21
10 min
Case study: how major automotive parts producer had optimized stock through adapting IBP for Inventory
Natalia Morozova
IBP Expert, TeamIdea Group
Case study unlocks stock planning excellence of major automotive parts producer gained through implementation of integrated business planning solution performed by TeamIdea. International project team experience, functions and features of the solution and gained business effect are shared. This material will especially match the interests of business leaders willing to manage company stock in optimal way for reaching desired turnover and service level while minimizing cost of working capital.
In 2023 international company, leading car seats producer came across the idea of digital transformation of supply chain operations. Company with 500+ million $ revenue operating multiple plants in EU, MENA regions and supplying such giants as Ford, Audi, Renault, Toyota faced difficulties in visibility of stock flows through huge supply chain.
Company focused on producing service parts for cars: mainly seats but also a wide range of electronic devices, covers and small accessories for car interior. Production plants were placed in different regions, raw materials were supplied by different local third parties. With thousands of SKUs the complexity and uncertainty level of a such supply chain was very high. At the same time, Company had to follow JIT (Just-in-time) and JIS (just-in-sequence) industry standards meaning very short-term order fulfilment counting in minutes and predefined sequence of outbound delivery items for client companies performing final assembly of cars on conveyor.
The contract with final assembly companies was very strict as any outlier in order fulfilment may cause car final assembly conveyor downtime, loss of profits of client company, and hence huge penalties for automotive parts producer. The service level for seats has to be almost 100%. That is why parts producer’s business fully depends on ability to hedge supply chain risks (equipment downtime, late raw material delivery, scrapping etc.) while not blowing stocking costs.
In 2023 the company was performing digital transformation of ERP and revised business processes. Planning of the material flows and especially target and safety stock management seemed not to be fully covered by ERP functionality. Plants were managing target stocks separately. Safety stock level was defined in days of supply as some fixed rarely revised value. Obviously, there was a lack of integrated approach for material flows planning.
Company already worked with local digital transformation partner and asked them for help. Since local partner didn’t have expertise on IBP (Integrated business planning) they attracted TeamIdea with international IBP experience.
TeamIdea performed quick planning process audit with process owners from headquarter. The most business critical problem that was found – huge overstock driven mainly by inability of dynamic safety stock recalculation and fragmented planning. TeamIdea suggested optimal digital transformation roadmap for Integrated business planning with the first step consisting on the implementation of advanced multi-echelon inventory planning functionality.
The project lasted 6 months and covered 4 plants (2 of them based in EU and 2 in MENA region). Finish goods, all components and raw materials were taken into the project scope for covering end-to-end supply chain processes.
Team consisted of project manager, IBP business expert, 2 IBP solution consultants from TeamIdea side and stock planners, internal ERP, IBP consultants from the company side. Since both company and TeamIdea teams were international and team members were distributed across different countries – the project was fully remote and communication language was English.
To keep it efficient and fast the project approach was based on agile and best practices methodology: no long blueprinting phase and complex blueprint document, MVP (minimum valuable product) approach instead. TeamIdea team performed 3 business validation sessions showing intermediate results for high quality FIT/GAP analysis and providing ways of resolution with estimation for each GAP.
Integration and data preparation for IBP for Inventory processes were key challenges of the project. Inventory planning and optimization requires multiple data:
The data mainly came from ERP system, but some of the data had to be filtered and prepared before transferring it to IBP system and these actions had to be automated by IT department of the company. TeamIdea provided extensive support for company-led development for these tasks and extra trainings on integration mechanisms for IBP system.
The IBP for Inventory system launched in this project was based on SAP technologies and covered the following functionality:
The key result of the project for auto part producer was a switch from 2 week to 6-9 months horizon in stock planning using advanced calculation techniques such as dynamic automatic recalculation and optimization of stock key figures.
Planners of the company started to use integrated extended stock reporting and analytics: 2 dashboards with 12 analytical charts including stock value metrics coming from best practices of IBP for Inventory.
Internal IBP center of excellence of 4 employees was set up during the project consisting of lead planners and internal consultant willing to learn IBP. The center of excellence played important role in retaining talents within the company after the project end, making project results and business effects sustainable and solid.
At the end of the project the team of Auto parts producer was ready to support and extend IBP for Inventory functionality and were planning to move into IBP for Response and Supply implementation - a next step in their digital transformation roadmap.
First of all, it’s crucial to have mature demand forecasting process on place. This happens because advanced safety stock calculation procedures are often based on forecast error measures, one of the outputs of demand forecasting. If demand forecast has very poor accuracy - then forecast error can be too high and inflate safety stock.
Secondly, it’s important to set up internal center of IBP excellence from early stages of the project, because some of IBP for Inventory functions may look like “black box” with complex calculations and unclear output if user is not familiar with principles of IBP algorithms and approaches. Learning IBP for Inventory approaches takes time and needs a lot of self-practice on real business cases.
To mitigate key projects risks - start integration and data preparation activities as early as possible and involve best talents and internal leaders into designing the future IBP processes.
If you’re interested in optimizing stock and increase turnover, you can have a free consultation on building optimal roadmap for IBP for Inventory system implementation in your company, just contact us!
About the company
In 2023 international company, leading car seats producer came across the idea of digital transformation of supply chain operations. Company with 500+ million $ revenue operating multiple plants in EU, MENA regions and supplying such giants as Ford, Audi, Renault, Toyota faced difficulties in visibility of stock flows through huge supply chain.
Company focused on producing service parts for cars: mainly seats but also a wide range of electronic devices, covers and small accessories for car interior. Production plants were placed in different regions, raw materials were supplied by different local third parties. With thousands of SKUs the complexity and uncertainty level of a such supply chain was very high. At the same time, Company had to follow JIT (Just-in-time) and JIS (just-in-sequence) industry standards meaning very short-term order fulfilment counting in minutes and predefined sequence of outbound delivery items for client companies performing final assembly of cars on conveyor.
The contract with final assembly companies was very strict as any outlier in order fulfilment may cause car final assembly conveyor downtime, loss of profits of client company, and hence huge penalties for automotive parts producer. The service level for seats has to be almost 100%. That is why parts producer’s business fully depends on ability to hedge supply chain risks (equipment downtime, late raw material delivery, scrapping etc.) while not blowing stocking costs.
How decision on innovative stock planning arrived
In 2023 the company was performing digital transformation of ERP and revised business processes. Planning of the material flows and especially target and safety stock management seemed not to be fully covered by ERP functionality. Plants were managing target stocks separately. Safety stock level was defined in days of supply as some fixed rarely revised value. Obviously, there was a lack of integrated approach for material flows planning.
Company already worked with local digital transformation partner and asked them for help. Since local partner didn’t have expertise on IBP (Integrated business planning) they attracted TeamIdea with international IBP experience.
TeamIdea performed quick planning process audit with process owners from headquarter. The most business critical problem that was found – huge overstock driven mainly by inability of dynamic safety stock recalculation and fragmented planning. TeamIdea suggested optimal digital transformation roadmap for Integrated business planning with the first step consisting on the implementation of advanced multi-echelon inventory planning functionality.
About the project
The project lasted 6 months and covered 4 plants (2 of them based in EU and 2 in MENA region). Finish goods, all components and raw materials were taken into the project scope for covering end-to-end supply chain processes.
Team consisted of project manager, IBP business expert, 2 IBP solution consultants from TeamIdea side and stock planners, internal ERP, IBP consultants from the company side. Since both company and TeamIdea teams were international and team members were distributed across different countries – the project was fully remote and communication language was English.
To keep it efficient and fast the project approach was based on agile and best practices methodology: no long blueprinting phase and complex blueprint document, MVP (minimum valuable product) approach instead. TeamIdea team performed 3 business validation sessions showing intermediate results for high quality FIT/GAP analysis and providing ways of resolution with estimation for each GAP.
Integration and data preparation for IBP for Inventory processes were key challenges of the project. Inventory planning and optimization requires multiple data:
- SKU and location data
- Supplier information and possible transportation lanes
- Lead times, lot sizes, procurement types and options
- Logistical rounding units
- BOM (Bill-of-material)
- Target service level for finish goods
- Forecast error of demand forecast
The data mainly came from ERP system, but some of the data had to be filtered and prepared before transferring it to IBP system and these actions had to be automated by IT department of the company. TeamIdea provided extensive support for company-led development for these tasks and extra trainings on integration mechanisms for IBP system.
The IBP for Inventory system launched in this project was based on SAP technologies and covered the following functionality:
- Dynamic ABCXYZ classification of SKUs for finish goods
- Calculation of optimal target inventory position and other stock key figures for all SKUs and all locations of the project scope
- Multi-level safety stock optimization based on demand and supply chain uncertainty and desired service levels for finish goods
- Alerting and dashboards for analyzing stock information and financials related to stock, such as stock value
- Integration of IBP for Inventory solution with ERP for automatic data transfer and regular stock recalculation
- Adding extra fields and custom field mapping logic into integration for covering user requirements and automotive specifics (such as JIT and JIS production processes for finish goods, phantom materials, subcontracting, flow-through delivery).
Project results and gained stock excellence
The key result of the project for auto part producer was a switch from 2 week to 6-9 months horizon in stock planning using advanced calculation techniques such as dynamic automatic recalculation and optimization of stock key figures.
Planners of the company started to use integrated extended stock reporting and analytics: 2 dashboards with 12 analytical charts including stock value metrics coming from best practices of IBP for Inventory.
Internal IBP center of excellence of 4 employees was set up during the project consisting of lead planners and internal consultant willing to learn IBP. The center of excellence played important role in retaining talents within the company after the project end, making project results and business effects sustainable and solid.
At the end of the project the team of Auto parts producer was ready to support and extend IBP for Inventory functionality and were planning to move into IBP for Response and Supply implementation - a next step in their digital transformation roadmap.
TeamIdea recommendations for successful IBP for inventory implementation
First of all, it’s crucial to have mature demand forecasting process on place. This happens because advanced safety stock calculation procedures are often based on forecast error measures, one of the outputs of demand forecasting. If demand forecast has very poor accuracy - then forecast error can be too high and inflate safety stock.
Secondly, it’s important to set up internal center of IBP excellence from early stages of the project, because some of IBP for Inventory functions may look like “black box” with complex calculations and unclear output if user is not familiar with principles of IBP algorithms and approaches. Learning IBP for Inventory approaches takes time and needs a lot of self-practice on real business cases.
To mitigate key projects risks - start integration and data preparation activities as early as possible and involve best talents and internal leaders into designing the future IBP processes.
Next steps
If you’re interested in optimizing stock and increase turnover, you can have a free consultation on building optimal roadmap for IBP for Inventory system implementation in your company, just contact us!
