It’s widely accepted nowadays that organizations of all sizes need to be more customer focused than ever before. It’s also acknowledged that digital transformation is fundamentally reshaping business to help this intense new focus pay dividends.
So it will perhaps come as no surprise that this customer-oriented impetus is being felt, not just at the front line, but all the way back through the business. Digitally efficient material requirement planning (MRP) is not just a back-office imperative – it’s an essential part of meeting customer expectations.
Identifying the overlaps
A global manufacturing client of ours recently asked us to address its material requirement planning issues. The biggest need for transformation was in the company’s European operations, where efficiency issues included significant process overlaps in MRP between individual factories and the region’s operations center. For example, once a purchase order was released to the vendor, it wasn’t clear who should follow up with that vendor for the materials to be supplied, the central hub that raised the PO, or the factory that consumes the material. The result was that both the center and the individual factory were following up, duplicating effort, and muddying the waters.
Our initial and comprehensive study examined and classified the activities of the factories and the central hub. The result was a move from a two-tier structure to a three-tier model, with the client center maintaining process governance, factories maintaining responsibilities for material call off, and many MRP transaction functions being executed offshore by Capgemini. This overall transition to the new model took place over a six-month period.
ESOAR in action
Before this stage could be reached, however, we had to map all the MRP activities – first, to be sure we understood the current model, and second, so we could remap it. This process map enabled us to clarify areas of possible demarcation between the offshore function, the central hub, and the client’s factories, and to eliminate any duplications of effort.
The result of our process map was the identification of two distinct processes. The first of these was Plan to Order, which tracked through the steps from planning to the creation of a purchase order; and the second was Order to Deliver, which covered the stages between the purchase order and delivery to the client’s factories. Plan to Order became the responsibility of Capgemini, while the factories took ownership of Order to Deliver.
Processes were identified for elimination and the rest were optimized and consolidated. Several process elements were identified for possible automation. Hitherto, for instance, when a purchase order was raised, a confirmation was received from the vendor, and fed into the system. This entire routine was automated, and parts of it and of other sub-routines were also robotized.
Elimination of process overlaps between the client’s European central hub and its individual factories
Creation of a process map from which opportunities to standardize processes could be gauged. Subsequent standardization included that of Order to Deliver processes across factories
Optimization and consolidation of factory level process outputs
Automation of sub-processes relating to PO generation, reporting, and vendor feedback
Robotization of a number of sub-processes
Everyone’s a winner
As a result of these changes, there has been a significant reduction in overheads. Other benefits have included:
- Greater accountability, with clarity of areas of responsibility
- The creation of a governance center at the client’s European operations hub
- Cost reduction as a result of moving some operations out of Europe to a more competitive environment
- Faster turnaround of purchase orders
- Fewer PO modifications
- The opportunity for the client to re-allocate European hub team members to new responsibilities once the functions had been transferred to Capgemini.
While many if not all of these benefits accruing internally to the client – with suppliers also gaining – any efficiency improvement in the supply chain has a cascading effect. This ultimately makes a difference to the end customer, in the form of faster order fulfillment and delivery, less hassle, and lower prices as a result of reductions in unit costs.
Streamlining MRP really is essential in meeting – and perhaps even exceeding – the expectations of customers.
Within a single year of operations, our client’s materials planning function has been transformed, to:
- Making 50% of all the activities rule-based, avoiding the need for transactional decisions
- Eliminate 85% of modifications to POs
- Reduce manual POs by 33%
- Eliminate €24 million in excess inventory
- Reduce headcount by over 50%.
Dharmendra Patwardhan is responsible for developing offers and capabilities for transforming supply chain operations that drive tangible business outcomes for Capgemini’s clients.