how did a brazilian company improved its results ... · •it is the things i do without thinking....

TOCICO 2010 Conference

1© 2010 TOCICO. All rights reserved.


Speaker: Miguel Abuhab

How did a Brazilian company

improved its results, strategies

and processes by managing the

pull x push dilemma


2© 2010 TOCICO. All rights reserved.


Solving the conflict

between retailers and

suppliers implementing

VMROI


3

© 2010 TOCICO. All rights reserved.

How Everything Has Started

Meeting: Big Frango President - Evaldo Ulinski

and Miguel Abuhab NeoGrid President

Data Collection

Executive Workshop

Project Pilot

Project Roll out


4


About Big Frango

Total Sales ~700 M of Reais (U$ 350 Mi);

452 SKUs, where 43

represents 80% of total

sales and 20 SKUs

represents 60%

3 Plants and

6 Distribution Centers


5


Retail50%Exportation

30%

Wholesalers20%

About Big Frango - Segmentation

400.000 chickens daily processed, commercialized in the following way:


6


Business Scenario – Categories

The most profitable productsare the fresh seasoned

Shelf Life: 15 Days

Shelf Life: 1 year

Fresh: 35%

Margin: Medium

Frozen: 65%

Margin: Low(commodity)


7


High throughput product sales bellow

potential

Price negotiation for each retail order

There are too many urgent orders

There are shortages and excess inventories in the Big Frango’s warehouses

Big Frango Undesirable Effects

Sales are lost due to close to expire date

on the shelf

Retailers are complaining due to low inventory turns

Sales are lost due to products unavailability

on the stores


8


The Reason for Technology

WHAT IS

ORTHODOXY?• The word is defined in the Cambridge English

Dictionary as “the generally accepted beliefs

of society at a particular time”.

• It is the things I do without thinking.

• The reason I do these things is because I

have always done these things.

• In a business context orthodoxy can be

defined as “the generally accepted

working practices of a business at a

particular time”.


9



THE ORTHODOXIES HAVE THEIR ORIGINS IN

TECHNOLOGY CONSTRAINTS

ONCE THE TECHNOLOGY

CONSTRAINTS HAVE BEEN ELIMINATED, THE RULES REMAINS THE

SAME


10



HOTELS

CHECK-IN

12HCHECK-OUT

12H


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INCREASE THE RETURN ON INVESTMENT

INCREASE SALES PUSH

REDUCE INVENTORY PULL

CONFLICT

Supplier and Retailer Conflict

SUPPLIER

RETAILER


12


THE ORTHODOXY OF “PUSH” THE LOCAL OPTIMUM IN A

SUPPLY CHAIN


13


How to Make Your Vision Viable

Market Share

and/or ProfitabilityTHE ORTHODOXIES

BLOCK THE COMPANY

FROM ACHIEVING ITS

VISION

WE ENABLE YOUR

VISION.


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Inventory must be closer to the consumption point

Better prices on the month end

Orthodoxies that Block the Vision

For one to win the other one needs to lose

Local optimum

Buying high quantities retail gets better prices

Economic Order Quantity to “save” costs

Better Truck utilizationSupplier is not reliable


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&


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Enabling the Vision

ENABLING THE “PULL” THE GLOBAL OPTIMUM IN A

SUPPLY CHAIN


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Average=100 liters

1 x 1000 LITERS

80 120 200 0 100 100 150 50 180 20

Aggregation Effect

10 x 200 LITERS = 2000


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How Can I Help You?

How Can

I help you?

How Can

I help you?

How Can

I help you?

How Can

I help you?


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(Selling Price – Purchase Price) x Quantity

InvestmentROI =

– Operating Expenses

Inventory

Sold

Best Purchase Price is not the answer

(Selling Price – Purchase Price) x Quantity

How Can I Help You?


INCREASE SALES

PUSH

REDUCE INVENTORY

PULL

CONFLICT

SUPPLIER

RETAILER


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(Selling Price – Purchase Price) x Quantity Sold

InventoryROI =

“Improving retailers ROI”

∑

∑

How Can I Help You?


INCREASE SALES

PUSH

REDUCE INVENTORY

PULL

CONFLICT

SUPPLIER

RETAILER


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EXPLOITING SHELF SPACE

40%

PULL

100%

PUSH

80%100%

How Can I Help You?


23


EXPLOITING SHELF SPACE

Improving replenishment frequency

Implementing automatic replenishment

Replacing slow movers SKUs

by fast movers SKUs

Helping on product mix

Applying right measurements

Payment terms

How Can I Help You?


24


Enabling the Vision

Data Sharing

Product

Data Sharing

Product

Data Sharing

Product

I want to make money with you, not from you…

The main relationship between the links is the

SPEED OF INFORMATION


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The Big Frango Constraint

1º Step – Identify the System Constraint:

Production Capacity (400.000 chicken per day).

2º Step – Exploit the System Constraint:

a) Focus on most profitable products (TPS);

b) Move sales from Wholesalers to Retail;

Retail50%Exportation

30%

Wholesalers20%


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Replenishment According

to Actual Consumption

The supply chain oriented by actual consumption...

Big Frango

Store A

Store B...

Sellout information(daily)

Replenishment(frequently)

Regional DCs


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The initial reaction was YES, it would be

great for Big Frango, BUT our retailers will

not agree with sharing sales and inventory

information on a daily basis

Yes, but...


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Project Basis - S&TT Consumer Goods

3:7

1

3:1

2:1 2:2

3:2 3:3 3:4 3:5 3:6 3:8

1

Viable Vision

2:1

Inventory

Turns

2:2

TPS

Comp. edge

Base Growth Enhanced Growth

3:1

Produce

to

Availabilit

y

Build Sustain

3:5

Capacity

Elevation

3:3

Inventory

Turns

Selling

3:2

Proposal

Design

Capitalize

3:4

Sales

Funnel

Manage.

3:6

Ensure

High

TPS

Build

3:7

TPS

Selling

3:8

TPS

Enhancemen

t

Capitalize


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Dynamic Buffer Management

Respond to demand fluctuation

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Physical Inventory Green Buffer Red Buffer Yellow Buffer

Total Buffer in the pipeline

to cover expected consumption

during supply lead-time

Minimum level of

available inventory to

cover fluctuations in

demand & supply

__ on Hand Inventory __Green Buffer __Red Buffer __Yellow Buffer

Replenishment order

Reception of order


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0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15





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0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15





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-10

0

10

20

30

40

50

60

70

80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15





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Aligning Indicators

Frustrated

cash

generation

Lost sales

Excess

inventory

Days of

Stock out

Daily

Throughput

Days to sell

Excess

Inventory

Inventory

value by day

TVD

IVD


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Aligning Indicators – TVD and IVD

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9

IVD

TVD__ on Hand Inventory __Green Buffer __Red Buffer __Yellow Buffer


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Strategies

1. Daily retail inventory and sales information (SKU level)

2. Increase SKU replenishment frequency

3. Sixty days prices agreements

4. Inventory levels redefinition for each warehouse and store

5. Inventory Agregation

6. Dynamic buffer management implementation (Big Frango and Retailers)

7. TVD and IVD Implementation

8. Shelf space negotiation

9. Sales team measured by sell out and product mix rather than sell in and volume


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Negative Branches and Attention Points

• NBR

− Sales team worried about losing their jobs

− Sales team stopped visiting customers

− Customer got a perception of losing bargain power and interrupted the project

• Attention Points

− Sales Promoters are important in the process

− Suppliers and retailers key executives involvement in the project

− Sales promotions are legitimate in retail


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Next Steps

SKU % SalesRanking

Sales

Ranking

Throughput

Item 1 5,58% 1 388 of 452

Item 2 10,88% 2 313 of 452

Item 3 15,85% 3 129 of 452

Item 4 20,41% 4 62 of 452

Item 5 24,58% 5 376 of 452

Item 6 28,53% 6 161 of 452

Item 7 32,39% 7 252 of 452

Item 8 35,82% 8 322 of 452

Item 9 38,80% 9 99 of 452

Item 10 41,56% 10 406 of 452

Item 11 44,01% 11 433 of 452

Item 12 46,45% 12 139 of 452

Item 13 48,72% 13 351 of 452

Item 14 50,94% 14 159 of 452

Item 15 52,99% 15 296 of 452

Item 16 54,82% 16 355 of 452

Item 17 56,66% 17 179 of 452

Item 18 58,09% 18 387 of 452

Item 19 59,48% 19 194 of 452

Item 20 60,79% 20 101 of 452

Item 21 80,02% 43 312 of 452


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Store Mix Pilot

6,972

9,550

11,502

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Agosto Setembro Outubro

Sales Volume (tons) – One Store

Volume

Sales

Growth

65%


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Store Mix Pilot

R$ 33,870.13

R$ 49,543.45

R$ 61,819.42

6,972

9,550 11,502

R$ 0.00

R$ 10,000.00

R$ 20,000.00

R$ 30,000.00

R$ 40,000.00

R$ 50,000.00

R$ 60,000.00

R$ 70,000.00

Agosto Setembro Outubro

Results – One Store

R$

Volume

Sales

Growth

65%

Revenue

Growth

82%

Growth

Delta =

17%


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Average Price

Increased by

5%

Key Quantitative Benefits (so far...)

Average Price BEFORE project Average Price AFTER project

General Market Price

Droped by

6%

3,29

3,50

3,65


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Key Qualitative Benefits (so far...)

More fresh products on the shelf;

(Due to excess reduction and increase of replenishment frequency)

Higher customer loyalty (Retail and End Consumer);

(Due to a Win-Win partnership between Retail & Industry)

Less Stress between Retail and Industry;

(Due to better process sincronization (The end consumer is the

protagonist)

Increased number of SKUs per store;

(Due to better mix management)


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127,172,860

83,163,410

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

Jan - Feb Mar - Apr

TVD

Out Of

Stock

Risk

Reduction

by

65%


43



13,002,573

7,370,319

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Jan - Feb Mar - Apr

IVD

Excess

inventory

reduction

by

57%


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Quarter

before project

Quarter

after project

Sales

Reduction by

-0,92 %

Pilot stores

Control Group

Sales

Growth

by 47%


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SUPPLIER

RETAILER


INCREASE SALES PUSH

REDUCE INVENTORY PULL

CONFLICT

Summarizing…

VENDOR MANAGED ROI


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About Miguel Abuhab

Miguel Abuhab has been involved in the success of several companies,

founding Datasul in 1978, which had an IPO in 2006 and founding

NeoGrid in 1999, becoming the Brazilian leader in Supply and Demand

Chain Solutions in 2006. In 2008, Abuhab performed the largest merger of

the IT segment in Latin America. This merger formed the 7th largest

company in the ERP world, with 8,000 employees and 21,000 customers.

Also in 2008, NeoGrid took control of the international company,

Agentrics. Agentrics acquired VivaCadena, based out of The Netherlands,

thus creating a worldwide network of supply and demand chain

knowledge, based on the TOC best practices.

Abuhab´s accomplishments are not limited to the business world. In

2006, he created the TOC for Children Institute, designed to teach

underprivileged children the basic concepts of TOC. TOC for Children

Institute is member of the TOC for Education (TOCfE).

Abuhab is currently Chairman of the Board for both Neogrid and

Agentrics. These companies have a presence in over 34 countries on five

continents. Housing seven of the ten largest retailers in the world,

including Walmart, Carrefour, Nike, Marks & Spencer and Walgreens,

NeoGrid has kept a 42% annual growth rate in the past 4 years.


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QUESTIONS?

Miguel [email protected]

THANK YOU!

how did a brazilian company improved its results ... · •it is the things i do without thinking....

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