An insightful presentation by VCG focusing on the 'Theory of Constraints’ philosophy to leverage the potential in its target industry clusters.

1. LEVERAGING
THE POTENTIAL
VCG employs the 'Theory of Constraints’ philosophy to bring about quantum
jump in performance of organizations in its target industry clusters.
Automobile & Consumer Retail Engineering Equipment
Auto Components Goods & Construction Manufacturing
www.vectorconsulting.in

2. TOC Solutions
For performance improvements in the downstream supply chain
- a case study of FMCG firm
202, Orion Business Park, Kapurwadi Naka, Phone: +91 22 2589 5896 Email: vcg@vectorconsulting.in
Ghodbunder Road, Thane (West) – 400601 Fax: +91 22 2589 5897 Web: www.vectorconsulting.in
2

3. 01. The Case Study Firm’s Overview
02. Downstream supply chain and sales force
03. Shortages & Surpluses: Causes & Impacts
04. Theory of Constraints
05. TOC Project Schedule
06. Opportunity for reducing Shortages & Surpluses
07. Stock Buffers with Uncertainty and variability
Agenda
3

4. The Case Study Firm - Key Facts
Sells & • Household insecticides
The Firm • Shoe care products
Distributes • Male hair care products
Market
Position Market Leader in India
Downstream House CFA : 31
Supply Chain
Members Distributors : 980
Sales Force Sales Officers : 470
Members
Salesmen : 1698
©2012 Vector Consulting Group. All Rights Reserved. 03

5. Focus Area - Downstream Supply Chain
FOCUS AREA
Upstream Supply Chain Downstream Supply Chain
Salesmen
Sales Officer
Supplier Intermediaries Firm Distributors Retailers
Buy-Side Supply Chain Sell-Side Supply Chain
Inbound Logistics Applications Outbound Logistics Applications
©2012 Vector Consulting Group. All Rights Reserved. 04

6. Shortages & Surpluses: Impacts
Impact on the Firm
Shortages
• 1% Lost Sales = 10% reduction in
The shortages were found to be common
Profits (due to shortages)
in firm’s downstream supply chain
• 1% Discount in Price = 20% reduction
in Profits (due to surpluses)
Impact on the Distributors
Impact of Shortages • Lost Sales, reduction in Profits and
and Surpluses reduction in ROI (due to shortages)
• Volume discounts, undercutting leading
to reduction in Profits (due to
surpluses)
Impact on the Sales Force
Surpluses
The surpluses were also • Lost orders, reduction in PC, TLSD and
found to be common in firm’s value achievements (due to shortages)
downstream supply chain • Volume discounts, undercutting leading
to problems of market hygiene (due to
surpluses)
Impact on Retailers
These impacts determine not only the success • Loss of sales, loss of loyalty, less ROI
of retailer, but also the success of the • Shelf Space constraints, high
distributor, firm and the firm’s sales force investment, less ROI
performance.
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7. Cause(s) of Shortages and Surpluses
Stock Level based
Order
LT Surpluses
on customers
ordering large
100 Supply
batches typically
LT monthly (based on
inaccurate F/Cast)
ROP Actual
Demand
25
Stock Level based
on customers
ordering daily or
Order Month Month Month weekly based on
LT 01 02 03 with actual
Supply
Shortages consumption
LT
Yes, BUT… the Cause and Solution has
The KEY to achieve “profitable availability of more SKU’s” is to get
been known for long time, so why don’t
each link to ORDER LESS MORE FREQUENTLY (START)… rather than we see MORE Supply Chains adopting
the traditional practice of ORDER MORE, LESS FREQUENTLY (STOP) this… especially FMCG Industry
©2012 Vector Consulting Group. All Rights Reserved. 06

8. TOC’s 3 Focusing Steps
Step 01 Step 02 Step 03
IDENTIFY the Decide how to EXPLOIT the SUBORDINATE
System’s System’s Constraint everything to
Constraint the above
“Exploiting the System Constraint” means decision
As per Dr. “Having the Right SKU, at the right place
Goldratt, “Until the (in the downstream supply chain) and right Change any
consumer has time (when consumer is willing to buy). Policy, Measuremen
bought, nobody has t and or Behavior
really sold… that contribute to
What conditions block better exploitation?
current high level of
The System • Shortages of Products already stocked
Constraint found by the downstream supply chain
both Shortages and
is in market members Surpluses
demand or the
No. of Consumers • Unavailability of Products that sell
willing to buy elsewhere but which is not stocked due
to shelf-space constraints (occupied by
Surpluses).
YES! BUT, how to find these and will it really be a win:win to change these…
©2012 Vector Consulting Group. All Rights Reserved. 07

9. TOC Project Schedule
Month / Activity 1 2 3 4 5 6
Project kick Off: Call to share real damage
& extent of Surpluses & Shortages
TOC Evaluation: Share generic TOC analysis
& solution to shortages & surpluses
Simulation: Develop simulation to validate
damage of PUSH and benefits of PULL
Customized S&T: Construct customized
S&T and plan Test
Test: Test impact of “Less more
Frequently” with 100 Test retail outlets
in various beats
Analyze Test Results: Analyze Test Results
for 100Test vs. Control Shops and agree
on next steps
©2012 Vector Consulting Group. All Rights Reserved. 08

10. Reducing Shortages & Surpluses using DSR Beat cards
Max Min Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Day 11 Day 12 Day 13 Day 14
Name Daily Order
Sales Qty. OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold
SKU1 15 10 45 4 41 13 28 8 20 0 20 4 16 8 8 8 37 14 23 7 16 2 14 6 8 9 -1 -1 0 0
SKU2 12 10 40 2 38 5 33 6 27 6 21 2 19 1 18 5 35 7 28 2 26 6 20 6 14 6 8 7 1 5
SKU3 8 5 30 2 28 3 25 2 23 3 20 1 19 3 16 6 24 4 20 3 17 4 13 5 8 1 7 3 4 4
SKU4 6 5 25 1 24 1 23 3 20 3 17 2 15 1 14 3 22 2 20 1 19 4 15 3 12 2 10 3 7 3
SKU5 6 6 25 2 23 2 21 3 18 3 15 2 13 3 10 2 23 1 22 2 20 2 18 4 14 3 11 1 10 1
SKU6 5 5 10 2 8 2 6 2 4 2 2 2 0 1 -1 3 7 4 3 3 0 2 -2 0 -2 2 -4 1 -5 1
SKU7 5 5 10 1 9 0 9 2 7 2 5 1 4 2 2 3 7 4 3 2 1 2 -1 2 -3 3 -6 2 -8 1
SKU8 4 3 10 0 10 0 10 2 8 3 5 0 5 0 5 1 9 1 8 1 7 2 5 2 3 2 1 2 -1 2
SKU9 3 3 5 0 5 1 4 2 2 1 1 2 -1 1 -2 1 4 2 2 1 1 1 0 1 -1 1 -2 1 -3 1
SKU10 3 3 5 0 5 1 4 1 3 1 2 1 1 0 1 2 3 0 3 1 2 2 0 0 0 2 -2 1 -3 1
SKU11 3 3 5 1 4 1 3 1 2 1 1 2 -1 1 -2 1 4 1 3 1 2 0 2 2 0 1 -1 2 -3 1
SKU12 2 3 5 1 4 1 3 1 2 0 2 0 2 0 2 1 4 1 3 1 2 0 2 1 1 1 0 0 0 1
SKU13 2 3 3 1 2 1 1 1 0 1 -1 1 -2 0 -2 1 2 1 1 1 0 1 -1 1 -2 0 -2 0 -2 0
SKU14 2 2 3 0 3 0 3 1 2 1 1 1 0 0 0 0 3 0 3 1 2 0 2 1 1 1 0 1 -1 1
SKU15 1 1 2 0 2 0 2 0 2 0 2 1 1 1 0 0 2 0 2 0 2 1 1 0 1 0 1 0 1 0
SKU16 1 1 2 1 1 0 1 0 1 0 1 0 1 1 0 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0
SKU17 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 1 -1 0
SKU18 1 1 1 0 1 1 0 0 0 0 0 1 -1 0 -1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0
SKU19 1 1 1 0 1 1 0 0 -1 0 -1 0 -1 1 -2 0 1 0 1 0 1 0 1 1 0 0 0 0 0 0
SKU20 1 1 1 0 1 0 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1
SKU21 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1 -1 0
SKU22 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 0 0 0 0 0 0 1 -1 0
SKU23 1 1 1 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 1 -1 1 -2 0 -2 0
''''' ''''''''''' ''''''''' '''''' ''''''' '''' '''' ''' '''' ''' ''' '' '' ''' ''' '''' '''''' '''' '''' ''''' '''''' '''' ''''' ''''' ''''' '''' ''''' ''''' ''''' ''''' ''''
SKU25 1 1 1 1 0 0 0 0 0 0 0 1 -1 0 -1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1
SUM 234 19 215 34 181 36 145 27 118 24 94 24 70 37 197 44 153 27 126 29 97 37 60 38 22 27 -5 24
©2012 Vector Consulting Group. All Rights Reserved. 09

11. Sizing Buffers: for Uncertainty/Demand & Supply variability
Planning Rule: “Be Paranoid but not Hysterical”
Too little Too much
Target Stock Level for each SKU at each Stocking point =
Maximum Demand within Reliable Replenishment Time Good
Goal Units
Enough
Execution Rules: Replenish up to Target level in
sequence of buffer status more frequently (e.g. daily)
Feedback Rules: Adjust Target Level (Buffer Size) based
on Level of Buffer Penetration Time / Stock Buffer
Auto Downsize Buffer
Auto Upsize Buffer based on based on lack of Yellow
400 level of Red-zone penetration zone penetration
300
200
100
Actual
Demand
Month Month Month Month Month Month
01 02 03 04 05 06
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12. Impact on Shortages Test Shop - Before Vs After
Inventory Inventory
Name
12 19 26 02 09 16 23 30 06 13 20 27 03 12 19 26 02 09 16 23 30 06 13 20 27 03
Oct Oct Oct Nov Nov Oct Nov Nov Dec Dec Dec Dec Jan Oct Oct Oct Nov Nov Oct Nov Nov Dec Dec Dec Dec Jan
SKU1 41 28 20 20 16 8 37 23 16 14 8 -1 0 13 14 17 15 16 8 18 18 12 14 12 14 18
SKU2 38 33 27 21 19 18 35 28 26 20 14 8 1 22 13 17 21 19 18 15 18 23 20 14 16 14
SKU3 28 25 23 20 19 16 24 20 17 13 8 7 4 18 21 21 20 19 16 24 20 17 13 18 17 18
SKU4 24 23 20 17 15 14 22 20 19 15 12 10 7 17 23 20 17 15 14 22 20 19 15 12 10 17
SKU5 23 21 18 15 13 10 23 22 20 18 14 11 10 23 21 18 15 13 10 23 22 20 18 14 11 10
SKU6 8 6 4 2 0 -1 7 3 0 -2 -2 -4 -5 8 6 4 8 8 7 7 8 7 8 9 8 7
SKU7 9 9 7 5 4 2 7 3 1 -1 -3 -6 -8 16 12 9 15 12 14 13 11 9 10 11 12 11
SKU8 10 10 8 5 5 5 9 8 7 5 3 1 -1 10 10 8 15 5 5 9 8 7 5 3 1 6
SKU9 5 4 2 1 -1 -2 4 2 1 0 -1 -2 -3 15 14 12 16 7 8 4 2 1 4 8 6 4
SKU10 5 4 3 2 1 1 3 3 2 0 0 -2 -3 15 4 3 2 1 1 3 3 2 3 4 4 3
SKU11 4 3 2 1 -1 -2 4 3 2 2 0 -1 -3 4 3 2 1 3 4 4 3 2 2 4 5 5
SKU12 4 3 2 2 2 2 4 3 2 2 1 0 0 4 3 2 2 2 2 4 3 2 2 1 3 4
SKU13 2 1 0 -1 -2 -2 2 1 0 -1 -2 -2 -2 2 3 4 6 6 4 2 1 4 5 4 4 3
SKU14 3 3 2 1 0 0 3 3 2 2 1 0 -1 3 3 2 1 5 4 3 3 2 2 1 4 3
SKU15 2 2 2 2 1 0 2 2 2 1 1 1 1 2 2 2 2 1 5 2 2 2 1 1 1 1
SKU16 1 1 1 1 1 0 2 2 2 2 2 2 2 1 1 1 1 1 4 2 2 2 2 2 2 2
SKU17 1 1 1 1 1 1 1 1 1 1 1 0 -1 1 1 1 1 1 1 1 1 1 1 1 4 4
SKU18 1 0 0 0 -1 -1 1 1 1 1 1 1 1 1 4 5 3 5 6 7 8 4 6 7 1 1
SKU19 1 0 -1 -1 -1 -2 1 1 1 1 0 0 0 1 4 3 4 3 5 4 3 2 5 5 6 8
SKU20 1 1 1 1 1 1 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 1 1 1 4 4
SKU21 1 1 1 1 1 1 1 1 1 1 0 0 -1 1 1 1 1 1 1 1 1 1 1 5 5 5
SKU22 1 1 1 1 1 1 1 0 0 0 0 0 -1 1 1 1 1 1 1 1 3 4 4 4 3 4
SKU23 1 0 0 0 0 0 1 0 0 0 -1 -2 -2 1 4 4 3 4 3 3 5 6 3 5 4 6
SKU24 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 4 1 1 1 1 4
SKU25 0 0 0 0 -1 -1 1 1 1 1 1 0 0 3 4 3 4 3 3 1 1 1 1 1 4 5
BEFORE AFTER
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13. :) Thank You
©2012 Vector Consulting Group. All Rights Reserved.