- 40% inventory reduction in six months
- 98.5% line item availability maintained
- $30 million reduction in inventory carrying costs
- Improved inventory turns from 3.3 to 9.5
- Maintained existing supply chain
- Results obtained with existing ERP systems
“It changes the way Planners spend their time, especially in reducing time spent reacting to events and handling transactions and orders.”
IMPROVING SERVICE LEVEL
“To initially address product availability, there was a large planning effort guided by results oriented and meaningful metrics”, states Rick Balla, Group Manager, Purchasing and Materials Management, Verizon Logistics.
The process did meet the availability target, but with a large penalty. “We obtained the material needed to address customer requirements, but we also incurred a large inventory investment” Balla states. This resulted in inventory turning only 3.3 times per year.
EXAMINING THE ISSUES
Not satisfied that the availability target was being met with the least cost inventory, Balla began to ask:
- Is it possible to lower the inventory level and still maintain a 98.5% service level?
- What quantity of each item should be stocked?
- What is the optimum mix of items to stock?
To answer these questions, Balla turned to TCLogic’s inventory optimization solution, called ROI+™.
TCLOGIC FINDS STOCKING STRATEGY OUT OF SYNC
To determine the least cost inventory stocking strategy, TCLogic implemented ROI+ at Verizon Logistics that modeled the operating environment. ROI+ identified 300 large impact items.
“These items were greatly out of sync with the stocking strategy supported by our inventory optimization solution” stated Tom Uhrig, CEO of TCLogic. “There were almost 100 items under stocked and 200 items overstocked.”
By focusing on the 300 large-impact items, inventory levels were decreased from $12.2 million to $7.1 million over a five-month period with no change to guaranteed service level. “Our planners looked at the items and made sure there were no outside factors the model did not consider, such as supplier capacity” Balla explained.
SAVINGS MULTIPLY RAPIDLY
By applying the same techniques to the rest of the items in their inventory, Verizon Logistics was able to generate an annual total savings of $30 million. Planners were happy, Balla was happy, and Verizon’s customers continued to receive a guaranteed service level.
HELPING PLANNERS DO THEIR JOBS BETTER
TCLogics’ product reports an overall strategy and a detailed strategy for each item. “The reports make it easy for the material planners to focus on high impact activities”, Balla offers. “It changes the way Planners spend their time, especially in reducing
time spent reacting to events and handling transactions and orders.”
Material planners now spend more time analyzing events and planning. ROI+ generates data that easily highlights high impact areas that the planners need to address. “In our case, those high impact areas were supplier lead-times and forecast accuracy,” Balla indicated.
WHAT, AND HOW MUCH TO STOCK?
ROI+ analyzes each item and its total demand to determine its stocking strategy. To determine which items to stock, ROI+ considers the sales activity, criticality, and supply strategy. When determining stocking quantities, ROI+ calculates the overall availability level given each item’s constraints and specifications. It then determines the stocking quantities that provide the most availability per unit cost.
“There was no consolidation of distribution centers, no changes to the ordering patterns from suppliers, and customers continued to order to the same schedules,” Balla stated.
While customers require off-the-shelf availability within a 24-hour period, the demand for products is seasonal and full of spikes. ROI+ takes this into account and considers the accuracy of the demand forecasts, which are updated on a monthly basis.
Finally, the amount of inventory Verizon Logistics needs to carry is very dependent upon their suppliers’ capabilities. Factors such as lead-times, order policies, order multiples, etc. are all incorporated into the model.
ADDITIONAL BUSINESS UNITS GENERATE EVEN MORE SAVINGS
Expanding the TCLogic solution into other business units yielded even more benefits. Verizon Logistics applied the solution to five other business units including a retail location, a customer-oriented business and an industrial-supply base. Each business unit required the application of different rules. For example, in the consumer-oriented business, the product life cycle is so short that new products supercede older products before they can generate a sufficient demand history for creating a valid forecast.
For all business units, Verizon Logistics uses the TCLogic solution for ‘what if’ scenarios:
- Service level guarantee analysis (what will it cost to maintain different service levels?)
- Monthly item planning (what stocking level changes are needed to accommodate forecasted demand?)
- Determining what must be stocked location by location
Although the numbers have not been validated, the savings at the other business units within Verizon Logistics are on the same order of magnitude as the original implementation of ROI+.
SIMPLE AND EASY INTERFACE WITH ERP
Implementing the TCLogic solution within Verizon Logistics took less than a month, and it did not require an army of programming consultants. The interface to Verizon Logistics’ ERP system was simple and easy. Verizon Logistics was using American Software’s ERP system for inventory accounting, control, forecasting, and DRP. After an initial review by TCLogic and the Verizon Logistics staff, a simple ASCII file format was developed for interfacing. Once a month, ASCII files were generated by Verizon Logistics and imported into the ROI+. Once the inventory optimization analysis was run and validated by Verizon Logistics, data on safety stock and order quantities for the DRP system were fed back into the American Software via an ASCII file in a terminal emulation mode.