Case Study: How Hollister Simultaneously Minimized Inventory Costs and Stabilized Service Levels Using Two Little Known, but Effective, Tools

Transcription

1 Case Study: How Hollister Simultaneously Minimized Inventory Costs and Stabilized Service Levels Using Two Little Known, but Effective, Tools Steve Grace Hollister Incorporated 2011 Wellesley Information Services. All rights reserved.

2 In This Session Learn how the application of two add-on tools from the SAP Logistics Consulting Group are helping us to achieve our inventory reduction objectives Examine how these tools are integrated within the SAP ERP platform, minimising the need for multiple analyses See how the Material Requirements Planning (MRP) Monitor tool recommends selection of the relevant inventory management strategy Look at how the graphics capabilities of the Inventory Cockpit tool provide a powerful way to support conclusions 1

3 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 2

4 Who We Are Hollister Incorporated Hollister Incorporated is an independently-owned global company that develops, manufactures, and markets healthcare products, servicing over 90 countries At Hollister Incorporated, we are dedicated to delivering the highest standard of quality in medical products and services, and each member of the Hollister team is committed to making a difference in the lives of people who use our products Portfolio Ostomy, Continence, Bowel, and Wound Care products 3

5 Why We re Here To spread the word about these tools MRP Monitor and Inventory Cockpit do not appear to be widely publicized to the SAP customer base Our discovery of these tools came only after some extensive research into the ways to use SAP ERP for inventory analysis We had already started down the path of investment in custom reporting To share some of the challenges in implementing the tools How SAP Logistics Consulting helped us to understand our own data for better quality analysis 4

6 Project Scope 5 Major Manufacturing Plants US (x2), Ireland, Denmark, India 2 Major & 2 Regional Distribution Centers US, Canada, Europe (x2) Approximately 40 users globally Planners, Buyers, Inventory Analysts, Cost Accountants, Supply Chain Managers Our Landscape is SAP ERP 6.0 Enhancement Pack 4 Original implementation in 4.6c 6 months prior to upgrade We recommend implementation in ERP 6.0 rather than 4.6c, especially if system upgrade is planned. 5

7 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 tools Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 6

8 Why Inventory? Inventory is a method of dealing with variation in a supply chain Demand variation Seasonal Promotional Competitor failures Supply variation Production delays Late vendor deliveries Transit delays Inventory protects or buffers supply to the customer in the event of the above or other deviations 7

9 How Much Inventory? Inventory is a cost as well as a benefit Inventory levels, therefore, need to be optimized High enough to satisfy the variations previously mentioned As low as possible to reduce the capital investment Calculating the correct inventory level is an iterative process Requires access to the latest data Usage values On-hand values Variability patterns 8

10 Inventory Analysis This iterative process can be made complex and time-consuming Many variables, with a number of data sources The key to success is to have easy access to consistent, meaningful analyses These analyses must focus resources/effort towards those areas which are Of most importance Easiest to correct or resolve issues People should manage the Critical Few Systems should manage the Insignificant Many 9

11 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 tools Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 10

12 Inventory Analysis with SAP ERP 6.0 SAP ERP 6.0 offers a multitude of Inventory Analysis Options as part of its standard suite of transactions Simple on-hand quantity and valuation transactions MB52, for example, can be sorted to show what we have the most quantity or value of in our warehouses Stock Quantity sorted in descending order gives us our Top x lists to work on 11

13 Inventory Analysis with SAP ERP 6.0 (cont.) MRP exception monitoring Exception messages are system-planned activities to reduce inventory and/or to improve service These 5 messages are to Reschedule Out deliveries, thus avoiding over-stock situation 12

14 Inventory Analysis with SAP ERP 6.0 (cont.) Logistics Information Structure (LIS) transactions MC50, Dead Stock MC42, Range of Coverage MCBA, Plant Analysis e.g., Usage Values 13

15 Inventory Analysis with SAP ERP 6.0 (cont.) A number of these standard SAP ERP 6.0 transactions also offer graphical summaries: MCBA, Plant Analysis graphical ABC analysis MC48, Stock Value - graphical inventory trend 14

16 Shortfalls of Standard SAP ERP 6.0 Integration The key shortfall of all these analyses is that they are discrete and not integrated with each other within SAP Confusion can reign, and so analysis and consolidation outside of the system is usually the result! 15

17 Shortfalls of Standard SAP ERP 6.0 Master Data The other main shortfall of the standard transactions is the lack of a link to the Master Data which has driven the current results Again, the analysis will usually be conducted outside of the system, and compared to an extract of the SAP Master Data, also outside of the system! For someone, then, to go back into the system to make Master Data updates after completing their analysis! 16

18 The Dangers of Multiple Analyses The running of multiple analyses for export out of SAP for further analysis is a problem Time consuming Open to errors Unwieldy files created The lack of integration to Master Data is also a problem Time consuming Open to errors Lack of focus on Master Data Unlikely to be completed 17

19 MRP Monitor and Inventory Cockpit The MRP Monitor and Inventory Cockpit add-on tools offer a solution to the need to run multiple analyses and also offers integration with Master Data 18

20 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 tools Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 19

21 Material Document Analysis The first step to building a fully functional analysis of inventory data is create the Material Document Analysis Key This builds new tables of inventory and transactional data which allows the tools to perform all of the powerful aggregation and segmentation functions they offer After the initial load, the Material Document Analysis can be ran as a regular scheduled job 20

22 Understanding Your Own Data It is important that you first have a basic understanding of your organization s own data Number of materials Active, Obsolete, Product LifeCycles Frequency of transactions Minutes, Days, Weeks Types of transactions performed Which types should count as consumption for you E.g. Cycle count transactions? If you do not understand your data, you may well end up with strange results and have to run this analysis over again. SAP Consulting can help here. 21

23 Key for Selection The Key for Selection is the name of the saved set of data tables used by the tools themselves Once you have mastered a basic version, it would then be possible to create multiple versions to suit different business scenarios For example, where manufacturing plants or distribution centres have different processes that have not been standardised The Key used here is the default name, STANDARD, which is what we use for our global standard settings. 22

24 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 tools Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 23

25 MRP Monitor Introduction The initial MRP Monitor results screen consolidates a number of inventory analysis results with master data settings The Top Left sections summarize Key Figures by Classification Graphical representations of the summaries appear Top Right This lower section of the screen contains all of the base data: Master, Transactional, Analytical 24

26 MRP Monitor Data Basis Selection MRP Monitor can be regarded as the main engine, or workhorse, of the tools, using the data from either the previous step or online This is where most of our front-line users are active on a dayto-day basis Planners, Buyers, Inventory Analysts This selection works best for ad hoc analysis. This is your Key from previous step Planners, etc., by nature, seem to prefer to review with current data suggest you schedule Material Document Analysis jobs monthly, but train users to run MRP Monitor ad hoc. 25

27 ABC-XYZ Analysis Introduction The analytical aspects of these tools hinge on an ABC-XYZ analysis of the data for optimal segmentation Most of you will be familiar with a Pareto or ABC analysis of inventory For example, representing the top 70% of materials by usage value as A Class materials This is combined with an XYZ analysis of consumption or usage variation For example, representing the top 70% of materials with the most stable usage patterns as X Class materials 26

28 ABC-XYZ Segmentation The combination of these two classifications gives each material a better defined segment for inventory management strategy Coefficient of variation selection: 100% X Y Z ABC Usage Pareto Z C B 100% A XYZ = Coefficient of Variation Y A 30% B Combined classification defines X 15% 50% 100% C20% 50% 100% preferred strategies Percentage Percentage of articles of articles AX (High usage, low variation): Frequent deliveries, reduced safety stock requirements (Strategy - Ideal Kanban candidates) CZ (Low usage, high variation): Bulk lot sizes, higher safety stocks (Strategy- Reduce administration/management) This classification also allows for resources/effort to be directed towards the most important / easiest to correct areas Percentage Coefficient of of sales variation Percentage of sales 27

29 MRP Monitor Strategy 1 Tab This tab allows for the user to select and classify materials using their own basis Define whether to include certain materials New, Discontinued, No Usage The ABC and XYZ criteria can also be selected by user The end analysis can be made more meaningful by choosing to classify very low value or usage items differently 28

30 MRP Monitor Result Tab The results tab then allows the user to choose how to process the results Just display and work on the results in this session Save the results for further analysis/work at a later stage Save the analysis for use in Inventory Cockpit 29

31 ABC-XYZ Indicator Update After running an analysis, it is possible to update the ABC-XYZ Indicator Highlight all materials to update, and select icon This then updates a new field in the MRP1 View of the Material Master 30

32 Master Data Update As well as the ABC-XYZ Indicator, MRP Monitor also allows direct update to a number of key planning parameters for selected materials Or update of Master Data by branching out to and back from Material Master, MM02 transaction (among others) 31

33 Classification Table and Stocks As a default, after first running MRP Monitor analysis, a summary table by ABC-XYZ category is displayed By category shows Number of materials Total usage values Total inventory values Their average range of coverage The On Hand Stocks can be displayed in MRP Monitor with a summary table from MMBE transaction 32

34 Consumption Trend Data MRP Monitor offers a number of ways to analytically or factually assess the consumption patterns for a material Standard Deviation and Coefficient of Variation Last usage, receipt, movement Number of periods without usage etc. Online in the MRP Monitor itself, the option to show the consumption pattern graphically is also offered.

35 Data Table Selections The Data Table can be configured by the user to show any number of Key Figures depending on preference or the nature of analysis The data can also be saved or exported in the same way as most regular transactions Key figures pushed to display can then be re-sorted Required key figures are pushed to display here 34

36 MRP Monitor Graphics MRP Monitor has a number of graphical representations showing various profiles by ABC-XYZ category The real graphics capabilities come in Inventory Cockpit 35

37 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 tools Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 36

38 Inventory Cockpit Introduction Initial screen opens with a similar layout to MRP Monitor 37

39 Target Value Calculations As a comparison in the Inventory Cockpit graphs, a target inventory value can be shown This can either be a value entered by the user, or calculated based on Replenishment Lead Time and other factors 38

40 Inventory Cockpit Selections There are a number of user definable settings when loading Inventory Cockpit, which define how much data is presented, and the characteristics of some of the graphs 39

41 Dashboard Graphics Graphs by category, similar to MRP Monitor are available 40

42 Period Comparison Graphs Graphs comparing the stock profiles and range of coverage by period are available Combined with the target inventory level, this graph can also show delta between initial inventory and current, as well as between inventory and target level 41

43 Coverage Classes An inventory profile by coverage classes is available The ranges are user-definable in the Selections tab as we saw previously The values for this graph are selected here 42

44 Stock Classes An inventory profile by stock classes is also available Again, the ranges are user-definable in the Selections tab The values for this graph are selected here 43

45 Graphics Functions The graphs themselves can be saved or exported, not just the data in Inventory Cockpit Graph are easily saved and displayed or imported into various applications 44

46 Period Comparison By creating multiple Reference Keys for Inventory Cockpit, comparisons can be made by period All key figures can be compared between periods, which could be, for example, a full 12 months 45

47 Data Aggregation As a result of the Material Document aggregation we created earlier, Inventory Cockpit provides fully flexible aggregation levels 46

48 Hit List The Inventory Cockpit Hit List gives the detail for the Top x materials for 6 Key Performance Indicators 47

49 Hit List (cont.) The number of materials making up the Top x can be selected by the user 10 is the default, any more than 20 will not be graphed 48

50 Demo Reading and transferring data between SAP tables to custom tables in MRP Monitor Executing inventory segmentation at the SKU and group levels

51 What We ll Cover Introduction Inventory Inventory Analysis with standard SAP ERP 6.0 tools Material Document Analysis MRP Monitor Inventory Cockpit Wrap-up 50

52 Resources Marc Hoppe, Inventory Optimization with SAP (SAP Press, 2nd Edition, 2008). ISBN Highly recommended text covering both an introduction to inventory management concepts as well as their application with SAP. Includes discussion of theory behind MRP Monitor and Inventory Cockpit analyses. ement+-+details+on+service+offerings Site includes details of all of the Supply Chain Management and Logistics Consulting offerings, including MRP Monitor and Inventory Cockpit 51

53 Resources (cont.) John Gattorna, Handbook of Logistics & Distribution Management (Gower Publishing, Aldershot, England, 4th Edition, 1994). ISBN X. A good introductory book for all aspects of Logistics & Supply Chain Management, with focus on and clear descriptions of strategy selection Martin Christopher, Logistics & Supply Chain Management (Prentice Hall, Harlow, England, 4th Edition, 2011). ISBN Another excellent introductory book for all aspects of Logistics & Supply Chain Management, giving some clear guidance on inventory strategy selection 52

54 7 Key Points to Take Home Data analysis is key to understanding and optimizing a situation; effective inventory analysis is key to optimizing inventory levels. SAP s add-on tools, MRP Monitor & Inventory Cockpit provide an effective means of analyzing inventory These tools also offer direct access to adjusting Master Data, which are central to inventory planning consistency. Try to implement MRP Monitor & Inventory Cockpit in ERP, even if that means deferring your implementation by 6mths or so. Understand your own organization s data before you proceed, to avoid multiple data loads. Graphical representations of data are quicker to understand. Users like the ability to conduct their own ad hoc analyses. 53

55 Your Turn! How to contact me: Steve Grace 54

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