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The Secret to Increasing Distribution Service Levels and Fill Rates

Wednesday, March 25th, 2009 by Alex Smith

A key element to the success of wholesale distributors is to simultaneously manage appropriate inventory levels while maintaining high levels of customer service and satisfaction. Depending on the reliability of the distributor’s supply base, performing these tasks effectively may seem virtually impossible. Achieving desired service and order fill rate goals is based on the successful implementation of an effective inventory replenishment program. While the concepts of inventory replenishment, service levels, and order points have been used for decades, the number of distribution companies who understand and utilize these concepts is significantly lower than one might imagine. The fact of the matter is that most distribution companies struggle with inventory optimization.

While there are complexities in the details, at an overall level, smart distribution companies are focused on delivering the highest possible service levels to their customers while minimizing on-hand inventory. For distributors, long-term profitability is contingent upon having the right products available to meet customer demand at the right time. If this concept is so elementary, why do so many companies struggle with establishing optimal inventory levels, and why do distributors struggle to have adequate product supply to fulfill customer orders?

The two-word answer to this conundrum is “service levels.” Excellence in distribution is synonymous with the ability to supply customers with a high service level that is both consistent and reliable.

What is a service level? Service level refers to an organization’s ability to enter and ship all of the items requested on a given sales order to meet the customer’s desired receipt dates. This means there are no inventory shortages or backorders, and the order is filled within the customer’s requested delivery window.

In TGI’s Enterprise 21 ERP system, a service factor can be defined by item or SKU, which defines the desired line item fill rate for that given item. Service factors can be set on a global basis or can be defined uniquely by location or facility. For some fast-moving items, a service factor of 95 or 99 may be desired, while others may require much lower service levels of 50 or 60.

How does Enterprise 21 use service factors? Once a service factor is defined – by SKU – Enterprise 21 uses the service factor in its time-phased inventory replenishment process. In Enterprise 21, a service factor of 95 implies that 95% of the time a customer places an order for a given item, the item can be shipped out of inventory, while a service factor of 99 means this is to occur 99% of the time.

In Enterprise 21, the inventory replenishment process analyzes supply and demand to help distribution organizations improve order and line item fill rates and optimize their overall inventory management performance. The process considers a variety of criteria such as desired service level and safety stock, minimum and maximum inventory levels on a product-by-product basis, on-hand inventory, forecasts and current customer demand, supplier lead times, minimum order requirements, and order multiples. In organizations with multiple facilities, Enterprise 21 can review requirements for an individual warehouse or distribution center and for the organization as a whole. Once the Enterprise 21 system’s inventory replenishment process calculates the necessary recommended replenishment quantity, the application generates online requisitions for review and conversion into purchase orders and inventory transfer requests.

What further sets Enterprise 21 apart is the continuation of this process to gather transactional data as things occur and to report on that information for analysis purposes. An integral part of Enterprise 21’s distribution software functionality is the ability to monitor service levels automatically and produce suggestions for necessary changes to existing replenishment rules. By interactively collecting and analyzing information such as order and line-item fill rates, Enterprise 21 produces reports and management alerts to notify the organization of any anomalies compared with existing service level metrics.

Successful distributors know the key to ongoing and improved profitability is due in large part to managing the balance between customer service and inventory levels. Enterprise 21’s advanced inventory replenishment capabilities, including the use of service factors, are just one of the reasons leading distributors adopt Enterprise 21 for its complete distribution software capabilities.


Establishing the Complete Chain of Custody of Your Products through Lot Tracking

Thursday, March 19th, 2009 by admin

One of the hottest topics in process manufacturing is lot traceability. The definition of lot traceability is the process of tracking given material lots throughout the enterprise and beyond. Lot traceability includes tracking lots forward from ingredients through manufacturing processes into finished goods, which are ultimately shipped to end customers. This also includes tracking lots backwards from finished goods back into the manufacturing processes and then back to the ingredients consumed in the production processes.

In ERP systems with strong process manufacturing support like Enterprise 21, companies who have a need to track lots should be able to do so easily and in an automated manner. This is a key element for establishing good system and procedural controls within one’s business, and should the need arise for a product recall, make the isolation process easy and straightforward while minimizing the amount of product necessary for inclusion in the recall.

Most companies without a modern ERP system that includes sophisticated lot tracking software functionality are managing their lot data in a suboptimal manner. Many of these companies may simply be recording lots on hard copy logs, using a series of spreadsheets to key in this data, or a combination of these methods. Not only does this process create a large amount of manual efforts, it leaves operations vulnerable to a significant amount of data entry errors and potential compliance issues.

What a good ERP software package like Enterprise 21 offers is two-fold. First, one can establish and record lot properties, which is a series of corresponding values for a given product’s physical characteristics. This practice is a key element in the quality control (QC) process. Second, one can record the complete chain of custody or pedigree of lots through the enterprise and beyond. Both of these steps are critical requirements for strong lot traceability and compliance.

Relative to system-enabled lot analysis for ingredients, when ingredients are received, the associated lots are recorded. Those received lots would typically be placed on QC hold and the inspectors alerted as to the need to inspect and analyze these lots. The inspectors would perform their analysis and record the values for the associated ingredient lot properties. Assuming the values observed and recorded were within the acceptable range for the various lot property characteristics, then the given lot of ingredients would be released to available inventory for consumption in manufacturing processes.

A similar process can be performed for system-enabled lot analysis for manufactured goods. When manufacturing occurs, the associated lots are recorded. The produced lots can likewise be placed on QC hold and the inspectors alerted to take action. Once the inspectors perform their analysis, the values of the produced goods’ lot properties would be recorded. Assuming all of the lot properties were within spec, the produced goods would be released to available inventory.

While there can be other complexities to one’s operations with packing and repacking of product into various containers with associated lots recorded, the lots shipped to a given customer would be recorded, thus providing complete visibility as to which finished goods lots were shipped to customers associated with given sales orders. This process establishes a complete chain of custody from ingredient lots received, which are consumed in manufacturing yielding manufactured lots, which are then shipped out to customers.

Once this data is recorded in the system, both forward and backward lot traceability can be performed. Forward lot traceability is the tracing of ingredients from suppliers through production processes out to customers in finished goods lots. Backward lot traceability is tracing finished goods lots back from customers into production to determine which other customers received product from those specific produced lots and back to ingredients received from suppliers, if necessary.