TEAM NAME: LAKSHYA

Sai Teja Ramanujam

Megha
Manavdeep Singh Grover
IIM Lucknow
 THE PROBLEMS- OUR FOCUS

SUPPLY CHAIN

Un-optimized Safety Stock Demand volatility Inventory Management Customer service levels

Why should Asian Paints be concerned?

1 3

2
4
 REMODELLING THE SUPPLY CHAIN

Current Supply Chain Network Proposed new Statistical Model

ORDER QUANTITY:

ത x (Leadtime + 𝑹
=Moving average of 𝑺 ഥ )+ k 𝑹(𝝈𝟐𝒔 ) + 𝑺ത 𝟐 (𝝈𝟐𝑹 )
– In Transit stock – Stock level

ഥ
𝑺 is the average daily sales (average demand per period),
ഥ the average replenishment cycle (average lead-time),
𝑹
𝝈𝟐𝑹 the variance of the replenishment cycle

k the service level factor, Safety Stock = k 𝑹(𝝈𝟐𝒔 ) + ഥ

𝑺𝟐 (𝝈𝟐𝑹 )

Why these new factors?

The service level factor (k) is a dimension of the safety factor relating to safety
CATEGORIZATION FORECASTING MODELLING stock as a measure of customer service. Every retailer sets a service level factor
with many setting it at more than 95 percent in order to meet customer
Fast Moving Mid Month, ORDER QUANTITY= demand. Therefore, the calculation model should include the K factor (service
(90-95%) Periodic review +Forecast level) following a defined target for retailer policy
& (1 week for FM), +Safety stock
Slow Moving Continuous –In Transit Also, It is necessary to consider the joint impact of demand and the
(5-10%) review (for SM) –Stock level replenishment cycle variability for calculating the safety stock
 DESCRIPTION OF THE MODEL

Lead time of each supplier

Dispatching information from the DC to DATA POINTS Received product information from
retail stores CONSIDERED suppliers to the DC

Inventory on hand for each product

THE EXECUTION PLAN

DATA CATEGORIES
The Product Categories would be defined as:
A list of 1,300 SKU data for one year (28 days/month) A, B, C, D…. so on
(7days/week) × 12 months= (336 days) will be collected, which
TIMELINES
results in 1,300 (336) = 436,800 observations. Two types of data segmentation:
In this study, the sampling unit includes all categories of products 1. Monthly (First & second half) ; 2. Season (Events/ festivals)
that are available for one year (336 days). Historical data would be considered to forecast future orders

A multiple regression analysis would be conducted by applying the inventory model and comparing with the actual
performance over a period of one year.
 Analysis: Our Idea

Regression Model
Avg.
Product Avg. Inventory Product Product Service Level of Inventory Level (Y)=
Category Level (days) Replenishment
Category Category each category
cycle
A historical data A A

historical data
historical data
B B B
From

From
From
C C C
D D D
E E E

How will the results look like?

Service Level Inventory Value Inventory (units) Inventory (days)
1300 SKUs
Current New Improvement Current New Improvement Current New Current New

Total 7% (expected) 35-50% (expected)

Achieving a hybrid of A & B

REFER TO APPENDIX FOR
DETAILED SAMPLE
Inventory Level
ANALYSIS USING THE DATA
HIGH LOW
A Fulfill customer demand B Optimum level
Service Level

Note: Because of Non-availability of

HIGH
Carrying significant inventory
C Excess inventory and carrying
LOW
non-performing inventory
Asian Paints data, we have
Achieve service level with balanced inventory
considered sample values in our
D Shortage and stock-out model taken from other firms and
across industries

We would: Minimize Cost, Maximize Profits & Enhance Customer Service

 TIME PHASED INVENTORY NORMS

Materials that are planned using the time-phased planning technique are provided with an MRP date in the planning file. This date is set
when creating a material master record and is re-set after each planning run. It represents the date on which the material is to be
planned again and is calculated on the basis of the planning cycle entered in the material master record.

The requirements are calculated using the following formula:

Forecast value for the interval (cycle + purchasing department processing time + planned delivery time + goods receipt processing
time) + safety stock
BENEFITS

Inventory control Purchase planning Production planning Work scheduling

Resource management Data management Economic purchasing Time-saving

METHODS
Past Due Supply and Demand Material Scheduling Method
The planning process considers past due supply and demand as if it were due today The material scheduling method controls how the planning process calculates the
(in other words, the start date of the plan). Reports and on-line inquiries that bucket exact date of demand: the start date of the operation generating the demand, or the
demand in weeks or periods show past due demand in the first bucket. start date of the order generating the demand.

Lead Time Percent Dynamic Lead Time Calculations

Lead time percent is used when you choose a material scheduling method of Dynamic lead times are more accurate than fixed lead times because lead time can
Operation start date when launching the planning process. vary based on order quantity.
For a particular operation, the lead time percent is the percent of total lead time from Lead time for planned orders is computed as:
the start of the first operation on the routing to the start of the current operation. = FIXED LEAD TIME + (ORDER QTY* VARIABLE LEAD TIME)
 Recommended Segmentation Strategy

Step 1 Step 2 Step 3 Step 4

Identification of deciding Importance of attributes in Understanding dimensions Identify segments by
Supply chain attributes segmenting dealers of dealers’ service needs clustering the dealers with
similar service needs

Order Quantity Customer Surveys Weekly Sales/ Outlet Segment 1

Frequency of order Industry Reports Geo-demographic factors Segment 2

Segmentation
Approach Inventory capacity Historic Analysis # Categories Served Segment 3

Seasonality Factors Market POS Data Days of Inventory Segment 4

In-depth understanding of the relevant supply chain variables through in depth interviews and previous researchers industry reports

Key Actionable – Step 1
Step 1: Identification of relevant and
important deciding supply chain
factors which are specific to the Pain
industry. It’s understood through
interviews with a range of dealers &
by understanding the service
elements identified by earlier
researchers
Key Actionable – Step 2
Step 2: Once the elements of customer
service are known, buyers of the
product need to be surveyed to
determine the importance of these
elements in their decision to select and
evaluate suppliers ( assign weightages to
each attribute)
Key Actionable – Step 3 Key Actionable – Step 4
Step 3: Post choosing the larger number Step 4: Identification & clustering of
of relevant individual elements of dealers the different dealers basis the similar
service, make more understandable service needs of supply chain
dimensions by understanding & attributes
consolidating the attributes in one
understandable deciding factors.
Demands wise seasonal variability should
also be considered
 Detailed Segmentation Strategy – Step 1 & 2

Step 1: Identification of deciding Supply chain attributes

Frequency of deliveries (ability of supplier to consolidate

Lead time Sales/ Outlet
orders)

Delivery lead time Supplier’s warehouse is located in customer’s immediate area Categories Served by the outlet

Adequate availability (ability to order) of newly introduced

Inventory Availability Geo- demographic Factors
products
Fill Rate Seasonality (time of the month when order is placed) Frequency of the deliveries
Ability to expedite emergency orders in a fast, responsive
Location of the dealer Number of days of deliveries
manner

Step 2: Importance of attributes in segmenting dealers

Conduct surveys to determine the importance of the supply chain attributes for the dealers.
Based on these surveys and value
This will help in evaluating the decision making criteria for the dealers. The user behavior
added by these attributes, we
can be understood through:
selected the Top 5 parameters which
• User Surveys would form a part of the metrics to
• Industry Reports help Asian Paints segment the
• Historic Analysis dealers into categories.
• POS Data External Market Analysis
 Detailed Segmentation Strategy – Step 3 & 4

Step 3: Understanding dimensions of dealers’ service needs

Supply Chain Attributes Rationale

Weekly sales data is an important attribute for segmenting retailers based on their demand and
Sales/Outlet/Week
customer base

Considering this parameter will ensure that the dealers are segmented based on their order size
Frequency of Deliveries Segmentation
variability from EOQ. Deciding
Variables
The dealers stocking and selling more number of categories need to be analyzed separately as
Number of Categories Served
compared to those stocking fewer

Geo-demographic Factors These factors substantially affect the demand at a particular dealer.

The capacity to store inventory at the dealership plus the time taken to sell it is crucial for
Number of days of inventory
segmentation
Note: Consolidating larger number of attributes from Step 1 to one understandable & quantifiable attributes

Step 4: Identify segments by clustering the dealers with similar service needs

Dealer Segments/ Product Portfolio Segment 1 Segment 2 Segment 3 Segment 4

Water proofing
Wall covering USING MODEL IN SLIDE 3 (New Proposed Model), this will be predicted
Adhesives

Note: Predicting the orders to be fulfilled using the new recommended prediction model. Predicting orders product portfolio wise and segment wise
 APPENDIX
Note: Because of Non-availability of Asian Paints data, we have considered sample values in our
model taken from other firms and across industries

Sample Service Level

Improvement results Current Service level
After model implementation

How to model saves cost

& improves service levels

SOURCES

• https://www.researchgate.net/publication/308937480_Retail_su
pply_chain_service_levels_the_role_of_inventory_storage
• Beaumont, N. (2006), “Service level agreements: an essential
aspect of outsourcing”, The Service Industries Journal, Vol. 26
Category-wise
No. 4, pp. 381-395.
improvement in service • Cheng, K.L. and Lee, H.L. (2001), “The inventory benefit of
levels shipment coordination and stock rebalancing in a supply chain”,
Management Science, Vol. 48 No. 2, pp. 300-306.
• Graves, S.C. and Willems, S.P. (1998), “Strategic safety stock
placement in supply chain”, Journal of Manufacturing and
Operations Management, Vol. 1, pp. 67-71
 THE TEAM

Sai Teja Ramanujam Manavdeep Singh Megha

THANK YOU