Optimized portfolio structures

by Armin Klüttgen

Together with Abels & Kemmner, GAH Alberts has drastically reduced stocks. In addition to short-term measures, a long-term and better coordinated dovetailing of production and warehousing was also initiated.

In the GAH Alberts inventory optimization project, in which inventories were to be drastically reduced by 30 percent, two special features had to be taken into account: Firstly, there was a particular focus on the readiness to deliver, as the construction markets as customers place very high demands on the delivery rate to be achieved. On the other hand, GAH manufactures products that are subject to extremely strong seasonal behavior, as many products are manufactured and sold for the garden sector.

During the peak season, the available production capacities are not sufficient to fully synchronize production with the market. This means that the quantities you plan to sell sometimes have to be produced weeks or even months before the planned sales. The consequences of inaccurate sales planning are obvious: sales cannot be realized due to a lack of material and other materials remain in the warehouse as slow-moving items.

In order to improve planning and scheduling, GAH launched a project with the initial aim of rapidly reducing its inventory. Only after this first step was the systematic and sustainable reduction of stocks implemented. The advantage of this strategy is that you create liquidity quickly and only then have to implement sustainability.
This strategy is known in the industry as a quick win. That may sound a bit like clear-cutting. “However, such actions are not intended, as they very quickly lead to a subsequent quick loss after the first quick successes,” says Armin Klüttgen, Principal at the consulting firm Abels & Kemmner GmbH, which implemented the measures.
Truly sensible measures for achieving quick wins are characterized by the fact that they essentially take place in the existing planning and logistical environment. They are not subject to rolling, recurring optimization and are therefore rather static actions with a one-off character. Nevertheless, the potential to be leveraged is identified systematically and in a well-structured manner, the steps to be taken are carefully worked out and the effects of the actions are regularly reviewed. “The aim here,” Klüttgen continues, “is to achieve economic success quickly.”
After a rough assessment of the processes, initial simulations and the implementation of inventory driver workshops, a set of measures was defined that should lead to a significant reduction in inventories in the short term. This showed which were the top 100 items with inventory reduction potential. These were then scrutinized in detail according to the causes of the inventory, and in some cases converted on a dispositive basis or reduced through appropriate use. The result of the efforts to achieve quick wins was that after around four months, inventories had already fallen by more than 13%, while delivery readiness had not diminished.

While the short-term measures continued to take effect, work began in parallel to optimize planning and scheduling for the long term. The concept was to switch from the previous push strategy to a pull strategy for replenishment wherever possible. Up to now, preliminary plan values have only been entered into the system twice a year. In future, a large proportion of the product range will be planned and scheduled on a much more short-term consumption basis.
If, like GAH Alberts, you have to prefabricate for the new season months in advance, then you face a very special problem: The time of sale is still a long way off, but you still have to decide which products to produce to full specification and put into stock. Failure to solve this problem jeopardizes the optimal inventory structure and the desired delivery readiness.

At GAH Alberts, production control is now based on a clear categorization of products. Regularly running items are given priority in production, for example, as the risk of them ending up as slow sellers is lower. The corrected production situation is then used to determine corrected reorder points.
“Thanks to the measures we have taken, we have managed to reduce costs and at the same time achieve the specified delivery readiness,” says Stefan Thomas, Head of Logistics at GAH in Herscheid. “New strategies and processes have been established in planning and scheduling, supplemented by significantly enhanced system support to achieve the desired performance and planning quality,” Thomas continues. Impressive results have been achieved through the realization of quick wins and the rapid transition to permanent wins. “After a stock reduction of 13% in four months, stocks were down 53% after nine months,” emphasizes Jose Manuel Garcia Hidalgo, Head of the Disposition Center in Herscheid. Thanks to the measures taken, a permanent win is now on the way.

Picture of Dr. Bernd Reineke

Dr. Bernd Reineke

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