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2 An analytical Approach to ABC Classification and Determining Safety Stock A Case Study Presentation Title Goes Here Date: 17-Aug-2012

3 Introduction to Knape and Vogt 1. Founded in Acquired by Wind Point Partners in High level of Growth through Acquisition 4. Facilities in Grand Rapids MI (Headquarters), Petaluma CA (Workrite), and Taipei Taiwan (GSlide) as well as a sales office in Canada

5 Introduction to Genpact SIZE Over 3,000 Oracle professionals One of the largest Oracle capabilities globally Over 3.1 million days of Oracle experience Manufacturing Discrete Process BFS& I Banking Insurance Business Services Telecom, Media Hospitality EXPERIENCE 160+ go-lives in 40+ countries Support experience of 46,000 plus users 60% resources > 5 years of industry experience > 80% resources trained in Lean, Six Sigma, CMMi EXPERTISE / SKILLS Centers of Excellence (CoE) dedicated for Industry Vertical Solutions Full life-cycle capabilities for deployment and upgrade solutions 24x7 maintenance & enhancement capabilities Strong DNA of managing Program Management Offices (PMO) Oracle EBS Suite Oracle Database Siebel Hyperion + OBIEE ERP STRATEGY DESIGN BUILD RUN & UPGRADE

6 As-Is Process Spreadsheet oriented Quarterly exercise Manual Data Collection ABC Assessment based on usage Quarterly runs Only for FG-Make items Based on std deviation of past 3 months of consumption Multiplied by lead time Safety Stock KV needed a stronger platform to support inventory planning function

7 Solution Approach Genpact proprietary ABC and SS calculation Improve Inventory Turns Planning Oracle R12 ASCP Forecasting Oracle Demantra Introduction of analytics to drive supply chain solutions

8 Multi-Criteria ABC Evaluation for FG Profitability Contribution Margin Return On Inventory Investment (CM $ / Average Inventory $) Contribution Margin Volume Sales ($) (Qty Shipped x Unit Selling Price) Sales Velocity Hits (No. of times an item is ordered) Hits Final ABC Rank = Weighted Average of Individual ABCs

9 Multi-Criteria ABC Evaluation for Components Parent FG Parent Part (highest final rank of parent FG) Bills of Material Quantity (Consumption volume for dependent demands) Usage Hits (Counts of Orders) Hits Final ABC Rank = Weighted Average of Individual ABCs

10 Example of ABC Calculation Step 1: An item is A in terms of hits, if falling in top 75%. It can be a B ranked in Sales, if it is between 15 and 30 % Step 2: To get final rank, combine the individual ranks with relative weights W sales x R sales W hits x R hits W cm x R cm Final Rank Relative Weights and Percentiles Based On Business Principles

11 Safety Stock Calculation Service Level Lead Time Factor Safety Stock Planner s boundary conditions Forecast Accuracy Average future demand Safety Stock = fn(std dev of Forecast Error, Service Factor, Lead Time factor, Av. Future Demand)

12 Example of SS Calculation LT = 60 days Safety Stock σ error Service Level LT = 3 days

13 To-Be Process ABC Safety Stock New outlook on product classification Outcome directly linked to forecast accuracy calculated in Demantra A step towards customer segmentation Upload SS in Oracle INV and then collect to ASCP Feed ABC to Demantra. Do not forecast D items Estimated 12% Inventory Turn Improvement

14 Key Lessons Learned Technical Solution Test various product lines multiple times Pay attention to mathematical formula Review and review again Leverage standard Oracle functions Change Management Involve the business functional leads who are tech savvy Start training the end users early Buy-in from executive level Process Management Perform a pilot study with a subset to prove the benefits Beware of outliers - use boundary conditions Powerful Business Outcomes = fn(process, Oracle, Analytics)

15 Thank You Sanjay Sil Sr Principal Consultant Genpact Salli Churchill IT Manager Knape and Vogt Gene Olsen Sr VMI Analyst Knape and Vogt Presentation Title Goes Here

16 Our Values