Nov 1, 2010 | Atlanta, GA
In these difficult economic times, any innovation that aims to improve a company’s efficiency while saving money is bound to be given serious consideration. At MercaSID S.A., a seventy-three-year-old food products company based in Santo Domingo, Dominican Republic, Emile Simon’s approach to inventory management is proving right on target.
Simon, a logistics manager at MercaSID, is a 2009 graduate of Georgia Tech’s Executive Master’s in International Logistics & Supply Chain Strategy program (EMIL-SCS). The eighteen-month, residence-based program prepares executives to manage a multitude of global logistics and supply chain issues. Working either individually or as a team, EMILSCS participants develop a solution to a real-world problem instead of writing the traditional master’s thesis. Simon chose to focus on a new approach to the product demand planning process as a means of achieving inventory reduction.
A producer of cooking oils and other agricultural-based products, MercaSID is also a major Caribbean distributor for consumer-product giants, including Unilever, Kimberly-Clark, Kellogg, and Clorox. Its inventory is massive—too much so, Simon thought—resulting not only in excessive financial and warehousing costs, but also in less-than-optimal customer service.
The key is to strike a closer balance between demand and inventory while maintaining as high an order fill rate as possible.
“We needed to understand the demand side better,” said Simon. “We had a lot of the right information, but we weren’t using it properly.”
His approach is comprised of two parts. The first involves data collection—basic number crunching—to come up with the projected demand for each product category, and then determine demand estimates for individual products. That information subsequently undergoes a value assessment by representatives of the company’s sales, marketing, and operations departments.
The group arrives at a consensus on final product forecasts, which are used to determine the number of any given item to be maintained in inventory. This final number does not necessarily match the analytical forecast provided by a computer program, because it takes into account factors including market information, market situation, and the company’s marketing plans.
“This process has helped us streamline our inventories and improve our service levels as well,”Simon noted.
The results so far are impressive. While maintaining or exceeding a 90 percent fill rate level across all product categories, inventory was reduced 15 percent last year and an additional 5 percent in the first half of 2010. Further reductions are likely when MercaSID’s suppliers are brought fully into the planning process, probably next year, Simon said.
“We did get some supplier collaboration in the first phases of this new process, but we know we can take it further,” he said. “That’s going to be a little more difficult because it involves the participation and buy-in of other companies, not just ourselves.” Simon expects MercaSID’s finance department to become more active in the process as it evolves.
Buy-in within MercaSID itself was also crucial for the project’s success, Simon added, pointing out that many people have to believe in the process for it to work. “It has taken discipline, but we did a lot of consensus building about how the process should take place,” he explained. “After we proposed something, we didn’t take it to the next level until all sides of the team—marketing, sales—were in agreement that that’s the way we should go.
“We’ve had a thousand percent support from the highest levels of the company, and that’s made a lot of difference too,” he added.
Simon’s experience is not uncommon among EMIL-SCS graduates. “It’s the only program of its kind,” said Greg Andrews, managing director of the EMIL-SCS program. Students, typically sponsored by their employers, participate in five two-week semesters spread out over eighteen months. The first semester is an “academic boot camp” held at Tech, where students are exposed to the “concepts of industrial engineering as applied to supply chains,” Andrews said. Subsequent semesters are spent traveling to countries in Europe, Asia, and the Americas for a combination of academic study, practical application, and real-world problem solving.
“The 2009 class that Emile Simon is a part of had seven global projects with a combined savings of about $250 million if implemented,” Andrews continued. “That’s a pretty good payback.”
In a fast-moving consumer goods company, finding the right balance between customer service and the cost of doing business makes the difference between success and failure, noted Renato Cantarelli, MercaSID’s vice president of operations. “Key to achieving this balance is to have a robust yet simple demand planning process where sales, marketing, procurement, manufacturing, and distribution are integrated, along with a consolidated operational plan. This was Emile’s project—to conceptualize and implement our demand planning process. Now, after more than one year in operation, this process is fully operational and is well accepted by all levels of our organization. Furthermore, it is delivering the benefits we expected from the outset.
“The knowledge Emile brought with him from his experience at Georgia Tech was fundamental for him to successfully finish his project and for the business to accrue the benefits. It was money and time well spent—we are very happy!”
Gary Goettling is a freelance writer who writes for Georgia Tech’s Research Horizons and other alumni publications.
Industrial and Systems Engineering