Driving Supply Chain Inventory Reduction via Strategic Analysis &

Robust Management Process

Boon Kit, Straits SNO Leader

Boon Kit Foong

• Joined Procter & Gamble in 1998

• Currently Supply Network Operations Leader for P&G M’sia/S’pore:

– Market Operations Planning

– Customer/Distributor Logistic

– Physical Distribution & Operations

• Started in Malaysia (2 years), then relocated to Singapore (9 years), Thailand (3 years) and currently back to Malaysia in 2012.

• Multiple Supply Network Operations ‘assignments across country, regional/global category businesses, services & manufacturing plant:

– Business Integration

– External Value Creation

– MRP II/Operational Planning

– Supply System Design & Delivery

– SAP/APO SNP Product Design, Development & Implementation

P&G Malaysia

• P&G officially entered the Malaysia market via the acquisition of Richardson Vicks in 1987.

• With 160 employees today, we are serving different customer channels, touching the lives millions everyday with our brands.

Driving Supply Chain Inventory Reduction via Strategic Analysis & Robust Management Process

• Supply Chain and Inventory

• Strategic Inventory Analysis

• Robust UPI Management Process

Supply Chain and Inventory

The Balancing Act

Inventory should be maintained to provide the best balance between cost and service

Demand Supply

Network Capability

Performing Inventory

Planning

Uncertainty - Supply & Demand must be balanced with Inventory and

Supply Response Capability

Incremental

Capability

Demand

Supply

Network Capability

Performing Inventory

Planning

Incremental

Inventory

How do we reduce Inventory?

How to reduce Inventory?

Search for opportunities to improve planning and speed-up the flows

Demand Supply

Network Capability Inventory

Planning

IMPROVED PLANNING

REDUCED INVENTORY

How to reduce Inventory?

Increase total system capability

Demand

Supply Network

Capability Inventory

Planning

FURTHER REDUCED

INVENTORY

INCREASED CAPABILITY

The “right” inventory dependencies

Missed

Cases

Inventory

Capacity

Predictability To make one balloon

smaller , the excess air must

go into one of the other

balloons!

Inventory is a consequence. •Supply Chain Structure •Equipment choices •Cost structure •Operating Strategy •Uncertainties •Demand patterns

Unique answer for each supply chain

Strategic Inventory Analysis

Inventory in Supply Chain

• Finished Goods

• Intermediates (Work in Process or WIP)

• Components Materials

– Raw Materials

– Pack Materials

Inventory Components in a Product Life Cycle

Anticipation Stock 4

4

Frozen Stock: QC Stock

3a

3a

Frozen Stock: Transit Stock to DC 3b

3b

Safety Stock 1

1

To

tal S

C S

tock

Cycle Stock 2

2 2

3a 3a

3b 3b

NPI 3c

3c

Key Drivers by Component

Not as planned

Uncertainty

Response Time

Economies of Scale

Location Sourcing

Capacity

Uncertainty

Driver

Safety Stock

Unnecessary/NPI

Cycle Stock

Frozen Stock

Anticipation Stock

Inventory Component

Not as planned

Uncertainty

Response Time

Economies of Scale

Location Sourcing

Capacity

Uncertainty

Driver

Not as planned

Uncertainty

Response Time

Economies of Scale

Location Sourcing

Transportation modes

Capacity

Uncertainty

Driver

Safety Stock

Unnecessary/NPI

Cycle Stock

Frozen Stock

Anticipation Stock

Inventory Component

Safety Stock

Unnecessary/NPI

Cycle Stock

Frozen Stock

Anticipation Stock

Inventory Component

Safety Stock Safety Stock

Unnecessary/NPI Unnecessary/NPI

Cycle Stock Cycle Stock

Inventory by Function

• Performing Inventory

• Unproductive Inventory (UPI)

Key Performing Inventory: Safety

Stock to cover Uncertainty (Demand & Supply uncertainty)

Key Variables: – Material lead-time

– Response time

– Potential delays

– System reliability

– Forecast accuracy/bias

– Demand variability

– Target Service level

Supply drivers

Demand drivers

Risk Tolerance

Unproductive Inventory Component

1. Non Performing Inventory (NPI) Red (blocked , non-sellable, expired)

Orange (Remnants, discontinued and no-movers)

2. Excess (non productive) Inventory higher than Safety (including Cycle Stock)

Also known as Yellow Stock

UPI = NPI + Excess + Deadstock

3. Dead Stock (non productive/performing)

Lowest inventory point can be up to three months in the past

A thermometer of inventory health

What UPI Tells Us?

UPI Component Opportunities

Non Performing Inventory (Idle) Off quality

Initiatives/conversions

Operating strategy choices

Expired

Trade Returns

Excess Inventory Operating strategy adherence Inventory target setting Shipment bias MOQ/SKU complexity/proliferation Pre-building too much Inventory for an Event

or Initiative

Dead Stock Overstated Safety Stock Safety Stock non-compliance Lack of Inventory or Demand visibility Batch size Preferred sequencing to avoid setups

Robust UPI Management Process

UPI Management Process

1. Report

Generation 2.UPI

Analysis/Review 3. Action Plan

UPI ASEAN Market

2. UPI ASEAN Analysis/Review

2. UPI ASEAN Analysis/Review

UPI Application Success Stories

• Across Brand, Supply Chain, Materials Type

1. Dec 12 to June 13: P&G Malaysia & Singapore reduce 9% of its total inventory.

2. June 11 to June 12: Bangkok Skincare & Color Plant module reduced 16% and 33% of its plant inventory respectively

3. June 08 to June 09: Global SK-II reduced 17% of its supply chain inventory

Critical Elements

1. Cash as Priority – cost & service liability

2. Leadership Engagement & Support

3. Reward Technical Mastery

4. System/Process Owner(s)

5. Robust Management Process

6. Efficient Data Extraction & Effective Data Analysis

7. 30% Analysis/Review & 70% Action Implementation

8. End to End Supply Chain Mindset (operating strategy)

foong.bk@pg.com

Thank You