1 POLITECNICO DI MILANO MANAGEMENT ENGINEERING DEPARTMENT REINGENEERING ANALYSIS WITHIN THE VENDOR MANAGEMENT INVENTORY HELD BETWEEN RHIAG AND SPESSO GASKETS SINCE 2012 Professor: Ing. Riccardo Mangiaracina Master thesis from: Charis Ivonne Sanchez Matr. 820294 Academic year 2014/2015
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POLITECNICO DI MILANO Thesis... · comparing the metrics defined for the KPI’s: monthly Inventory turnover index and monthly fill rate index (service level), for the past 3 years.
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4 SPESSO Gaskets s.r.l ................................................................................................................................. 26
4.1.1 History ..................................................................................................................................... 26
4.1.2 Business Model ..................................................................................................................... 28
4.2 Relation between Spesso Gasket and Rhiag Italy .................................................................. 28
5 As Is process ............................................................................................................................................ 30
7.1 Fill Rate .......................................................................................................................................... 42
7.2.1 Application in Business (4) .................................................................................................. 45
8 ANALYSIS OF ACTUAL PERFORMANCE VMI PROCESS ............................................................................. 47
8.1 Measurement Fill rate for The Italian and the Asiatic range, in the actual VMI process.... 49
8.2 Measurement of the inventory turnover for The Italian and the Asiatic range, in the actual
VMI process ............................................................................................................................................... 52
8.3 Comparison Between Rhiag and Spesso Service level .................................................................... 54
9 POINTS OF IMPROVEMENT ..................................................................................................................... 57
10 possible solutions ................................................................................................................................ 58
11 Determine The most accurate solution ............................................................................................... 60
12.4 Loss of sales cost.............................................................................................................................. 73
First of all, to my family for their constant support through all the years of my life, all my
achievements will be always dedicated to them. To my father for the trust placed in me, and
his wise counsel, to my mother for her infinite love and for being my model, my brother Ivan
to be more than a brother, a friend and to my brother Edgar for always being there when I
needed.
To my colleagues of the motor team in Rhiag, without your support and help, nothing of this
project would have been possible, specially to my boss Fabio Pedroncelli, that guide me
along the development of the thesis . To all my professors, colleagues and friends.
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2 EXECUTIVE SUMMARY
2.1 INTRODUCTION This thesis provides an evaluation of the actual VMI process applied between Rhiag and
Spesso Gaskets since 2012, in order to determine its effectiveness through the
measurement of the key performance indicators (See chapter 5), and also to determine
possible points of improvements, analyze possible solutions and suggest feasible
applications (See chapter 6)
VMI implementation was created with the scope of increasing Rhiag Inventory turnover and
the service level concerning certain products, and also giving more information to Spesso
Gaskets so they can also control and reduce their own inventories (win-win strategy).
The VMI process in Rhiag have had changes all over its implementation, always with the
scope of learning from the market and staying ahead of the latest methods of optimization
of operations. As it will be shown along this project, the results acquired until now satisfied
the initial expectations. Although there still been some improvement points that can even
increase the performance, thus exceeding the initial expectations of the VMI implementation.
For the analysis of this improvements, a first description of the process was done, taking
into account the subdivision of the components, the steps from the requirement to the
acquisition of the products, and the reasoning behind each implementation, after a the
process description, the BPM diagrams was printed, in order to summarize the information
flow, form this diagram some improvement points where identified and possible solutions
where suggested.
This points of improvements where focused on analyzing if a complex sub process (sell of
the parts of the assembled products) that actually is held by Rhiag, worth to continue as it
is or instead should be directly held by SPESSO gaskets, although some margin is lost. For
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this dissertation a cost analysis was provided, and as a conclusion a formal suggestion
based on the costs was delivered.
2.2 OBJECTIVES
The scope of this project is to analyze the performance of actual VMI process held by Rhiag
and Spesso Gaskets since 2012. Calculating the Inventory turnover index and the service
level, for both, VMI and non VMI products, in this way to demonstrate the success of the
VMI implementation.
Also analyze the processes performed in order to achieve the VMI scope, detect the points
of improvement, propose possible reengineering models and evaluate the suitability of each
proposal, in term of cost.
2.3 METHODOLOGY
For acquiring the scope of the project it have been established a procedure, developed as
following:
Description of both companies; Rhiag s.r.l and Spesso Gaskets s.r.l (Chapter4
and Chapter5)
In this 2 first Chapters is done a General description of each company with their
history and their business model, also a short description of how both companies
started to make business together and a general description of the VMI process
implementation.
Description of As Is process (Chapter 6)
In this chapter is written at first the process of repackaging, later the considerations
for the VMI process; the lot size, the calculation of the ROP, within others. And finally
the complete VMI process, taking into account the previous considerations.
Define Key performance indicators (Chapter 8)
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From the general scope of the area, the Key performance indicators are defined, and
later on the metrics to measure each of them.
Analyze the data of the As Is process for VMI and non VMI process. (Chapter 7)
In this chapter the description made in chapter 6 is printed into a BPM diagram, and
some suggestions for improving the process are done.
Calculate for both cases the inventory turnover and the service level. Make
conclusions (Chapter 9)
In this process the results of the data collected from Rhiag’s data base is shown,
comparing the metrics defined for the KPI’s: monthly Inventory turnover index and
monthly fill rate index (service level), for the past 3 years. Through this data an
analysis of the success of VMI implementation is done.
From the As Is diagrams analyze point of improvement and propose possible solutions. (Chapter 9, Chapter 10, Chapter 11) In this chapter the considerations of chapter 7 are analyze, also evaluating the data
related to each solution.
Cost analysis (Chapter 12) For each possible improvement a cost analysis is done, in order to determine its
feasibility, then the solution with the best result is chosen in order to do the proposal
for the process reengineering.
Results (Chapter 13) Results of Cost analysis of Chapter 12 are written. Is it better to reengineer the
process or is better to continue with the actual methodology?
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3 RHIAG
3.1 RHIAG GROUP
Rhiag is an international Group and a European leader in the distribution and sale of parts
for cars and industrial vehicles in the independent automotive aftermarket.
The distribution model, centered on strong relationships with main suppliers and component
producers, guarantees speedy delivery of an extensive range of products to their clients,
and is managed by a logistic network of 11 central warehouses and 220 distribution
branches serving over 83,000 clients.
The Group’s supply chain has been developed upon a “pull” type model, which
ensures on the one side a consistent maintenance of optimal stock levels and on the other
side the maximum efficiency of the distribution system and the ability to quickly meet the
clients' needs.
At the level of the supply chain Rhiag ranks among manufacturers of components and spare
parts dealers, not thus having a real outlet to the final customer.
The Company holds a leading position on the Italian, Czech, Slovak, with an especially
strong on Swiss, Hungarian, Ukrainian, and more limited on Romanian market. The Group's
international presence corresponds to a strategic choice aimed to match the distribution
activity in mature and stable markets, such as Italian and Swiss where growth is primarily
by the acquisition of market share, to that in markets with high potential for development
with leaders of growth implicit is growth of the markets
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Figure 1 Actually the company operates in 10 different countries: Italy, Spain ,
Switzerland, Bulgaria, Czech Republic , Slovakia , Hungary , Ukraine , Romania and
Poland .
Rhiag IAP SpA is the most important company of the Rhiag Group. It operates in Italy
through Rhiag and its subsidiaries: Bertolotti, InSIAMO and Rhiag Engineering.
In Eastern Europe, it operates in the Czech Republic through Elit CZ and CZ Autokelly, in
Slovakia through Elit Autokelly, in Hungary by Lang and its subsidiary Car -Go , Ukraine and
Romania through Elit Romania and In Switzerland operates through Rhiag RGL.
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Figure 2 Structure of Rhiag group, RHIAG Italy, BERTOLOTTI Italy, ERA Italy, RHIAG
In 1999, in order to further strengthen its position in Italy, Bertolotti was acquired –
which was among the leading operators in the Italian independent automotive
aftermarket.
In 2000, the Group further expanded its international presence with the acquisitions
of Elit Romania and the Hungarian Group Lang.
In August 2010, Auto Kelly CZ and the subsidiary Auto Kelly Slovakia were acquired,
with the Group becoming the leading independent distributor in the Czech Republic
and Slovakia.
In 2013, through the opening of a warehouse in Sofia by Auto Kelly BG, Rhiag Group
entered the Bulgarian market.
At the beginning of 2014 the Group starts the operations in Poland under the brand
Elit PL.
Finally, on 16th October 2014 Rhiag Group finalized the acquisition of the aftermarket
distributor ERA, an Italian company, internationally orientated, and specialized in
electric and electronic parts.
3.1.2 Group business model
The business model consists in purchasing parts from component producers, stocking them
in the Group warehouses, distributing the parts to the branches and finally selling them
to clients.
The products handling within and among the central warehouses, the regional warehouses
and the branches is constantly monitored through advanced IT systems, which ensure the
correct placement of the items and efficient picking and shipping according to the delivery
deadlines.
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Timing and volumes concerning supply is managed through a consolidated database, with
continually updated calculation procedures, ensuring a sufficient level of stock at the
different points of the distribution chain.
3.2 IN ITALY: RHIAG SPA
Rhiag S.p.A. It is operating for nearly fifty years in the independent distribution parts dealing,
in particular, cars, trucks and tractors. The canal "Independent" collects all market
participants are not linked to car manufacturers and therefore not part of their care.
Figure 3 Placing Rhiag within the supply chain of spare parts
Ric
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ific
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Rhiag aims to have the greatest range possible in order to ensure the greater coverage in
terms of fleet and then to customer requests. all The range of original quality or matching
the original in accordance with Law BER 2002, which allows to apply these products also in
the warranty period vehicle. The 85000 references already cited can be divided, for context
application in automotive, truck and engine.
The distribution network constitutes the heart of the company and is constituted by two
Central warehouses, 3 hubs and 17 branches, with a total volume of cargo storage of more
than 300,000 m3 and 20 million units handled annually. The central warehouses are located,
Milan Siziano (PV) and subsidiaries scattered in almost all regions of Italy. Such breadth
throughout the country allows you to make deliveries within 24 hours in 48h peninsula and
on the
Figure 4 Warehouses, Branches and Hubs location
3.2.1 Product Management
For the range of products, Rhiag’s strategy aims to have the largest possible assortment,
so that they can cover all customer inquiries. Given the variety of products and the fact that
they come from different suppliers, Rhiag decided to use its own code, called telephone
code (CT), to optimize the management.
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To facilitate the activities of management of the range, the products are classified according
to different dimensions:
Commercial classification: identifies the family of the product (eg pads, filters, etc.)
Quantitative Classification (ABC)
turnover class
logistic class
cost of sales class
Statistical Classification: was realized in order to divide the items into categories
that did not depend on the turnover. This classification allows to highlight certain
types of articles that require special handling. For items that fall into this category
you cannot make the automatic supply because suppliers have stopped producing
them, or because they are already on the market topping, ie codes that replace
other items
3.2.2 Information system
In support of all business activities, Rhiag decided to use an ad hoc information system, in
this way for every need you can purchase a dedicated software.
The base platform on which it was implemented the information system is an IBM AS /
400, which are associated with other software components such as:
Demand Solutions, the demand forecast
Tec-Com, the network for on-line transactions between manufacturers / distributors
Airone, for the management of flows between branches
In parallel to the AS / 400, for two years in the branches is used as an information system
called Easystore, that automatize the faces of reception, picking and shipping.
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3.2.3 Corporate strategy
In the early decades, the company has based its strategy on an ever-increasing demand
and always increasing development.
Today, the context in which it operates has changed: the question is stationary, the
replacement market in Italy is now saturated and the recent financial crisis leads
consumers to seek ever more economic solutions.
For this Rhiag tried to create a competitive advantage over its competitors by focusing on:
Product Quality
High level of service
Stable reports with key customers
Currently, given the competition from car companies, corporate strategy aims to defend the
independent market looking to create partnerships with its customers. From this Rhiag pays
particular attention to issues concerning the construction of a logistic service / efficient
distribution network, the constant expansion of the range and the definition of convenient
services for customers.
Factors that mainly affect a partnership in the automotive sector are:
The size of the range
Low delivery lead time
Sales Support
Additional services for customers partners
Financial media in support of the expansion of the customer (eg. Payment
extensions)
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The goal of the strategy is therefore to build Rhiag leadership of differentiation, not based
on reducing costs, but the high quality and the offer of providing value-added services to the
customer.
3.2.4 Organizational Structure
Rhiag S.p.A. is composed by more than 500 members, without the agents, one-firm, about
90, who make up the company's sales force. The organization chart illustrated below,
shows the functional structure, whose directions report directly to the CEO
Figure 5 Organizational Chart Rhiag SpA
The three staff departments of Rhiag are:
The direction of information technology (IT) is responsible for internal
maintenance, the ad hoc development of specific applications for AS400, the care
of the website; it is also the manager processing of data in the central data-base.
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The management control of management: its activities relate to the accounting,
administration and debt collection.
The direction of human resources dedicated to the selection, training and
development
staff; it is also to be in charge of the service supervision.
Secretary: deals with reception services and room management. And the resource
to be referred to in case of need of information on Meeting schedules and other
issues the organization of the working environment.
The following describes the main activities carried out by some of the business functions:
3.2.4.1 Logistics
It covers both the management, organization and maintenance is concerned with both the
management, organization and maintenance of the two central warehouses and
of the 17 subsidiaries of the company, that the coordination of the physical flows of goods.
In each of the poles of storage is a manager who runs the Centre for as for the various
activities, depicted later.
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Figure 6 Activities performed by the warehouse (Orders refer to customer orders, not to
supplier ones)
In the branches, the logistics manager establishes classification parameters of the
products, the management policies of the warehouses, storage techniques and draw up
the regulations of the structures.
For the realization of the links between central warehouses and branch offices, the
direction
of logistics makes contracts with external transport companies, able to guarantee high
performance of service in terms of delivery times.
3.2.4.2 Commercial
It deals with the conduct of trade policy with the aim of expanding the park customers and
retain existing ones by offering them the purchasing conditions studied specifically on their
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situation. To better understand a variety of customers Rhiag, the marketing department has
created three classifications, each with objectives different:
Figure 7 Commercial classification
Classification for networks:
This type of classification divides customers according to the type of products purchased;
this allows to associate each of them to a particular network commercial. The types of
network you are in turn classified into:
· Automotive Network, made up of products from the fields of: Steer, Electrical and Chemical.
· Network body, composed of the products belonging to the sectors: Bodywork. Auto Body and Industrial Vehicles.
· Technical Network, composed of the products Motor and Industrial Vehicles.
The management of the three networks is entrusted to the sales force, made up of agents
distributed throughout the country that deal to offer products and contracts sales with
customers. The sales force is organized by areas of sale, or in geographical areas covered
entrusted to a team of agents supervised by area manager. With regard to the automotive
network and bodywork, the corresponding areas are six, while for the network technique are
two.
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The agents are very specialized, dealing within a certain area of a particular sector, this
implies that a customer is being served by multiple agents depending the type of product
treated.
In accordance with this subdivision agents, about 90 in total, are classified by type
specialization in automotive, automotive and bodywork, bodywork, Technical Agent (Engine
products and VI), sole agent (all products). This force structure sale allows the penetration
of the entire national territory with experienced staff each type of product.
The classification for networks allows splitting customers by product type Purchase:
· Spare Parts Dealer generic (Automotive Products)
· Adjustment (Motor Products)
· Spare Parts Dealer Specialist V.I. (Products V.I.)
· Spare Parts Dealer Specialist Body (Body Products)
· Spare Parts Dealer Specialist Electric (Electrical Products)
· Spare Parts Dealer Mixed
· Spare Parts Dealer generic V.I.
· Generic and Motor Spare Parts Dealer
· Spare Parts Dealer generic V.I. and Engine
Classification by revenue
The classification by total turnover with Rhiag divides customers:
· Partner (annual turnover in excess of € 300,000 purchase)
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· Customer Friend (turnover between € 150,000 and € 300,000)
· Independent Client (turnover below € 150 000)
Classification strategy adopted Rhiag
The classification of customers for strategy adopted Rhiag generates three types of
classes:
· Customer 3R (Officine "in place")
· Customer 3C (Officine "right" body)
· Customer Partner InSIAMO
Figure 8 Relation between different client classifications
The spare parts dealers in these categories are all partners Rhiag.
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Another activity carried out by the commercial division, which aims to increase sales,
the definition of "plus". It is of particular facilities that are agreed between the agent and the
customer, and regulated by a contract signed earlier this year. This document provides for
the definition of a target annual turnover in buying of a certain product category.
The annual target is broken down into sub-goals bimonthly and the achievement of each of
these Rhiag dispenses towards the customer credit note. As with other trade actions is also
the plus diversified in function of the client to which is proposed; There are, in fact, the plus
market (payable to all general customers), plus the loyalty (payable only to customers 3R)
and plus VMI (for members of the consortium InSIAMO).
It appears evident that the customers VMI, to the close working relationship we have
undertaken with the best Rhiag purchasing conditions. It 'important to remember that, the
value of plus, is not It established arbitrarily agent but is regulated by the internal regulations
Rhiag.
For customers 3R another type of facility delivered during the signing of the contract is tied
to awards of different nature that the customer agrees directly with the agent.
3.2.4.3 Marketing
Automotive marketing division is subdivided into four sectors:
· A1: management of shock absorbers, clutches, belts, kit distribution
· A2: management of the pads
· A3: management filters, air conditioners, heat-engine components
· A4: management of the cooling / chassis, water pumps and thermostats.
· Body.
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These divisions, respectively for Automotive, Commercial Vehicles and Motor. They serve
to determine:
· The range
· The sale price
· Promotional activities
· Contracts with suppliers
· The first purchase on the basis of technical and scientific knowledge
· The production of catalogs, price list and information material for customers.
The goal of marketing is to offer products and services tailored for spare parts dealers to
meet the demands of the end user. For this, the division pays particular importance in the
selection of the range of products and in the quality of suppliers. The major difficulties in the
management and expansion of the range reside age of vehicles in circulation, which
decreases dramatically, and the need to raise the supplies quickly.
To ensure product quality in the selection of suppliers, the marketing strategy focuses on the selection of original equipment manufacturers, or company they make products for car manufacturers.
Once selected suppliers marketing division establishes the marginalization of each product
line, the parameter which is usually fixed irrespective the volume of sales.
3.2.4.4 Supply Chain
The supply chain in Rhiag is the function that links the company with actors upstream and
downstream in the supply chain.
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Figure 9 Organizational Supply Chain Chart
The activities that characterize this function can be divided mainly into three areas:
Purchasing and supplier relationships
As regards the upstream side of the supply chain, the supply chain shall undertake orders
and is therefore directly responsible for the level of stocks in this structures stock. Supplies
are managed by the team, which are responsible as well as the average balance of each
distribution center, also of lost sales. Procurement policies depend on product
characteristics and are the result of the intersection of the studies of seasonality Articles,
sales forecast and promotional campaigns.
Distribution
This activity consists in the allocation of the stock in the distribution system once you arrived
in warehouse after purchase. For each article It is defined as the minimum and maximum
amount to be kept in each tank, function the desired coverage and geographical location,
also in anticipation of future direct transfers between branches as efficiently as possible. The
definition of such parameters triggers a supply branch whenever the stock falls below the
minimum level, which material flows are managed by logistics. A rather critical is the
distribution of new products: the complexity at the level of purchase that It affects the product
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manager also extends to distribution, not having to available historical data. In these cases,
the preferred way is to keep the centralized
much as possible using the system of replenishment to supply the one or the other branch
in, If the deficiency amount (remember that in 24 hours you can deliver across
Italy, while 48 islands).
Customer relationships
With regard to the downstream side of the supply chain instead within the Supply Chain
created the service Vendor Managed Inventory. It is a project commissioned by the
consortium InSIAMO, offering customers the option of a support in the management of their
stocks. In particular, with the service VMI, called Integrated Logistics, Rhiag undertakes to
establish the level of the stock to keep points of sale in function of the consumption.
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4 SPESSO GASKETS S.R.L
Spesso Gaskets it’s a company manufacturer of flat gaskets and joints for OEM and
aftermarket applications. Their scope is to sell engines to an increasing number of world
class customers in the truck, automobile and motorcycle markets.
Figure 10 Products distribute by Spesso Gaskets
4.1.1 History
1920’s In 1926, Mr. Clemente Spesso, grandfather of current Spesso’s Chairman,
establishes a workshop in downtown Torino to supply the growing Italian auto
industry
1950’s starting from the 1950’s, Spesso grows consistently its business in the
Independent Aftermarket, quickly becoming market leader in Italy in Head Cylinder
Gaskets and Gaskets Sets.
1980’s all major quality certifications are obtained. The premium quality of its products
enables Spesso the company to expand the business in Original Equipment, starting
a partnership with Fiat Iveco.
The company relocates in the current 9,000 sqm plant to adapt to the sharply
increasing sales.
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2000’s The Company acquires important know-how in product development and
manufacturing through the strategic alliance with the Japanese leading company
Ishikawa Gasket. Spesso so becomes the first Italian Manufacturer of Multi-Layer
Steel Head Cylinder Gaskets for Original Equipment. Processes with new machines
that enables Advance Coating to the Gaskets, further increasing their quality. New
equipment for gasket coating/drying and the introduction of the Toyota Production
System (Lean Manufacturing) enables Spesso to manufacture with the highest
quality, flexibility and reliability.
2010’s the vision that drives work at Spesso is applying Lean Management
companywide, to empower all people and increase the flow to all our customers. As
a Lean company we always strive to meet and exceed our customer requests. The
award from Iveco/CNH as best “Vendor Managed Inventory (VMI) Supplier” is a
tangible result of Spesso’s lean efforts for continuous improvement and innovation.
The Company also focuses on R&D in sustainable technologies, with Customers,
Suppliers, Partners and Universities. Besides gaskets, fuel cells are also an area of
interest.
Today, Spesso is investing in sustainable technologies, with Customers, Suppliers,
Partners and Universities. Besides gaskets, fuel cells are also an area of interest.
Figure 11 Spesso Gaskets history since 1920
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4.1.2 Business Model
Lean Management is a way of thinking and acting to strive for continuous innovation
of products and processes. The results are higher quality, better service, and lower
cost flowing to the customers. All people in SPESSO are involved and empowered
in the daily efforts to constantly improve both of manufacturing processes and all
other activities in the company, from product development to accounting, from sales
& marketing to purchases.
Spesso Gaskets tend to establish close partnerships with the customers to fully
understand their needs and team up with them in the competition on their markets.
The same they do with their suppliers, so creating an extended lean enterprise
responding rapidly and flexibly to the demands of their customers. They can supply
their products in batches down to one piece: there is no such thing as a minimum
batch in Spesso, they want to give their customers exactly what they need, when
they need it, nothing more.
4.2 RELATION BETWEEN SPESSO GASKET AND RHIAG ITALY
The supply Report Between Rhiag and Spesso Gaskets started in 2001 with small furniture
related to specific products, most of them brand Iveco-fiat, for Rhiag, it was a traditional
management with closed orders done once a month with lead time from 60-90 days.
In 2006 Spesso gaskets began producing range seal kits for Asian veture under Japanese
licenses also with a traditional management as described above. In 2009-2010, following
the closure of a previous supplier, entire range of production (kits, gaskets) has been
transferred from Rhiag to Spesso, and at that point was born the need to study management
models more evolved, able to manage the work process for the kits assembled and
management of open orders, so they can ensure, short lead time, more frequent emissions
orders, and a top level of service.
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In 2011 they began feasibility studies to identify a simpler management model and suited to
the needs both of which Rhiag and Sesso, early results have occurred in the following
months.
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5 AS IS PROCESS
5.1 REPACKAGING
For some products from Erling, Reinz, Corteco Federal Mogul. Spesso repackages the items
with the aim of selling them with the Rhiag’s brand. For these kind of products, Rhiag makes
the order directly to the supplier, the supplier delivers Spesso, Spesso makes the packaging
and after send the goods with Rhiag’s packing and the invoice of the service Rhiag, The
vendor sends the invoice directly to Rhiag.
Currently the package you agree to a projection of sales (Forecast)
Figure 12 Repackaging process
Problem: When the product is not any more in the original package, we cannot return it to
the supplier in case of write off.
Solution: Do not do the packaging until there a direct order from the customer
5.2 VENDOR MANAGEMENT INVENTORY (VMI)
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5.2.1 Initial Considerations
Consideration 1. Every year Rhiag place an open order to SPESSO Gaskets s.r.l
according to the forecast for the whole year, for each Code (kits made with different
products). This framework order is useful for:
Have an estimated value of purchase (Rhiag and SPESSO)
Estimate load resources (personnel, equipment, raw materials)
Have under control the call-off
Consideration 2. The different references are divided in different families depending on
their yearly consumption.
K1, fast moving products (more than 999 pieces/year)
K2, medium movers (sales from 121 to 999 pieces/year)
K3, medium low movers (sales from 30 to 121 pieces/year)
Class A, low movers (sales less than 30 pieces/year)
For each code K is set a minimum stock that is calculated each day:
𝑹𝑶𝑷𝑲𝟏 =𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑠𝑎𝑙𝑒𝑠
30∗ 63 𝑔𝑖𝑜𝑟𝑛𝑖
𝑹𝑶𝑷𝑲𝟐 =𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑠𝑎𝑙𝑒𝑠
30∗ 77 𝑔𝑖𝑜𝑟𝑛𝑖
𝑹𝑶𝑷𝑲𝟑 =𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑠𝑎𝑙𝑒𝑠
30∗ 90 𝑔𝑖𝑜𝑟𝑛𝑖
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Consideration 3. For slow moving products (less than 30 pieces/year) Class A, Rhiag
established a minimum stock that is modified by Rhiag periodically.
Consideration 4. All of this codes for Rhiag are divided into Class T and class F, where
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Class F are kits that don’t need components provided by Rhiag as subcontractor,
Process
Figure 11 Process for Components type F
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Class T are kits that need components provided by Rhiag as subcontractor.
Process
Figure 12 Process for Components type T
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Consideration 5. To calculate Service Level,
Rhiag calculate the number of days with stock = 0 for each code, if this number of days is ≤
7, the row is positive otherwise the row is negative. If the row is negative, the number of
days with stock 0 is counted and added to ND, otherwise is not considered.
Service Level = ND
TD where,
ND: Is the total number of days with stock 0 (only for negative rows)
TD: total days
In 2015 Service level below 82% activates the penalty
Consideration 6. The Lots quantity stipulated by Spesso as following:
Table1 production lot size SPESSO gaskets
Consideration 7. As Rhiag buys some products that have to be repackaged by SPESSO,
but although this products still Rhiag’s property, Rhiag have created in the system a
Average Batch
>200 100
>100 50
>75 40
>20 30
>15 20
>10 15
>5 10
>2 5
>0,5 3 or 5
<=0,5 2 or 5
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warehouse 95, in this warehouse Rhiag can control the products that still their property but
are in SPESSO warehouse.
5.2.2 VMI process
1. Every day Rhiag sends to Spesso a file with the following information:
Rhiag Stock (m2 + branch)
Consumption month
Consumption year
For each product the classification (K A or D)
Code + Description
Average monthly sales (6 months)
Minimum safety stock (PR)
2. With this information Spesso Calculate the ROP (Reorder Point) for the products type K
and depending on the stock level, Spesso decide besides producing a Lot or not (See 2
consideration). The same for the product class A, but instead of calculating the ROP they
compared the minimum stock stipulated for the year with the actual stock level.
3. If the Stock is less than The ROP for product class K, or minimum Stock for product class
A, Spesso produces a LOT and delivered to Rhiag, each day SPESSO (See consideration
4. After they send this products to Rhiag’s Central Warehouse.
5. Each day SPESSO sends to RHIAG the “bolla di vendita” and “Reso di confezionamento”
which means
Bolla di vendita: This are the products that the Spesso sell to Rhiag Class T or Class
F, (see consideration 4), in each of the cases the system takes the components from
the supplier, 159 to the status shipped to the central warehouse.
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Reso di confezionamento: Are the products that Spesso repackaged to Rhiag, they
just receive the articles put them in Rhiags boxes and send it to Rhiag, when Rhiag
insert this Reso the products turn to the status shipped to the central warehouse.
6. Rhiag Supply Chain department register them in the system, and wait for the warehouse
to receive the products and register the entrance of them to the stock, this information goes
directly into the flow send to SPESSO, every single day, in this way SPESSO have the
actual data to determine if the level of Stock is under the ROP or if they have to send another
order.
5.2.3 Parallel Process
1. As they need some components from Rhiag to produce the Kits, they send every
week, a list with the quantity for each product class T that they required from Rhiag,
from this List Rhiag verify if they are available in the central warehouse, and send to
them the required available quantities. If they are not available Rhiag don’t send
anything and in some cases Kits cannot be done (1.Suggestion: Analyze cost of
losing this sales Vs cost of margin lost)
2. Rhiag send this components to SPESSO and register them as a sell.
3. Then SPESSO returns the products with the procedure describe previously.
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6 BLUEPRINT OF THE PROCESS AND REENGINEERING SUGGESTIONS
For the identification of the critical success factors (CSF), and the key Performance
Indicators (KPI’s), it have been decided to make a VMI diagram for each process hold with
SPESSO, and in this way identify the parts of the process that creates
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Daily process of VMI Information Flow
In the information flow there are set all products requirement also those ones that they cannot produce because Rhiag have not
supply its parts.
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Weekly process of Material Requirement
There’s no other option when the components are not available
It’s important to find a way to control if the quantities that they are requiring, are in the correct amount (logistic problems, over
stock problems etc.)
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7 KEY PERFORMANCE INDICATORS (KPI’S)
To identify the performance that a supply chain should deliver, we need to measure different
indicators and analyze them. Linking supply chain KPIs by the proper analysis gives better
understanding of the issues and mistakes happened in history and recording these changes
and root causes is very important
What are the purposes of creating KPIs though?
1. to measure performance
2. As a measurement system designed to change behavior
3. To create and ensure alignment with overall business goals and strategy
4. As a driver of future improvement
While an orientation to one group of KPIs or another is somewhat natural and to be
expected given the nature of business, the market, customer expectations, competitive
activity, the strategy of the company, level of maturity and many other factors, the
challenge is to blend a mix of these KPIs to properly measure those things that are of the
most value to the organization as well as having a balanced approach and not missing a
measure that has the capacity to ‘blind side’ the business.
Since is understand and accept the mantra “you can't improve what you don't measure,"
measuring the right things is one of the first steps to generating improvement. This applies
across any business and of course this applies in the supply chain area.
From table2 all the different attributes from the supply Chain that should be measure in order
to know if the area is having a good performance, are analyze, although the two metrics
highlighted
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Table2 General Supply Chain KPI’s
From table 2 we chose the 2 metrics that are constantly measured within Rhiag Supply
Chain that are the Fill rate and the Asset turn, in Rhiag this two metric are called; Fill Rate
and the Inventory turnover.
To assess the level of service to the customer, Rhiag calculates every month a Fill Rate for
the requests of the customers that approached to the company. The Fill Rate as stated
before, calculates the service to the customer on the base of the confirmed order lines. In
general, it is the ratio between the “lines on service” and the “ordered lines”. For an order
line it is understood as a part of order (row of the order) containing the quantity of a product
that must be delivered to a customer.
7.1 FILL RATE
The Fill rate can be calculated in different levels, such as to understand the different
dimensions of analysis of the indicator that enables Rhiag to measure the performance in
different points of the distribution system. Currently Rhiag evaluates 4 different fill rates as
explained below:
Attribute Definition Matrics
Delivery performance
Fill rates
Perfect Order Fulfilment
Supply Chain
Responsiveness
The velocity at which the supply chain provides products to
the customerOrder fulfilment Lead Times
Supply Chain response time
Production Flexibility
Cost of Goods Sold
Total SC Management Cost
Value-added Productivity
Warranty/Return Processing Cost
Cash-to-cash cycle Time
Inventories Days of Supply
Asset Turn
Supply Chain Assets
Management Efficiecy
The effectiveness of an organisation in managing asset to
support demand satisfaction. This includes the management
of all the assets: fixed and working capital
Supply Chain
Reliability
Supply Chain
Flexibility
The performance of the supply Chain delivering: The correct
product, to the correct customer, at the correct condition and
packaging, and with the correct quantity documentation
The agility of a supply chain in responding to marketplace
changes to gain or mantain competitive advantages
Supply Chain Costs The cpst associated with operating the supply chain
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First level Fill Rate (subsidiaries): The first level fill rate is calculated only according to the
availability of products in the subsidiaries of the company. The idea is to calculate the ratio
between the total orders with positive (OK) availability and the total requests performed by
the customers.
Second level Fill Rate (Subsidiaries + Hub): The second level fill rate is calculated by
adding the availability of the products in the Hub of the network system of the company;
this means that the Fill Rate considers the products that are not available in the subsidiaries
but that are present in the next level of the distribution system. The formula for the calculation
of the indicator is the same than in the case of the first level, obviously considering the
availability of the Hub.
Third Level Fill Rate (Subsidiaries + Hub + Central Warehouse M2): The third level of
the fill rate includes the availability of the products in the central warehouse of Siziano. The
indicator is calculated for the products that are not available either at the subsidiaries or the
Hub of the company, but that are present in M2. As with the other cases the formula for the
calculation of the fill rate remains the same, measuring the #of orders with a positive
availability answer (including M2) divided into the total number of requests.
Fourth level Fill Rate (Rhiag network): The last level of the fill rate calculated by the
company includes all the distribution network of the company. The problem with the current
system of Rhiag, is that the subsidiaries located in an specific region of the country cannot
see the availability of products in all the warehouses of the company so that the subsidiaries
can check the stock levels in the Hub and the central warehouse and if they don’t find the
product, they might think it is not available, even though it is present in another warehouse.
Therefore, the fourth level fill rate is calculated with the OK answers to all the requests
looking at the availability of products in all the warehouses of the system.
In general it is important to consider that the four levels of the fill rate are incremental by
nature, this means that the fill rate can be diagramed as the composition of different levels
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that intervene progressively in the fulfillment of the order lines (Subsidiaries-Hub-M2-Other
Subsidiaries). The structure can be seen in the fill rate in two ways:
a) If a certain level of the system fulfills the order of the customer, then all the
successive levels will also fulfill it (e.g. if the first level fill rate is 100% then the
second, third and fourth will also be 100%).
b) If a certain level does not fulfill the order of the customer, then the next level is
added progressively and the capacity to fulfill the order is again evaluated.
For the definition of an order line as “on service” t is important to distinguish into 3 different
cases:
a) Potential fill rate: An order line is considered as “on service” if at least 90% of the
requested quantity is available. The incremental concept of the fill rate still holds
in this case; the quantities in the different levels are added and divided into the
quantity ordered by the customer.
b) Theoretical fill rate: An order line is “on service” if the item has a positive
theoretical stock (not taking into consideration other possible variables such as
items already committed with other customers, etc.)
Effective fill rate: Another important element of the fill rate calculation, that considers the
quantities that are invoiced to the customer within an specific time limit (e.g. an item that is
not available at the moment but that can be delivered in a short period of time (4 hours or
less).
7.2 INVENTORY TURNOVER
The Inventory turnover is a ratio showing how many times a company's inventory is sold
and replaced over a period. The days in the period can then be divided by the inventory
turnover formula to calculate the days it takes to sell the inventory on hand or "inventory
turnover days."
In Rhiag the Inventory Turnover is calculated as following:
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𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =Sales
Inventory
7.2.1 Application in Business (4)
A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product
line or marketing effort. However, in some instances a low rate may be appropriate, such as
where higher inventory levels occur in anticipation of rapidly rising prices or expected market
shortages.
Conversely a high turnover rate may indicate inadequate inventory levels, which may lead
to a loss in business as the inventory is too low. This often can result in stock shortages.
Some compilers of industry data (e.g., Dun & Bradstreet) use sales as the numerator instead
of cost of sales. Cost of sales yields a more realistic turnover ratio, but it is often necessary
to use sales for purposes of comparative analysis. Cost of sales is considered to be more
realistic because of the difference in which sales and the cost of sales are recorded. Sales
are generally recorded at market value, i.e. the value at which the marketplace paid for the
good or service provided by the firm. In the event that the firm had an exceptional year and
the market paid a premium for the firm's goods and services then the numerator may be an
inaccurate measure. However, cost of sales is recorded by the firm at what the firm actually
paid for the materials available for sale. Additionally, firms may reduce prices to generate
sales in an effort to cycle inventory. In this article, the terms "cost of sales" and "cost of
goods sold" are synonymous.
An item whose inventory is sold (turns over) once a year has higher holding cost than one
that turns over twice, or three times, or more in that time. Stock turnover also indicates the
briskness of the business. The purpose of increasing inventory turns is to reduce inventory
for three reasons.
Increasing inventory turns reduces holding cost. The organization spends less money
on rent, utilities, insurance, theft and other costs of maintaining a stock of good to be