Optimizing Replenishment
- 1. Optimizing and Automating Rapid Replenishment 3/27/2008 Eric Winn Director Demand Planning, ES3 Supply Chain/Rapid Replenishment Procurement, & Procurement Analytics C&S Wholesale Grocers
- 2. What are we here to talk about? Today, we will review the various ways a forecast and analytics-driven approach can automate and optimize rapid replenishment procurement, which is fast becoming the critical component of C&S’ achievement of a higher quality services offering to its customer base
- 3. Agenda C&S Wholesale Grocers – who are we? What have we accomplished? What is the current landscape and to what must we adapt? Rapid replenishment as a core strategy in the adaptation Using a forecast-driven process to leverage rapid replenishment
- 4. C&S Wholesale Grocers – Who are we? C&S Wholesale Grocers is a wholesale and supply chain services provider for retail chains and independents in the grocery industry 2 nd largest wholesale grocer in U.S. and 8 th largest privately held company Nearing $20 billion in annual revenue Doubled in size in the past five years Operating locations, including corporate offices and distribution centers, across the U.S. - Northeast, Southeast, California and Hawaii Over 60 distribution centers, across grocery, frozen, and perishable commodities Customer base focused on large retail chains, but also with substantial penetration into services for independent retailers Over 25 customers, including Ahold USA (Giant of Carlisle and Stop and Shop), A&P/Pathmark, Bi-Lo/Bruno’s, Safeway, Albertson’s, Shaw’s, Tops and Kroger C&S-operated retail units in Southeast and Northeast Nearing $1 billion in annual sales Southern Family Markets and Grand Union C&S-affiliated third party logistics company – ES3 ES3 operates the largest grocery warehouse in the world in York, PA Provides third party logistics services for major grocery suppliers, such as Heinz, Unilever, Kraft, Del Monte, ConAgra, Campbell’s and others Distributes consolidated shipments to C&S and self-distributing retailers in the Northeast
- 5. What have we accomplished? Organization: People and Productivity Target: Maximize Efficiency in Core Activities to Help Build a Premier Supply Chain Organization Process: Rationalization and Standardization Technology: Automation and Accuracy In 2006-2007, C&S was focused internally on reducing cost while improving the quality of its supply chain and procurement operations… Drive organizational changes… … and process changes… … and “change the game” with technology enablement in the form of demand management with Oracle-Demantra
- 6. But the landscape has changed… Last year, we reviewed our path of leveraging technology to revolutionize our supply chain operation – however, the landscape has changed in the past twelve months and we must find new ways to adapt to it Resource displacement due to changes in the fuel industry and shifts in food preferences in developing countries have lead to a dramatic increase in the price of food The Economist, 12/6/07: “The Economist’s food-price index is higher today than at any time since it was created in 1845…prices have jumped by 75% since 2005.” Food manufacturers have been forced to increase prices and drive leaner supply chains (i.e. lower inventories) to offset the cost of raw materials Such a shift in prices combined with higher overall fuel costs and a lagging housing market is driving and will continue to drive a shift in consumer behavior away from “eating out” to eating at home Grocery retailers are experiencing an overall improvement in sales, which heightens the battle for market share and sales – our customers require even better service than ever! C&S, in order to best serve its customers, must be aware of these changes and their implications, and be flexible and nimble enough to adapt quickly
- 7. Rapid replenishment is a core strategy… Utilization of rapid replenishment supply chain is a core strategy to C&S’ adaptation to the changing (changed!) landscape Rapid replenishment Short lead times – under one week, with many at 1-3 days from order placement to product arrival (lead time effectively reduced to order selection and transit time) High volumes (receive deliveries every day or nearly every day) These two elements combined allow for C&S to provide higher fill rates to its customers while also operating a leaner supply chain Targeting near 100% fill rate for customer store orders on all rapid replenishment product Reducing inventories while managing overall supply chain cost Achieving productivity improvements leveraging significant volume through a few channels Half (and growing!) of our rapid replenishment is enabled through ES3 consolidation, which has the shortest possible lead times and some of the most highly seasonal and promoted vendors/products
- 8. But rapid replenishment is not perfect Rapid replenishment indicates the ability to purchase “any” amount of volume on short lead time from the manufacturer, while reacting to real-time demand changes Manufacturer product availability Already in short supply due to shifts in the industry In rapid replenishment, the manufacturer has even less time to react to product needs But the manufacturer also benefits from the high in-stock rates for the retailers Operational cost considerations Just-in-time inventory can drive up operational costs by increasing supply chain “touches” Old economic order quantity models are insufficient to manage this dynamic Forecasting accuracy Causal-based forecasts are less accurate over shorter time horizons and smaller increments Rapid replenishment indicates the shortest possible timeframes Leveraging a multiple tier forecasting enabled by the Oracle-Demantra application, combined with an analytics-driven approach, is key to achieving an optimized rapid replenishment model and the goals indicated therein
- 9. Solving the challenges of rapid replenishment MULTIPLE TIER FORECASTING APPROACH Enterprise-level collaboration with manufacturers Forecast-driven EOQ Daily forecast re-alignment and dynamic forward-looking safety stock Utilizing the accurate and flexible Demantra application and enabled analytics, C&S has been able to solve the challenges of rapid replenishment by implementing a multiple tier forecasting approach that combines: Collaborating with manufacturers at a broad time horizon and enterprise (total C&S needs) level With a re-engineered forward-looking EOQ that optimizes supply chain costs And real-time demand-sensing re-alignment order points buffered by safety stock driven by the longer range forecast
- 10. Multiple Tier Forecasting Approach 20-WEEK FORECAST TWO YEARS HISTORY 8-week Demand Expectation Collaboration w/Vendors at Brand Group Level 30-day Annualized EOQ Forecast by Sku Daily Forecast Re-Alignment Causal(s): Very Recent Demand vs. Original “Curve” 20-week Forecast by Sku Causal(s): 2 Years of Baseline (5) and Promotional (7) Factors The multiple tier approach leverages sophisticated multiple variable/causal-based forecasting with an overlaid simplified re-alignment process by sku, along with a dynamic 30-day EOQ and brand group collaboration with manufacturers
- 11. Multiple Tier Forecasting Solutions Enterprise-level collaboration with manufacturers Forecast-driven EOQ Daily forecast re-alignment and dynamic forward-looking safety stock SOLVES SOLVES SOLVES Product Availability Without providing demand projections, vendor fill rates suffer due to minimal reaction time (far below in-stock needs) Demand projections allow for manufacturer to adequately plan Operational Cost Considerations Without adjusting EOQ to forecasted demand changes, operational costs soar Demand timelines are available through quality forecasting – engineered new EOQ to change in advance of demand Forecasting Accuracy While long-term accuracy remains consistent, short term accuracy suffers Adjust short-term forecasting process to be driven by re-alignment in sensing demand changes
- 12. Current State Benefits and Future State Vision Enterprise-level collaboration with manufacturers Forecast-driven EOQ Daily forecast re-alignment and dynamic forward-looking safety stock Vendors on program have improved fill-rates by up to 700 basis pts Significant reductions in supply chain costs Stable inventories with improved in-stock levels Expand program to all rapid replenishment vendors and drive lead time reductions to enable greater participation Drive other supply chain improvements via the forecast-driven process (i.e. slotting, transportation planning, etc.) Strike balance between re-alignment-driven order point and forecast-driven safety stock and order quantities TODAY NEXT PHASE PLAN
- 13. Reviewing the Key Elements of the Approach Our industry is changing We must adapt Rapid replenishment is a core strategy in our adaptation Rapid replenishment presents challenges that can be overcome only through more precise planning and real-time analytical activities We have automated and optimized our rapid replenishment model by leveraging a Demantra-enabled multiple tier forecasting and analytics approach