SAP INVENTORY OPTIMIZATION

Having enough parts on hand without filling up the warehouse – that’s the balancing act performed by the nearly 70 material requirements planning controllers at Krones, a company that deals in special-purpose mechanical engineering. Inventory optimization add-ons from SAP help make it possible.

Ketchup, mineral water, and sparkling wine have one thing in particular in common. Without filling systems from Krones, these products would not find their way into glass or plastic bottles.

Headquartered in Neutraubling, Germany, Krones generated €2.8 billion in revenue in 2013 selling machines and systems that involve process, beverage filling, and packaging technology. The company delivers both individual machines and entire filling installations to its customers, which include breweries and other companies in industries ranging from soft drinks, wine, sparkling wine, and spirits to chemicals, pharmaceuticals, and cosmetics.

When parts wear down or new orders are received, it’s time for the service employees or assemblers at Krones to get to work. They then request the necessary parts from the company’s warehouses – and expect the deliveries as soon as possible.

Thousands of parts for each Krones controller

Some 70 material requirements planning (MRP) controllers stand ready to make sure that parts are replenished as needed.

“Each controller is responsible for more than 10,000 parts,” reveals Markus Böhm. The mechanical engineering technician who works on production and logistics systems is one of the materials planning strategists at Krones. He knows how difficult it can be for the controllers to maintain the right balance between delivery performance and warehouse inventory.

“It’s always about keeping our colleagues happy in both production and controlling,” Böhm explains. On the one hand, the assemblers want their spare and assembly parts to be constantly available in short order; on the other, controlling is looking to achieve the highest possible rate of parts throughput while minimizing the warehouse space required.

Around five years ago, Krones began discussing the possibility of enhancing its existing logistics system, SAP Supply Chain Management (SAP SCM), with additional tools.

“We keep a huge number of parts in stock, which makes things pretty complex,” Böhm reports. Eventually, the company grew to the point that maintaining its usual inventory level entailed an excessive amount of operational effort. There was also too much fluctuation in its stocks. Krones thus began looking for a new solution that would help optimize its materials planning.

Drastic reduction in MRP strategies

Krones has now been using consulting solutions from SAP for inventory optimization since 2011. The company currently utilizes four of these add-ons, with two more planned for implementation later this year:

1. MRP monitor: With this add-on, controllers can view their current inventory and range of coverage. This enables them to determine the number of parts they still have in stock – and which parts represent dead stock that merely takes up warehouse space due to infrequent use. They can also classify their parts based on ABC/XYZ analysis.
2. Safety stock simulation: Every MRP controller maintains a safety stock, or a certain number of parts in reserve that are not immediately required. This add-on performs simulations of different service levels and recommends an amount of safety stock designed to compensate for inventory fluctuations (such as those stemming from delivery delays).
3. Replenishment lead time monitor: How long does it take to procure parts? Past data can reveal which suppliers deliver their goods on time and how much longer others need on average. Previously incalculable, these factors are now included in each controller’s planning.
4. MRP exception monitor: This add-on displays a notification whenever deliveries fail to arrive or have been delayed, enabling the controller responsible to react to the situation promptly.

An improved inventory overview, a more uniform approach to materials planning, fewer major fluctuations, and far fewer tools than before. For Markus Böhm, these add-ons have provided Krones with a number of key advantages. Meanwhile, the number of MRP strategies the company employs has fallen from 45 to less than a dozen.

“We used to follow complex strategies in which some controllers only took action on a demand-oriented basis, while others were more concerned with maintaining too much security stock,” Böhm recalls. “Our current strategies rely more on sound knowledge than gut feelings.”

The return on Krones’s investment in these add-ons might not be measurable in hard financial figures, but the company is still using the same warehouses as in 2009 – despite generating nearly a billion euros in additional revenue and employing a further 2,000 people.

The two other add-ons Krones plans to implement this year should offer even more benefits. Inventory cockpit will be able to provide a comprehensive overview of all planner processes, inventory comparisons spanning several years, and analyses of storage locations. The lot size simulation add-on, on the other hand, will help Krones determine the ideal lot sizes for different parts (that is, how many parts should be ordered) by factoring in known conditions. This process is based on special algorithms. “That will replace the Access solution we’re currently still using,” Böhm adds.

Top five add-ons

Krones will then be running all five of the consulting solutions SAP has described as its most popular when it comes to inventory optimization. Right now, just under 80 customers are using MRP Monitor; 35 have implemented the Inventory Cockpit and Safety Stock Simulation add-ons, while Lot Size Simulation and Replenishment Lead Time Monitor can each claim 25 customers. If Krones still has the same number of warehouses five years from now, these tools will definitely have proven their worth.

Source: SAP Inventory Optimization