Monday, December 8, 2014

Focus and Leverage Part 400

My posting today is the final part of the case study Reversal of Fortune - From Crisis to "Supplier of the Year" in 18 Months written by David Proveda, Director, Demand Driven Institute, LATAM.  I want to personally thank David for sharing his incredible improvement experience with us here.  This is only a part of the entire story which David will be presenting at the 2015 Demand Driven World Conference in Houston, Texas in March of next year.  And in case you missed my earlier posting, here is a link to this conference. 

The good news is, there is a special promo code for my readers that further discounts the early bird registration.  The promo code is BOBSBLOG so if you plan to attend, make sure you sign up by December 31st to get your extra discount.  And now back to the finale of David Proveda's incredible journey and case study.

(Continued from Focus and Leverage Part 399)

There is not enough space here to go through all the details. However, there are three key elements that I would like to highlight in this implementation:

Buffering intermediate components

Just a very short note. We thought they would not be possible to position in MIC. But Juan Esteban found them. Look for them and they will appear. They are an incredible leverage point for immediate lead time compression and operational flexibility.

Retail buffers

We found an obstacle when we got to the point of sizing these buffers at the actual retail points  (around 55.000, one per SKU per store). Since average daily usage is below 0.5 in almost 98% of the SKUs and lead time is one day, the buffers would not function properly under the original DDMRP computing rules.

We spent long hours trying to come up with a good solution. I think we have a pretty good one now. It is a general methodology for building retail buffers under the DDMRP rules (only one buffer profile) and that includes known facts of this environment: minimum visual display, rounding problems, sensitivity in the total inventory due to different policies, buffers with only one or two zones, etc. For sure our method might be improved. But it has been working very well and this is an innovation to the general DDMRP methodology.

The retail buffers were also used in the VMI model with El Exito. The award given to MIC by El Exito as Best supplier of the year in its category speaks for the results.

New collection launching: 10 styles, in their colors and sizes, account for 55% of sales in MIC´s retail chain. This is common in this environment. It is obviously a must to ensure availability of these SKU´s that they started calling RTOP (Referencias TOP, meaning TOP styles). Finding these “winners” for each collection as soon as possible and issuing early replenishment signals is crucial. We developed a general model for product/collection launching that automatically looks for RTOPs and adjust their buffer sizes in all the retail buffers in a way that allows all products to show their real potential.

There were many things we did and that they diligently implemented and that would take 20 pages to describe. Results are what matter. I will summarize some of them:

  • Cash flow is now positive and “nice”
  • A fundamental shift in vision and general strategy (products, markets, business model) of the company
  • Sales in the retail chain increased 12% with 40% less inventory and only 2% stock out during 2013. We expect further improvements in the 2014 results.
  • Sales of high mover in their retail chain during the Christmas 2013 season increased 900% (nine times) compared to sales of high movers in the same period of 2012.
  • Replenishment of high movers within 24 hours around the country.
  • Significant reduction in products sent to outlets to be sold with high discounts.
  • Sensation of “scarcity” in the managers of the shops totally eliminated.
  • Flow is the key decision driver and all the company is aligned around it.

The journey is not over yet. We still have a lot of work to do.  MIC has discovered the world of Flow; they now are able to identify obstacles to it.  They have a complete set of very focused Lean projects in order to remove such obstacles and reduce waste.

We also agreed that in 2015 we would work in production scheduling and capacity planning. It includes the possibility of implementing a Demand Driven Performance model in order to further decrease lead time (and finished products stock) that will lead to the use of Smart Metrics and a very focused continuous improvement plan.

It is a never ending, exciting and extremely fun journey.

More details about MIC’s incredible transformation will be shared in a Case Study presentation at the 2015 Demand Driven World Conference in Houston, Texas March 26-27.

Thanks again to David Proveda for sharing such a wonderful story with all of us!!

Bob Sproull

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