International Pharmaceutical Leader

Inventory optimisation

International Pharmaceutical Leader

« Inventory optimisation »

  • Initial Status

    • Performance stock metrics : Shared objectives are missing and/or not cascaded along the process
    • Inventory analysis:
      • Stock coverage is 14 months for one major product and above 5 months for other products
      • No inventory targets (min/max) are calculated
      • Stock is mainly composed of WIP located at internal plants or CMO and significant part of the inventory is old and ultra slow movers items (i.e. 42% of stock value for one major product is at one production site and is > 1 year old)
      • Cost of obsolescence linked with supply chain issues is 20 M€
    • Lead time :
      • Lead time is mainly made of waiting time (including shipment time to CMO and release time)
      • Visibility on lead times along the supply chain is low
    • Planning process and tools:
      • High product flow complexity has to be managed in planning (process / tools)
      • Risk: Planning process rules are managed individually and implemented in Excel including MRP calculation (i.e. 53 Excel sheets for S&OP of one major product)
      • Lack of master data fulfilment in SAP
    • Stock culture, responsibilities and ownership:
      • Focus are on financial aspects of inventory rather than on operational performance ones
      • Few process control and planning standards
  • Project objectives

    • Reduce the total inventory level by 10 M€ in 2015 and by 10M€ again in 2016
    • Define objectives and computed targeted stock levels
    • Realize S&OP field coaching and increase master planners competencies
    • Optimize inventory strategy
    • Define performance stock metrics and ownership
    • Design supply chain "TO BE” processes
    • Mitigate risk at master planning level
    • Integrate supply chain complexity in requirements stage of the new ERP project (i.e. postponement strategy / “alternative BOM”)
  • Actions taken

    1. WIP Stock:

    • Decrease lead-time distribution
    • Reduce in-progress inventory
    • Identify and analyze under performance causes
    • Implement flow tighten

    2. Supply Chain Parameters:

    • Define inventory parameters computation methodology
    • Define reliable and understood parameters
    • Share and implement common parameters
    • Monitor inventory levels (in terms of coverage) with regards to inventory minimum and maximum levels
    • Realise training and field coaching

    3. Lead Time:

    • Analyse lead times and quantify improvement potential (per plant / product)
    • Define target lead times per production stage
    • Identify constraints and structure an EOQ / EPQ approach

    4. EOQ / EPQ / Production Frequency:

    • Compute economical production frequencies and quantities with a pragmatic approach
    • Build the EOQ / EPQ model

    5. Operational Supply Chain Metrics:

    • Map the “AS IS” supply chain monitored KPI
    • Underline gaps and propose a shared Balanced Scorecard (BSC)
    • Cascade KPIs and objectives from BSC to operational teams
    • Develop prototypes for KPIs

Achievements

Quantitative gains

  • Savings of 29 M€ linked with inventory performance optimization delivered by the client, supported by Resultance
    • Inventory reduction of 16M€ in 2015
    • Inventory reduction of 13M€ in 2016

Qualitative gains

  • Strong involvement of cross-departments teams
  • Innovative and pragmatic approach: flow tighten at internal production sites
  • Consensus on supply chain parameters and targets
  • Continuous monitoring of inventory coverages
  • Mindset evolution regarding inventory performance
  • Creation of an Economic Order Quantity (EOQ) model
  • Increased visibility and accuracy for management
  • Synergies with the new ERP project