Supply Chain Management Software – Logility

Seco Tools: Cutting Edge Supply Chain Strategy Takes Shape

For more than 80 years, Seco Tools has delivered a diverse portfolio of tools and services around the world. Best known for milling cutters for the general machining industry, the pressure the company faces to maintain high service levels continually grows. To complicate matters, they must be able to provide the right consumable product at the right time to customers on all four corners of the globe.

Seco Tools manufactures cutting tools made of steel, tungsten carbide and cobalt. The tools are based on industry standards which allows each customer to select their supplier. If a tool cannot be supplied when it is needed it is very easy for the customer to secure a new supplier. The burden is now on Seco Tools to deliver any of its 50,000 SKUs anywhere in the world within 24 – 48 hours.

Historically, customers held their own inventory. They kept a supply of products on hand at every site. This became an expensive proposition for the industry, which gave way to placing the responsibility (and cost) back on the manufacturer to hold inventory and deliver it when needed. At first manufacturers held stock in-country. This created a vast and costly distribution network for manufacturers such as Seco Tools. As competition increased and margins thinned, manufacturers had to turn to a more streamlined distribution approach that would still ensure quick delivery of each item.

As part of this shift, Seco Tools now operates four distribution centers around the world (Netherlands, Troy, MI US, Singapore, and Shanghai). From these four locations the company serves approximately 60 countries. The key is the ability for Seco Tools to provide the same level of service through fewer distribution points.

Supply Chain Planning Overhaul
Three years ago Seco Tools investigated solutions for stock optimization. During this process, the company realized it needed more than stock optimization—it required a complete supply chain planning overhaul. According to Lars Liljeqvist, VP Logistics, Purchasing and Quality, Seco Tools, “We saw an opportunity to improve our stock availability and lower our inventory value at the same time. We also realized this would be more than a software implementation. In order to succeed, we needed to change our processes and way of working.”

Seco Tools required new software to support the new processes and they started to evaluate potential partners. Many of the vendors only offered software. Seco Tools recognized they also needed help with their process change. “Logility was unique. The team met with us and started to discuss how we could improve—the supply chain processes and organization. We walked through the process and covered both the tangible and intangible benefits. Then we talked about how software could help enable this transformation,” Lars continued.

Moving Forward
Previously the company’s forecasting operated at a very high level (for example the product/family). To be truly efficient, Seco Tools needed to forecast at the item level by stock location to help its 12 production facilities better plan their manufacturing requirements. “We must make sure we produce and stock only what we need,” Lars commented.

Seco Tools recently completed the first phase of its implementation of its new processes and Logility Voyager Solutions. Within the first week, a couple of days in fact, the team noticed a drastic improvement in visibility across the global business which will help further improve forecast accuracy.  
“We have a target to achieve a 97% net stock availability and we can already see with Logility we will be able to achieve this number,” Lars said. Seco Tools is also aiming to reduce inventory up to 20% thanks to the greater forecast accuracy. In a competitive industry manufacturing precisely machined tools, a reduction like this can add up quickly.

Lars continued, “The implementation was on time and the visibility we now have gives us new understanding. We’re asking questions we never would have thought to consider before Logility. The combination of an excellent supply chain team, improved processes and new software has shown us just how much potential there is for improvement. It is quite remarkable.”

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Inventory Optimization Maturity Curve: A Walkthrough

As I talk to customers and practitioners from all corners of the supply chain world, I find that Inventory Optimization has different meanings between companies, departments and even people within the same organization. It is described as everything from simple inventory management techniques all the way to advanced multi-echelon inventory optimization.

Recently I presented at a local APICS event on the Inventory Optimization Maturity Curve. In the presentation I took the audience on a quick guided tour through the different levels of inventory optimization and what we mean by each, from the tactical deployment of safety stocks for SKUs to the strategic use of inventory analytics in driving the sales and operations planning (S&OP) process.

To provide a useful context around this, we can determine where we are on the maturity scale and initiate the process to move up.

At its simplest level, many organizations start by applying science to inventory with a single item, single location safety stock calculation to define how much inventory is needed to cover demand, lead times and ordering frequency for a given level of service. Most companies start this inventory journey either through spreadsheets or by using the simple safety stock modeling capabilities of an ERP system.

In my experience today many companies are at this ‘rules of thumb phase’. If this describes your situation, don’t feel bad, you should be excited because you have a big opportunity. Don’t be scared by the prospect of optimization – because there are some simple things you can do to gather that low hanging fruit.

The next level of maturity is to set a statistical safety stock systematically for all item locations as part of the tactical planning process, and to introduce some more advanced considerations like supply and demand uncertainty and time-phasing of the safety stock. Here we model the supply chain from raw materials through work in process and out into the distribution channels to the customer. Uncertainty can be propagated up and down the chain, understanding the interdependencies of each node in the supply chain.  

This approach requires complex non-linear math that provides a degree of inventory optimization you cannot get from single tier solutions.  It provides great strategic information that allows you to understand analytically the causes of inventory, target strategic improvement initiatives that maximize performance, and truly approach ‘best in class’ in inventory optimization.

The next level in the maturity curve is MEIO – multi-echelon inventory optimization. Single node or tier inventory optimization is great – but it doesn’t help with the greater challenge – optimizing inventory across a supply chain network. Having multiple tiers in your supply chain typically causes more inventory to be held. There is typically double buffering for the same uncertainty and no real idea of how inventory decisions in one tier impact the cost and service of the overall supply chain. This is where the concept of multi-echelon inventory optimization comes into play.

Remember, optimization is not just about reducing inventory, it is about getting the correct inventory to support your service goals – the optimal mix of inventory.

To learn more we created a podcast from this APICS presentation, “The Inventory Optimization Maturity Curve.” (registration may be required)

By Chris Russell, vice president, Logility
Read more by Chris.

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Demand Forecasting: The Unfair Competitive Advantage

Here’s a common “what’s wrong with this picture?” scenario: in many supply chain organizations, sub-SKU forecasting (the task of translating high-level forecasts into specific quantities by size, color, configuration, region, etc.) falls on the shoulders of the sourcing and supply functions, rather than the demand planners. Why? The simple answer—it has always been this way. Does that make it right?

Supply planners and sourcing groups have less exposure to the market demand yet are expected to fully understand what is going on. Taking the burden of ad hoc SKU-level forecasting off their shoulders would help them focus on improved procurement decisions and meeting vendor minimums more cost-efficiently.

Demand Planning: A High-Level Activity

Aggregating provides accuracy. For example, it is easier to forecast how many SUVs will be sold in North America this year versus how many white LX models with a sunroof will be sold in Miami over Memorial Day weekend. Product attributes such as finish, style, color, size, speed, trim level, and configuration complicate forecasting at granular levels.

Without doubt, product family-level forecasts that are accurate enough for monthly sales and operations planning (S&OP) meetings can be significantly skewed at the SKU/location level. However, if one disaggregates through proportional profiling (or as Supply Chain Digest’s Dan Gilmore called it Sub-SKU forecasting in this video), demand planners can use historical sales figures to deepen their forecasts to the sub-SKU level—three, four, or more attribute levels (e.g. model / capability level / feature configuration). Now forecasters can work at a level of aggregation that matches their business requirements, while allocating the forecast accurately across product attributes and options before submitting to the supply side.

This accurate fine-grained demand plan provides the supply-side team vital insights that lead to smarter decisions.

So we officially have a new “unfair” competitive advantage: granular forecasting early in the supply cycle as part of up-front demand planning—the early bird gets the worm! Translating demand plans into sourcing, supply, and production plans sooner sets important aspects in place before all product decisions have been made, vendors have been selected, or the forecast is complete. Production schedules and capacity planning can get underway with enough lead time to create smoother and more efficient production runs.

It is time to take the sub-SKU forecast burden off of the supply team.

Related Information

• White Paper: Reaping the Rewards of Sub-SKU Forecasting
• Dan Gilmore Video: Supply Chain Digest’s Cool New Product of the Month
• Video Mini-Brief: Introduction to Proportional Profile Planning

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