Joju Johny - ADSCM - SPL Case Study

8/3/2019 Joju Johny - ADSCM - SPL Case Study

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ADVANCED SUPPLY

CHAIN MANAGEMENT

Case Study

Improving DRP effectiveness in ERPenvironment

Karuna Jain & Sunil Phabiani

Joju Johny

Roll No 17


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Company Profile The largest household insecticide player in the country and the

worlds largest producer of mosquito repellent mats.

SPL is now in the growth phase. Its three major bands SP1, SP2, SP3

command almost 70 percent share of the mosquito repellent mats

market, which is the largest category of household insecticides in

India.

Logistics Network: 4 manufacturing sites at Pondichery, Goa, Silvassa

and Nashik.4 regional offices in metros Delhi. Mumbai, Chennai,

Calcutta. Each regional office has CFAs under its jurisdiction.

Distribution Planning - distribution mainly constitutes of two types of

materials movements

factory to the depots directly

from the factory to the hub centers from which it is then sent

to the satellite depots


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Problem Definition

SPL has implemented the distribution module of ERP - Rs 3 crore.

All CFAs have distribution module of ERP. Weekly sales and stocks

arrive from CFAs electronically through emails.

Inspite of that, the DRP functions were not being used by the logistics

department.

Only if DRP functionality is used, the benefits of having a common

platform for information exchange can be more successful

Thus the efficacy of the current manual dispatch plan was calculated

Observation - The manual distribution plan was not the best plan.Marginal improvement over the FY 1996 97. Transportation cost had

increased and the inventory turnover was poor.

All these showed that there was scope for improvement and it was

believed that DRP is one such tool which can improve this.


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Objectives

The project was initiated

to draw the top management attention towards the need

for using DRP by showing its impact on the bottom line of

the organization

to develop confidence in the users about the DRP

functionality by demonstrating how it could improve the

performance of the logistics department

To achieve these objectives the study wasdivided into 2 phases namely Phase I and

Phase II


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Phase I

Develop a frameworkfor benefitquantification.

Simulating thedistribution of SPL

using DRP.

Comparing thesimulated distributionplans with actual

distribution plans. Projecting the benefits

and its impact oncorporate profitability.

Phase II

Identifying issues incurrent DRP practices.

Reviewing inputs toDRP

Analyzing the problemareas

Recommending theimprovements


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Proposed Comprehensive Modelfor DRP

The job of DRP is to manage the flow of materials fromsupply sites to demand sites.

this was accomplished in three distinct phases

Input Phase: forecast, customer orders, inventory records and

planning parameters for each SKU.

DRP process phase: DRP generates a time phased model of

resource requirements to support logistics strategy.

Output Phase: The DRP generates the planned order dictated

by the item order policies and align the order by due date with

demand which is known as planned order releases.

A good distribution model is the one which provides both

internal mechanisms of the process and its linkages with the

other processes of the organization.The proposed model of

DRP is one such model.


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Measure for Quantification

A meaningful quantification would be one thatshows an impact on the bottom line of the

organization.

Return of Investment is one such measure, which takes

into consideration not only the impact on the bottom line

but also on the cash flows and asset utilization.

Logistics department is the one whose impact

could be seen in all the financial aspects of the

business and ROI could prove to be the right

platform to project the benefits of DRP.


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Simulation Exercise In order to quantify the benefits of DRP, a simulation exercise was carried to

prove that if DRP was used instead of the current manual system, then benefits

like reduction in inventory, reduced transportation costs could be achieved.

Simulation Parameter: The simulations used for the study are:

Fixed Order Quantity (truckload).

Planning horizon (raw material procurement to receipt by CFAs eight

weeks)

Lead times as per contract agreement.

Data Requirement: The data required for the simulation exercise is as follows:

Opening stocks and goods in transit

Weekly sales and value of stocks.

Actual dispatches from factory to CFAs.

Analysis Parameter: Number of dispatches

Weekly inventory position.

Avoidable dispatches Inter CFA


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Impact on CorporateProfitability

Reduction in cost: savings of 31.68

Lakhs

Reduction in assets: weekly inventoryhad reduced in each region.

Impact on ROI: 1.2 % increase in the ROI for

SPL from the use of DRP module of the ERP

system.


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DRP Review Further to see the impact of forecast accuracy on

performance of DRP, a similar situation exercise was carriedout.

It was found that with 100 percent accuracy DRP can further

bring down the transportation and inventory carrying costs

by 15 %. Conclusion: the correctness of the system is entirely

dependent upon the correctness of parameters fed into the

system

Therefore, to improve effectiveness, those inputs that aredynamic, need to be identified and treated accordingly.

Using this methodology it was found that the dynamic inputs

to DRP are Safety Stock (SS), Lead time (LT), Bill of

Distribution (BOD) and ordering Policy (OP).


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The Proposed Semi DynamicModel

Based on the parameters mapping results, it wasfound that parameters should be changed every

quarter.

To incorporate this dynamic feature in the

comprehensive model proposed by them, one had

to modify the model.

The model was renamed as Semi Dynamic Model

for DRP process (SDMD) generalized the findings

for SPL, where the planning parameter fed to DRP

are function of sales trend and/or time


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Recommendations

Planning process: The distribution planning should be donecentrally by taking DRP run at every HO every week.

Using DRP to generate MPS to synchronize operations: The

integration of DRP with MPS gives a single, continuous

seamless system that uses one set of logic across theoperations.

Revising DRP parameters every quarterly:

Using safety stocks for demand uncertainties, calculated at

95 % service level. Using safety time for lead time uncertainties, calculated at 95

% service level.


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Recommendations

Following periodic order quantity (POQ) dispatch policy,

where period shall be calculated for optimum total cost

from a trade off analysis between transportation cost and

inventory holding cost.

The time bucket of one week should be uniformly applied.

Dispatch variance report should be generated by factory,

giving reasons for any dispatches not done as per the

dispatch plan.

Provide the DRP summary information to depots so that

even the branch managers have the visibility of the system

and can suggest changes in the forecasts or lead times

which according to them are not correct.


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Documents

Joju Johny - ADSCM - SPL Case Study