The Fresh Connection Game
- 1. THE FRESH CONNECTION BUSINESS GAME ANA CORREA CLAUDIA GOMEZ KAMILA HURKOVA MERVE NUR TAŞ TOMMI VEROMAA THE FRESH CONNECTION | TEAM 2 1 T E A M 2
- 2. EXECUTIVE SUMMARY WHAT DID WE ACHIEVE: ✓ The company obtained profit in each period, growing uninterruptedly in the first 4 rounds and with a slight decrease in the last 2 rounds. ✓ Since round 1, ROI has always been positive. WHAT WAS THE GENERAL STRATEGY : ✓ Make decisions integrating all departments, evaluating the possible positive or negative effects on them in order to minimize costs and maximize the benefit to the company. ✓ Evaluate the decisions made in each period, provide feedback and take corrective actions to make better use of company resources. PROBLEMS ENCOUNTERED: ✓ Difficulties in predicting how some decisions will impact the performance of the company. (The simulator restrained some functionalities at the first stages of the game) ✓ Align strategic decisions of departments in a common goal THE FRESH CONNECTION | TEAM 2 2
- 3. CONTENTS TEAM & RESPONSIBILITIES ◦ SALES ◦ OPERATIONS ◦ SUPPLY CHAIN ◦ PURCHASING FINANCIAL RESULTS & CONCLUSIONS THE FRESH CONNECTION | TEAM 2 3
- 4. Cube utilization % Prod.Plan Adherence % Unused capacity % Nr. of shifts Responsibilities: Optimize and control production and warehouses Components % Stock Components Stock Products Responsibilities: Coordinate different departments, inventory control and production Rejection Components % Raw Material Costs % Delivery Reliability Suppliers Responsibilities: Purchasing components, negotiating with suppliers Service level % Obsoletes % Gross Margin Responsibilities: Sell all produced goods with highest possible price TEAM & RESPONSIBILITIES THE FRESH CONNECTION | TEAM 2 4 R O I % PURCHASING SUPPLY CHAIN OPERATIONSSALES
- 5. SALES – GROSS MARGIN THE FRESH CONNECTION | TEAM 2 5 ✓ Increase gross margin as much as possible prioritizing biggest customers ✓ Try not to lose gross margin on smaller customers significantly ✓ Introduce promotional pressure for customers during later rounds I. STRATEGY II. RESULTS ✓ Gross began to grow on F&C and Dominick’s during round 3 when customer order priorization was implemented ✓ Further increases in later rounds with promotional pressure ✓ Overall increase in gross for F&C and Dominick’s was attained without losing gross margin on Land Market ✓ F&C gross increased by almost 5 000 and Dominick’s by 3000 during 6 periods III. ANALYSIS 11610 14510 22486 27303
- 6. SALES – NEGOTIATIONS THE FRESH CONNECTION | TEAM 2 6 ✓ Align capacity of SC and Operations to match negotiated service and shelf life levels ✓ Take advantage of one customer with full product range to decrease potential obsoletes ✓ Trade unit: Pallets for all and VMI for F&C and Dominick’s to reduce outbound stress ✓ Customer priorities: 1. F&C, 2. Dominick’s, 3. LM I. STRATEGY ✓ Obsoletes were solved with having LM with shelf life of 62-65% ✓ Negotiated service level % was calculated and estimated based on improvements in SC and Operations ✓ Decision-making in Sales was first based on improvements made in SC and Operations, further the decisions in SC and Operations were changed based on Sales. III. ANALYSIS II. RESULTS
- 7. 900 900 920 900 900 900 900 1500 1200 1050 950 930 975 1000 98% 99% 94% 96% 97% 100% 108% 71% 79% 85% 95% 97% 101% 101% 0% 20% 40% 60% 80% 100% 120% 0 200 400 600 800 1000 1200 1400 Round 0 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 CubeUtilisation WarehouseCapacity Inbound Capacity Outbound Capacity Inbound Cube Utilisation Outbound Cube Utilisation OPERATIONS - WAREHOUSES THE FRESH CONNECTION | TEAM 2 7 ✓ Optimise pallet allocations (to avoid overflow and outsourcing / too large unsued capacity) ✓ Allocate adequate number of shifts ✓ Reduce variability in processes and smooth raw materials income and finished goods storage (align with Supply Chain and Purchasing) ✓ Be ready to handle all demand (align with Sales) I. STRATEGY II. RESULTS ✓ Round 4 was the most successful ✓ Starting in Round 5, the demand overpassed the warehouses‘ capacities and it was not adjusted correctly ✓ Outsourcing of warehouses would lead to significantly higher costs III. ANALYSIS
- 8. 79% 94% 87% 92% 93% 94% 89% 78% 58% 73% 73% 73% 53% 81% 5% 25% 6% 10% 11% 39% 10% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Round 0 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Production Plan Adherence Runtime Unused Capacity OPERATIONS - PRODUCTION THE FRESH CONNECTION | TEAM 2 8 ´ ✓ Allocate adequate number of shifts ✓ Select wisely new investments to smooth production and increase ROI (mixing and botteling) ✓ Minimize production costs, unused capacity, changeover and breakdown times ✓ Maximize production plan adherence ✓ Align with all other functions to be ready to satisfy all demand at lowest cost I. STRATEGY II. RESULTS ✓ In Round 5, the bottling line was changed and shifts increased too much this mistake was corrected in round 6 ✓ New investment lead to higher production costs and consequently lower ROI (lack of alignment with other functions) on longterm, the company would improve its business results (lower variability in production, less rejection component rate, less breakdown, low unused capcity, high runtime %, etc.) III. ANALYSIS
- 9. 98.8% 98.9% 99.6% 99.8% 99.9% 99.8% 90.0% 92.0% 94.0% 96.0% 98.0% 100.0% 102.0% 0 5 10 15 20 25 30 35 40 45 50 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 ANALYSIS PER COMPONENTS Mango Orange Pack 1 liter PET Vitamin C Stock Availability % SUPPLY CHAIN - COMPONENTS THE FRESH CONNECTION | TEAM 2 9 ✓ Guarantee availability of components to meet demand (depending on supplier reliability, lot sizes and safety stock ) ✓ Keep cost of stock at min level (in accordance with operations decisions) – Pet and Pack 1L (1-2 rounds) ✓ Adequate lot sizes depending on the stock cost and transport costs given by procurement I. STRATEGY II. RESULTS ✓ It was possible to guarantee availability over 99% but in some cases compromising average stock – which increased the cost ✓ Increasing supplier reliability in some products (vitamin C) was key to have a better stock control ✓ Round 3 and 4 best results obtained ✓ Round 6 problem lack alignment with other departments III. ANALYSIS Low availability of Vitamin C – High stock PET and Pack 1 Adjust Pack 1 – Reduction of lot sizes Increased Stock per Week PET – increase demand
- 10. SUPPLY CHAIN – FINISHED GOODS THE FRESH CONNECTION | TEAM 2 10 ✓ Lower average stock weeks of demand and % obsolete products without compromising service level - in accordance with contract index per customer ✓ Adjust production interval to decrease overall cost and increase utilization rate (7 day) ✓ Frozen period allows to keep flexibility to react to demand changes I. STRATEGY II. RESULTS ✓ Achieved to keep obsoletes between (0%-1%) – Round 6 increase -> due to plan adherence bottling line involving PET related products and production interval (Increasing production due to increase in demand) ✓ Round 2 and Round 6 lowest prod plan adherence – higher production interval increase average stock III. ANALYSIS 5.64 5.24 5.50 5.56 5.67 5.32 20% 0% 0% 1% 1% 3% 97% 95% 96% 96% 98% 97% 94% 87% 92% 93% 94% 89% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 0 1 2 3 4 5 6 7 8 9 10 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Stock(weeksofdemand) Stock per week Average % Obsoletes Average % Service Level Average % Product Plan Adherance
- 11. PURCHASING –Component Focus THE FRESH CONNECTION | TEAM 2 11 ✓ Ensure high delivery reliability and low rejection rates, for the best price. ✓ Make sure lead times & trade units and expected amounts are planned and aligned with operations. I. STRATEGY II. RESULTS ✓ Round 4: Supplier is changed ✓ Round 5: Supplier Development Plan is introduced Lower rejection rate is obtained Other benefits of the SDP may be observed in further rounds III. ANALYSIS 3.40% 3.50% 3.60% 3.20% 2.40% 2.30% 0.99 0.995 1 1.005 1.01 1.015 1.02 1.025 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% 1 2 3 4 5 6 Pack 1 Liter Delivery reliability (%) Rejection(%) Contract Index
- 12. PURCHASING – Component Focus THE FRESH CONNECTION | TEAM 2 12 ✓ Round 2: Trade unit is changed ✓ Round 3: Supplier is changed ✓ Round 5: Supplier is changed & Bottling Line is changed with a more tolerant one. ✓ Round 2: Trade unit is changed ✓ Round 4: Higher delivery reliability rate is negotiated. 5.60% 5.70% 3.10% 3.30% 2.10% 2.00% 0.94 0.95 0.96 0.97 0.98 0.99 1 1.01 1.02 1.03 1.04 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% 1 2 3 4 5 6 PET Delivery reliability (%) Rejection(%) Contract Index 1.00% 1.00% 0.90% 0.90% 0.80% 0.70% 0.996 0.998 1 1.002 1.004 1.006 1.008 1.01 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% 1 2 3 4 5 6 Orange Delivery reliability (%) Rejection(%) Contract Index
- 13. PURCHASING – Component Focus THE FRESH CONNECTION | TEAM 2 13 ✓ Round 2: Higher delivery reliability rate is negotiated. ✓ Round 3: Supplier is changed & Higher deliveriy reliability rate is negotiated.
- 14. PURCHASING – Raw Material Costs (%) THE FRESH CONNECTION | TEAM 2 14 ✓ Raw material cost (%) (purchase costs as a percentage of total revenue) is one of the crucial KPI’s of the company ✓ It is calculated taking into consideration the bonus & penalties ✓ Strategy: Lower Values I. STRATEGY II. RESULTS ✓ Decreasing Trend during the first 5 rounds ✓ High obsolete products in round 6 Causes unnecessary purchases ✓ Unmatched Service Level Agreements in round 6 Causes high penalties ✓ Best performance: Round 4 & 5 III. ANALYSIS 1,014,346 857,446 828,373 839,319 840,809 861,096 37.48 34.14 32.47 32.14 30.96 31.70 10.00 15.00 20.00 25.00 30.00 35.00 40.00 1 2 3 4 5 6 500,000 600,000 700,000 800,000 900,000 1,000,000 1,100,000 Purchase Costs (%) - Purchase Value Purchase Value Purchase Costs (%)
- 15. FINACIAL RESULTS & CONCLUSIONS THE FRESH CONNECTION | TEAM 2 15 ✓ The average of goods sold in the 6 rounds was $ 2.66 million. The periods with the highest sales were rounds 1, 5 and 6. ✓ The cost of goods sold drastically influenced the gross margin, the average of this in the 6 rounds was $ 1.37 million. It can be seen that the periods with the highest cost of goods sold were 1 and 5. ✓ The ROI went from negative in the first period to positive in the second, having the best percentages in periods 3 and 4 and lower results in periods 5 and 6 caused by lack of alignment on following factors: • Change of filling line • Increased demand • Decreased production interval • Not sufficiently increased warehouse capacity Not allocating the capacity correctly lead to • High obsoletes % and penalty costs • High cube utilisation % in warehouses • Low production plan adherence ✓ The weighted average was 4% I. RESULTS FINANCE ROI EVOLUTION II. CONCLUSIONS
- 16. BACK UP: Decisions per each round THE FRESH CONNECTION | TEAM 2 16
- 17. SALES - Decisions THE FRESH CONNECTION | TEAM 2 17 ROUND 1 ✓ Understand how the game works ✓ Use real life experience in decisions ✓ Find correlations between other departments when making decisions ROUND 2 ✓ Get rid of high % of obsoletes by drastically decreasing shelf life and introducing FIFS shortage rule ✓ Calculate service level based on changes made in SC and Operations ROUND 3 ✓ Calculate service level and shelf life based on changes made in SC and Operations ✓ Obsoletes value at 0,2% ✓ Set goal to increase obsoletes to 1-2% in order to find how much « air » is in between actual capacity and negotiated ROUND 4 ✓ Obsoletes still at 0,2% -> Increase shelf life more ✓ Calculate service level and shelf life based on changes made in SC and Operations ROUND 5 ✓ Install VMI for 1 customer ✓ Trade unit to Pallet for all customers ✓ Communicate promotional pressure and implemented changes VMI to SC and Operations ROUND 6 ✓ Calculate service level to align with achieved service levels from round 5 ✓ VMI for 2 customers ✓ Communicate promotional pressure and implemented VMI to SC and Operations
- 18. OPERATIONS - Decisions THE FRESH CONNECTION | TEAM 2 18 Decision Period 0 Period 1 30.03.17 Period 2 06.04.17 Period 3 20.04.17 Period 4 20.04.17 Period 5 27.04.17 Period 6 27.04.17 Inbound (Raw materials) Pallets location 900 920 900 Shifts 5 3 2 3 IntakeTime days N/A 5 6 Inspection N/A No Pets,Pack 1 liter Pets, Plastics Mixing Mixer Type Fruit Mix MQ Bottling Shifts 2 3 2 3 2 Projects - SMED - - Preventive Maintenance N/A A little A lot Solve Breakdown Training N/A Yes No Bottling Line Swiss Fill 2 Multi Flex 1 Outbound (finished goods) Pallets location 1500 1200 1050 950 930 975 1000 Shifts 4 3 4
- 19. SUPPLY CHAIN - Decisions THE FRESH CONNECTION | TEAM 2 19 ROUND 1 ✓ Safety Stock: increased Vitamin C, decrease safety for all finish products (depending on the shelf life) ✓ Lot Size: decreased for PET and Pack 1 ✓ Production Interval: Increased production interval of Freassie Orange/c-Power 1 liter, Fressie Orange PET, Fressie Orange/C- power PET ✓ Frozen Period: 3 ROUND 2 ✓ Safety Stock: reduced Pack 1L and brought back Vitamin C , unified to 2 SS of finished goods ✓ Lot Size: Decreased Pack 1 liter, orange, mango and Vitamin C ✓ Production Interval: unified to 8 ✓ Frozen Period: 3 ROUND 3 ✓ Safety Stock: increased Vitamin C, Fressie Orange/C- power ✓ Lot Size: decrease Vitamin C ✓ Production Interval: Changed back to 7 Fressie Orange 1 liter, Fressie Orange/c-Power 1 liter, Fressie Orange/Mango PET, Fressie Orange/C - power PET ✓ Frozen Period: 4 ROUND 4 ✓ Safety Stock: lower vitamin C ✓ Lot Size: no changes ✓ Production Interval: no changes ✓ Frozen Period: 3 ROUND 5 ✓ Safety Stock: Fressie Orange 1 liter, Fressie Orange /C-Power ✓ Lot Size: Reduced for orange and mango ✓ Production Interval: unified to 7 ✓ Frozen Period: 3 ROUND 6 ✓ Safety Stock: decreased orange, mango, vitamin c ✓ Lot Size: no changes ✓ Production Interval: no changes ✓ Frozen Period: 3
- 20. PURCHASING – Detailed Information THE FRESH CONNECTION | TEAM 2 20 0.000 -0.024 -0.002 -0.013 0.035 0.183 0 0.004 0.064 0.004 0.007 0.000 -0.060 -0.030 0.000 0.030 0.060 0.090 0.120 0.150 0.180 0.210 1 2 3 4 5 6 Contract Index - Purchase Value Graph Purchase Value (%D) Contract Indexes (%D) 20.00% 0.23% 0.22% 1.23% 0.95% 2.52% 0.00% 4.00% 8.00% 12.00% 16.00% 20.00% 24.00% 1 2 3 4 5 6 Obsolete Products (%) -Average ✓ Percentage Change Graph ✓ Obsolete Products