Supply Chain Mngt - Sunil Yadav.pdf

PROJECT ON “Supply Chain Management”

SUBMITTED TO Kohinoor Business School BY Sunil Kumar Yadav Roll No.119 Batch: 2017-2019

IN PARTIAL FULFILLMENT OF MASTER OF MANAGEMENT STUDIES (MMS), UNIVERSITY OF MUMBAI

March, 2019

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DECLARATION

I, Mr Sunil Kumar Yadav, hereby declare that this project entitled “Supply Chain Management” is an outcome of my own efforts under the guidance of Prof. Dr. Bharti Deshpande. The project is submitted to KOHINOOR BUSINESS SCHOOL for the partial fulfilment of the Master of Management Studies (MMS), University of Mumbai.

Signature Name of the student: Sunil Kumar Yadav Date

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CERTIFICATE

This is to certify that Sunil Kumar Yadav of Kohinoor Business School has successfully completed the project work titled “Supply Chain Management” in partial fulfilment of requirement for the completion MMS as prescribed by the University of Mumbai. This project report is the record of authentic work carried out by him during the month of March 2019.

He has worked under my guidance.

Signature Name: Prof Dr. Bharti Deshpande Project Guide (Internal) Date:

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ACKNOWLEDGEMENT

Any accomplishment requires work and effort of many people. This project work is no different. I sincerely appreciate the inspiration; support and guidance of all those people who have been instrumental in making this project a success. I am grateful to Kohinoor Business School for giving me an opportunity to pursue MMS program. I wish to thank Dr. Abbasi Attarwala, Director of Kohinoor Business School who has been a perpetual source of inspiration and offered valuable suggestions.

I am highly indebted to my faculty guide Prof. Dr Bharti Deshpande for his guidance and constant supervision as well as for providing necessary information regarding the project and also for his support in completing the project.

Last but not the least I place a deep sense of gratitude to my family members and my friends who have been constant source of inspiration during the preparation of this project work.

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TABLE OF C O N T E N T S

Sr No.

Title

Page No.

1

Introduction

6

1.1

Introduction To The Industry

8

1.2

Introduction of the Topic

10

1.3

Executive Summary

12

1.4

Introduction To The Company

13

Project Management & 1.5

20

Consultancy

1.6

Introduction To The Project

25

2.

Project Details

28

2.1

Objective

28

2.2

Literature Review

29

2.3

Methodology

34

3.

Limitations Of The Project

35

4.

Analysis & Finding

5. 6. 7.

Conclusion & Recommendations Appendices /Annexure Bibliography

36

42 43 44

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INTRODUCTION 2.1

INTRODUCTION TO THE TOPIC: What is SKU?

     

In the field of inventory management, a Stock Keeping Unit or SKU is a distinct type of item for sale, such as a product or service, and all attributes associated with the item type that distinguish it from other item types. For a product, these attributes could include, but are not limited to, manufacturer, description, material, size, colour, packaging, and warranty terms. SKU can also refer to a unique identifier or code that refers to the particular stock keeping unit. These codes are neither regulated nor standardized. When a company receives items from a vendor, it has a choice of maintaining the vendor's SKU or creating its own. The code for a particular SKU under McDonalds is of 5 letters, the first letter is an alphabet among(D,B,C,E,F,G,R) where each alphabet signifies the group under which it falls i.e D,B-Freezer C-Chiller E-Paper item F-Chemical G-Toy R-Card and Return Gift The Remaining 4 Digits are numerical assigned to the SKU Randomly e.g.: E0542etc. What is Inventory Optimization? The entire construct of “supply-demand balancing,” that is at the heart of what supply chain management is, gets down to optimizing inventory levels. The ultimate goal: having the right amount of inventory, in just the right places, to meet customer service and revenue goals - but no more than that. So that’s the quest, but it’s more of a journey rather than a destination. Or rather, maybe the right way to say it, to borrow from a historic political quote, is to consider that “The price of inventory optimization is eternal vigilance.” It’s not easy, many companies still swing between “eras” of high inventory, when customer service concerns top the priority list, and low inventories, when business

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Slows and suddenly someone looks at the cost of holding that entire inventory. Many companies have tamed these inventory cycles to an extent, but many others have not. Inventory Optimization can be obtained by reviewing safety stock levels and policies. There are a number of consultants who make a good living simply serving as a catalyst to help companies update safety stock decisions across their SKU base. Inventory Optimization is also a comparatively new and fairly hot category of software that has been adopted by a growing number of companies, Inventory Optimization software seeks to do three primary things: Look at inventory levels holistically across the entire supply chain, considering the impact inventories at any given level or “echelon” have on other upstream or downstream levels. This includes raw materials and component inventories through internal channels and nodes and, in some cases, all the way down to the retail shelf. Optimize and continually update safety stock levels across these echelons. Take into better account the impact of variability in demand or supply plans in recommending inventory levels. Given the market dynamics and the increasingly brutal level of global competition, gaining even a small edge in inventory management efficiency can pay huge customer and financial dividends. Many companies are now also embracing an extension of S&OP called Sales, Inventory and Operations Planning (SIOP). What is profiling of SKU? SKU/Order Profiling: The analysis of historical and future/forecasted SKU and order data to gain an understanding of the impact of picking and replenishment to a sub-line level (each, case, pallet). Objectives include:  Gain an understanding of customer order profiles e.g. lines per order, units per line, etc.  Determine proper order picking methodologies and  Determine optimal storage media profiles for the SKU population.

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2.2

INTRODUCTION TO THE INDUSTRY:

Third Party Logistics (3PL) Typically, a core company providing services or products is considered the first party; the customer (or customers) the second party. A third-party, then, is a firm hired to do that which neither the first or second party desires to do. A third-party logistics firm is a firm that provides outsourced or “third party “logistics services to companies for some portion or all of their supply chain management functions. 3PL typically specializes in integrated warehousing and transportation services that can be scaled and customized to customer needs based on market conditions and the demand and delivery service requirements for their products and materials. 3PL is evolving from a predominately transactional role to one that is more strategic in nature. The 3PLindustry evolved in the 1970’swhen during a time of expanding globalization and an increased use of information technology. These trends resulted in increased demands on firms, and possibilities for companies to operate more competitively in the marketplace. The first generation 3PL’s (1970’s-1980’s) offered services such as transportation, brokerage, and shipping. Second generation 3PL’s (1980-1990) was mostly asset or non-asset based companies with increased service offerings. The third generation 3PL’s (2000 onwards) was mostly webbased 3PL’s with increased supply chain integration.

Fig 1: Evolution of 3PLs Source: Supply Chain Management by Rahul.V.Altekar

3PL Characteristics: Some of the characteristics of 3PL’s are that they perform a variety of outsourced Logistics matters, provide customized services, and handle multiple activities. These may involve transportation, distribution, warehousing, material handling, inventory control, packaging and inspection. Some of the services offered by 3PL’s in the current market are:

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Dedicated contract transportation and transportation procurement. Inventory management Logistics management and consulting Freight audit and consulting Shipment tracking and tracing Reverse logistics and value added services Growth and Structure of the Third-Party Logistics Industry: In these challenging economic times, it may be difficult to think of industries that achieve meaningful growth irrespective of the economic cycle. Historical trends, however, suggest that the third party logistics ("3PL") industry has been able to accomplish just that. During the last recession, gross revenues for the domestic industry grew 17.8% from $65.3 billion in 2001 to $76.9 billion in 2003. By comparison, GDP growth for the same period of time was 4.1%. State of the Industry and Growth Drivers Despite current and historical growth rates, the industry growth has yet to hit an inflection point. Demand for extreme efficiency of inventory and working capital management continues to drive reliance upon third parties for assistance with managing operations across multiple geographies and with many suppliers. Once economic weakness recedes and transportation demand again escalates logistics costs will raise quickly. Significant capacity exits during this downturn and a continued driver shortage imply a future need for sophisticated solutions, which will position 3PL providers for even more rapid rates of growth. Another key driver of growth will be increased outsourcing of 3PL functions by middle market companies. Most middle market manufacturers, wholesalers, and retailers lack the sophisticated internal controls necessary to address logistics challenges and (particularly in today's fuel environment) can no longer take transportation and supply chain costs for granted. Historically, smaller companies

were relatively slower at adopting and implementing outsourcing as a strategic solution. By contrast, 3PL providers have significantly penetrated the Fortune 500 sector.74% of the domestic Fortune 500 used at least one 3PL in 2007 and today, the three domestic automotive OEMs each utilize more than 30 3PLs. Small-to mid-size companies' need for greater efficiency in their supply chains is expected to drive even more robust 3PL industry growth rates over the next decade. Providers to this customer segment stand to benefit as middle market companies tend to have a lower switching rate and offer slightly greater profitability. 9

Market Participants and Industry Structure The 3PL industry remains very fragmented with several thousand industry participants and a continued stream of new entrants that are attracted by the high industry growth rates. The broader selection of providers in the marketplace has empowered customers to be selective and manage the number of providers that they use. Acquisitions enable 3PL providers to secure add-on offerings to further penetrate customer relationships, realize growth in new geographies, and diffuse customer concentration. This strategy has been observed in the marketplace as several notable transportation industry participants have utilized acquisitions as a means for repositioning their service offerings, adding capabilities, and entering new segments. With new small companies continuing to enter the market and extremely large providers continuing to grow rapidly, a barbell dispersion effect has taken place. It is estimated that the top 10 providers generate approximately two-thirds of aggregate industry revenue in North America. The vast majority of the remainder is made up of companies under $50 million of revenue. Given the notable disparity between small niche players and large players, providers that exceed this revenue threshold with differentiated service offerings are scarce and highly sought-after acquisition targets, particularly by private equity buyers looking for a platform investment. 3PL Market in India:  The 3PLIndustry’srevenue in India is expected to increase to Rs.190-195 billion by 2014-15 from Rs.57-60 billion in 2009-10.  India’s GDP is expected to grow by 8-8.5% over 2009-10 to 2014-15 driven by a strong growth in Industry and services.

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Fig 2: Growth of Indian Logistics Industry The major 3PL Growth Drivers in india in the coming years are:  Goods & Service Tax (GST)  Make-in-India Initiative  Emergence of E-commerce market

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EXECUTIVE SUMMARY A Supply Chain Company’s main objective is to deliver right Products, at the right Quantity, &at the right Time thereby marrying Supply with Demand without hampering any process. Radhakrishna Foodland Pvt. Ltd is a leading Supply chain Organization which provides 3PL support to major Clients like McDonalds, Dominos Pizza, KFC just to name a few. Under the brand McDonalds there are around 463 SKU’s in its Kalamboli DC. This project is an attempt to Profile those 463 SKU’s based on parameters like Length, Breadth, Width, Weight per case, Stacking Level, Case per pallet, Lead Time etc, and thereby find out Active and Non-Active SKU’s. Under that Active SKU’s further Classification was done based on Temperature requirements into CFD (Chiller, Freezer and Dry). After Profiling, the active SKU’s were categorized into Classes (A, B, C, D) by considering the parameters of Volume and Velocity based on the past one year data from June 2014-May 2015. Pareto Principle was done on the SKU’s to study their factor contribution to the revenue of the organization and thereby suggested recommendations based on my Findings.

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2.3

INTRODUCTION TO THE COMPANY History: Radhakrishna & Company was established by Mr.Radhakrishna Shete in the Marine Catering and Ship chandelling business in 1966. It focused on consolidating multiple product categories (46 product categories) of food, non-Food, ambient and temperature controlled products (3500 SKUs) and supplying these to merchant ships. These supplies needed to be on time, in right quantities and of right quality; since these ships had fixed turnaround schedules with no option to procure supplies once they set sail. RK Group was the leading Ship chandler in India and at peak, delivered to 100+ ships – a feat still unmatched in India.

Fig 3: Logo of Radhakrishna Foodland Pvt. Ltd Source: Google images RK Group extends its experience and expertise to managing turnkey food service and hospitality services to oil & gas, remote construction sites, defence installations, maritime, vessels, in India and worldwide. RK Group sets up Radhakrishna Foodland Pvt. Ltd. (RFPL) to launch the first western style supermarket in the prestigious suburbs of Mumbai under the name of “Foodland”. Simultaneously RFPL sets up a wholesale distribution centre to cater to the food service business in Mumbai. RKHS teams up with Eurest, an Accor SA group company, in a Joint Venture to extend its geographical reach and to serve its clients in the food service and hospitality business.

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This includes hospitals, schools, colleges, venues, business and industry. To offer more value to clients, RKHS introduces facilities management and vending services to become a one-stop service provider to clients. RKHS become the no. 1 food service and hospitality company in India employing 20,000+ people across 1400 sites pan-India serving 400 customer companies across all sectors. Accor SA divests its food service arm – Eurest, to Compass Group Plc in 1996. RKHS teams up with Compass to continue its journey. RFPL is awarded the distribution and logistics contract for McDonald’s in 1996 in India. Currently manages Distribution and Logistics for its 200+ restaurants across India. Foodland expands its retail stores under Radhakrishna Consumer Services (P) Ltd. to 48 stores in Mumbai and becomes the single largest chain of supermarket operations in Mumbai. Foodland sets up first of its kind world class integrated multitemperature distribution centre and processing facility in Kalamboli, Mumbai, India. This facility services hotels, restaurants, cafes, QSRs, institutional food service, retailers, importers, exporters, Agri producers, FMCG companies, pharmaceutical companies and does value-add processing of meat, fish, poultry, deli and produce. This facility was entirely project managed from concept, design, engineering, procurement, construction, installation and commissioning, in- house. To support its retail and wholesale trading, Foodland imports food products and also builds co-packing capability. Pepsi awards distribution and logistics contract to RFPL to manage 6 DCs pan-India. RFPL currently thruputs 68 Million cases per annum, with street value of 2300 crores p.a. Bharti Walmart awards Distribution Centre management and Transport management for the first DC located at Banur admeasuring 80,000 sq ft. and 6000 SKUs servicing 59 retail stores.

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RKHS sources all its needs from Foodland. Foodland undertakes to deliver to remote locations including the high seas with complex logistics. Foodland implements SAP and receives the Best Implementation Award. Foodland continues to expand its services (Warehouse Management, Transport Management, Project Management and Value Added Services) serving the QSR, Agri, Pharma, Retail, Institutional and Commercial Food Service sectors. QSR

FMCG

Food Services Distribution

Retail

Fig 4: Clients of Radhakrishna Foodland Pvt. Ltd Source: www.rkfoodland.com

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Realizing the potential and the need, Foodland decides strategically, to focus its resources an experience to develop integrated Supply Chain Management (SCM) Solutions. Consequently, it exits its wholesale trading, distribution and other allied activities. Foodland emerges as a leading supply chain solutions company to serve the Agri, Retail, QSR, Food Service and Pharma industry and expands its footprint pan-India. Sodexo acquires RKHS and continues to utilize Distribution & Logistics platform of Foodland. Currently Foodland supports 170 units in remote locations on a turnkey basis. Foodland with its vast experience and track record decides to selfmanage its Warehouse and Fleet, to get better control over both its operations and people. Foodland introduces sales support in terms of managing sales people to ensure no lost opportunity of sales and a seamless operation from factory to shelf. We want to partner with you in a strategic and collaborative manner to better address customer’s needs and buying decisions. Our results and solutions based attitude coupled with our VIGS (Value Improvement Guaranteed System) will enable you to profitably grow your business in quick time & establish a footprint in all high consumption location in India.

Fig 5: Strategic, Collaborative and Integrated Approach of the Organization. Source: Radhakrishna Annual magazine of 2013 16

Foodland with its vast experience and track record decides to selfmanage its Warehouse and Fleet, to get better control over both its operations and people. Foodland introduces sales support in terms of managing sales people to ensure no lost opportunity of sales and a seamless operation from factory to shelf. We want to partner with you in a strategic and collaborative manner to better address customer’s needs and buying decisions. Our results and solutions based attitude coupled with our VIGS (Value Improvement Guaranteed System) will enable you to profitably grow your business in quick time & establish a footprint in all high consumption location in India.

Radhakrishna Foodland Corporate Background: Radhakrishna Foodland Private Limited (RFPL), India’s leading National Supply Chain Management Specialist, has over 30 years of rich and varied experience in the Foodservice, Retail, Quick Service Restaurants (QSRs), and Distribution and logistics businesses. RFPL is committed to delivering seamless, customized, and functionally excellent and “Fit To purpose” Supply Chain Management solutions in terms of cost, service and schedule to every customer. Our commitment to customer service and our ability to anticipate, adapt, evolve and innovate with each customer or situation has enabled us to emerge as the trusted partner to some of the world’s most prestigious brands. With a carefully managed growth strategy and agile adaptation to our customers’ needs, we have successfully established a leading position in one of the most demanding growth markets in the world.

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Our dedication to operational excellence applies across every sector in which we operate and is underpinned by an on-going program of product and service development to anticipate future requirements of our customers. Serviced Sectors:      

Food Service Retail Consumer Products Agri Food Products Pharma Industrial

RFPL offers a comprehensive range of supply chain solutions for its customers that cover the entire gamut of Warehouse Management, Transportation Management, Value Added Services and Project Management requirements.

Warehouse Management Our range of streamlined warehouse solutions that maximize productivity, are amongst the most diverse in India. It encompasses dedicated, shared-user, automated and multi-temperature operations. We deal with all types of products – from raw materials to finished goods. A unique combination of engineering, information technology, human resources and supply chain skills enables us to provide functionally excellent solutions that are fit to purpose. By working in close partnership with our customers, we identify the optimum operational model based on variables such as product type, customer geography and technology requirements. Our trained, certified, experienced, motivated and empowered unit managers and teams deliver operationally excellent service standards.

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Transport Management RFPL has responded adeptly to modern supply chain challenges with a comprehensive range of transport services, which cater to local, regional and national requirements. We add value and build in flexibility through advanced solution design and supply chain modelling where required. We effectively leverage technology to optimize routes, track consignments, Maximize driver and vehicle efficiency. Systems integration ensures total visibility whilst transport is managed across multiple depots and state lines. Our team of experienced drivers ensures that the integrity of the products is always maintained. We invest in training and motivating them to ensure accurate and timely deliveries.

Valued Added Services RFPL offers organisations various standardized options in their logistics solutions through collaborative services across the entire spectrum in the supply chain. Whether it is flexibility, pay-as-you-go warehousing space, shared transport to optimize capacity or a co packing facility, our width of experience makes us to ideal shared-user partner for all businesses – small, medium or large. Our in-depth understanding of each project’s unique characteristics coupled with our ability to challenge and re-engineer existing solutions, enables us to differentiate our service offerings and bring additional value to our clients.

Our ability to work across different technology platforms including SAP and integrate management information allows our clients to make informed decisions in lesser time. Our experience across varied industries and our belief in continuous improvement allows us to deliver on our Key performance indicators, often surpassing expectations.

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Project Management and Consultancy RFPL offers Project Management services to the Supply Chain Industry by providing a renewed approach to Supply Chain solutions. We present independent and non-conflicting services backed by our experience garnered over three decades of work across industries. We have specialists who conceptualization, design, engineer and commission, Optimal National Supply Chain networks to clients through Supply Chain Improvement Programs, Network, Warehouse Design, Supply Chain Planning, Transport Management and Systems Optimization. Our detailed understanding of the supply chain allows us to effectively identify key areas for improvement that impact the cost effectiveness, efficiency and reliability of the entire supply chain network. McDonald's Distribution Partner Radhakrishna Foodland (P) Ltd. is a part of the Radhakrishna Group, which is engaged in food and related service businesses. From July 1993, much before McDonald's started its operations in India, sincere efforts were made by Foodland to carefully understand McDonald's operations and requirements for the Indian market. Better facilities and infrastructures were created and new systems were adopted to satisfy McDonald's demands. Finally, all those efforts put in by Foodland culminated into a handshake agreement with McDonald's India, to serve as Distribution Centres for their restaurants in Mumbai. The division has focused all its resources to meet McDonald's expectation of 'Cold, Clean and On-time Delivery'. From this evolved the mission statement, "To ensure that all McDonald's restaurants are supplied without interruption, products conforming to acceptable standards at lowest local costs to the system."

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The Distribution Centre (DC) is responsible for procurement, quality inspection programme, storage, inventory management, deliveries to the restaurants and data collection, recording and reporting. Value added services like repacking of promotional items are also carried out at the DC. The DC plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain' - the distribution system that ensures the products, which arrive at McDonald's restaurants from suppliers all over India, are absolutely fresh and as per McDonald's Quality Standards. All these operations need to be managed in the most cost- effective manner. The operations and accountings are totally transparent and are subject to regular audit. McDonald's introduced Foodland to F. J. Walkers of Australia, which resulted in an affiliation between the two companies to develop the distribution set-up in India. The association has helped Foodland to refine its operations to achieve the following:  Designing and establishing the distribution system to handle large volumes.  Engineering the storage and delivery network to service the unique requirements at each of the customer's locations.  Devising delivery schedules to minimize business interruption and maximize efficiency so that store managers know exactly what to expect and when.  Maintaining open communication lines with customers, suppliers and all business associates.  Emerging as a key system player after realizing the interdependence of all the associates in the McDonald's business system.  Transferring some of the good distribution practices to other divisions of the group.

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Supplier to Distribution Center

Unloading sheet is prepared, SKUs stacked(Put Away)

Discrepancy Shortage/Damage

Acknowledges the LR accepts the qty received in system as per invoice

FIFO/FEFO is followed for storing SKUs GRN prepared

GRN sent to HO

Payment to vendor

Fig 6: Process Chart for McDonald’s (Supplier to DC) Source: Radhakrishna Annual magazine of 2013.

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Stores place order

Distribution Center to stores

Store wise compilation of order

Outbound plan send to logistics department

Run the dispatch plan

Adequate stock available

Generate pick list from system

SKUs picked & stage store wise

Verification of picked stock

Discuss any priority with store managers

Invoice generation

Reduce quantity to be supplied to the store as per discussion with store managers

Dispatch

Delivery to store Store Acknowledgement

Fig 7: Process Chart for McDonald’s (DC to Stores) Source: Radhakrishna Annual magazine of 2013.

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Availability:Radhakrishna Foodland Pvt.. Ltd is a supply chain specialist it offers services like third party logistics warehousing, transportation, inventory management, supply chain solution it has its warehouses in following location Distribution Centres: Kalamboli DC (Navi Mumbai)  Noida DC  Hyderabad DC  Bangalore DC  Kolkata DC  Vapi DC It also has its registration office in Thane and International Office in Texas USA.

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INTRODUCTION TO THE PROJECT: SKU Profiling  The Analysis carried out on SKU’s based on certain Parameters to gain an understanding of the Characteristics of it and thus categorize them into groups.  It used in planning and forecasting.  It is an annual activity at best but more likely once every 2-3 years. Benefits gained by SKU Profiling  Inventory Optimization.  It allows companies to effectively fulfill demand while keeping minimal Stock in Inventory.  Increase in service level, improved performance against customer request dates.  To understand the SKU’s as per their categorization. SKU Categorization SKU categorization is done on the parameters of volume of SKU shipped & Velocity i.e No. of times the SKU is shipped out of the warehouse. Based on this it is classified into 4 Classes:    

Class A- High Volume& High Velocity Class B – High Volume& Low Velocity Class C- Low Volume& High Velocity Class D- Low Volume& Low Velocity

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The figure below shows the Classification in a better way:

Fig 8: SKU Categorization

Parameters included in SKU Profiling:     

Length of case: The length of the case in cm Breadth of case: The breadth of the case in cm Width of case The width of the case in cm Weight of the case: The weight of the case in Kg Case per pallet: The maximum no. of a particular SKU that can be kept in a pallet as per stacking norms.  Temperature Required: whether the storing condition for a particular SKU is Chiller, Freezer or Dry condition.  Shelf Life: Incase of food products and Chemicals (Both food & Non-food) the shelf life is considered in Days.  Lead Time: (Production time + Transit time) Lead time for a particular SKU includes its production time taken to make the product and its transit time from the supplier end to the DC. It is taken in Days.

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 Stacking Level: The height up to which a particular SKU can be stacked as per the Stacking norms.

Fig 9: Stacked SKU on a pallet Source: Google images Additional Parameters included:  Dividers: Presence of Divider for a particular SKU  Inners: No. Of inners  Ply: 2 or 3 ply  Packaging: The label is printed or pasted on a SKU

Fig 10: Image depicting Additional Parameters Source: Google images

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PROJECT DETAILS 3.1

OBJECTIVE: To Study SKU Profiling of McDonalds, suggest recommendations thus resulting in Effective Inventory Optimization. At the Kalamboli DC of Radhakrishna Foodland Pvt. Ltd, there is taking care of the Supply Chain of Key Clients, one of them being McDonalds. Inventory Management becomes an integral part of this process as the goods have to reach the Clients i.e the outlets in Desired Quantity and Quality and on Time. Proper Inventory Management depends upon SKU profiling. Categorizations of SKU are into classes and thereby do an 80:20 Analysis.

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LITERATURE REVIEW: Introduction SKU/Order Profiling: the analysis of historical and future/forecasted SKU and order data to gain an understanding of the impact of picking and replenishment to a sub-line level (each, case, pallet). Objectives include  Gain an understanding of customer order profiles e.g. lines per order, units per line, etc.  Determine proper order picking methodologies and  Determine optimal storage media profiles for the SKU population. Additionally, think of profiling as a planning function. The data set reviewed for profiling activities mainly focuses on historical SKU and order data to set the baseline for future operations. SKU/Order profiling should be performed as necessitated by overall business changes such as acquisitions, shift in order fulfillment dynamics, SKU growth etc. Normally speaking, this is an annual activity at best but more likely once every 2-3 years. Slotting: The ongoing analysis and maintenance of current individual SKU placement within a defined set of storage media. Think of slotting as an ongoing maintenance function. The data set review for slotting mainly focuses on future sales forecasts or advanced order information attainable through an order management system. SKU lifecycles and/or seasonality aspects of the SKU base will determine frequency. As seen in these definitions, there’s a clear correlation between the two activities. The next step is to clarify why each of these activities are necessary for a finely tuned operation. Why Profile? It would be a safe assumption to say that majority of distribution professionals are or should be striving to reduce internal DCoperational costs. The fine line however is that depending on the SKU base and order volumes, congestion in the picking area may cause productivity robbing bottlenecks. SKU seasonality / lifecycle Examining in depth reveals that profiling can help alleviate many issues. Examining order profile information (e.g. daily orders, daily lines, daily units, units preorder, lines per order, units per line, etc.) and slotting profiles (SKU velocity, cubic volume Page movement, etc.)

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How to Get Started? The first requirement is need for ideally twelve full months of actual SKU and Order historical data. If the profiling engagements being utilized to evaluate the entire DCoperation, then other data relating to in bound activity should be included. At a minimum, the following data should be available: SKU Item Master:  SKU  SKU Class  SKU Description  Unit of Measure  SKU Dimension (L x W x H) plus weight  Inner quantity (if applicable)  Inner Dimension (L x W x H) plus weight  Master Carton Quantity  Master Carton Dimensions (L x W x H) plus weight  # of Master Cartons / Pallet  # of Master Carton / Pallet Layer (Tie)  Pallet Dimension (L x W x H)  Conveyable (Y / N) Order Detail:  Order #  SKU  SKU Description  SKU Order Quantity  Order and SKU Velocity Profiling is Key to Picking System  Design and Technology What is Activity Profiling? The process of gathering and analyzing data is about both order profiles (orders per day/shift, lines preorder, items per line, etc.) and individual SKU activity (volumes, breakdown by unit of measure, etc.). SKU profiling is key to order picking system design and technology selection, few companies seem to have the data readily available, even in this age of ERP, WMS, data warehouses and other software systems, which one would think would contain the required information. In some cases, the data is available or largely available, but is in different software systems.

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The data from these different sources must be merged. In other cases, key data is not available or is very hard to get at. Examples of the former might include product dimensions and weight; examples of the latter might include order line detail, which can be obtained but only after a decent effort by the IT department to massage archived data. In all cases, companies must carefully look at both that data is available and how accurate that data is.

3PL Typically, a core company providing services or products is considered the first party; the customer (or customers) the second party. A third-party, then, is a firm hired to do that which neither the first or second party desires to do. A third-party logistics firm is a firm that provides outsourced or “third party” logistics services to companies for some portion or all of their supply chain management functions. 3PL typically specializes in integrated warehousing and transportation services that can be scaled and customized to customer needs based on market conditions and the demand and delivery service requirements for their products and materials. 3PL is evolving from a predominately transactional role to one that is more strategic in nature. The 3PL industry evolved in the 1970’s when during a time of expanding globalization and an increased use of information technology. These trends resulted in increased demands on firms, and possibilities for companies to operate more competitively in the marketplace. The first generation 3PL’s (1970’s-1980’s) offered services such as transportation, brokerage, and shipping. Second generation 3PL’s (1980-1990) was mostly asset or non-asset based companies with increased service offerings. The third generation 3PL’s (2000 onwards) was mostly web-based 3PL’s with increased supply chain integration. SKU Categorization: Companies can better match supply to demand for the product if they have a complete demand profile that includes both volume and velocity. Many companies today are only performing routine volume-based SKU analysis. In volume based analysis, products are segmented into different classes or “buckets” depending on the volume of demand. For example, fast-moving, popular items are classified as “An” items, while slower-moving products are characterized as “C” items. Most companies use a rule of thumb that “A” SKUs account for 80 percent of their overall demand volume, “B” SKUs account for 15 percent, and “C” SKUs account for the last

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5 percent. Yet, “A” SKUs are only 5 percent of all items, “B” is another 15 percent, and “C” items make up the remainder. Using this approach, a company with 500 SKUs would expect to have a total of 25 “A” SKUs (5% x 500), 75 “B”SKUs (15% x 500), and 400 “C” SKUs (80% x 500). In the past 20 years, companies have increased their use of volume-based analysis, particularly for determining the product’s manufacturing and distribution strategies. For example, in the 1980s, some companies began using manufacturing cells for their lower-volume products. Distribution departments also began looking at volume analysis for the design of their warehouse layouts, using a zone approach for more efficient picking. Under this approach, higher-volume “A” SKUs are placed in a zone that would need less travel. Warehouse design also began moving to specialized flow racking for lower-volume SKUs. What is missing from this traditional analysis is the dimension of velocity. Given the volume being shipped, we would argue that most “An” items experience relatively less demand variation than the other 3 product groups. This makes production stratification much more predictable. Lower-volume SKUs, however, usually have much more variable demand. For this reason, we suggest augmenting the traditional SKU classification to include variability. In a volume-variability demand profile, each SKU is classified by both its volume (based on unit volume or dollar volume) and its velocity (represented by No. of times Sipped out).

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VolumeVariability Profile A

Possible Manufacturing Strategies

Possible Distribution Replenishment Strategies

 Assembly Line  Made-toStock(Component Inventory on hand)  Factory Level Loading  Assembly Line or Cellular manufacturing  Build to Order from kanbans(Component Inventory on hand)

 Fill from Stock (FinishedGoods Inventory on hand)  Rate based planning to trigger Manufacturing Replenishment  Fill from Stock FinishedGoods Inventory on hand if Long manufacturing Lead-timeor kanban/JITReplenish ment from Manufacturing if Shorter Lead-times are available  Kanban planning to trigger Manufacturing Replenishment

C

 Cellular Manufacturing  Make to Order(No Component Inventory on hand)  On Demand Manufacturing( if available)

 No Finished- Goods inventory on hand(Fulfill from manufacturing via Make-to-Order)

D

 Assembly Line  Make to Order

 FinishedGoods inventory on hand for Maximum Order Quantity Projections Only  Orders Exceeding

B

Table 1: Manufacturing & Replenishment Strategies for each Class Source: Supply chain management review, September/October2003 33

METHODOLOGY: There were around 900 SKU’s in the database of Radhakrishna Foodland Pvt. Ltd. Out of which many were inactive because of their Obsolescence but still existed in the system. The project started with the identification of Active and Inactive SKU’s, along with the profiling of each Active SKU’s. The profiling was done on various parameters that included the Dimensions of the package(L*B*H), the Weight of the package along with the no. of inners, Expiry date if any, the lead time of the particular SKU, Stacking level, Case per pallet, and Temperature Requirement.

Data Source: Primary  Data for each SKU was collected in the warehouse. Once the data was collected the Database was updated with the Active SKU’s along with their parameters. The next process was studying the previous one year (June 2014-May 2015) data of each SKU on its Volume and Frequency Shipped. Based on the Analysis the SKU’s were categorized into classes ranging from A-D.  Class A- High Volume& High Velocity  Class B – High Volume& Low Velocity  Class C- Low Volume& High Velocity  Class D- Low Volume& Low Velocity The Final Step included performing Pareto Principle on the SKU’s and finding out 20% of the SKU’s that contributes to the 80% of the revenue, and 80% of the SKU’s that contributes to just 20% of the revenue. Thereby suggesting suitable Recommendations to the Organization.

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LIMITATIONS OF THE PROJECT

It is a time consuming task as each SKU needs a lot of time to be checked with respect to the above mentioned parameters. Because of which organizations don’t do the profiling once a year they do it once in 2-3 years, although it needs to be done once a year to understand the Classes into which each SKU belongs.

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ANALYSIS & FINDINGS: Item Master Correction:  Total No. of SKU’s under McD : 463  No. of SKU’s found Inactive : 111  No. of Active SKU’s: 352  No. of Ambient SKU’s: 300  No. of Chiller SKU’s: 17  No. of Freezer SKU’s: 35 SKU Profiling based on Volume:

Data Considered: June 2014 to May 2015

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Analysis of Volume Data

No. of SKU’s in Volume Class AB: 89  No. of SKU’s in Volume Class CD: 251 

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SKU Profiling based on Velocity:

Data considered: June 2014 to May 2015

Analysis of Velocity Data:

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 No. of SKU’s in Line Class AC: 120  No. of SKU’s in Line Class BD: 220

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Pareto Principle:

Pareto Principle for Volume:

Class

Count of SKU

A B C D

86 3 34 217

Class

Sum of Volume

A B C D

1574554 10887 42472 42104

Contribution of (A+B)

% Contribution

89

26.17

Contribution of (A+B)

% Contribution

1585441

94.93

Though A and B’s contribution in terms of SKU is only 26% of the total No. of SKU’s but its volume contribution is nearly 95%.

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Pareto Principle for Velocity:

Class

Count of SKU

A C D B

86 34 217 3

Class

Sum of Velocity

A C D B

592669 51728 33373 1184

Contribution of (A+B)

% Contribution

120

35.29

Contribution of (A+C)

% Contribution

644396

94.91

Though A and C’s contribution in terms of SKU is only 35% of the total No. of SKU’s but its velocity contribution is nearly 95%.

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CONCLUSION & RECOMMENDATIONS

5.1

CONCLUSIONS  Class A and Class B SKU’s contribute to the maximum Quantity shipped out of our warehouse.  Class A and Class C SKU’s should never be stocked out as it is frequented out on a regular basis.

Table 2: Conclusion Table

5.2

RECOMMENDATIONS  Damaged SKU should be trashed as soon as possible and should not be kept beyond a certain time.  Pallet Utilization for a particular SKU should be optimum.  Make-to-Stock: Strategy should be approached for SKU’s which go out on a regular basis, i.e Class A & Class C SKU’s.  Critical Vendors need to be prior informed so that they can calculate their Cycle time accordingly.  Make-to-order: Strategy can be followed for Class D SKU’s.  Need to do SKU Profiling once a year.  Warehouse Management System (WMS) needs to be put in place so that the supply chain and logistics function for each SKU can be carried out effectively.

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ANNEXURES A

List of Figures: Figure Number 1 2 3 4 5

B

Name of the figure

Page No. 4 7 8 10 12

6

Evolution of 3PLs Growth of Indian Logistics Industry Logo of Radhakrishna Foodland Pvt. Ltd Clients of Radhakrishna Foodland Pvt. Ltd Strategic, Collaborative and Integrated Approach of the Organization Process Chart for McDonald’s (Supplier to DC)

7 8

Process Chart for McDonald’s (DC to Stores) SKU Categorization

18 21

9 10

Stacked SKU on a pallet Image depicting Additional Parameters

22 22

17

List of Tables: Table No. 1 2

Name of the Table

Page No. Manufacturing & Replenishment Strategies for each 28 Class Conclusion Table 37

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Bibliography Books Referred:  Supply Chain Management, Rahul V. Altekar.  Frazelle, Edward. International Edition 2002.World-Class Warehousing and Material Handling. s.l. : McGraw-Hill, International Edition 2002. Articles Referred:  Order and SKU Velocity Profiling is Key to Picking System Design and Technology, Supply Chain Digest, July 14, 2008.  A Practitioner’s Perspective On The Role Of A Third-Party Logistics Provider, Forrest B. Green, Will Turner, Stephanie Roberts, Ashwini Nagendra, Eric Wininger- Radford University, Journal of Business and Economic Research, June-2008.  Profiling Vs Slotting: Continuous Optimization of your Picking Operation, White Paper –Fronta, 2006.  Solving the Supply-Demand Mismatch-Kate L. Vitasek, Karl B. Manrodt, and Mark Kelly, Supply Chain Management Review, September/October2003.  80/20 Pareto Principle in Project management communication, Evelin Vanker Websites Referred:  http://www.crisil.com/research/research.jsp  www.rkfoodland.com

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