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An analytical

Approach to ABC Classification

and Determining Safety Stock

A Case Study

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Presentation Title Goes Here

Date: 17-Aug-2012

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A Case Study

Introduction to Knape and Vogt

1. Founded in 1898

2. Acquired by Wind Point Partners in

2006

3. High level of Growth through Acquisition

4. Facilities in Grand Rapids MI

(Headquarters), Petaluma CA

(Workrite), and Taipei Taiwan (GSlide)

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(Workrite), and Taipei Taiwan (GSlide)

as well as a sales office in Canada

Introduction to Knape and Vogt

Product Categories

Market Served

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A mid-sized manufacturing org on a growth path

Introduction to Genpact

Manufacturing� Discrete � Process

BFS& I� Banking

� Insurance

Business Services� Telecom, Media� Hospitality

SIZE• Over 3,000 Oracle professionals

• One of the largest Oracle

capabilities globally

• Over 3.1 million days of Oracle

experience

EXPERIENCE• 160+ go-lives in 40+ countries

• Support experience of 46,000

plus users

• 60% resources > 5 years of

industry experience

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Oracle EBS Suite | Oracle Database | Siebel | Hyperion + OBIEE

ERPSTRATEGY

DESIGN BUILDRUN &

UPGRADE

• > 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)

As-Is Process

• Spreadsheet oriented

• Quarterly exercise

• Manual • Assessment based on usage

• Quarterly runs

• Only for FG-Make

ABC• Based on std

deviation of past 3 months of consumption

• Multiplied by lead time

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Data Collection

• Only for FG-Make items

Safety Stock

KV needed a stronger platform to support inventory planning function

Solution Approach

Improve Inventory

Genpact proprietary ABC and

SS calculation

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Inventory Turns

Forecasting

Oracle Demantra

Planning

Oracle R12 ASCP

Introduction of analytics to drive supply chain solutions

Multi-Criteria ABC Evaluation for FG

Sales

Contribution Margin

Profitability

Volume

Velocity

Contribution Margin ReturnOn Inventory Investment

(CM $ / Average Inventory $)

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Hits

Sales

Sales ($)(Qty Shipped x Unit Selling Price)

Hits(No. of times an item

is ordered)

Final ABC Rank = Weighted Average of Individual ABCs

Multi-Criteria ABC Evaluation for Components

Usage

Bills of Material

Parent FG

Quantity

Hits

Parent Part(highest final rank

of parent FG)

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Hits

Usage(Consumption volume for

dependent demands)

(Counts of Orders)

Final ABC Rank = Weighted Average of Individual ABCs

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:

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Step 2:

To get final rank, combine the individual ranks with relative weights

Wsales

x Rsales

Whits

x Rhits

Wcm

x Rcm

Final

Rank

Relative Weights and Percentiles Based On Business Principles

Safety Stock Calculation

Safety Stock

Service Level

Planner’s boundary conditions

Lead Time Factor

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Stock

Average future

demand

Forecast Accuracy

Safety Stock = fn(Std dev of Forecast Error, Service Factor,

Lead Time factor, Av. Future Demand)

Example of SS CalculationS

afe

ty S

tock

LT = 60 days

Service Level

σerror

LT = 3 days

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SS grows non-linearly with Service Level and LT

LT = 3 days

σerror

Sa

fety

Sto

ck

Service Level

To-Be Process

ABC

New outlook on product

classification

Safety Stock

Outcome directly linked to forecast

accuracy calculated in Demantra

Upload SS in

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A step towards customer

segmentation

Feed ABC to Demantra. Do not forecast D items

Upload SS in Oracle INV and then collect to

ASCP

Estimated 12% Inventory Turn Improvement

Key Lessons Learned

Technical Solution

• Test various product lines multiple times

• Pay attention to mathematical formula

Change Management

• Involve the business functional leads who are tech savvy

• Start training the

Process Management

• Perform a pilot study with a subset to prove the benefits

• Beware of outliers - use

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formula

• Review and review again

• Leverage standard Oracle functions

• Start training the end users early

• Buy-in from executive level

outliers - use boundary conditions

Powerful Business Outcomes = fn(Process, Oracle, Analytics)

Thank You

Sanjay Sil

Sr Principal Consultant

Genpact

sanjay.sil@genpact.com

Salli Churchill

IT Manager

Knape and Vogt

salli.churchill@kv.com

Gene Olsen

Sr VMI Analyst

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Presentation Title Goes Here

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Sr VMI Analyst

Knape and Vogt

gene.olsen@kv.com

www.genpact.com www.knapeandvogt.com

Our Values

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