 2013
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Agenda
● PROJECT BACKGROUND AND GOALS
● DATA COLLECTION
● DATA ANALYSIS AND IMPROVEMENT PLANS
● CONCLUSIONS
● FUTURE OF PROJECT
● QUESTIONS
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● As a global leader of value-added, top-quality products, two of Hilti’s main objectives are to:
• Increase the Quality of Service
• Optimize inventory
BACKGROUND
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BACKGROUND
Increase Service Quality
• One of Hilti’s top objectives is to improve customer satisfaction by delivering customer orders in a punctual and convenient matter
• Logistics uses a metric called COP to measure “Complete Orders delivered from the Primary location”
• A product ordered from Visalia’s region should be shipped from 6150
• 1 point of HNA COP is equivalent to almost $250,000 in freight• Big financial implications
• The target COP rate is 90% for each Distribution Center (Completed Primary Orders/Total Orders)
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BACKGROUND
Optimize Inventory
• Hilti currently uses the SB8 calculation to increase inventory levels in the NDC’s
• In its distribution centers, Hilti is moving from the “Days of Coverage” Method to the more Optimal “ROP” method
• ROP Method is intended to offset inventory increase in NDC’s
• Days of Coverage was a “blanket” approach:• X and Y item from Miami will both have a 9 day average demand
• ROP is a more statistical approach • X and Y item will be distinguished by lead time and average
demand
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• RP1 Calculation = Safety Stock + (Lead Time * Avg. Daily Consumption)
• Optimal for Stable Items and leads to Inventory Reduction• Calculated ROP (System)
• RP2 Calculation = Average Order Size + (Lead Time * Avg. Daily Consumption)
• Average Order Size = Quantity/Frequency• Used for more sporadic items when needed• Manual
• RP3 = Greater Value between RP1 and RP2• Done Manually
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Visalia
• Visalia processes about 1,500 orders a week and is the largest DC after Tulsa and New Jersey
• Visalia accounts for roughly 13.6% of the HNA COP and more than 65% of the West Region
• ROP was implemented in Visalia on Week 24
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GOALS
Project Goals:
• Analyze Hilti objectives in the context of a large distribution center
• Help implement ROP stocking logic within the Visalia DC
• Identify the most effective method to calculate manual ROP values
• Determine Impact of ROP on COP levels for Visalia DC
• Diagnose COP Failures and implement solutions to reduce failures
Ultimate Goal: • -5% Inventory Reduction and +8% Improvement in service quality
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DATA COLLECTION
Data Collection Plan:
• Review COP Failures:• Used Business Analyzer Tool on Excel• Ran weekly query to pull order and material numbers that failed
COP for Visalia
• Root cause analysis on the availability failures:• Used SAP to pull relevant order and material data:
• Sales Order (VA03)• Date of Order, Amount of Material, Location
• Stock and Requirements Situation (MD04)• MRP Type, Purchasing Group, Material Status
• Stocks for Posting Date (MB5B)• Amount of Stock Available on Date of Order
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COP FAILURE ROOT CAUSE PROCESS MAP
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Visalia COP
Failure
Not enough stock
available
Item not on Planning
Cycle (ND)
Item was added after
order completed
Item is Discontinued
and is phasing out
Item is a repair part
(U26)
Item is a special order (U51 – U59)
Stock was available but
order was routed away
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W7 W8 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 W19 W20 W21 W22 W23 W24 W25 W26 W27 W2884.00%
85.00%
86.00%
87.00%
88.00%
89.00%
90.00%
91.00%
92.00%
Visalia COP%
ROP
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No Stock Not Planned RWS Parts Item Added Specials Other Discontinued0
50
100
150
200
250
300
350
400
450
500
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
VISALIA COP PARETO
WEEK 24 – WEEK 28
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Week 24 Week 25 Week 26 Week 27 Week 280
5
10
15
20
25
30
0%
2%
4%
6%
8%
10%
12%
14%
16%
Part Failures - Visalia COP
Week 24 Week 25 Week 26 Week 27 Week 280
5
10
15
20
25
30
35
40
45
50
0%
5%
10%
15%
20%
25%
30%
RWS Failures - COP
• Observation: Spike in Parts Failures after Week 26
• Due to the Harrisburg Spare part project, Visalia Repair Center is no longer shipping customer orders and all repair parts are temporarily routed to Tulsa NDC
• Observation: Spike in RWS Failures after Week 26
• Material Number 387514 is reserved for a large project and will continue to route away until order is complete
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ROP
W7 W8 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 W19 W20 W21 W22 W23 W24 W25 W26 W27 W2884.00%
85.00%
86.00%
87.00%
88.00%
89.00%
90.00%
91.00%
92.00%
0.0028
0.0226
0.0129
0.0198
0.01350.0157
RWS: 387514
Parts
Visalia
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• Roughly 50% of all failures in a week are attributed to availability
• Analyzed “Material Movements” to view schedule of replenishments• Occasionally, a large order will deplete stock
• Also checked for National or Local Outages • A national outage will subsequently route the item to the closest DC
with available stock
• Graph – No Real Trend for Availability Failures as of yet
Week 24 Week 25 Week 26 Week 27 Week 280
20
40
60
80
100
120
140
0%
10%
20%
30%
40%
50%
60%
Availability or “No Stock” Failures - COP
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• Monitored a QRS – UVW chart to check for erratic items
• QRS• Number of Hits in last
6 months• UVW
• Variability from Normal Order Quantity
• Action:• QW and QR changed to
RP2 (Average Order Size)• Result:
• Decrease in QW and QR
• In the future, there are plans to start a process of upstreaming very sporadic items (S) to the NDC’s
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Week 24 Week 25 Week 26 Week 27 Week 280
10
20
30
40
50
60
70
0%
5%10%
15%20%25%
30%35%40%
Not Planned Failures - COP
• Checked weekly for not planned materials with a high frequency• Demand Hits: Items with more than 3 hits in the last 6 months • Hilti currently has a process in place which reviews ND’s monthly
• For these particular items, looked at the TABCD status, material status, and purchasing group
• MRP type is set to Y5 and a manual ROP (RP2) is turned on for items using average order size, daily demand, and lead time
• To date, 24 Items have been turned on for Visalia
• Result: Decrease in “Not Planned” Failures
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Week 21 Week 22 Week 23 Week 24 Week 25 Week 26 Week 27 Week 283,000,000.00
3,100,000.00
3,200,000.00
3,300,000.00
3,400,000.00
3,500,000.00
3,600,000.00
3,700,000.00
3,800,000.00
3,900,000.00
4,000,000.00
4,100,000.00
Inventory MUSD DC's
• Inventory Value (Provided by Global Team)• Biggest success is the money saved on inventory• 16.8% decrease in Inventory amount – 649,293 in reduction • $77,915.16 in annual savings (based on a 12% carrying cost)
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CONCLUSIONS
• Despite a slight decrease in COP, there is an offsetting savings in inventory carrying costs. What is the impact?
• Visalia DC annual inventory savings: $77,915 • Calculated from carrying cost at 12%
• Visalia DC COP from week 24 -28:• We have seen a .62% decrease in Visalia (if we disregard the
failures due to Harrisburg and item 387514)• Loss of $24,800 annually in transportation costs
• +1% on Visalia COP -> 0.16% rise in HNA COP (+ $40,000)*• -1% on Visalia COP -> 0.16% fall in HNA COP (- $40,000)*
*Based on $250,000 freight cost with all else equal
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• COP relies on many factors outside of ROP and is fluid in nature. • If ROP is helping us save money on inventory regardless of a
slight decrease in COP, its implementation should be encouraged
• Inventory shortage, unpredictable orders, and sporadic demand are all problems that we cannot eliminate but work to reduce. There are many factors of COP that are out of our control
• Manually monitoring COP failures, adjusting ROP levels where needed, and distinguishing materials by their demand nature can help combat some of the shortfalls
• It is recommended to have a manual eye even with automation
• Four or five weeks is not enough to see the full impact • Short-term setbacks can be offset by long-term objectives
• Conclusion: Keep manually monitoring COP and adjusting ROP levels
CONCLUSIONS
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FUTURE
• Will continue analyzing Visalia• Note any changes in Stock Availability
• Replicate project with another large Distribution Center• Toronto Roll-Out is being scheduled
• RP3 Calculation to be automated • Will take the optimal value between RP1 and RP2
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QUESTIONS?
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