External disposition brings advantages

Inventory management

The example of automotive supplier Herth + Buss shows how external service providers can be used to optimize warehouse planning and thus stocks.

The fact that outsourcing and inventory management are mutually exclusive is based on the assumption that inventory management must always be carried out close to the operational interfaces of scheduling in terms of time and location. This basic consideration appears to be correct at first: intensive communication between scheduling, sales, dispatch, production and assembly, procurement, customers and especially suppliers is necessary. This is why daily inventory management must also be integrated into the company in terms of time and location. However, the task of providing inventory management with optimized parameters is in many cases better handled externally, because, for example, the item-specific optimization of forecast parameters and any seasonal factors is such a complex task that not every planner is adequately prepared for it. On the other hand, experience has shown that hardly any dispatchers have the time to repeatedly carry out item-specific optimizations for thousands of items in their day-to-day business. For these reasons, it makes sense to outsource strategic inventory management to an external service provider.

Warehouse for customers and suppliers

The Heusenstamm-based company Herth + Buss sells automotive spare parts in the two product ranges HB Autoelektrik (spare parts in the field of automotive electrics) and Nipparts (wear parts for Japanese vehicles). The product range comprises a total of approx. 16,000 parts. An important competitive feature of customer order processing is that goods ordered by 5 p.m. are delivered by overnight express and are available to the customer the next day. The company therefore has a central warehousing function in the supply chain for both the customer and the supplier. However, due to significant fluctuations in demand and long replenishment times for goods from the Far East, this entails a not inconsiderable inventory risk. For this reason, it was initially decided to have the scheduling checked and optimized by an external specialist. In a second step, strategic planning was separated from day-to-day business. Today, the strategic scheduling parameters are updated every three months by the external service provider Abels & Kemmner from Herzogenrath near Aachen.

Initial parameter optimization

The first project to review and optimize scheduling was carried out using a combined approach of methodical article structuring and process selection as well as workshop-based process analysis and optimization.

Together with the company, the product range was divided into product classes according to sales significance (ABC) and demand behavior (XYZ).

The data quality must be checked when collecting the data. Comprehensive discussions on data interpretation were therefore particularly important. For example, what is actually entered in the “Requested delivery date” field? Is this the current date entered by the system or the delivery date actually requested by the customer? How should the “confirmed delivery date” be interpreted? Is it fixed or, as one company found out, is it adjusted and updated in the weekly net change, which of course results in a fantastic actual delivery readiness level, taking confirmed delivery dates into account?

After interpreting the data, suitable replenishment procedures were then determined for the individual item classes, taking into account the available functionality of the merchandise management system, and the parameter constellations required for each item class and the expected stock levels were simulated for various degrees of readiness for delivery. Finally, sensible delivery readiness levels were defined for each article class and the resulting parameters were transferred to the merchandise management system.

Parallel to this mathematical-analytical work, a project team examined the process of order processing and designed the future organizational process and use of tools. In addition, the results of the analysis were regularly presented to the project team and article specifics and possible process variants were discussed. Training the dispatchers in the relevant procedures concluded the first phase of the project.

Regular external inspection

Since the Herth + Buss dispatchers hardly have the time in their day-to-day business to repeatedly carry out item-specific optimizations for 16,000 items, the decision was made to outsource this task as well.

The continuous analysis is currently carried out at quarterly intervals. The historical data for the previous quarter is read from the SAP/R3 PPS system and transferred to Abels & Kemmner on a data carrier. The required disposition parameters are then calculated simulatively according to article groups. Strategic planning is completed when the results are fed into the PPS system.

“The continuous adjustment of the parameters led to a significant increase in efficiency in scheduling: within six months, the inventory range was reduced by around 25 percent and subsequently maintained. The delivery readiness level rose to 99 percent in the same period and led to sales growth of around 10 percent,” says Holger Drewing, Managing Director at Herth & Buss. In addition, by outsourcing parameter optimization, the in-house schedulers are freed from complicated calculation procedures and therefore have more time to devote to the often hectic day-to-day business.

Why systematic article analysis

An article that begins its life cycle as a CZ article (low sales relevance, sporadic) may develop further into a BY or even AX article (medium to high sales relevance, regular demand), falls off again, comes back to life and at some point becomes a CZ article again as its life cycle draws to a close. It is obvious that an AX article must be planned and scheduled differently than a CZ article. Therefore, the current positioning of all articles must be permanently determined via the article structuring. As a result, the planning and scheduling procedures must be adapted accordingly.

Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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