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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
Salli Churchill
IT Manager
Knape and Vogt
Gene Olsen
Sr VMI Analyst
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Presentation Title Goes Here
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Sr VMI Analyst
Knape and Vogt
www.genpact.com www.knapeandvogt.com
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