Digitalizing Supply Chain - Inventory & Factory Dispatch
Planning and managing inventory flow is one of the most critical functions for a manufacturer. Too much of something not just blocks working capital but leads to all sorts of other problems. On the other hand, deficiency of even the smallest of parts/ inputs can have a significant impact on the production outflow. Inadequate visibility into demand or poor planning leads to oversupply of some products while stock-outs of others. The effect of stock-outs is often overlooked and can have a significant direct impact on the bottom-line.
In my recent article (posted here), I talked about how dDriven is helping manufacturers adopt Digitalization to address challenges in the procurement process of supply chain. Now, let us see how Digitalization can bring more visibility and transparency in the inventory flow and dispatch process of a plant to optimize the supply chain further. For better understanding, I’ll take the example of one of our customers as a case-study.
Our customer (a large process manufacturer) wanted to adopt technology not just for its procurement process, but also to digitalize its dispatch processes. The other requirement was to gain more visibility and control over the inventory flow within the plant. The customer, a large manufacturer of edible oil, had a processing plant for refining various types of crude oil. Once the oil was processed and refined, it was sent to storage tanks for in-house packaging and bulk-filling (bought by trading companies). To maintain the brevity of this article, I would focus on the bulk filling stations here. This area was also the one where the customer was facing the biggest challenge.
The filling station for each tank is connected to a totalizer and the readings are manually noted at the end of the day on paper.
Dispatch process: A buyer comes in with a Purchase order mentioning the amount of oil to be collected. The truck is weighed initially at the entry point and then finally at the exit point as well. The difference in weight is essentially the amount of oil that is filled and should match with the purchase order. However, all these records are maintained manually.
Below is a highly simplified representation of this process:
Below are some of the challenges which the customer faced during this process:
There was a huge reconciliation problem between the oil delivered as per Purchase orders received and actual oil delivered as per totalizer readings.
There were some signs of pilferage happening as well (we came to know about some really innovative methods).
The totalizer readings were taken (noted manually on paper) only at the end of the day.
Often, the trucks were in the compound for long periods, and there was no tracking
The actual tank inventory levels were noted only periodically (using a dip-stick), and there was no real-time visibility
Inventory management problems: Since there was no proper planning and scheduling mechanism in place, the backlog of outstanding orders was on average 6 months or more (inventory of one type of refined oil stocked-out while excess availability of the other type was blocking the storage tanks)
No real-time visibility into the overall process (MIS reports received after a delay of 2 days, and a lot of the manually collected data is never stored digitally for further analysis)
Production mismanagement - significant mismatch between the requirement and actual production
Lack of accountability and heavy dependence on few personnel
The customer is one of the largest producers in this space and has fairly complex operations (multiple oil types, a large number of different storage tanks, multiple dispatch processes - bulk filling, retail filling, and packaging). Given the lack of technology adoption and heavily people dependent processes, inefficiencies were bound to creep in.
To address the above challenges, dDriven proposed a number of solutions which would not only mitigate these problems but also provide a lot of additional value. They were mostly centered around connecting the existing data sources (ERP system, PLCs, Automation systems) and digitizing the manual records through simple e-forms with minimal new instrumentation.
The below diagram gives a high-level overview of the solution schema with our interjections marked in Red.
By adopting Digitalization, some of the major benefits which could be realized are:
Complete reconciliation at various stages (matching weighbridge data with data from totalizer, inventory levels with SAP, etc.)
Real-time alerts (mismatch, inventory levels, exception monitoring)
Optimizing procurement and production plans to match the demand and outstanding orders
Complete visibility into oil movement right from procurement (crude oil) to dispatch (refined oil) and better control over inventory
Visibility into transit/ process loss which could be further mitigated
Reduction in lead time (no buyer wants to wait for 6 months!)
Identifying demand trends by product type, geography, dealer, etc and improved forecasting
Matching sales revenue with inventory change, etc.
Digitalization helps build a digital replica of the complete operations which can be easily viewed through a mobile/tablet with on-demand reports instantly accessible from any part of the world
Let us look at the economic impact of digitalizing the entire supply chain operations for a typical process manufacturer:
(Source: dDriven research reports)
For a company with revenues of around USD 500 Mn, a 2-3% saving across the value chain could be as high as USD 6-10 Mn. The typical time for implementing such a project is 3-5 months (from design to implementation). And the payback – it is often less than 2 months.
To conclude, the above-mentioned problems and challenges are typical in large manufacturers who have not yet adopted Digitalization and still rely heavily on manual processes. Those who do install some systems (Automation, ERP, Planning & Scheduling, etc.) are still unable to realize the full potential of these systems as they are running in silos and are unable to talk to each other.
For such companies, the visibility into the hidden and lost opportunities is highly opaque, and even though things seem to be running fine, the biggest players are often wiped out by slowly emerging competitors who embrace technology and continue to keep themselves updated with the emerging trends.
In a nutshell, Digitalization offers far too many benefits to be ignored. It not only improves the bottom-line significantly or gives visibility into the operations, but also helps maintain the competitive advantage (in fact improves it) and keeps customers highly loyal through unmatched offerings.
Head of Finance & Special Projects