Supplier inventory and operations management process improvement methodology

Abstract

The Building Construction Products (BCP) Division of Caterpillar makes 12 different loader, excavator, and tractor products with 10 manufacturing facilities worldwide. With relatively high volume machines, BCP saw that their supply base continued to have challenges in managing their inventory levels when machine volume and mix would change. Challenges included poor Supplier Shipping Performance (SSP), Point of Use (POU) availability, and inventory turns. These failures translated into poor Committed Ship Date (CSD) performance; which also directly impacted the overall cost of production and profitability of BCP. For example, coming out of the 2009 recession, suppliers were unable to keep up with BCP's increasing demand; which was attributed to supplier's lack of confidence in the BCP forecast, and only reviewing a 13-week capacity outlook. Therefore, BCP would like to have visibility into their supplier's planning processes, and through enhanced collaboration and communication, improve both BCP and their supplier's performance. To obtain the expected result, the scope of the project was to evaluate the Sales & Operations Planning (S&OP) processes of two identified suppliers. While the primary goal of the project was to develop a robust BCP Supplier S&OP process, the performance improvements were generated from Inventory and Operations Management tool creation and process improvement. The project followed the 6 Sigma approach of DMAIC to clearly evaluate the S&OP processes at both BCP Leicester and the two identified suppliers. The study concluded, through the development of a Supplier S&OP process that there were several important factors hindering the implementation of S&OP. These factors included capacity planning, planning parameters and inventory management policies. To enable implementation, the following tools were created: 1. Capacity Planning Tool enabled £30k annual cost avoidance on labor, logistics, and equipment through proactive management and scenario planning 2. Batch Size Tool enabled £20k+ reduction of inventory holding costs while also reducing near-term schedule variation to 2nd tier supplier 3. Safety Stock Tool provided inventory levels to align customer service with lead-times Through looking at the current BCP S&OP process at Caterpillar several key issues were identified with the quality of the output. These included lack of accountability for forecast accuracy and a lack of clear BCP Supply Chain strategy. To improve the identified issues the following actions were taken: 1. Created a Forecast Accuracy Tool that quickly identifies areas of concern 2. Submitted a future project proposal for Improving Piece-Part Forecast Accuracy 3. Recommended a future project for Cost Analysis on 8 week order-to-delivery SC model.