Sihl achieves significant reduction in net working capital with logistical simulation 

Dr. Bernd Reineke

By Dr. Bernd Reineke and Fabian Ossen

Creative image formats, brilliant colors, expressive packaging lay the foundation for the marketing of numerous companies. Behind them are suppliers and service providers, including manufacturers of special papers, films and nonwovens. Sihl, based in Düren, Germany, stands as a strong partner at the side of future-oriented industries and creates innovative solutions through high-quality coatings. More than 350 employees in the Sihl Group contribute to the success of their customers from a wide range of industries in almost every country in the world. From automotive to tourism, from packaging and labels to printing and logistics, customers trust the high-quality coatings and technological know-how of the company based in Düren, Germany.

The growth and technological progress in products led Sihl to the point of analyzing how to improve supply chain processes and the decisive competitive advantage “delivery time”. One of the triggers here was the different, country-specific ERP systems and the associated friction losses.

Another issue was the availability of products on the one hand and high inventories of items on the other. And last but not least, customer satisfaction in a highly competitive market, where high delivery readiness and the ability to plan deliveries are the order of the day.

The goal – transparency, right levers and motivating quick wins

“We wanted to find the way to the highest possible inventory transparency and to master the crucial starting points of our logistical challenges,” recalls Supply Chain Manager Fabian Ossen. Six specific goals were to be achieved in the project outcome:

  1. Reliable delivery dates for customers
  2. Delivery strategies for coordinated delivery times
  3. Streamlining of value streams
  4. Reduction of the number of variants
  5. Review of article parameters with regard to scheduling and forecasting
  6. Reduction of net working capital
two-step consulting approach - Abels & Kemmner

It was clear to all that external support should be called in for this course to analyze the processes, provide moderation and work out the measures. It was hoped that quick wins would provide internal motivation to develop far-reaching optimization approaches more quickly and within the set budget.

Logistic optimization by means of simulation is ahead

The management consultancy Abels & Kemmner was awarded the contract to support and carry out this project. The approach of a potential analysis with the help of a special simulation system was convincing. In addition to the possibility of a digital twin of the ERP system, Abels & Kemmner’s two-step approach was about 30% cheaper than classic consulting approaches. In addition, the company hoped that the digital twin would enable rapid data analysis with results that could be implemented in the short term.

With the process analysis and the data analysis, the potential analysis is divided into two focal points. In the process analysis, all the key processes in the supply chain are scrutinized. In the data analysis, detailed master and transaction data is pulled from the ERP systems and analyzed in the simulation system used in the project. As a rule, obvious potentials are already uncovered in the process recording and directly addressed with appropriate measures. The focus was on reviewing stocking strategies and classifying materials.

Rapid results and lucrative quick wins

In this way, excessively high inventories, poor availability or unsuitable items in the product portfolio could be uncovered. With the support of a decoupling point analysis, in which the stockholding was determined on the basis of the delivery promise to the customer, incorrect stocking strategies could be uncovered. The simulation system then calculated the necessary inventory levels on the basis of corrected strategies and in turn determined potentials for inventory reduction, i.e. lower working capital.

Quick wins contributed to a return on investment (ROI) of the consulting project at the beginning of the collaboration. Typical examples of quick wins were uncoordinated processes, especially in the interfaces between areas of responsibility, or incorrect system settings, such as safety stocks or batch sizes.

Employee involvement promotes acceptance

The results from the process analysis and the data analysis were discussed and verified in potential workshops with the project team and with the operational forces and went deep into the details of processes and data. Descriptive facts provided many details in the discussion that initially went unmentioned in interviews. In particular, personal write-ups or additional information that was not included in the ERP data came to light.

The potential workshops also provided a platform for discussing initial solutions and testing their feasibility. Involving employees directly in finding solutions during the workshop helped to achieve a high level of acceptance of the results. With their knowledge gained in this way, the participants became important multipliers and ambassadors of the promising project ideas.

Result – a robust action plan

After many suggestions and individual measures from the analysis phase, Sihl obtained a coordinated action plan. The individual measures were bundled and combined into key topics. The project team had the role of providing support in designing the measures and assessing their potential. At Sihl, of the six packages of measures, three key action areas stand out:

“A&K’s simulative analysis of our global value chain showed us the crucial starting points for improving our delivery readiness and significantly reducing our inventories. The fact that A&K also implemented and achieved the results together with us was a decisive factor for us.”

Fabian Ossen, Supply Chain Manager at Sihl GmbH

Measure 1: Product portfolio management

A bitter realization was that a broad (many different products) and deep (high number of variants) product portfolio drives up process and storage costs and melts away margins. Sihl’s existing product portfolio showed the typical signs of an unregulated product development process: while new product ideas were implemented, old or less profitable products were neglected from the range.The product portfolio management measures are intended to prevent this in the future. To this end, so-called market teams were created to regularly analyze the product portfolio, determine start-up and phase-out phases, and define successor products. A key factor in the success of this measure was the definition of a regular process that specified what had to be done and when, what the basis for decisions had to be and how the decision-making and escalation process would work.

For this purpose, it was necessary to determine suitable methods and analyses to be used on a regular basis as well as to discuss necessary tools to support and simplify the work.

Measure 2: Establishment of a structured delivery strategy

At the beginning of this measure, a customer survey was conducted in the short term, which yielded the following results:

  • More than half of the customers surveyed were dissatisfied with the delivery service level
  • Customers expect shorter delivery times for selected products

As part of this measure, the existing market promises were reviewed and a future delivery strategy of delivery classes was developed.

  • The delivery classes provide for different delivery times to customers. For example, important and high-volume products will continue to be delivered from stock at short notice.
  • Products that are in less frequent demand are replenished during the replenishment period. The finished and semi-finished products no longer have to be stocked in these delivery classes.

In total, there are 5 different delivery classes.

  • Delivery class A: X days
  • Delivery class B: X+3 days
  • Delivery class C: X+7 days
  • Delivery class D: X+21 days
  • Delivery class E: on request

This measure alone involved an inventory reduction of over 12% of the total inventory value.

Measure 3: Systematization and optimization of scheduling

Until now, most decisions regarding stocking strategies and related disposition parameters rested with the dispatchers. Finally, it was concluded from measure 2 that in the future a systematization is needed that ideally specifies the necessary settings of the disposition parameters. Essential parameters are, for example, the planning strategy, the forecast profile, the desired readiness for delivery and the safety stocks as well as the MRP method and the lot-sizing procedure.

First of all, essential material classifications had to be determined:

  • ABC classification for economic importance
  • XYZ- classification for the regularity of consumption
  • STU- classification for the number of buying customers, etc.

Other material properties can also influence MRP parameters such as product life cycle, material group, delivery time, product hierarchy, etc.

These properties are incorporated into an MRP rule set that makes the settings for the materials. In this way, it is precisely specified for each individual material whether a make-to-stock or make-to-order strategy is to be applied and how the numerous parameters (see above) are to be assigned. The results of the set of rules thus have a direct effect on the forecast settings, which also include the necessary settings for the safety stock calculations.

With the set of rules, all parameters are finally determined to let the planning run (MRP) of the ERP system run in a targeted manner and to achieve the calculated potentials.

The basis for systematizing and optimizing MRP is shown in the following figure:

optimization parameters at Sihl - Abels & Kemmner

Successful cooperation continues

A major advantage of the rules and regulations is the possibility of automation. This is particularly helpful to the MRP controller, since he now recognizes changes in the material properties himself and does not have to make the settings manually.

As a logical consequence, a sub-project with Abels & Kemmner resulted, which included the IT-supported implementation of the set of rules. This resulted in the recommendation for the selection of a suitable, supplementary software system, since programming in the ERP environment had been recognized as too costly.

Dr. Bernd Reineke

Autor | Author

Dr Reineke earned his doctorate in mechanical engineering and was initially responsible for logistics, planning, scheduling, development and IT in industry for 10 years.

Since then, he has been advising companies with a focus on SCM, production control, IT optimisation and inventory management.

The results of his projects have already received several awards.

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