Lance-Lot at work :

See how Lance-Lot deployed his forces to help DELAGAR, a Belcam Company Division, optimize its operations.

Introduction:

Delagar, Division of Belcam, has been a key player in the manufacturing, and distribution of perfumes and toiletries throughout the Canadian and American markets for over 40 years. Its client base includes several major retail distributor chains as well as some export. Market pressures in this highly competitive business requires a very tight attention to costs, a total control on lead time consistency, and the ability to develop and launch new product lines very quickly. Delagar implemented a "state of the art ERP system" and were diligent in implementing as many of the best practices as seemed appropriate given their business and industry. Cybernostic helped in the ERP system implementation as well as in conducting line balancing and set-up time reduction workshops.

The Challenge:

A couple years after having implemented their ERP system, the president of Delagar called us up to express some dissatisfaction with the fact that in spite of the ERP implementation, his costs were not going down, his inventory turns were not improving and many of the benefits he had bought into when he was sold the ERP project were not materializing. Inventory turns were less than two per year. In a very volatile retail business market such as perfume sales, forecast accuracy was dismal. Because the manufacturing lead times to work through their product family took about 2 months, often the stock they held was not the right one. Initial delivery performance was approximately 55%. Moreover, Delagar was being confronted by heightened expectations on the part of their customers for no back orders and 48 hour delivery response times.

Moreover, sales were down from the year before, but inventories had edged upward on the basis of bad forecasts that never corrected themselves.

After a couple meetings, we made the following findings:

• The forecasts were not really being managed while the production system was unduly dependent on accurate forecasts to be operational;
• The planning parameters used in their ERP system were obsolete in that they did not factor in shop floor improvements in set-up time, and cost reduction, and improved throughputs. Specifically, the traditional order policy used in converting forecasts into planned orders called for lots equivalent to 1 months of supply. This resulted in sustained inventories, a lack of flexibility and unnecessary costs.

The solution:

It was clear at that point that a central issue here was to regain control of the ERP system by calibrating its planning parameters, especially its lot sizes, to reflect current shop constraints and management objectives. Cybernostic was in the process of launching a decision support tool called Lance-Lot whose purpose in life was exactly that: to calculate the precise lot sizes that must be used in the production of each item in the product mix such that the combined impacts of these lot sizes conform to shop capacity constraints as well as management inventory turns and lead time objectives.

Designed as an add-on to ERP systems, Lance-Lot has a database structure that maps out to the ERP database design. The Delagar MIS department developed an extract query that provided ERP system information about product profiles, routings, and requirements as well as work center capacity profiles. This was loaded directly into Lance-Lot.

Lance-Lot was used to create various "what-if" scenarios that each explored an alternative lot-sizing and stocking strategy. The first one we ran used available capacity as a constraint, allowing as many set-ups as possible given requirement loading and set-up times. The results shocked everyone! We found that it was possible to cycle through the entire fragrance product line in less than 2 days with, of course, lot sizes averaging 2 days of supply.

The Results:

Going from lot sizes of over 1 month of supply to 2 days was strategic. Customers were demanding a 48-hour turnaround on orders. A 2 day product mix cycle time meant it was possible to evolve from a make-to-stock into a make-to-order facility! However, it would have made no sense to open, and close the hundreds of work orders a 2 day cycle would require. Work orders were thus replaced by a production schedule that listed all the items that needed to be produced based on booked orders, in a sequence that reflected an optimized progression through the product mix so as to minimize set-ups and cleanups. Over the course of 6 months, lot sizes were progressively reduced from over 1 month to 2 weeks, to 1 week and on to 2 - 3 days.

The materials logistics within the plant were simplified and data accuracy shot up as transactions per posted as they happened. Inventory turns improved dramatically. At the onset, they had $8 million in inventories. Over the first year, they reduced that to $4.6 million, and the goal in 2000 is $2.5 million. They are currently on track to reach this goal. This translates from a below 2 turns per year in the beginning, to 5 turns in 1999 in the fragrance part of the business. By year end 2000, it will be possible to move this turn ratio up into the 10-12 turns per year, by continuing to work with their supply base on kanban opportunities. The customer fill rate is in the high 80's (percent) up from the low 50's two years ago. According to Gerry Hopkins, the Manager of Planning at Delagar, "Lance-Lot enabled Delagar to fully exploit improvements in production set-ups, enabling smaller, efficient production lots, which in turn lead to increased flexibility, reduced inventory levels, and ultimately an improved customer fill-rate". In our case it went beyond this, and acted as a catalyst for change, first in operations then throughout the organization, and has generated benefits way beyond the scope of Lancelot, and this will continue into the future. Lance-Lot has helped keep Delagar competitive in this area of business."

The gains in efficiencies in planning , picking components, production through to shipping have been dramatic. Delagar's next challenge is to incorporate these philosophies from the Fragrance business to their Toiletry business. The majority of this business is seasonal . They are presently looking at using Lance-Lot to incorporate the year round portion of this business into this approach, and eventually, all of it.

According to Mr. Hopkins, "The introduction of Lancelot, and the related process changes has challenged Delagar to review it's processes, and procedures. This effort has shown Delagar what can be achieved, and is now permeating throughout the organization in process improvements in all areas. The elimination of work orders from the Fragrance part of the business has opened doors that previously were not even visible. When this was first discussed it was thought to be impossible. Now that it is implemented - nobody wants to return to their old ways, and in areas where there still are work orders - there are efforts to move to the new system. There has been significant reductions in labor throughout, due to the implementation of these practices."

"Though Delagar has made great progress that was made possible by using Lance-Lot to generate manufacturing strategy scenarios that simulate the impact of changes to the environment and define the best way to convert these into competitive capability. The process is never ending road to continuous improvement - The ultimate goal is to "make to order" across the board."

"As Delagar continues down this road, with increased flexibility, and enthusiasm - there is still more that can be done with vendors, and supply of materials, along with continuing to refine the daily processes, and procedures to their optimum."

With Lance-Lot it was possible to progressively implement an optimized manufacturing strategy through the ERP system, that could meet the objectives of a phased implementation, while ensuring lower, yet balanced stocks and an improved customer service. Lance-Lot, coupled with the hard work of many and a visionary management, made it possible to improve plant flexibility by two orders of magnitude.