Case Study. Full Speed Supply Chain. European Commission

Transcription

1 Case Study Full Speed Supply Chain European Commission

2 THE PLATFORM If transport continues to grow at the same rate as the economy, this will become both an economic and an environmental problem. lncreasingly congested roads are as much a disadvantage to European business as they are to society at large. The bestlog project, initiated by the European Commission, will establish an exchangeplatform for the improvement of supply chain management practice across Europe. OBJECTIVES To improve logistics practice and logistics education To raise the overall standards of practice across Europe To set high standards for logistics education and practice To create economic growth and job opportunities as a result Achieve a better match between EC policy and business decisions SOLUTIONS & ACTIVITIES European platform for sharing logistics best practice Online directory of logistics best practice case studies Online directory of European logistics education opportunities Benchmarking on line for European companies European conferences to share logistics best practice Web forum, award directory, media directory, and more lndustry workshops

3 Full Speed Supply Chain PROBLEM DESCRIPTION Famosa is a toy manufacturer and distribution company. Toys are strongly season products, a factor that impacts on the entire supply chain because sales are concentrated within three or four months. In addition, toy life cycles are very short; toys arrive at sales points at the beginning of October and have become obsolete by the end of December. Due to this strong seasonality, the manufacturing process needs to be stock to order, which implies high risks in stocking inventory. In addition, since China is its largest supplier and lead times are long, Famosa is dependent on the intensive use of forecasting. Even though Famosa s supply chain was very short, it was very imbalanced. The company compiled a list of the resulting problems that required solutions: The company had a very high level of capacity whose utilization generated huge semi-finished inventories It had no structured production plan Operational and logistics costs were too high Products suffered high rates of obsolescence Famosa had established outsourcing in China, but used the country only as a source of components; products were still finished in Spain Famosa used to despatch products packed loose, without using pallets Production in Spain gave flexibility but incurred high cost inefficiency Distribution was carried out from a single point only. The company could not deliver customer orders effectively due to stock outs, ignorance of the existence of orders, lack of warehouse management and control tools, etc. By mid-2003, Famosa was a wellrecognized brand, and seen by consumers as an innovative company, but its backoffice logistics systems still dated from the 1980s. In the 1990s, Famosa had two main production locations, one in China and the other in Spain. The two were not coordinated, and just one distribution centre supplied goods to global markets. As a result, Famosa could not deliver goods on time to satisfy customer demand. The company decided to redesign its supply chain, starting in The final result was to achieve a Speed Supply Chain where Famosa is capable of tracking goods movements at any time and in any location, and of knowing what all the agents involved in the supply chain are doing. The new supply chain integrates physical flows together with information flows. COMPANY FACTS Company name: FAMOSA S.A. Location: Spain, Onil Industry/sector: Consumer goods Company size: Large Employees: 700 Turnover: 170 million (2007) Services/products offered: Toy industry sector (games, dolls, soft toys, puzzles, driven and non-powered vehicles, toys for babies, etc.)

4 THE SOLUTION Famosa decided to reorganize the supply chain, moving to implement a Speed Supply Chain. The solution was based in four key propositions: Changes in organization and Information technologies The first action carried out was to create an independent organization to manage a global and integrated supply chain, this way the company would become more agile and more capable in decision making. The next actions taken were: the integration of the procurement process into operations management, moving from simple price negotiation to negotiation of business rules; the integration of the operations in China into the company s operations management, to improve quality and the reliability of production planning; the creation of a planning and replenishment department; and implementation of SAP in all the company s affiliates over five months. Reactive planning processes The main objective was to reduce the variability of forecasting accuracy due to market uncertainty. This involved: the creation of a planning department and the transformation of speculative capacity, which involved purchase orders to enlarge capacity which ignored customer demand, into reactive capacity, which is more reliable and provides an environment with a larger degree of comfort regarding forecasts. This last initiative was divided into the following tasks; adding to reactive capacity through the adaptation of the supply chain to the production cycles of the suppliers in China; lowering the lead time of the AAA products (products classified as very important or relevant) to permit products to be launched with significant changes implemented as late as possible; giving priority to launch products which have a lower impact if forecasting proves to be wrong; and determining which products bear higher deviation costs and rewarding customers who confirm their purchasing intentions in advance. Collaborative planning with China Famosa decided to produce 80% of its end product in China, but this did not simply involve transfer to China of the production process. The company s relationships with suppliers are unusually close; Famosa carries out production planning, and negotiates a Master Production Schedule with

5 its given supplier, which launches its own MRP. Thus Famosa has at its disposal the capacity necessary during peak seasons and is able to postpone loadings through a more efficient planning and negotiation process. Reorganization of distribution network Total redesign of the distribution network involved the following action: Implementation of central and regional distribution centers. Goods are dispatched direct from the distribution centre in China to the market, and to the central distribution centre in Spain. Some goods are also despatched from Onil to important customers, and small orders from Madrid. Famosa operates warehouses in all the principal European markets. The creation of a consolidation centre in China. The objective was to take advantage of logistics and fiscal benefits, including the potential of consolidating products from different suppliers; the supply chain consolidation centre is an export bonded warehouse. Adaptation of logistics processes to consumer goods sector standards: coding and labelling, EDI messages, barcodes and RFID in SAP, and the use of pallets. CHALLENGES Challenge 1: Decide which products to outsource to China. Challenge 2: The marked seasonality of demand for this type of product (sales being concentrated in only three/four months of the year). The company has to deal with very high levels of demand uncertainty, which requires sometimes excessive push production. Challenge 3: Toys are very short lifecycle products. Challenge 4: Production capacity in China is limited, and Chinese suppliers cannot deal with production peaks. Challenge 5: Long lead times involve intensive forecasting. Challenge 6: It proved hard to integrate suppliers due to cultural and language issues. Challenge 7: Famosa did not realize the full complexity of its supply chain network.

6 LESSONS LEARNED Lesson 1: Collaborating with suppliers allows companies to be fast, agile and flexible to satisfy customer demand, increasing competitiveness. Lesson 2: Even though best logistics practice recommends a pull manufacturing process, Famosa defends push production it need not be a synonym for inefficiency. Working with push production can be beneficial if the product and sector so demands. From anywhere in the world, at any time, we can move along a powerful and complex supply chain knowing what is happening in each echelon. Project Manager at Famosa Lesson 3: Stock levels change with a unique warehouse storage centre or if goods are distributed from three centres due to the huge concentration of toy sales in three months of the year. Lesson 4: Even when products have a very marked seasonality, good planning practice can make working with a pool of pallets profitable. SUCCESS FACTORS Success factor 1: Famosa strengthened its relationships with suppliers in China and improved supply chain reliability. The company s main objectives were coordinated with suppliers. Success factor 2: The company added two new processes to improve its working methodology: the introduction of forecasting, and improvements to packaging to make transportation easier. Success factor 3: Famosa introduced the use of SAP across its whole supply chain. Success factor 4: Famosa employees had to learn how to use SAP and were trained in operating the software. They also had to gain familiarity with and know how work in the new supply chain and with the new processes. Success factor 5: In the beginning relationships with suppliers in China were difficult due to cultural differences and the classic relationships big companies have with their suppliers in Asia. Famosa tried to be as flexible as possible and adapt to suppliers customs and improve the relationships, including their suppliers in the network and in the supply chain, and treating them as part of the company.

7 THE BENEFITS Economic ++ SUSTAINABILITY Service levels have been improved, reducing late deliveries by 15%. The company s service level has improved by around 13% and nowadays Famosa is able to supply its customers with better production quality and higher volumes of stock available for delivery. Productivity has increased due to production of finished products in China and the opening of distribution and consolidation centres. Distribution costs have been reduced,by 4%, as have storage costs both for work in process and finished products (by 5.5% and 7% respectively). In the past Famosa s customers did not enjoy good access to the company s products; now its products are available more widely in shops, because Famosa can fulfill customer demand with a new, flexible supply chain capable of sending Famosa s products to any point in the globe. Environmental ++ Famosa reduced obsolescence inventories, thereby reducing product waste. Social ++ The number of employees in Spain and in the other countries in which Famosa operates has increased. Some of its workers have learned how to use SAP and to manage international commerce. Some of the managers have also learned about their supply CHALLENGES chain network. TRANSFERABILITY Transferables Country Many businesses have already developed this type of strategy, but they tend to be multinationals and very large companies. More and more companies, like Famosa, will need to make changes in their supply chains to improve profitability, and even to remain in business, no matter which country they are based in, or which sector they belong to. ++ Sector ++ Company Size 0 Limitations This practice can be transferred to any kind of company; the only restriction is its size of it. Big companies can afford to invest money in a strategic change such as Famosa s programme, but for small companies it is very difficult to create such a big supply chain. The design of the Famosa project has no geographical or industrysector limitations. ++: very high, +: high, o: neutral, -: low, --: very low

8 Contact Resources Network Design Procurement Sourcing People Best Practice Topics in bestlog Customer Product Tactical Planning Transport Production Information & Communication System Markets & Strategies Reverse Distribution Structures & Planning Infrastructure Processes & Operations Enablers & Support PROJECT SECRETARIAT Berlin Institute of Technology H90 - bestlog Strasse des 17. Juni Berlin - Germany Phone: Fax: info@bestlog.org Web: European Commission Author: Guerola Pérez, Sonia. ITENE Packaging, Transport and Logistics Research Center (2008): BestLog Good Practice Cases. Full Speed Supply Chain. Published by BestLog Project.. This document, including but not limited to text and photographs, is protected under copyright. The copyright owners admit the use for informatory and training purposes. Any commercial use of the document or parts thereof is prohibited.