Case Study 2 | Mysite 1

Confection Company

Challenge:

A well know confection company turns tragedy into a positive learning experience. After a fire destroyed this company’s warehouse, they wanted a plan to rebuild JUST the inventory that is needed to meet customer demand.

Solution: Perform a Demand Segmentation event to right-size the
rebuild ramp-up plan and to limit inventory to customer demand levels.

Results

Added SKU’s to Auto-Schedule for Confections and Finished Goods

Developed Seasonality Demand Timelines and Implement
(separate out Standard SKU’s from Seasonal ONLY product)

Add All Quadrant 1 & 2 Min and Max Information for Confectionsinto ERP System

Utilized Finished Good Demand Segmentation Data to Drive
Packaging Material Purchasing

Quadrant 1 and 2 Product From Lines to Run Through Packing

Established 1st Scheduling Wheel to be Used in All Areas
(Demand Seg. To Drive Picking for Quadrant 1 and 2 SKU’s)

Developed Weekly Meeting for initial Audit of process and
implementation

Decided Upon Quarterly Demand Segmentation re-calc time

What is Demand Segmentation?

Just like we use Value Stream Mapping to Learn to See to Improve Value Added and Eliminate
Non-Value Added Activity throughout a Value Stream, We can use Demand Segmentation to
Learn to See Your Product Offerings.

We can see how your product offerings affect New Product Development, Planning, Scheduling,
Production Efficiencies, Raw Material and Finished Goods Inventories, Warehouse
Management, Sales, Marketing, Pricing and Margins to help you develop an overall strategy to
run your business.

This strategy starts at a high level, but drives down to a SKU by SKU understanding of your
current value proposition for your customers and how changes and improvements will affect
you companies profitability.

When you use Demand Segmentation, you will understand the importance of volume and
variability, and the impact on supply chain, systems, and costs. You will analyze and segment
products, and take appropriate actions to optimize planning, control and manufacturing of each
segment.

As I worked with this company, the analysis and graphs were different than other companies.
Below is just one of the graphs made for this company as an example.

What we found on this particular analysis was that 34 SKU’s (Upper Left Hand Quadrant) was
equal to 50% of the sales volume and another 30 SKU’s (Lower Left Hand Quadrant) was 7%
more of the overall volume. SKU’s in the right-hand quadrants are consistent and predictable.
We placed these SKU’s to auto-schedule in their ERP system based on min/max levels we
calculated during the event.

What we saw in the Lower Right Hand Quadrant seemed typical with 70% of your total SKU’s
making up only 13% of your overall volume. We utilized the Demand Segmentation data to
complete some SKU rationalization and developed a more manual process that would quickly
change over to run this product.

The quadrant that was not typical was the Upper Right Hand Quadrant. It is odd to see this
many SKU’s in this quadrant, and even more surprising that this quadrant has such a high
percent of sales volume at 30%! What we learned in analyzing the SKU’s in this quadrant was
that these were seasonal products. You have two factors causing this variation from norm…one
is the seasonality and the second is that the product has a short shelf life. This led us to
complete another set of analyses on each season and we set specific ramp up and ramp down
period for this product. Next, we designed production wheels based on allergens and developed
standard work for production control and operators.

This is an example of how most people utilize Demand Segmentation, but since the hard work
of data collection, data cleaning and initial analysis were completed, we looked at how we
would use this information for:

Demand Segmentation for Packaging Material
Re-Slotting of Warehouse to Efficiencies
Demand Segmentation when combined

with Cap city Analysis Gives us Informed

Capital Expenditure Decision Making Tools

Add Margin to focus sales
Use Demand Segmentation with Margin to SHAPE Customer Demand
SKU Location on Demand Segmentation Allows for Proper Pricing Strategies