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42 TOCPA International Conference

13-16 May 2019, Johannesburg, South Africa

Reaching Procurement Maturity the

TOC Way
Dawid B Janse van Rensburg
CargoSolutions
South Africa
 Presenter’s

Presenter logo

Dawid is the Supply Chain Director for Cargo

Carriers, and also heads up CargoSolutions.
This business assist companies with supply
chain optimization, and is also the
Implementation Partner of Inherent Simplicity’s Photo
Symphony Supply Chain Management
software. The Symphony software, which is
now rebranded to OneBeat, has been
implemented in approximately 40 South African
companies. CargoSolutions has received three
golden Awards for Supply Chain Productivity
Improvements from the annual Logistics
Achiever Awards function.
Dawid@cargosolutions.co.za

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 Presenter’s

Discussion Points logo

Crucial role of procurement in the supply chain

TOC on procurement
Procurement CRT
Research on procurement maturity
A TOC approach

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 The Role of Procurement Presenter’s
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in Supply Chain Success

Logistics: Getting the Right Product to the Right

Place at the Right Time…

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Recent Surveys logo

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 Constraints in the Presenter’s
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Supply Chain

Constraint:
In the market
In manufacturing
Cash flow
Suppliers of raw materials

And…
Constraint in the procurement function!
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 Presenter’s
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 Procurement’s Role in Presenter’s
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Company Success

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 Common Procurement Presenter’s
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Practices in Supply Chains

MRP based approach with many work-arounds

Min/Max approach
Decoupling to decrease supply lead times

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 MRP Effects on the
Organisation
Planning attributes Typical MRP Attributes
MRP uses a forecast or master production schedule as an
input to calculate parent and component level part net
requirements. Part planning becomes based on a “push”
created by these projected demand requirements.
MRP pegs down the Entire Bill of Material to the lowest
component part level whenever available stock is less than
exploded demand.
MRP allows the release of work orders to the shop floor
without consideration of component parts availability.
Lead time for parent part is the manufacturing lead time
ONLY for the parent, regardless of the cumulative lead time
for parent and lower level component parts.
Ptak, C and Smith, C, Beyond MRP – Meeting the Current Materials Synchronization Challenge. White paper. 2008.
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Presenter’s
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Effects on the Organisation
Forecast accuracy at the individual SKU and part levels is
highly inaccurate. Build plans and purchase orders (PO’s) that
are calculated from this forecast often are misaligned with
actual market demand. This leads to excessive expediting,
overtime, premium freight, increased inventory of the wrong
items and missed shipments.
Creates a complicated materials and scheduling profile that
can totally change with one small change at a parent item.
When capacity is scheduled finitely across all resources there
is massive schedule instability due to cascading slides from
material shortages.
Work orders are released to the floor but cannot be started
due to shortages. This leads to increased WIP, constantly
changing priorities and schedules, delays, lots of expediting,
and possibly overtime.
Manufacturing Orders are often released with dates that are
impossible to achieve and/or without all component parts
available.
 MRP Effects on the Presenter’s
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Organisation
Stock Management Typical MRP Attributes Effects on the Organisation
Attributes
Fixed reorder quantity, order points, and Additional exposure to forecast inaccuracies resulting
safety stock that do not adjust to actual in increased expediting.
market demand or seasonality.

Only parts that hitting minimum or reorder Aggregate inventory visibility is limited, frequently
point are flagged for reorder. putting the company in a constant expedite mode.

No early warning indicators of potential Aggregate inventory visibility is limited, frequently

stock-outs or demand spikes. putting the company in a constant expedite mode.

Past due date requirements and orders to Every stock order looks the same, which means there
replenish safety stock are treated as “Due is no REAL priority. To determine real priorities
Now” requires massive attention, analysis and priority
changes.

Ptak, C and Smith, C, Beyond MRP – Meeting the Current Materials Synchronization Challenge. White paper. 2008.

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 Presenter’s

The Bullwhip Effect logo

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 Presenter’s
Bi-modal Distribution logo

Source: Carol Ptak, DDMRP

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Aligning Ordering/Replenishment logo

with Consumption

1000 Efficiency GAP (Surpluses)

Stock based -
infrequent & large
supplier orders
250 Actual
Demand
Stock based on
sales demand
Month 1 Month 2 Month 3
Effectiveness GAP (Shortages)

The KEY to achieve “profitable availability of more SKU’s” is to replenish more frequently
based simply on actual consumption…

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 Medium Moving Presenter’s
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Current SKU Chart

Current Average SOH: 50

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 Presenter’s
Current Fast Moving logo

SKU Chart – 9 Months Store Level

Current Average SOH: 1000

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 Presenter’s

Hardware: Current SKU logo

Current Average SOH: 80

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 Presenter’s

Hardware - Current SKU logo

Current Average SOH: 70

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 Mineral Company Presenter’s
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Composite Graph Site 2

Average SOH drop of 60%

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 Research on Presenter’s
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Procurement Maturity

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 Presenter’s
The Supplier Relationship logo

Elementary, making turns to “win” (win/lose

relationship). Supplier terms are often rigid, with very
little signs of a partnership.

Little more advanced, reducing MOQ’s, LT’s, etc.

Consignment stock

Elements of a partnership – some data is exchanged

Tight partnership relationship – all relevant data is shared

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 Presenter’s
Supply Chain Strategy logo

Substantial reliance on Forecasting, and MRP to

determine RM requirements

Elements of decoupling in the supply chain, undecided

about the optimum PTO/PTS ratio

Definite decoupling at various stages in the supply chain,

inventory being moved upstream

Suppliers keep most inventories, but not at an absolute

premium

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Order Frequency logo

Mostly monthly

Monthly, or bi-weekly

Weekly

Daily (Order daily, replenish frequently)

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Stock and Time Buffers logo

Typical ERP min/max levels, MANY spreadsheets. Often

a “broken” MRP system/process is followed.

Basic dynamic buffers

Advanced DBM

Optimum SKU mix approach, i.e inventory turns by SKU,

ROI analysis

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 Warning Presenter’s
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“Too much Green”

b e g
D
a c d f

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 Presenter’s

Maturity Matrix logo

Stage Supplier Relationship Supply Chain Order Stock & Time Symptoms
Strategy Frequency Buffers
1 Elementary, making Substantial reliance Mostly Typical ERP Often out of stock on critical
Elemen turns to “win” (win/lose on Forecasting, and monthly min/max levels, items
tary relationship). Supplier MRP to determine MANY Substantial overstocking on
terms are often rigid, RM req’ments spreadsheets. many other items. In a
with very little signs of a Often a “broken” production environment “full-
partnership. MRP kitting” is a major challenge
system/process is High cost per Purchase Order
followed. (PO) placed on supplier
2 Little more advanced, Elements of Monthly, or Basic dynamic Availability increases (2-3%),
Progres reducing MOQ’s, LT’s, decoupling in the bi-weekly buffers overstocking reduces
sing etc. Consignment stock supply chain, (inventories reduce by 10-20%),
undecided about lead times reduce by at least 5-
the optimum 10%,
PTO/PTS ratio Cost per PO reduces

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 Presenter’s

Maturity Matrix logo

Stage Supplier Relationship Supply Chain Order Stock & Time Symptoms
Strategy Frequency Buffers
3 Elements of a Definite decoupling Weekly Advanced DBM Availability increases (5%),
Advanc partnership – some data at various stages in overstocking reduces
ed is exchanged the supply chain, (inventories reduce by 20% or
inventory being more), lead times reduce by up
moved upstream to 25%
Cost per PO further reduces

4 Best Tight partnership Suppliers keep Daily Optimum SKU Availability increases (by more
in Class relationship – all relevant most inventories mix approach, i.e than 20%), overstocking
data is shared inventory turns reduces (inventories reduce by
by SKU, ROI up to 50% or more), lead times
analysis reduce by at least 50% or more
Highly efficient cost per PO
ratio

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 Medium Moving Presenter’s
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Current SKU Chart

Current Average SOH: 50

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 Medium Moving Presenter’s
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Simulated SKU Chart

Simulated average SOH: 9

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 Current Fast Moving SKU Presenter’s
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Chart – 9 Months Store Level

Current Average SOH: 1000

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 Simulated SKU Chart – Presenter’s
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9 Months Store Level

Simulated Average SOH: 200

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 Hardware: Presenter’s
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Current SKU

Current Average SOH: 80

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 Hardware Presenter’s
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Simulate SKU Chart 1

Simulate Average SOH: 10

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 Hardware Presenter’s
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Current SKU Chart 2

Current Average SOH: 70

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 Hardware Presenter’s
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Simulated SKU Chart 2

Simulated average SOH: 10

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 Mineral Company Presenter’s
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Composite Graph Site 2

Average SOH drop of 60%

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 Presenter’s
PTS Colour Stats logo

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 Consolidated PTS Raw Presenter’s
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Warehouses

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 Consolidated Stocked Presenter’s
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Out SKUs

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 Reduction Presenter’s

in Overstocking logo

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 Presenter’s
Conclusion logo

Never assume that procurement is ready for

a S&T Tree implementation!

Hard work on the supplier relationship, the

supply chain (procurement) strategy,
purchase order frequency, PTS buffer
management, etc. is required.

The results can be hugely beneficial for the

company!

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