Integrated Logistics


CHALLENGE

For years, a leading supplier of diesel and gas engine used off-the-shelf software to manage inventory planning for all of their aftermarket service parts. 

By 2006, however, they knew that their customer service rate and inventory turns had seriously degraded, which was adversely affecting their position in the marketplace. Their performance in 2006:

  • 88% availability                               
  • 2.03 inventory turns


This engine supplier knew that technology alone was not going to correct the shortfalls and desired a source for an unbiased review of their materials management processes, as well as expertise and tools for identifying solutions in these areas and others that they had not anticipated.

                              

SOLUTION

The company turned to Neovia Logistics. Over a period of several years and two shifts in the client’s strategy, Neovia would help them achieve improved performance with their off-the-shelf software and bring additional gains through their powerful combination of proprietary technology, expertise and processes.

Neovia began their review with an in-depth assessment of the engine company’s as-is baseline by benchmarking their performance against other Neovia clients from industrial and automotive market segments of similar size. This resource offered an exceptional advantage to the client because it gave them a realistic and real-world measuring stick for gauging what it would take to regain competitiveness without overspending. Neovia benchmarks also helped indicate which of their processes needed improvement to reach best-in-class standards.

The analysis quickly identified opportunities for improvement in their fill rate and inventory turnover – and stressed how urgently they needed to address the advantage that their competitors were enjoying through reduced costs and better customer service.

Neovia then evaluated the company’s processes and systems to identify areas that might be negatively affecting inventory performance and to further quantify opportunities for improvement.

IM-Services -chart

 Key take-away

Software alone cannot optimize a company’s inventory. Optimization is truly accomplished only by using simulation to choose the appropriate strategy, and then executing it using expertise and best-practice processes while continuing to monitor performance.

The process involved several steps and critical tools:

  • Use of the Simulator, Neovia’s proprietary simulation technology, to analyze detailed data in-depth:
    • Sales orders
    • Service rate and reasons for service loss
    • System dials
    • From simulating up to thousands of potential settings, Neovia’s Simulator determined the precise configuration to achieve the desired fill rate and inventory performance
  • Process flow mapping
  • A maturity model to highlight opportunities
  • The Neovia team used the results from the analyses to identify specific areas where the engine supplier could
    elevate performance to that of their competitors while
    cutting costs. 
  • Reduce the order cycle time to lower inventory (via automatic ordering and improved adherence to order schedules)
  • Reduce demand variability to lower safety stock (by increasing dealer orders and lowering distributor demands)
  • Adjust existing software parameters to synchronize inventory with better service
  • Reduce headcount of material availability team
  • Identify and limit inventory of slow-moving parts

 

RESULTS

Neovia executed two objectives through their collaborative plans with the client. During the first year, Neovia used best-practice processes to take the engine supplier’s existing off-the-shelf software to a higher performance level to improve service. The firm then used its proprietary inventory planning system to help augment sales, which were already improving due to external market factors, and produce even more gains:

  • Sales: +28.5%                                 
  • Availability: 92.1% (+4.1%)
  • Inventory value: +8.8%                    
  • Inventory Turns: 2.40 (+18.2%)

Objective two began in the second year, with the client’s focus shifting to improved inventory performance. Neovia again used the Simulator to achieve optimized parameters. With continued performance monitoring and best-practice processes in place, Neovia helped them achieve their goals:

  • Sales: +52.4%
  • Availability: 90.8% (+2.8%)
  • Inventory value: -7.6%
  • Inventory Turns: 3.35 (+65%)

 

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