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Demand management at FrieslandCampina Vietnam

Vollebregt, Ronald (2010) Demand management at FrieslandCampina Vietnam.

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Abstract:This research focuses inventories in the distribution chain at FrieslandCampina Vietnam (FCV). At this moment the local warehouses suffers from high variations in demand and stock out situations occur regularly. To prevent stock outs and assure a high service level, FCV wants to reduce the high fluctuations in inventories at the distributor and the high variability this causes in demand at the local warehouses. Therefore the objective of this research is “to optimize the inventories at the distributors”. In this research we developed a general policy to reduce inventories and variability what we have tested onto five distributors in region east. For those distributors we selected eight SKUs, five key SKUs as defined by FCV and three slow moving and high value SKUs. Currently FCV has target stock levels for the distributors of 40% of the value of their monthly sales. This should be enough to cover nearly two weeks demand, but the target stock is an average over all SKUs. It happens often that some SKU has near zero stock while another SKU has enough stock for a month. Replenishment orders are triggered mainly by the regional offices and goods are pushed into the chain. The performance is measured by the order line fill rate to the distributors. There is currently no performance measure for the distributors to the outlets. There is a high variation in inventory at the distributor and demand at the local warehouse because the lack of rules and because targets are set monthly based on sales to the distributor (sales in). At the end of each month, there are high inventory positions at the distributors and many stock outs at the local warehouses. We developed an (R, s, S) model which can calculate reorder points and order up to levels to create a stable inventory at the distributor and what reduces the variability. This will reduce variability in demand at the local warehouse and will allow FCV to push on targets and let the market pull on inventory. This advanced inventory control policy can easily be implemented in the DMS system that FCV is currently testing and installing at test group distributors. In this system all necessary information to make the calculations is already available. It only has to be linked and used by the distributors. To implement the suggested policy, FCV should start which changing the behavior of the sales organization by setting all targets based on sales out (sales to the outlets). This will make it less interesting to have high inventories, while it will also make sure that there are enough inventories to fulfill demand and reach targets. Second, the forecasts need to be translated into sales out, and becomes more accurate per week in order to reduce necessary safety stock. We estimate the potential savings on stock quantities around 25 percent and the reduction in standard deviation of demand of 35 percent with a fill rate at the distributors of 99 percent. This fill rate is currently not measured. Currently is only the order line fill rate measured for the performance of the local warehouses, which is much lower. Another decision needed is in the fill rate level. FCV said that they want to have a 99 percent fill rate which is very high. Even when the fill rate is 95 percent, it is most likely that products are near 100 percent availably in the outlets, while inventories decline with 40 percent. In this research we have tried to test the solution with a simulation, but this simulation is modest due to a lack of available information. Only information for the East region was available and therefore tested. Further research should therefore investigate the reliability of this research in other regions. Another point for further research is to investigate the possibilities forecast the sales more accurate. It will be possible to lower stock levels when the forecasts become more accurate and at the same time it will be easier to plan the production scheme. Demand Management at FrieslandCampina Vietnam 3 Last point for further research is the bonus structure. As already mentioned, for a successful implementation it is very important to change behavior. Currently there are different targets, on sales in and on sales out. This causes high inventory positions and high variation in demand. This can be solved through changing the bonus structure into a system that supports the sales out solely.
Item Type:Essay (Bachelor)
FrieslandCampina Vietnam
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management BSc (56994)
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