Setting up a make-to-order replenishment model

A tobacco company in Lausanne was facing the following challenge: they were offered the opportunity to import and distribute the entire tobacco portfolio from one of their competitors and distribute the products to their mutual customers using their existing logistics network. The difficulty was that their own portfolio (manufactured in Switzerland and other factories in Europe) was all supplied to them using a VMI (vendor managed inventory) setup; all they needed to do was supply the factories with their forecasted sales and stock on hand, and the factories would determine how much and when to supply each of the products to their central warehouse. From there, it was delivered directly to customers based on sales orders. So there was no knowledge in the Lausanne office on how to determine the quantity and timing of ordering from their supplying competitor. How does one translate a sales forecast into a supply plan?

They asked for my help, and I have done the following for them:

  • Analyze the portfolio (current demand & supply patterns)
  • Mapping out the logistics network to understand timings and lead times of:
    • Receiving an order
    • Producing the product
    • Combining orders into economical shipments
    • Delivery to the central warehouse in Switzerland
  • Agreeing replenishment frequency (production and delivery) per SKU; some need to be supplied every month, some only every second or even third month as quantities are too small
  • Calculating the required stock levels (reorder point, maximum, average stock) per SKU and agreeing those as targets as part of the SLA (service level agreement)
  • Creating an ordering tool (using Excel), in which the following information in inputted:
    • Current stock level (in the central warehouse in Switzerland)
    • Sales forecast in weekly buckets
    • Stock targets
    • Ordering frequency
    • Any confirmed delivery orders not yet received in Switzerland
    • In the ordering tool, as a result of the inputted information, the quantity that should be ordered is calculated and displayed.
  • Design the process together with the supplying competitor, including:
    • determining the stock policy for a new/changing SKU
    • monthly ordering process
    • weekly monitoring process
    • reporting process
    • issues & escalations
  • Agree the SLA (service level agreement)
  • Integrate the stock policy calculation with the existing stock policy process for the own-manufactured products
  • Provide a complete document detailing all of the processes and procedures
  • Provide a step-by-step guide to the use of the ordering tool
  • Train the users in the principles of fixed order cycle replenishment and the use of the tool