elena streltsova_v2_eng_8 tocpa_oct 2013

8th International Conference of the TOC Practitioners Alliance - TOCPA

Practical examples of the

Theory of Constraints

application

Elena Streltsova, Lybimy Kray, RussiaOctober 2013

26-27 October 2013, Moscow

www.tocpractice.com

8th International Conference of the

TOC Practitioners Alliance - TOCPA


Elena Streltsova

[email protected]

General Director of CJSC Lybimy Kray (a

confectionary).

Jelena has been using TOC since beginning

2011. TOC implementation areas:

accounting, inventory management and

development of mafia offers.


WWW.ULMART.RU

Implementation of a pilot project on inventory

management to ensure availability


ULMART

ULMART is a unique store of domestic appliances and

household electronics, which does not have any storefronts,

but there are computer terminals, where the customer

chooses what he or she really needs

Ulmart is the first cyber market that was established in Saint-

Peterburg in 2008. Currently there are 29 cyber markets and

more than 130 distribution points in more than 60 cities of

the country.


Advantages of ULMART

The main storefront of ULMART is the online catalogue with

more than 35,000 branded SKUs. It is up to the client how to

buy a product. He/she may place an order on the website and

order a delivery "to the door" at a convenient time or delivery

to a place nearest ULMARTs distribution point. Also the client

can come to the 24/7 cyber market and write up an order and

receive the goods within 15 minutes.


Goals of the replenishment system?

Performance:

Ensure high level of availability of each item at

each storage facility;

Efficiency:

Ensure high level of inventory turns.


Project Charter

Goal:

Decision whether expand or not roll the method out within the company.

Criteria of success:

Level of availability 95%;

Inventory turns 30 days.

Timeline:

from 11.03.13 through 10.06.13.


Project outcomes

+

Weeks Conclusions

Availability

Inventory turns

On-time project completion On time

Increased

Increased but

did not reach 95%


Assessment of results

Does the achieved result suffice for making a

decision to switch to TOC inventory

management methods?

Is 95% availability level achievable?

Is 14 days inventory turns level achievable?



Does the achieved

result suffice for making

a decision to switch to

TOC inventory

management methods?


Level of availability as compared to

the same SKU in Moscow (weeks)

Moscow Saint Petersburg


Weekly availability level (%)


Availability level

The TOC methods

demonstrated the best

results


Inventory turns as compared to

the same SKU in Moscow (weeks)

Moscow Saint Petersburg


Inventory turns, days

Moscow St Petersburg


Inventory turns

The TOC methods

demonstrated best

results


Buffer status at the

Central Warehouse

Blue Red OK


Buffer status at the

Central Warehouse

There were surpluses on average of 32 SKUs or 43% of the sample

There were inventory shortages of 19 SKUs or26% of the sample

Normal buffer status was of 23 items or 31% of the sample

Potential to Increase

inventory turns!

Potential to increase

availability level!

Project results reflect the

effectiveness of the

method for 31%!


What if ?

Facts of 22 weeks:

Average daily balance of the company was ths. RUB.

Average daily sales were ths. RUB

The inventory turns according to TOC was 22.9 days

Dreams:

If the inventory were managed according to TOC (22.9

days), the inventory level would be ... ths. RUB or by 21%

less

And if we reach 14 days inventory turns, the inventory

level would be ths. RUB, that is 52% less



Does the achieved result suffice for making a

decision to switch to TOC inventory

management methods?


Details

Is 95% availability level

achievable ?


Buffer status at CW

Blue Red OK


Inventory shortages

There were inventory shortages of 19 SKUs or26% of the sample


availability level!


Inventory shortages(potential causes)

At the moment of placing an order the item is out of the suppliers stock ;

At the moment of placing an order, a customer is unhappy with the commercial conditions;

The first order of the new SKU was placed unsuccessfully (demand was higher than expected );

Execution accuracy of assignment for movement that is especially critical for items with TBL=1 (target buffer level);

Lack of live information on the replenishment systems requirement changes to ensure availability (SKUs are not replenished consciously, but continue to be accounted for as shortages in the calculation of the availability level).


The first order was placed

unsuccessfully


First, the SKUs were over and

then the TBL was zeroed


Details

Is 14 days inventory

turns level achievable?


Buffer status at CW

Blue Red OK


Surpluses

There were surpluses on the average for 32 SKUs or 43% of the sample


inventory turns!


Surpluses at CW(actual causes)

Purchases did not follow the assignment:

More SKUs were ordered than it was required;

Items were ordered, when they were not required at all.

Movement from Moscow to Saint Petersburg ;

Reserve deallocation;

Purchasing for Moscow without further movement;

SKUs returned to the CW from cybermarkets;

TBL decreasing (02.04.13 and 24.05.13).


The order volume was higher

than required

Actual on handTarget

level2/3 Target

level

1/3 Target

level


Ordered, when it was

not required at all

Actual on handTarget

level2/3 Target

level

1/3 Target

level


Inventory turns, days

14,1

13,9

Cybers-74SPb-74


Summary of causes

Purchases did not follow the assignment :

Shortage (the supplier does not have the SKUs)

Profitable/not profitable commercial conditions for the supply

Habit

Unpredictable demand (new SKU, campaign)

Recording system (reserve, SKU status for the replenishment system)


Specific features of the

implementation

Very low Target Buffer Level at the stores

Range of 32,000 SKUs

A lot of SKUs with short life cycles, up to one time

delivery and further transition to a new model

range

SKUs with frequent shortages

Large and rare deliveries to Russia, interim

replenishment is almost impossible.


VALUE OFFER

LUBIMIY KRAY


Project charter

Goal:

Increase on new contracts

Criteria of success:

Reduce time required to sign a new contract from 18 to 4 weeks;

Everybody, who participated in negotiations agree to sign a contract;

Increase under new contracts by 37 mln. during 2012.

Timeframe:

From 16.01.12 to 17.05.12.


Project resultsBefore After Results

Assess

ment

Time to enter into new

contracts18 weeks 10 weeks

Time was reduced,

but did not reach the

target level +/-

Only one of 21 companies that we started negotiations with

refused to sign a contract. +

, mln/year

(only regions) 48,2

During 16 month

was 48,2 mln.rubles. +

2012/2011 187,1 217,9 was 16%, but did not

reach the target level +/-

2013/2012 157,4 174,8For the first nine

months of 2013 was

11% more +/-

On-time project

completionOn time +



Does the achieved result

reflect the potential of TOC

methodology in terms of

mafia offer development and

implementation?

Is it possible to reduce the

time of contract signing to 4

weeks?

elena streltsova_v2_eng_8 tocpa_oct 2013

Documents

toc implementation areas

high level of inventory

days inventory

high level of availability

availability level achievable

main storefront of ulmart

time increased increased

time project completion