Question

Additional information.

PackCo is an Australian-listed company that manufactures packaging products. PackCo services customers that are mainly food and beverage producers. The company currently operates in Australia, New Zealand and USA, and employs more than 6,000 staff. With its head office in Melbourne, Victoria, PackCo is listed on the Australian Stock Exchange and operates a number of production facilities in Australia, mainly in Victoria and South Australia. Since its inception, the company has grown steadily with revenues reaching almost USD $4 billion in 2016. The company has also acquired a number of other businesses to support its business growth.

PackCo sells its products and services to both local and overseas customers, and is reliant on third party logistics (3PLs) for transportation and forwarding companies to move its products. A newly appointed Supply Chain Optimisation Manager, Aras, has been tasked to oversee transportation and freight optimisation within PackCo. His responsibilities include conducting RFPs (requests for proposals) for the selection of carriers, and also implementing S&OP and CPFR projects to ensure that demand planning within the category is cost efficient and service effective.

Despite the implementation of an ERP system, management and replenishment of inventory to the right location has been a challenge.

Aras, in his first weeks of this job in overseeing one of the business groups within PackCo, recognised that due to forecast inaccuracies, it would be a big challenge to get the transport planning right. Despite the implementation of an ERP system, due to master data inaccuracies, management and replenishment of inventory to the right location has been a challenge. This has led to the demand planners in his team resorting to using spreadsheets to communicate demand requirements to the providers. Also, the lack of accurate data has resulted in higher inventories and accumulation of aged and obsolete stock.

Aras realised that his supply chain team has constantly exceeded its logistics budget to provide outstanding service levels for customers. Due to lack of clear sales strategy, expedited delivery or special production runs for low-order customers have further reduced the profit margins. For example, one of PackCo’s biggest accounts, Healthy Foods, spends only $2 million a year and, yet the logistics costs incurred servicing this client as a percent of revenue is over 25%.

Q1: Supply Chain Optimisation Manager needs to formulate a demand management and planning strategy report to be presented to C-level executives. If you were Supply Chain Optimisation Manager, explain what strategies should be adopted to improve PackCo’s planning and management.

Q2. What should be PackCo’s immediate priority to solve its supply chain inefficiencies?

Answer 1

PackCo should not work on following strategies and parameters:

• Make a better use of mobile and cloud technologies in its 3PL, collaborating with ERP
• Focus on Logistics ­fixed-asset reduction, Logistics cost reduction, Inventory cost reduction, increase in Order fi­ll rate, with right increased Order accuracy
• Use better modes of Forecasting so that replenishment levels in inventory can be improved without hurting any fixed and variable costs like inventory holding or inventory carrying costs.
• Look on Past experience and client reference records to do the right gap analysis
• Work on Flexibility – demand fluctuation
• Improve on the Level of customer service with on-time delivery

PackCo’s immediate priority:

Since the whole issue is originating due to forecast inaccuracies, unavailability of correct data on inventories and orders, and inventories are piling up, selecting right forecasting tools and techniques, appointing right Business Analysts who can work on such data for better forecasting and statistical applications should be done.

All old orders/ inventory records whether in soft copy of hard copy should be checked step by step, data to be collected, recorded in digital form for better analysis, while combining with the present available data. Then choking point of old inventories can be better found out.

Old inventories should be moved out first and then new replenishment shall be done.