Improving Supply Planning - A Demand Driven Journey
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British Telecommunications (BT) has undergone a significant transformation in its supply chain management since launching a program in September 2014, moving from decentralized inventory management to a centralized approach. The company aims to improve forecast accuracy and adopt a demand-driven model, resulting in more efficient inventory management practices and reduced costs. The initial results show a 15% reduction in inventory holding and improvements in supply chain performance, with plans for further implementation across various product lines.
Improving Supply Planning - A Demand Driven Journey
- 1. © British Telecommunications plc BT Supply Chain Brian Dooley FCILT, CDDP, CDDL Senior Supply Chain Planning Manager BT’s Demand Driven Journey
- 2. © British Telecommunications plc A bit about us …
- 3. © British Telecommunications plc Agenda • Our journey so far • The case for change • Selling the solution • Results, learnings & next steps
- 4. © British Telecommunications plc Our starting point Our transformation journey so far… © British Telecommunications plc • Inventory management and supply chain planning decentralised • Separate teams within each Line of Business • No Pan BT standard approach or reporting
- 5. © British Telecommunications plc Our starting point September 2014 transformation programme launched Our transformation journey so far… © British Telecommunications plc • Design new operating model for Pan-BT inventory management • Create Inventory Management Centre (IMC) – responsibility for inventory planning and execution moved to BT Supply Chain • Develop insightful inventory reporting
- 6. © British Telecommunications plc Our starting point September 2014 transformation programme launched The first 18 months … Our transformation journey so far… © British Telecommunications plc • Completed design and development of new operating model • Demand forecasting process • Safety stock calculation • Demand & supply balancing through S&OP • Design and re-organisation of IMC team • Implementation of new IM processes across the lines of business
- 7. © British Telecommunications plc Our starting point September 2014 transformation programme launched The first 18 months … Achievements to December 2015 … Our transformation journey so far… © British Telecommunications plc • Stable and standardised processes and controls in place • Reduced inventory holding by 15% • Systems in place for demand forecasting & inventory optimisation • Introduction of formal S&OP process
- 8. © British Telecommunications plc • Forecast accuracy a challenge, particularly at SKU level • Inventory glide path from DRP not being achieved • Service issues & expedite costs from none forecast demand Our starting point September 2014 transformation programme launched The first 18 months … Achievements to December 2015 … Our transformation journey so far… © British Telecommunications plc Where do we go next?
- 9. © British Telecommunications plc The Case for Change In a word – FORECAST ACCURACY Manifested in two key areas; OTIF (availability) and inventory glide path “Can we add an extra line to the glide path to account for how wrong we think the forecast will be”
- 10. © British Telecommunications plc 29% 17% 13% 17% 19% 22% 26% 22% 27% 26% 23% 19% 29% 22% 22% 33% 27% 33% 24% 21% 25% 28% 24% 32% 42% 61% 65% 50% 54% 44% 50% 56% 48% 45% 53% 49% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FC Error SKU Mix SKUS <20% Err SKUS 20%-50% Err SKUS > 50% Err 0 2 4 6 8 10 12 14 16 18 20 NumberofSKUs Forecast Error Rolling 3 Month FC err % Half the items have a forecast error in excess of 50% At an aggregate level there is a strong negative bias (over forecasting) There is a broad spread of both under and over forecast items Our push to forecast model results in a bi-modal inventory distribution of either too much or too little stock The Case for Change – Example Forecast Accuracy Results for one Portfolio Aggregate Demand vs Forecast Forecast Demand 0 5 10 15 20 25 30 Distribution of SKU’s by Buffer Zone
- 11. © British Telecommunications plc So What’s the Solution? Improve forecast accuracy…….. “If I had asked people what they wanted, they would have said faster horses” Henry Ford But……. “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window” Peter F Drucker
- 12. © British Telecommunications plc Answer – Become Demand Driven January 2016 strategic decision to adopt a demand driven approach: Enabling us to de-risk the supply chain and address the challenge of demand forecasting particularly at SKU level At first glance this approach made sound sense – de-risks the supply chain and removes dependency on detailed demand forecasts Big question ‘How do we sell this to the rest of the business’ The change challenge: Small core team educated in DDMRP (CDDP course) Built a ‘proof of concept’ model to test the theory and simulate comparison with traditional approach Introduced concept and outcome of simulations to main line of businesses making up majority of inventory holdings - all agreed to extend ‘proof of concept’ on larger portfolio of products Potential benefits quantified, supply chain risks assessed and senior stakeholder support obtained for implementation Developed an in house Excel DDMRP model to quickly roll out the proof of concept & maintain momentum
- 13. © British Telecommunications plc A Simple Model to Explain the Concept Demand Forecast BT Finished Goods In Transit Supplier Finished Goods Supplier Manufacturing Supplier Raw Materials 100% Coupled and Dependant on Forecast – Forecast Error Propagated Through the Supply Chain Actual Customer Orders In Transit Supplier Finished Goods Supplier Manufacturing Supplier Raw Materials BT Finished Goods DDMRP Buffer Driven by Real Demand and Independent of Forecast PUSHPULL Buffer sized using: - Business forecast + planned events - Product lead time - Demand variability Sized & positioned to cope with the demand we expect to happen (have forecasted to happen) – reviewed monthly as part of S&OP Maximum stock exposure is limited to filling the buffer to top of green, after that all replenishment orders are driven by real demand Key Messaging Supply chain ‘de-risked’ from forecast accuracy Strong positive impact on cash flow and ROCE Higher service levels and shortened customer response times Overall inventory reduction typically between 20%-30% across LoBs Release of supply chain capacity by not producing, buying and storing the wrong stuff Cost reduction – lower planning effort with improved outcomes – more stable signals to suppliers – lower expedite costs
- 14. Results achieved
- 15. © British Telecommunications plc 01/07/2015 06/07/2015 09/07/2015 14/07/2015 17/07/2015 22/07/2015 27/07/2015 30/07/2015 04/08/2015 07/08/2015 12/08/2015 17/08/2015 20/08/2015 25/08/2015 28/08/2015 02/09/2015 07/09/2015 10/09/2015 15/09/2015 18/09/2015 23/09/2015 28/09/2015 01/10/2015 06/10/2015 09/10/2015 14/10/2015 19/10/2015 22/10/2015 27/10/2015 30/10/2015 04/11/2015 09/11/2015 12/11/2015 17/11/2015 20/11/2015 25/11/2015 30/11/2015 03/12/2015 08/12/2015 11/12/2015 16/12/2015 21/12/2015 24/12/2015 29/12/2015 01/01/2016 06/01/2016 11/01/2016 14/01/2016 19/01/2016 22/01/2016 27/01/2016 InventoryValue(£) Actual vs DDMRP Simulation – 6 month Inventory Evolution Actual – over forecast items Actual – under forecast items DDMRP – over forecast items DDMRP – over forecast items Actual – Total items DDMRP – Total items Simulation model built using 6 months history of actual daily orders Two groups of SKUs from the same family modelled that had been historically over and under forecast but at the aggregate level had excellent accuracy RESULTS • Stock is in balance and total inventory is halved • NOT Dependant on Forecast so decoupled from forecast error • NO Service issues • LESS Inventory • STABLE load on factory • NO costs of failure Simulation - test the theory Manufacturing Lead Time
- 16. © British Telecommunications plc DDMRP is not magic, assuming buffers are not oversized then a significant increase in demand will still result in a stock out The buffer will react and recover but not within the lead time Still better than planning to too low a forecast If the increase is known it can be accommodated by flexing the buffers (ahead of lead time) This flex does not have to be driven directly by an item level detail forecast, buffer sizing can be discussed as part of the S&OP process and adjustments and/or simulations run accordingly 01/07/2015 09/07/2015 17/07/2015 27/07/2015 04/08/2015 12/08/2015 20/08/2015 28/08/2015 07/09/2015 15/09/2015 23/09/2015 01/10/2015 09/10/2015 19/10/2015 27/10/2015 04/11/2015 12/11/2015 20/11/2015 30/11/2015 08/12/2015 16/12/2015 24/12/2015 01/01/2016 11/01/2016 19/01/2016 27/01/2016 Item A – 80% Demand Uplift October RED YELLOW GREEN O/H Avail Stock 01/07/2015 09/07/2015 17/07/2015 27/07/2015 04/08/2015 12/08/2015 20/08/2015 28/08/2015 07/09/2015 15/09/2015 23/09/2015 01/10/2015 09/10/2015 19/10/2015 27/10/2015 04/11/2015 12/11/2015 20/11/2015 30/11/2015 08/12/2015 16/12/2015 24/12/2015 01/01/2016 11/01/2016 19/01/2016 27/01/2016 Item A – 80% Demand Uplift October RED YELLOW GREEN O/H Avail Stock A New Role for Forecasting Soft Benefits • Better language to communicate with none supply chain folk • Greater willingness to share business insight • Less emotion when things go wrong
- 17. © British Telecommunications plc Sumof3/1/16 Sumof7/1/16 Sumof11/1/16 Sumof15/1/16 Sumof19/1/16 Sumof23/1/16 Sumof27/1/16 Sumof31/1/16 Sumof4/2/16 Sumof8/2/16 Sumof12/2/16 Sumof16/2/16 Sumof20/2/16 Sumof24/2/16 Sumof28/2/16 Sumof3/3/16 Sumof8/3/16 Sumof11/3/16 Sumof15/3/16 Sumof19/3/16 Sumof23/3/16 Sumof27/3/16 Sumof31/3/16 Sumof4/4/16 Sumof8/4/16 Sumof12/4/16 Sumof16/4/16 Sumof20/4/16 Sumof24/4/16 Sumof28/4/16 Sumof2/5/16 Sumof6/5/16 Sumof10/5/16 Sumof14/5/16 Sumof18/5/16 Sumof21/5/16 Sumof26/5/16 Sumof30/5/16 Sumof3/6/16 Sumof7/6/16 Sumof11/6/16 Sumof15/6/16 Sumof19/6/16 Sumof23/6/16 Red (£) Yellow (£) Green (£) Closing Inv (£) Actual Inv (£) Net Flow £ Actual Receipts from existing POs to this point 44% reduction in average on-hand inventory Buffers dynamically resized using an 8 week historical rolling ADU Proof of concept simulation – Another example with dynamic buffer resizing
- 18. © British Telecommunications plc Count of SKUs 06/06/2016 13/06/2016 20/06/2016 27/06/2016 04/07/2016 11/07/2016 18/07/2016 25/07/2016 01/08/2016 08/08/2016 15/08/2016 22/08/2016 29/08/2016 05/09/2016 OH Red 3 1 2 3 3 4 1 2 3 2 1 1 1 2 OH Yellow 4 6 4 11 6 6 7 6 4 7 8 5 6 9 OH Green 21 24 24 26 36 37 37 36 38 33 32 39 36 37 OH OTOG 86 83 84 74 69 67 69 70 69 72 74 70 72 67 Net Flow Red 1 0 0 0 0 0 0 0 1 1 0 0 0 0 Net Flow Yellow 3 4 3 29 15 6 7 8 13 12 15 9 11 17 Net Flow Green 36 39 52 40 53 64 63 64 58 57 56 59 60 56 Net Flow OTOG 74 71 59 45 46 44 44 42 42 44 44 47 44 42 P12 Q1 Q2 Q3 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 DRP DDMRP DDMRP Projection 22% reduction in the number of SKUs with too high an on hand stock 43% reduction in SKUs over top of green – we are not ordering product we don’t need. Clear priorities on which SKUs to expedite / ensure on time delivery • For the first time since Q1 15/16 inventory has stopped increasing • Demand has not increased, production has not reduced and we are in fact still pulling forward production • DDMRP is ensuring we use capacity to produce what is actually required and bring the mix back under control • S&OP is now focused on defining what supply chain capability we need in place to support the demand we are expecting rather than creating a master schedule of what we think (hope) we might need Actual results from Excel model deployed in June 2016 InventoryValue(£) Inventory Glide Path
- 19. © British Telecommunications plc Index BT IC Desc ADU MOQ Order Cycle (days) + On Order -Qualified Sales Orders On Hand =Available Stock Recommended Order 1 Part1 601.08 8100 15 32,400 4,000 6,169 34,569 8100 2 Part2 58.69 6000 102 6,000 0 631 6,631 0 3 Part3 938.25 5030 15 45,270 0 10,542 55,812 15090 4 Part4 3417.14 8100 15 146,853 1,950 48,043 192,946 64800 5 Part5 347.85 8075 23 25,089 0 5,092 30,181 0 6 Part6 213.46 4840 23 10,502 1,500 4,491 13,493 0 7 Part7 8.63 12 15 415 13 194 596 0 8 Part8 2569.15 10100 15 125,193 2,500 67,041 189,734 0 9 Part9 190.77 10000 52 10,400 0 5,200 15,600 0 10 Part10 1670.35 4015 15 70,506 3,975 50,872 117,403 0 11 Part11 156.08 8100 52 8,100 790 4,951 12,261 0 12 Part12 6.66 50 15 250 10 221 461 0 13 Part13 711.98 3040 15 14,310 1,940 24,728 37,098 15200 14 Part14 10310.63 14050 15 315,961 13,635 360,075 662,401 0 DDMRP Excel Model - Clear Plan Priorities Critical Items • Expedite existing POs • Call out any delays • On Hand / ADU = Days of cover Potentially at risk items • Monitor • Check days of cover vs PO due date • Call out any delays BT IC Desc On Hand ADU OH Cover PO NUMBER PO DATE QUANTITY ORDERED QUANTITY DELIVERED NEED BY DATE Part1 6,169 601 10 xxxxxxxxxxx 25/05/2016 8100 0 30/06/2016 xxxxxxxxxxx 29/06/2016 16200 0 31/07/2016 xxxxxxxxxxx 13/05/2016 8100 0 27/06/2016 Part2 631 59 11 xxxxxxxxxxx 07/06/2016 6000 0 19/07/2016 Part3 10,542 938 11 xxxxxxxxxxx 05/07/2016 15090 0 16/08/2016 xxxxxxxxxxx 17/06/2016 15090 0 29/07/2016 xxxxxxxxxxx 29/06/2016 10060 0 31/07/2016 xxxxxxxxxxx 29/06/2016 5030 0 15/08/2016 Part4 48,043 3,417 14 xxxxxxxxxxx 07/06/2016 72900 7047 19/07/2016 xxxxxxxxxxx 29/06/2016 48600 0 31/07/2016 xxxxxxxxxxx 29/06/2016 32400 0 15/08/2016 Part5 5,092 348 15 xxxxxxxxxxx 13/05/2016 8075 7211 27/06/2016 xxxxxxxxxxx 17/06/2016 8075 0 29/07/2016 xxxxxxxxxxx 05/07/2016 16150 0 16/08/2016 Expedite Confirm delivery date
- 20. © British Telecommunications plc New Focus for S&OP -> DDS&OP • Less time spent trying to predict the future – Focus shifts to putting the capability in place to cope with the expected demand and its variability • Focus is on managing the tails of the inventory distribution – too much / too little stock • Move away from the goal of one number – Scenarios and an integrated set of plans that support the business strategy – Then focus on what is changing – the exceptions • Short term horizon no longer looked at, focus is now on 3 months+ – DDMRP takes care of planning & execution in the short term 0 10 20 30 40 Ideal Distribution Ideal Too Much Too Little
- 21. © British Telecommunications plc DDMRP currently deployed via in-house solution Implementation of software solution to underpin demand driven operating model Work with key suppliers to extend DDMRP back into their supply chains Align functional KPIs to support DDS&OP Next Steps
- 22. © British Telecommunications plc Learnings • Invest in education – CDDP & CDDL • Just do it – Test it on a small subset of products in Excel • Learn by doing – As above, just start then shape, develop, and refine as you go – and then invest in technology • DDMRP is disruptive – Embrace the transformation and don’t be afraid to abandon current perceived wisdom
- 23. Rethink what your supply chain can deliver