Stock levels down, delivery readiness up

Gremlin Electronics optimizes planning and scheduling

by Dr. Bernd Reineke and Armin Klüttgen

Various factors – such as long replenishment times, procurement restrictions, strong fluctuations in quantities and postponements on the demand side – make planning and scheduling more difficult. This can quickly lead to excess stock and/or a lack of readiness to deliver. With the help of management consultants Abels & Kemmner UK, Gremlin Electronics Inc.* in the UK was able to reduce its inventories and increase its readiness to deliver.
Gremlin Electronics Inc. is one of the largest companies in the European electronics industry. Gremlin Electronics procures most of the components for its products, most of which are manufactured according to its own designs, in China. Delivery times are between 60 and 150 days. The transportation time alone for container shipments from Asia is around six weeks. Gremlin Electronics’ customers are predominantly specialist and wholesale companies and demand the highest delivery readiness at all times. At Gremlin Inc. around 20,000 customer order items are received every day – mostly with a delivery time of 24 hours. A sufficiently high stock level is therefore required due to the long procurement lead times. However, if the demand situation on the customer side changes, the items procured in advance are no longer needed and therefore become excess stock. In addition, the logistics costs mean that the containers from overseas are completely infested. This means that larger quantities have to be ordered on a regular basis than are currently required. A smaller proportion of the order items relate to so-called “exceptions”.

These are sporadically occurring, usually very large consumption quantities that do not have to be delivered within 24 hours, but only after an agreed delivery time. Examples of such exceptions are promotions or new installations in customers’ sales branches: The customer needs one-off large quantities of certain items that must be delivered at a specified time. If the deadline is postponed or the customer changes the purchase quantity at short notice, this drives up stock levels.

Improve delivery readiness, reduce costs

The project at Gremlin Inc. had the objective of increasing delivery readiness and at the same time significantly and sustainably reducing logistics costs. The consultants from Abels & Kemmner examined both the planning and scheduling methodology and the existing system support in order to identify potential for improvement. Right at the start of the project, the requirements for the data to be provided from the ERP system, which was needed for various analyses and simulations by the consultants, were agreed. The consultants use the DISKOVER SCO simulation system to carry out the analyses and simulations. With this system, the logistical behavior of the entire value chain can be dynamically simulated and thus made predictable.

With the help of the simulations, the consultants determined with which. parameter settings of the ERP system, which delivery readiness can be achieved at which logistical costs. Examples of control variables are Batch size and minimum order quantities, different replenishment times, forecast, safety margin and scheduling procedures as well as process parameters.

The core conceptual measure of the project was the introduction of end-to-end planning and scheduling of the flow of goods. This process starts with the classification of the articles and continues with the set of rules for disposition. The latter influences both sales planning and the scheduling itself.

A key component of the new planning process is the regular classification of the complete product range according to

  • ABC – economic significance,
  • XYZ – regularity of consumption (assessment of predictability) and
  • STU – number of customers per item and
  • ELA – Life cycle.

These classification features not only provide transparency about the composition of the current product range, but are also important parameters for deciding which planning and replenishment procedures and parameters should be set for which item.

Automatic data maintenance for large article quantities

Due to the large number of different input parameters, this optimization step can no longer be carried out manually. The consultants therefore drew up a set of rules that precisely defines which article classes are to be planned and scheduled and how. The set of rules is processed automatically by an extraction from the DISKOVER SCO simulation system. Efficient and reliable monthly updating is therefore also possible for very large product ranges.

Following the inventory optimization, significant savings were achieved in the various departments at Thermo Electron. The storage area was reduced by 60%After article classification and application of the MRP set of rules, the ERP system now contains the settings for how each article is to be planned and scheduled. Planning is carried out on a monthly basis and per individual item. Further differentiation by sector and customer is planned for the future. Supported by DISKOVER SCO, predecessor and successor relationships are used for forecasting wherever possible. Intensive monitoring of the start-up process with prompt correction of planning is firmly anchored in the process.

For the demand forecast, an integrated forecast is created from available statistical data and sales information. This integrated forecast flows into the nightly MRP run and into the multiple daily MRP net change runs together with the current stock, the existing orders as well as the purchase requisitions and customer orders.
Exception planning – such as actions with dates and quantities – can be recorded by sales staff in Excel and sent to the DISKOVER service by e-mail. They are processed automatically by DISKOVER SCO. The sales employee receives a message from DISKOVER SCO about the processing of his planned figures. The system informs the responsible buyer that their items are in a promotion. The material planners receive a message that the action has been scheduled and whether the desired action quantities are available on the desired date. If an item is unavailable, the MRP controller can double-click on it to switch directly to the MRP view of the affected item and take appropriate action.

After processing the planned orders for which DISKOVER makes suggestions for start and order dates, the scheduler systematically deals with the acute planning and scheduling problems, e.g:

  • with a shortfall within the replacement period,
  • current shortages,
  • Safety stock shortfalls within the replacement period,
  • acute shortfalls in safety stocks,
  • Items for which current demand is higher than the forecast,
  • orders or production orders in arrears.

Alert mechanisms ensure that items with the highest urgency are immediately highlighted and can be dealt with as required. Exception planning – such as promotions and facilities – is displayed as an independent requirement element with quantity and date in the MRP. This ensures that these requirements can be clearly distinguished and managed from regular requirements.

Another component of the daily scheduling work is the group scheduling. They are designed to optimize order quantities of individual items in terms of logistics costs and delivery readiness. An optimization algorithm in DISKOVER SCO takes the boundary conditions into account. Shortly after implementation, it became apparent that delivery readiness and stock turnover were increasing and inventories were falling. This pleasing development has continued unabated. With improved delivery readiness and reduced inventory, Gremlin Electronics Inc. In the meantime, the company has further expanded its recognized good service on the market while costs have fallen.

(*Name changed for corporate policy reasons

Picture of Dr. Bernd Reineke

Dr. Bernd Reineke

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