Monomakh automated inventory management in production using Intuifow, which works according to the algorithms of the new DDMRP methodology. In two years, the company increased sales by 60% without additional inventory and significantly strengthened its influence as a leader in the tea & coffee Ukrainian industry.
After reading this, the audience will be divided into two types. Some will say: “Oh! Interesting!” Others will think: “What kind of magic ball does Monomakh have?”
Let’s try to understand how modern inventory management systems and the new DDMRP methodology help businesses to respond flexibly and quickly to changes in customer demand.
Business redirection to the customer
In the 1950s, a new approach to inventory management was designed in the United States. MRP systems became popular in the 1970s with the development of computer technology. In the late 1980s, these systems were used by most major US and one in three UK companies.
The system allowed to determine how much and when to produce finished goods, as well as the time and the number of raw materials for production.
After all, almost all modern ERP systems in one way or another include the MRP module.
However, at some point, the standard system failed. One thing is to produce long-term products for the local market, and quite another is to work in unstable world conditions, where every customer wants to get something today, not in a week or a month.
Simply put, MRP has drowned in a world where productions are located far from the market and there is a highly competitive race for individual customer preferences. Companies forecasted demand, bought raw materials, started producing, and suddenly found that people already needed something else. At the same time, warehouses were filled with finished goods that could now only be sold at a huge discount.
Supply chain management had to be changed and a new concept emerged – Demand Driven Material Requirements Planning, which focused on planning material requirements according to current customer demand. This concept has allowed companies to quickly recognize and respond to future market needs. DDMRP has its inventory buffer algorithm (strategic positioning), and an innovative net flow equation, all necessary to faster order execution and keep production running in line with market demand.
For FMCG companies, where the competition is especially high, the speed of reaction is very important. Companies are constantly faced with changes in technological processes, and operational transformations, which leads to the search for new solutions to protect the entire supply chain. The food market, which is constantly changing, has been particularly hard hit, while the quality level must remain high, otherwise, it will not keep the customer.
Monomakh is one of the TOP-3 Ukrainian tea & coffee producers. They manufacture 250 own-brand items and more than 1,500 teas and coffees with the Private Label. 10 thousand tons of products are produced annually.
“The specificity of the Ukrainian tea business is that it’s not a tea-producing country, tea is an imported raw material. Delivery time is long: 3 – 3.5 months. In addition, there is high seasonality in purchases, when it is more profitable to buy raw materials in certain months. It depends on yield capacity and exchange rates. During a good harvest season, it is more profitable to buy a large batch of tea at a low price, as we try to consider all currency risks and market fluctuations. The need for a business to implement a system that would help with inventory planning has been brewing for a long time”, says Volodymyr Ropalo, Deputy Director for Production Logistics at Monomakh, Head of Intuiflow Implementation.
According to him, the unique feature of the tea market is seasonality, which can double. If you sell 100 tons of tea in summer, then 200 tons will be sold in winter. “Over the summer, we started to build up stocks and sometimes made mistakes with forecasted demand, as a result, we had overstocks. We tried many systems little by little, but 20 years of experience and knowledge of the market helped the most. There were also solutions for production planning based on 1C (ERP-system), where Excel spreadsheets were indispensable,” says Volodymyr.
And so, two years ago, Monomakh began to implement an innovative IT solution. The Intuiflow experts visited the plant, examined supply chain management, and sales specifics, and identified several opportunities to improve inventory management processes.
So it turned out that orders are formed in a semi-automatic mode: all SKUs were maintained in Excel spreadsheets, the fulfillment of orders by suppliers was not particularly controlled, and stock levels were not analyzed. And most importantly: all processes were scattered – there was no single data management system.
Watch the full interview – https://youtu.be/Fn99GM2JBxM
How to become flexible in the face of constantly changing customer demand
According to Volodymyr Ropalo, Monomakh likes the DDMRP methodology because it does not require an accurate sales forecast. The management model is formed based on inventory buffers that absorb surges or drops in sales.
In DDMRP, each buffer color determines the impact of a certain factor on the inventory level, which opens new opportunities for continuous improvement. Each zone is calculated independently and fulfills its purpose: the yellow zone is the basis for meeting demand, the green zone is responsible for the formation of orders subject to logistical constraints, and the red zone is the additional level that provides the safety of the flow of materials and information. The buffer itself is an indicator that shows where you need to try to improve the service level.
The basis of successful automation of inventory management with Intuiflow, as in any information system, is the correct settings of the input data flow. Then the system works by itself: alerts, priorities, prompts.
“The main result is that with the maintaining or slight increase in inventories for 2 years, our sales increased by 60%. It can be concluded that the volume of purchases decreased relative to sales. In addition, it allowed the season to enter more smoothly. Now the overstocks are still present, but their value in money is much lower”, says Volodymyr.
Intuiflow is very different from other inventory management systems, it works exclusively with DDMRP formulas. This methodology includes ideas from TOC, Lean, 6 Sigma, DRP, MRP and the innovative block added. Experience with Amore Pacific, Michelin, Kormotech, Yuko Lubricants, and many others using this software shows that Intuiflow can reduce inventory by an average of 35%, improve service level by up to 99%, and reduce lead time by 45%.
Monomakh distribution Case study
“An important point: the team should trust the system,” says Volodymyr. “We used to meet every week to plan the next one using Excel spreadsheets. And here’s the case: Now the production manager, coming to the meeting, focuses only on Intuiflow data.”
Today, in the world of VUCA, with high market unpredictability and at the same time the requirement to minimize the use of working capital, it is an efficient and reliable supply chain that becomes a key competitive advantage for companies. We sincerely wish you to contribute to the development of supply chain management.