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in
VCG employs the 'Theory of Constraints philosophy to bring about quantum
jump in performance of organizations in its target industry clusters.
LEVERAGING
THE POTENTIAL
Retail Consumer
Goods
Equipment
Manufacturing
Engineering
& Construction
Automobile &
Auto Components
202, Orion Business Park, Kapurwadi Naka,
Ghodbunder Road, Thane (West) 400601
Phone: +91 22 2589 5896
Fax: +91 22 2589 5897
Email: vcg@vectorconsulting.in
Web: www.vectorconsulting.in
TOC Solutions
For performance improvements in the downstream supply chain
- a case study of FMCG firm
2
Agenda
3
The Case Study Firms Overview
Downstream supply chain and sales force
Shortages & Surpluses: Causes & Impacts
Theory of Constraints
TOC Project Schedule
Opportunity for reducing Shortages & Surpluses
Stock Buffers with Uncertainty and variability
01.
02.
03.
04.
05.
06.
07.
The Case Study Firm - Key Facts
2012 Vector Consulting Group. All Rights Reserved.
03
The Firm The Firm
Market
Position
Market
Position
Downstream
Supply Chain
Members
Downstream
Supply Chain
Members
Sells &
Distributes
Household insecticides
Shoe care products
Male hair care products
Sells &
Distributes
Sales Force
Members
Sales Force
Members
Market Leader in India Market Leader in India
House CFA : 31
Distributors : 980
House CFA : 31
Distributors : 980
Sales Officers : 470
Salesmen : 1698
Sales Officers : 470
Salesmen : 1698
Focus Area - Downstream Supply Chain
2012 Vector Consulting Group. All Rights Reserved.
04
Retailers
Upstream Supply Chain
Distributors Firm Intermediaries Supplier
Buy-Side Supply Chain
Inbound Logistics Applications
Downstream Supply Chain
FOCUS AREA
Sell-Side Supply Chain
Outbound Logistics Applications
Sales Officer
Salesmen
Shortages & Surpluses: Impacts
2012 Vector Consulting Group. All Rights Reserved.
05
Impact of Shortages
and Surpluses
Shortages
The shortages were found to be common
in firms downstream supply chain
Surpluses
The surpluses were also
found to be common in firms
downstream supply chain
Impact on the Firm
1% Lost Sales = 10% reduction in
Profits (due to shortages)
1% Discount in Price = 20% reduction
in Profits (due to surpluses)
Impact on the Distributors
Lost Sales, reduction in Profits and
reduction in ROI (due to shortages)
Volume discounts, undercutting leading
to reduction in Profits (due to
surpluses)
Impact on the Sales Force
Lost orders, reduction in PC, TLSD and
value achievements (due to shortages)
Volume discounts, undercutting leading
to problems of market hygiene (due to
surpluses)
Impact on Retailers
Loss of sales, loss of loyalty, less ROI
Shelf Space constraints, high
investment, less ROI
These impacts determine not only the success
of retailer, but also the success of the distributor,
firm and the firms sales force performance.
Supply
LT
Order
LT
Cause(s) of Shortages and Surpluses
2012 Vector Consulting Group. All Rights Reserved.
06
100
25
Month
01
Month
02
Month
03
Actual
Demand
Stock Level based
on customers
ordering large
batches typically
monthly (based on
inaccurate F/Cast)
Stock Level based
on customers
ordering daily or
weekly based on
with actual
consumption
Shortages
Surpluses
Order
LT
Supply
LT
ROP
The KEY to achieve profitable availability of more SKUs is to get
each link to ORDER LESS MORE FREQUENTLY (START) rather than
the traditional practice of ORDER MORE, LESS FREQUENTLY (STOP)
Yes, BUT the Cause and Solution has
been known for long time, so why dont
we see MORE Supply Chains adopting
this especially FMCG Industry
TOCs 3 Focusing Steps
2012 Vector Consulting Group. All Rights Reserved.
07
As per Dr. Goldratt,
Until the consumer
has bought, nobody
has really sold
The System
Constraint found
is in market
demand or the
No. of Consumers
willing to buy
Exploiting the System Constraint means
Having the Right SKU, at the right place
(in the downstream supply chain) and right
time (when consumer is willing to buy).
What conditions block better exploitation?
Shortages of Products already stocked
by the downstream supply chain
members
Unavailability of Products that sell
elsewhere but which is not stocked due
to shelf-space constraints (occupied by
Surpluses).
Change any Policy,
Measurement and
or Behavior that
contribute to
current high level of
both Shortages and
Surpluses
Step 01
IDENTIFY the
Systems
Constraint
Step 02
Decide how to EXPLOIT the
Systems Constraint
Step 03
SUBORDINATE
everything to
the above
decision
YES! BUT, how to find these and will it really be a win:win to change these
TOC Project Schedule
2012 Vector Consulting Group. All Rights Reserved.
08
Month / Activity 1 2 3 4 5 6
Project kick Off: Call to share real damage
& extent of Surpluses & Shortages
TOC Evaluation: Share generic TOC analysis
& solution to shortages & surpluses
Simulation: Develop simulation to validate
damage of PUSH and benefits of PULL
Customized S&T: Construct customized
S&T and plan Test
Test: Test impact of Less more
Frequently with 100 Test retail outlets
in various beats
Analyze Test Results: Analyze Test Results
for 100Test vs. Control Shops and agree
on next steps
Reducing Shortages & Surpluses using DSR Beat cards
2012 Vector Consulting Group. All Rights Reserved.
09
Name
Max
Daily
Sales
Min
Order
Qty.
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Day 11 Day 12 Day 13 Day 14
OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold OH Sold
SKU1 15 10 45 4 41 13 28 8 20 0 20 4 16 8 8 8 37 14 23 7 16 2 14 6 8 9 -1 -1 0 0
SKU2 12 10 40 2 38 5 33 6 27 6 21 2 19 1 18 5 35 7 28 2 26 6 20 6 14 6 8 7 1 5
SKU3 8 5 30 2 28 3 25 2 23 3 20 1 19 3 16 6 24 4 20 3 17 4 13 5 8 1 7 3 4 4
SKU4 6 5 25 1 24 1 23 3 20 3 17 2 15 1 14 3 22 2 20 1 19 4 15 3 12 2 10 3 7 3
SKU5 6 6 25 2 23 2 21 3 18 3 15 2 13 3 10 2 23 1 22 2 20 2 18 4 14 3 11 1 10 1
SKU6 5 5 10 2 8 2 6 2 4 2 2 2 0 1 -1 3 7 4 3 3 0 2 -2 0 -2 2 -4 1 -5 1
SKU7 5 5 10 1 9 0 9 2 7 2 5 1 4 2 2 3 7 4 3 2 1 2 -1 2 -3 3 -6 2 -8 1
SKU8 4 3 10 0 10 0 10 2 8 3 5 0 5 0 5 1 9 1 8 1 7 2 5 2 3 2 1 2 -1 2
SKU9 3 3 5 0 5 1 4 2 2 1 1 2 -1 1 -2 1 4 2 2 1 1 1 0 1 -1 1 -2 1 -3 1
SKU10 3 3 5 0 5 1 4 1 3 1 2 1 1 0 1 2 3 0 3 1 2 2 0 0 0 2 -2 1 -3 1
SKU11 3 3 5 1 4 1 3 1 2 1 1 2 -1 1 -2 1 4 1 3 1 2 0 2 2 0 1 -1 2 -3 1
SKU12 2 3 5 1 4 1 3 1 2 0 2 0 2 0 2 1 4 1 3 1 2 0 2 1 1 1 0 0 0 1
SKU13 2 3 3 1 2 1 1 1 0 1 -1 1 -2 0 -2 1 2 1 1 1 0 1 -1 1 -2 0 -2 0 -2 0
SKU14 2 2 3 0 3 0 3 1 2 1 1 1 0 0 0 0 3 0 3 1 2 0 2 1 1 1 0 1 -1 1
SKU15 1 1 2 0 2 0 2 0 2 0 2 1 1 1 0 0 2 0 2 0 2 1 1 0 1 0 1 0 1 0
SKU16 1 1 2 1 1 0 1 0 1 0 1 0 1 1 0 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0
SKU17 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 1 -1 0
SKU18 1 1 1 0 1 1 0 0 0 0 0 1 -1 0 -1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0
SKU19 1 1 1 0 1 1 0 0 -1 0 -1 0 -1 1 -2 0 1 0 1 0 1 0 1 1 0 0 0 0 0 0
SKU20 1 1 1 0 1 0 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1
SKU21 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1 -1 0
SKU22 1 1 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 0 0 0 0 0 0 1 -1 0
SKU23 1 1 1 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 1 -1 1 -2 0 -2 0
''''' ''''''''''' ''''''''' '''''' ''''''' '''' '''' ''' '''' ''' ''' '' '' ''' ''' '''' '''''' '''' '''' ''''' '''''' '''' ''''' ''''' ''''' '''' ''''' ''''' ''''' ''''' ''''
SKU25 1 1 1 1 0 0 0 0 0 0 0 1 -1 0 -1 0 1 0 1 0 1 0 1 0 1 1 0 0 0 1
SUM 234 19 215 34 181 36 145 27 118 24 94 24 70 37 197 44 153 27 126 29 97 37 60 38 22 27 -5 24
Sizing Buffers: for Uncertainty/Demand & Supply variability
2012 Vector Consulting Group. All Rights Reserved.
10
Too much
Too little
Good
Enough
G
o
a
l

U
n
i
t
s

Time / Stock Buffer
Planning Rule: Be Paranoid but not Hysterical
Target Stock Level for each SKU at each Stocking point =
Maximum Demand within Reliable Replenishment Time

Execution Rules: Replenish up to Target level in
sequence of buffer status more frequently (e.g. daily)

Feedback Rules: Adjust Target Level (Buffer Size) based
on Level of Buffer Penetration
Actual
Demand
400
300
200
100
Month
01
Month
02
Month
03
Month
04
Month
05
Month
06
Auto Upsize Buffer based on
level of Red-zone penetration
Auto Downsize Buffer
based on lack of Yellow
zone penetration
2012 Vector Consulting Group. All Rights Reserved.
11
BEFORE AFTER
Impact on Shortages Test Shop - Before Vs After
Name
Inventory Inventory
12
Oct
19
Oct
26
Oct
02
Nov
09
Nov
16
Oct
23
Nov
30
Nov
06
Dec
13
Dec
20
Dec
27
Dec
03
Jan
12
Oct
19
Oct
26
Oct
02
Nov
09
Nov
16
Oct
23
Nov
30
Nov
06
Dec
13
Dec
20
Dec
27
Dec
03
Jan
SKU1 41 28 20 20 16 8 37 23 16 14 8 -1 0 13 14 17 15 16 8 18 18 12 14 12 14 18
SKU2 38 33 27 21 19 18 35 28 26 20 14 8 1 22 13 17 21 19 18 15 18 23 20 14 16 14
SKU3 28 25 23 20 19 16 24 20 17 13 8 7 4 18 21 21 20 19 16 24 20 17 13 18 17 18
SKU4 24 23 20 17 15 14 22 20 19 15 12 10 7 17 23 20 17 15 14 22 20 19 15 12 10 17
SKU5 23 21 18 15 13 10 23 22 20 18 14 11 10 23 21 18 15 13 10 23 22 20 18 14 11 10
SKU6 8 6 4 2 0 -1 7 3 0 -2 -2 -4 -5 8 6 4 8 8 7 7 8 7 8 9 8 7
SKU7 9 9 7 5 4 2 7 3 1 -1 -3 -6 -8 16 12 9 15 12 14 13 11 9 10 11 12 11
SKU8 10 10 8 5 5 5 9 8 7 5 3 1 -1 10 10 8 15 5 5 9 8 7 5 3 1 6
SKU9 5 4 2 1 -1 -2 4 2 1 0 -1 -2 -3 15 14 12 16 7 8 4 2 1 4 8 6 4
SKU10 5 4 3 2 1 1 3 3 2 0 0 -2 -3 15 4 3 2 1 1 3 3 2 3 4 4 3
SKU11 4 3 2 1 -1 -2 4 3 2 2 0 -1 -3 4 3 2 1 3 4 4 3 2 2 4 5 5
SKU12 4 3 2 2 2 2 4 3 2 2 1 0 0 4 3 2 2 2 2 4 3 2 2 1 3 4
SKU13 2 1 0 -1 -2 -2 2 1 0 -1 -2 -2 -2 2 3 4 6 6 4 2 1 4 5 4 4 3
SKU14 3 3 2 1 0 0 3 3 2 2 1 0 -1 3 3 2 1 5 4 3 3 2 2 1 4 3
SKU15 2 2 2 2 1 0 2 2 2 1 1 1 1 2 2 2 2 1 5 2 2 2 1 1 1 1
SKU16 1 1 1 1 1 0 2 2 2 2 2 2 2 1 1 1 1 1 4 2 2 2 2 2 2 2
SKU17 1 1 1 1 1 1 1 1 1 1 1 0 -1 1 1 1 1 1 1 1 1 1 1 1 4 4
SKU18 1 0 0 0 -1 -1 1 1 1 1 1 1 1 1 4 5 3 5 6 7 8 4 6 7 1 1
SKU19 1 0 -1 -1 -1 -2 1 1 1 1 0 0 0 1 4 3 4 3 5 4 3 2 5 5 6 8
SKU20 1 1 1 1 1 1 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 1 1 1 4 4
SKU21 1 1 1 1 1 1 1 1 1 1 0 0 -1 1 1 1 1 1 1 1 1 1 1 5 5 5
SKU22 1 1 1 1 1 1 1 0 0 0 0 0 -1 1 1 1 1 1 1 1 3 4 4 4 3 4
SKU23 1 0 0 0 0 0 1 0 0 0 -1 -2 -2 1 4 4 3 4 3 3 5 6 3 5 4 6
SKU24 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 4 1 1 1 1 4
SKU25 0 0 0 0 -1 -1 1 1 1 1 1 0 0 3 4 3 4 3 3 1 1 1 1 1 4 5
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