Background
The US subsidiary of the world’s leading pure-play coffee and tea company, with more than $8B in annual revenue was dealing with excess and expired inventory.
Challenges
➢ Excessive expired inventory – double the headquarters’ acceptable benchmark of 3% in total inventory value.
➢ Excessive amount of inventory in all classes especially in SKUs for specific sales channels.
➢ Recent changes in executive leadership have led to limited institutional context, loosely defined ways of working & collaboration, and ad-hoc decision-making.
➢ Limited IT and data analytics resources.
Implementation
To address these issues, we started with interviewing all stakeholders and a detailed chart of current procurement and planning processes, and internal KPIs that are being tracked by Finance, Operations, and Sales.
➢ Root-cause analysis: Yielded that the demand and supply planning activities were robust, however were distanced from real-time sales intelligence. Forecasts were volatile and there wasn’t a well-established decision-making mechanism among the stakeholders for final purchase orders concurrent with the revenue planning processes. In addition, reports and data used in the planning process were being challenged at every step by different departments, clearly indicating a lack of credibility of data despite a functioning ERP system in place.
➢ Integrated Business Planning (IBP) Implementation: We started with the IBP framework, known to address misalignment among stakeholders and imposes a minimum 18-month planning cycle. Having mapped all the planning and procurement processes beforehand, we adjusted the standard playbook to fit with the client’s unique requirements. To unify the conversation by using credible and reliable data, we proposed and implemented changes at the warehouses for tracking inventory at every stage of the warehousing and distribution. IBP implementation is a process that requires close support until the agreed upon planning and decision-making rhythm is in place and all stakeholders actively participate and start collaborating on preparation and decisions. We assisted during this process and empowered the adoption of it through our support and presence for all meetings for 6-months.
➢ Reboot of the ERP system: The ERP system was already in place but lacked the additional data the client needed to keep for accurate FEFO management and compliance with channel requirements. Stakeholders used the reporting from the ERP system haphazardly without true understanding of the data fields. In addition, the integration of the multiple warehouses into the ERP was incomplete, causing unreliable data. We’ve worked with the client’s IT and Operations teams as well as the warehouse systems to map the integration and managed the project to thoroughly test and launch. We also developed all the custom ERP reports per department to use daily in KPI tracking and planning. This was a critical piece for a company with limited IT resources. We needed to ensure the IBP cycle could be started and maintained and this could only happen with reliable and readily available, easily usable data.
➢ Training and upskilling: Throughout the project, we conducted specific training about the IBP process in detail and customized to each department, as well as the executive team. Similarly, we trained each department in the use of the ERP system but more specifically about the custom reports: how to read them, the source of data, and how the resulting reports would impact other departments and the company. Upskilling naturally happened as staff became more knowledgeable about the ERP system, data, and how to use them for their needs to continuously monitor and improve the agreed-upon critical KPIs.
Results
The implementation of these measures led to significant improvements:
➢ Drastically Reduced Total Inventory: Within 6 months of launch, finished goods inventory was reduced by 16%, and raw inventory by $3.8M.
➢ Improved Inventory Tracking and Fulfillment Processes: Leading to an average 2.1% expired inventory as % of total Finished Goods inventory within 12 months, surpassing HQ expectations.
➢ Significant OTIF Performance Improvement: Comprehensive overhaul of the planning process and systems coupled warehouse process improvements resulted in OTIF performance improvement over 12 months from 78% to 89%.
