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.
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.”
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.
Ann Grackin and Bill McBeath of ChainLink Research recently published an article on Caribou Coffee’s supply chain. They spoke with Karen Francois, senior director of strategic sourcing at Caribou, to learn about the coffee retailer’s supply chain challenges and how the company reshaped its processes and turned to technology to help enable its success.
The supply chain and software industries have several high-profile awards and distinctions. We, along with our customers, have been fortunate to win many over the years. There is another award program that is very special to us, our SAILS Award.
According to Gartner, the typical company provides support services and parts for an average of more than seven years after an initial product sale. In the U.S. alone, consumers and businesses spend more than $700 billion per year on spare parts and services. Additionally, the aftermarket parts and service industry has profit margins as much as 10 times those for initial product sales, and post-sale service is key to securing customer loyalty, fostering the company brand, and maintaining competitive differentiation. [..]
This sounds a bit like the old tongue twister ‘how much wood could a woodchuck chuck if a woodchuck could chuck wood?’ And, while it also sounds like an easy question to answer it turns out to be ‘one of those questions’ where the answer can be quite complicated.
Over the years I’ve had this question put to me many times in one form or another. I have two responses – a quick, easy answer and a longer, nuanced answer that dives into the complexity behind the question.
Estimating future demand is one of the most fundamentally valuable, but frustratingly difficult, challenges in supply chain optimization. By “Demand Forecasting,” I mean the effort to increase forecast accuracy and customer service levels through better perceiving, predicting and shaping the full range of factors that determine how well your product portfolio satisfies market needs. No other aspect of supply chain optimization has greater impact on profitability.
Today’s product portfolios can contain hundreds of thousands SKUs. In some cases a company must manage several million. This is not to say a company will have this many product families. In fact, many of these SKUs are based on product configurations within a product family. For example a style of shoe can have a SKU for each gender, color, size and width. A family of sofas can have individual SKUs for fabric, color, pillows, and legs. A USB memory stick can have variations for memory size, color and indicator light.
As an alternative to playing the discount game and further eroding margins, many retailers have found tremendous success with private label products. By offering innovative goods at a reasonable cost, retailers have successfully distinguished their brands and helped engender consumer loyalty. This is a sound strategy, but it can easily backfire if the supply chain infrastructure is not in place to support it.
Recently, we were asked by the management of a manufacturer to help them assess why inventory levels were so high and trending upward. We went to the manufacturing plant to survey the scene, to see if we could determine the root cause of their inventory problem.
Clue #1: The earnest young materials manager we interviewed stated, “We don’t have any inventory. We only buy and make what our customers order.”
There was a major disconnect here. This gentleman was telling me they had no inventory, but I had a corporate controller with a balance sheet stating in black and white they had too much inventory.