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Orbsen Consulting ...making Sense of the World of business www.orbsenconsulting.com Copyright © 2016 Orbsen Knowledge Service Ltd, All rights reserved Orbsen Consulting ...making Sense of the World of business The world of Operations Management in 10 statements Dr. John Harhen 5 th October 2016

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Orbsen Consulting...making Sense of the World of business

www.orbsenconsulting.comCopyright © 2016 Orbsen Knowledge Service Ltd, All rights reserved

Orbsen Consulting...making Sense of the World of business

The world of Operations Management in 10 statements

Dr. John Harhen5th October 2016

Orbsen Consulting...making Sense of the World of business

www.orbsenconsulting.comCopyright © 2016 Orbsen Knowledge Service Ltd, All rights reserved

Engagements & Experiences

Group

Site

Global

short medium long

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1. IT IS NOT ABOUT MAINLY ABOUT THEORY AND TOOLS….

IT IS MORE ABOUT BEHAVIOUR

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Understanding Demand Behaviours

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While we chase forecast accuracy, we typically don’t look at how forecastable is demand.

Why is it so? (bad selling or buying behaviours, parallel imports, wholesaler/customer, buy ahead etc)

Look at demand below the SKU level and at the customer level.

What does this mean for agility in operations?

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Diagnosing the behaviour gap Actual vs Target Inventory by Family and Category

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DeficitExcessTargetActual

the theory-actual gap is far more interesting issue than who has the best theory

Problematic Brands with hidden and interesting behavioural histories

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2. MOST PEOPLE JUST DON’T UNDERSTAND CAPACITY, MAINLY BECAUSE CAPACITY IS ELASTIC.

THIS LACK OF UNDERSTANDING IS A GRAVE ERROR. CAPACITY IS COST. CAPACITY CREATION IS OPPORTUNITY.

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Determining Effective Capacity in Operations

Campaign Size by form/family

Major CleanProduct Changeover

Equipment ManufacturersRate cycle

Minor CleanProduct Changeover

Validated Speed/Cycle

Run Time Efficiency to Validated Speed

Maintenance and other planned

downtime

Effective Capacity

Changeover hierarchy

Degraded targets

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Setup Dilution PrincipleHours per Batch Compared with Campaign Length in Batches across various steps

Analysts Hours/Batch

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Analysts Hours/Batch

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Dispensing

Laboratory

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Wet Granulation

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Compression

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Blending

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What we don’t know :

Capacity of our Assets?

• Crude demonstrated average per month.

• The factory door as a barrier to a dark interior

• Too many people who cannot count

• No understanding of the elasticity of capacity

• Naïve understanding of setup dilution

• No understanding of flow• Poor understanding of proper

programming of a plant• Poor understanding of visit

frequency or rate limiting step

• Dedication and appropriate value stream formation

• Appropriate visitation cycle to product forms

• Elemental and optimized breakdowns of run time and change overtimes.

• Campaigning limited to the tipping point after which flow makes more sense

• Intense focus on OEE outcomes• Tight rein on crew size and ancillary

workers• Scale up opportunities exploited.• Optimization of rate limiting step.• Supported by appropriate planning

architecture

immaturity maturity

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3. ONE SIZE FITS ALL PLANNING IS NOT A VALUE PLATFORM.

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Planning Architecture : PFEP/EPE*

Products that are on variated level Flow

Products that on a cycle schedule

Fixed Order Quantity

Make to Order

Naïve Runner Repeater Stranger theories don’t cut it

Fundamentally it is about characterizing demand behaviours and engineering appropriate supply responses

Shigeo Shingo was an Industrial Engineer. If you don’t do the engineering, you are destroying value

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4. FLOW IS THE MOST IMPORTANT WORD IN THE LEAN LEXICON.

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Common Disfunctional BehaviourLack of Flow in Replenishment A depletion at the distribution centre

triggers a replenishment, that is amplified by lot sizing and campaigning rules, shifts in forecasts or movements in inventory policies.

dynamic safety stock setting is dangerous.

We don’t make safety stock work for us. We don’t create flow for big runners. Doing naïve replenishment planning

without a replenishment architecture is tantamount to letting the customer schedule the factory

All one has to do, is examine the history of replenishments from factory to distribution centres, compare it to external sales, and thus see how we conspire to destroy flow.

Erratic and lumpy demand waves hitting the factory is a value destroyer

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w53 w55 w57 w59 w61 w63 w65 w67 w69 w71 w73 w75 w77 w79 w81 w83 w85 w87 w89 w91 w93 w95 w97 w99w10

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PalletsContainers

Changes in replenishment flow rates +/- 20% can be accommodated much closer in, than traditional order based replenishment

This has the potential to reduce the frozen period in front of the plant to a couple of weeks!

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5. DO YOU KNOW THE TIPPING POINT BETWEEN FLOW AND EFFICIENCY AS A VALUE DRIVER?

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Where is the tipping point in value creation?

Campaigning, Long Runs and EOQ

Creation of Level Flow

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Planning Proposition

Classical EOQ theory involves doing a trade off between inventory holding and set up costs.

This is practically useless. The core proposal is to seek the tipping point up to which

campaigning delivers its value. This involves examining capacity characteristics across multiple processes.

Campaign to that tipping point, but not beyond, subject to demand analytics. This delivers >90% of the nominal efficiency opportunity.

After that, seek to have sustained flow. (Cycle schedule : Weekly Cycle, Bi-Weekly, Monthly, Quarterly)

Pre-progamme or master plan steady flow, so that the gap from maximum production rate to average production rate this minimized. This allows deployed resource to be minimized. It also creates clear open capacity into which further business growth can be absorbed.

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Where is the tipping point in value creation?

Campaigning, Long Runs and EOQ

Creation of Level Flow

Efficient OperationsCreating clear capacity space that can be intensely utilized

Lean deployment to average rather than peak demand

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6. INVENTORY IS LIKE CHOLESTEROL :

DO YOU KNOW THE DIFFERENCE BETWEEN GOOD AND BAD?

Inventory Benchmark :Pharmaceuticals

35

84 90100 102 104 107 111 114

129142 148 154 155

175 176189 195 201 209

245

379 388

0

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Elan F09

MSD F09 P

roform

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BMS F09

John

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n F09

Allerga

n F09

King F09

Astra Z

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Hospir

a F09

Actavis

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n F09

Bayer

F09Eisa

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Baxter

F09Nov

artis

F09

Forest

Labs

F09

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nger

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eimr F

09Gen

zyme F

09Nyc

omed

F09GSK F09

Eli Lilly

F09

Pfizer

F09 P

roForm

aAmge

n F09

Inventory Benchmark : Medical Devices

5670

8290

99 102 104 104112 116 120 122 123 124 126 130 134 139 142 142 142

152 158

180198

209 210

231

324 331 336

0

50

100

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Intuit

ive S

urgery

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Olympu

s F10

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ion F0

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Covidi

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roup

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CR Bard

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Varian

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ical F

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09Millip

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Boston

Scie

ntific

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Qiagen

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09Int

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Sigma A

ldrich

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Smith &

Nep

hew F0

9Zim

mer F09

Total Inventory Holding excl Maturing as days of COGSbased on latest published reports

reporting currency basis

40 4862 63 65 69 70

77

2437

45 46 47 50 51 5262 63

83

137 141152

163

261

144

0102030405060708090

100110120130140150160170180190200210220230240250260270

InBev

F09

Asahi

F09

(Jap

an)

Danon

e F08

Carlsb

erg

F09

preli

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Asia P

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c Br

ew.F

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inga

por

Heinek

en F

09 p

relim

Peps

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pre

limMol

son

Coors

F09

FEMSA

Cer

vazo

F09

(Mex

ico)

Kirin

F09

(Jap

an)

SAB M

iller F

09Ne

stle

F09

Fujia

n Ya

njin

g F0

9 (Ch

ina)

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09 P

relim

P&G F

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inz F

09

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ateP

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Coca C

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Remy C

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CPGBeerWineSpiritsBeer/Wine

Inventory Holding Days : Diversified CPG/Drinks

Inventory Days

CPG/FMCG 41-71

Beer 49 -80

Spirits 46-182

Wines 212-1264

Med Device 68-338

Pharma

Originator 84-380

Generics 72 -286

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To go beyond a shallow theory of how much inventory, one has to realize that

Inventory is driven by the structure and dynamics of the supply chain

one should seek to understand and

represent this (i.e. have an inventory

model)

use this model for opportunity

targeting and diagnostics of the

actual versus theory gap

Comparing actual performance with peer entities which have different value chain structures doesn’t make any sense.

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Inventory is like cholesterol : Do you know the difference between good and bad?

What inventory should we

have?

How business structure

drives inventory How

business dynamics

drive inventory

Why are our

inventory outcomes different?How can

we improve

our inventory outcomes

How can we

optimize our target inventory

entity inventory

vs corporate balance sheet

99% of companies don’t know how much inventory they should have.

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Inventory Structures

Market Safety stock (demand variation and

policy)

Cycle stock of Market

ReplenishmentTransport

modal Inventory

Fiscal adj.Transfer pricing, PPV, Duty, M&A

step up

Seasonal Anticipation Inventory

In-market reworks

Plant distribution Inventory

(postponement)

Packaging FG Cycle Inventory

Packaging materials Cycle

Inventory

Packaging materials Safety

Inventory

QA release Impaired Inventory

Packaging lead time Inventory

Bulk-Pack Decoupling Inventory

Production Conversion Inventory

QC release Inventory

Impaired Bulk Inventory

Raw Material Cycle Inventory

Raw material Safety stock

Inventory

Upstream conversion

(API)

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Indicative Parameters that drive each inventory structure in the value chain

Forecast Accuracy

Customer Service

Replenishment Quantity/Frequency/Container Sizes

Shipment Leadtime/Stock in Transit

Customs Clearance

Brand owner Adjustments

IMCO terms

Direct Shipments

2nd Level DC’s

Local Processing in Country

Duty/Tax (dwell time * burden)

Transfer Price Uplift

Profit in Stock adjustments at group consolidation stage.

Aging and Obsolescence

Cost of Goods build up over processing stages

Frozen Period in Front of the plants

Set up and Minimum Production Quantities

Quality Approval Times

Non Conforming Material

Fill/Finish Operations

Postponement Hubs

Intermediate Buffer sizing

Bulk/Intermediate Operations (liquids are tank constrained/ solids are not)

Export of finished/semi-finished

Imports of finished/semi-finished.

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Moving the needle on inventory

Building an informed

parameterized model of what

drives inventory in each supply

Chain

Being able to aggregate this

into a corporate inventory position.

Being able to sample the

actual inventory

position, and diagnose

difference. This is the

most powerful indicator of behavioural failure in the supply chain

Identify CSF’s to achieve the

result appropriate to your business

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We all think we know how to set Safety Stock In the DC

Forecast Error/ period( ) Supply

Variation+ ( )Number of periods*

2 2

Service level *

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Do we really know how to set Safety Stock In the DC?

Forecast Error/ period( ) Supply

Variation+ ( )Number of periods*

2 2

Service level *

Inadequate formulation of supply variationSupply managed VMI relations

undermine any date based methodology

Inability to scale the target service to deal

with replenishment plan frequency

Do we use the σ of demand variation or of

forecast error

Do we express safety stock as days or quantity?

If demand goes up, safety stock does upIf demand goes down, safety stock goes down

A demand-ampfying double whammy on supply

Adequacy of sample size for calculating σ

Does σ vary with lag. Should our model reflect this?

Do we understand the impact of frozen periods in planning

on market outcomes?

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Attacking Inventory

Total Inventory (X Days)

Target Inventorymodified ways of working (X days)

Safety Stock(k days)

Demand RiskAmplified by lead-time

Supply Risk(w days)

Cycle Stock(M days)

Transport(R days)

Excess Inventory(Y days)

• Address Brand specific excess’s

• Eliminate Bias• Address over 

campaigning in packaging

• Apply normalization to various forecast lags 

Lag‐3 vs Lag‐1

Review the end to end supply impacts of chain fragmentation

• Change approach to replenishment scaling 

• Change language for supply risk

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What we don’t know :How Much Inventory is enough?

• Inventory is measured but not managed

• Treated as an outcome in itself rather than a bi-product of decision making in managing the demand supply balance.

• Deep end to end models of inventory drivers

• Optimization of theoretical inventory structures

• Diagnosis of actual behaviour to Theoretical Gaps

immaturity maturity

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Inventory Inventory is not an evil Inventory in the right places has a purpose and is an asset Inventory is either a planned outcome of your planning architecture

or it is an unplanned outcome of the disconnect between supply and demand

Tools used inappropriately help you get to the wrong answer faster. Inventory is many cases is all about behaviour and not about theory.

Disconnections in the replenishment-logistics-factory planning process cause bad outcomes.

Only analytics can help diagnose these behaviours Targeting Inventory is like a drunk man looking for his door key under

the street light, despite having dropped it in the garden. Just because of the visibility.

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7. IF YOU CANNOT SEE YOUR SUPPLY CHAINS,…

YOU CANNOT EVEN BEGIN TO HAVE A THEORY OF HOW TO MANAGE THEM.

Use Analytics to overcome the fog of SKU complexity, discover bad behaviours and value platforms and improve business outcomes

Good Analytics is better that good theoryIt cuts like a knife through the butter of all the blah-blah theories that populate our business discourse

Moving beyond tools and theories to behaviour remediation. It is about using that data to understand and diagnose business behaviours.

Seeing the supply chain and knowing what is to be done

Rapid Analytics enables one do discovery and go deep in the characterisation of value platforms

Obtaining better Supply Chain Outcomes

95% of companies cannot see their supply chains

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Data Scale in Analytics

B2BBusiness Transactions

100mb

1GB

B2CConsumer transactions

Online key clicks

N TeraBytes

N PetaBytes

Seeing the supply chain is having at hand and being able to analyse every sales order (data scale >1,000,000) every inventory item in inventory (data scale >100,000) every production order (data scale >100,000) every purchase order (data scale >100,000)

Much of the supply chain value in big data is at the B2B level.

We don’t need machine learning/neural nets for that

We lack the cross disciplinary capability to do the value discovery

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8. WE DON’T KNOW HOW TO TRIANGULATE…

PRODUCTION, LOGISTICS AND INVENTORY COSTS..

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Production

Cost CurveSetup Dilution

Logistics

Cost Curve

2 modes

Inventory

Cost CurveVarying demand levels

Total

Cost Curve

2 tipping points (inflections)

For supply above the upper tipping point go with a flow model

We don’t know how to triangulate

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Planning Architecture : PFEP/EPE*

PlanningProducts that are on variatedlevel Flow

Products that on a cycle schedule

Fixed Order Quantity

Make to Order

Logistics

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9. WE DON’T THINK END TO END…

.

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Value Platforms in end to end Cost to serve

Packaging Line Efficiency

Reduced annualized cost of operations

Reduced Consolidation costs

at factory

Inventory rightsizing at

factory

More Cases per load in Primary

freight

Better Primary Freight rate via

appropriate tendering

Direct shipment to customer

Modal Choice in Primary Freight

(Box type/transport mode)

Inventory Rightsizing in DC

Tenders for 3PL DC operations and

secondary Freight

MOQ applicability to ex-Factory orders

Returns behaviour

Rebates and Free goods

MOQ/MOV applicability to ex-

DC orders

Governance on Packaging

configurations

Perfect Order compliance

Route to market Distribution network Design

Portfolio Governance

Customer Service Enhancement via

fulfilment compliance

Customer Service Enhancement via

agility

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10. IF YOU DON’T DO THE SUPPLY CHAIN ENGINEERING, .

YOU ARE ONLY FOOLING YOURSELF WITH LEANSPEAK.

Lean is getting significant traction

HeijunkaLoad levelling

GembaWalkabout

KaizenSmall Team CI

Level Pull Kanban

TPM

SeiriSorting

Get Rid of the Rubbish

SeitonStraightening

Every Thing in its Place and a Place for Every Thing

SeisoSystematic Cleaning

SeiketsuStandardized

Work

ShitsukeSustain

5S

PDCAPlan Do Check Act

Supermarket

Pillar Processes

Black BeltsGreen Belts

DMAICDefine Measure Analyse Improve Control,

6 Sigma

Shingo Prize

Visual Factory

Operational Excellence SMED

Shigeo was an industrial Engineer!TPS

Toyota Production System

Cellular Manufacturing

1 piece flow

OEE

Waste Elimination

Mistake Proofing

Value Stream Mapping

Runner Repeater Stranger

PFPEPE*

Lean is getting significant traction

HeijunkaLoad levelling

GembaWalkabout

KaizenSmall Team CI

Level Pull Kanban

TPM

SeiriSorting

Get Rid of the Rubbish

SeitonStraightening

Every Thing in its Place and a Place for Every Thing

SeisoSystematic Cleaning

SeiketsuStandardized

Work

ShitsukeSustain

5S

PDCAPlan Do Check Act

Supermarket

Pillar Processes

Black BeltsGreen Belts

DMAICDefine Measure Analyse Improve Control,

6 Sigma

Shingo Prize

Visual Factory

Operational Excellence SMED

Shigeo was an industrial Engineer!TPS

Toyota Production System

Cellular Manufacturing

1 piece flow

OEE

Waste Elimination

Mistake Proofing

Value Stream Mapping

Runner Repeater Stranger

PFPEPE*IF YOU DON’T DO THE

SUPPLY CHAIN ENGINEERING, YOU ARE SERIOUSLY MISGUIDED

Limits of Lean Talk and LeanspeakToo much religionNot enough money

Be Pragmatic. Follow the business imperative, Follow the money

Having a lean team makes you lean Have a appropriate “weigh-in”Conversion Cost, Inventory DaysEmbed lean rather than have centralized teams.

Inventory is evil Inventory in the right places is good. It should be an informed consequence of your planning architecture

big batches are bad Campaign size in the Planning Architecture should be fully informed by the trade-offs between setup dilution, distribution optimization and inventory costs

Level pull is where it is at Level flow of any form (push or pull) works just fineTends to be under-informed about supply chain structure, pareto and dynamics

Do the analytics

Tends not to do the necessary supply chain engineering. (e.g. how to you parameterize a decoupling supermarket?)

Do the engineering

Tends not to understand the reality of sectoral operations

Follow the business imperative

5S gone mad 5S only in the appropriate placesLimits of Heijunka in dealing with seasonal demand Have a master plan.

Don’t let the customer schedule the plant

immaturity maturity

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What outcomes tell us

We don’t create flow We use one size fits all planning models We don’t have good methods of setting target inventory We don’t diagnose inventory outcomes versus target

inventory We don’t examine customer behaviours We don’t understand capacity precisely, and therefore

we don’t optimize it We don’t simultaneously optimize our logistics, factory

and market inventories We are not agile in our replenishments We don’t think end to end

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The world of Supply Chain Management in 10 statements

Most people just don’t understand capacity, mainly because capacity is elastic. This lack of understanding is a grave error. Capacity is cost. Capacity creation is opportunity.

One size fits all planning models is not a value platform. Flow is the most important word in the lean lexicon. Do you know the tipping point between flow and efficiency as a value driver? Inventory is like cholesterol : Do you know the difference between good and

bad? If you cannot see your supply chains, you cannot even begin to have a theory

of how to manage them. It is not about mainly about theory and tools, it is more about behaviour. We don’t know how to triangulate Production, Logistics and Inventory costs. We don’t think end to end. If you don’t do the supply chain engineering, you are only fooling yourself

with leanspeak.

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Value Propositions See your supply chain behaviours through use of rapid analytics Manage your cost to serve on an end to end basis Capacity is elastic with a significant resonance. Capacity is Cost. Know the tipping points to pursue campaigning for efficient operations, and beyond

which to go for level flow. Flow isn’t 1 number, flow can be variated. Move the average resource deployed as close as possible to the average demand Create clear capacity space which can be further loaded in order to dilute your fixed

costs Review your conversion costs on a family basis Do examine demand patterns at the customer level and below the SKU level. Know how much inventory you should have globally by inventory node and category

and compare this with how much you actually have. Use this gap to diagnose behavioural weaknesses in your supply chain.

Maintain an opportunity map for inventory rightsizing Beware of leanspeak disconnected from the business imperative Choreograph a Sales and Operations Planning Process that adds value to the business Apply good governance to your portfolio’s Have a strategic roadmap for the journey you are going to take.

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Possibilities?

Capacity Creation : +34%, +24%, +180% in very large sites

Inventory Reduction -27% on corporate balance sheets

Orbsen Consulting...making Sense of the World of business

www.orbsenconsulting.comCopyright © 2016 Orbsen Knowledge Service Ltd, All rights reserved

Orbsen Consulting...making Sense of the World of business

To Contact Us

www.orbsenconsulting.com

[email protected]

Tel : 353-87-2240489 cellular/mobileTel : 353-58-44986 landline

Orbsen Consulting...making Sense of the World of business

www.orbsenconsulting.comCopyright © 2016 Orbsen Knowledge Service Ltd, All rights reserved

Offerings in Transforming the value chain

Cost Optimization (Cost Drivers, Appropriate Conversion Cost Benchmarking, roadmaps) Global Inventory (Rightsizing and targeting) Rapid Analytics (Demand, Inventory, Production, Purchasing, Customer Service/Customer Behaviours) Planning Architectures (Tipping point : Optimization via campaigning versus Stabilization via level flow,

PFP) Capacity Assessment and Management (Capacity is elastic, Capacity is cost, most of the time capacity is

unknown) Supply Network Optimization (Products and Plants assignment and future network design) Distribution Optimization (Container Fill, Modal Optimization, DC network structure) Cost to Serve (Pre-wholesaler Storage, Picking, Order Fulfillment, and Wholesaler behaviours) Portfolio Management (Landscapes of Value and Potential, Costs of Complexity, Targets for Rationalization,

Fellow Travelers) Due Diligence and Post Acquisition Transformation Generic Defense (In the endpoint everything is generic, or is it? , Why many originator companies are not

creating shareholder value?) Strategic Roadmaps Sales and Operations Planning (A choreography of required Business Conversations) Value Platform Discovery Extracting Value from Systems Purchasing optimization Supply chain review Measurement and change

Orbsen Consulting...making Sense of the World of business

www.orbsenconsulting.comCopyright © 2016 Orbsen Knowledge Service Ltd, All rights reserved

Service Offerings

Global Inventory (Rightsizing and

targeting)Planning

Architecture Demand Analytics True Capacity Assessment

Capacity Management

Conversion cost analysis Cost driver analysis Portfolio

management Due diligence Post acquisition transformation

Distribution and warehousing

strategyCost to serve optimization

Supply network design Strategic roadmap Purchasing

optimization

Supply chain review Rapid analytics

Sales and Operations Planning (A choreography of required Business

Conversations)

Value platform discovery

Extracting value from systems

Measurement and change