Halden Zimmermann, Continuous Improvement Guide Pt. 2

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Alcan Packaging

Alcan Packaging is one of Alcan’s four business groups (as of 2006). It represents:

• Approximately 144 facilities in 33 countries worldwide

• US$ 6 billion in annual sales

• More than 31,100 employees

• 29% of Alcan, Inc. revenue

Alcan Packaging is dedicated to providing customers with solutions that will enhance their products and brands by capitalizing on our expertise and leadership positions in packaging. We are acknowledged as a global packaging leader in Food Flexible, Pharmaceutical and Beauty and hold a pre- eminent position in the worldwide supply of Tobacco cartons. Alcan Packaging’s improved ability to serve multinational customers and its multi-market capabilities constitute a strong platform for growth. We operate in a dynamic and intensely competitive global industry. Customers place increasingly steep demands on their packaging partners. They expect quick turnarounds, superior service and flawless product quality. To achieve our corporate goals and remain a leader in our industry, Alcan Packaging must:

• Adapt the organization to market needs

• Accelerate innovation of new products and technologies as well as business service models

• Leverage experience, offer a large portfolio of technologies and spread geographically to improve our customer offering

• Use a disciplined investment policy to target key profitable growth segments

• Operate at peak efficiency and ensure that we share Best

Practices across our entire system

Alcan uses a standard methodology called the Alcan Integrated Management System (AIMS) to build on our operational excellence, new product pipeline and market focus.

This management system allows us to focus our energies on market segments and geographies that offer the highest potential, fit our capabilities and provide an avenue for strong, continued and profitable growth. In short, Alcan Packaging is committed to becoming a world-class organization using AIMS as a standard to manage improvement.

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Halden Zimmermann | Continuous Improvement with ProjX Guide

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ProjX: Using it to Find Best Practices

ProjX allows us to share information about other similar projects currently being worked on by Black Belts and Green Belts. The ProjX online software can specialize searches to find other similar Black Belt projects. We encourage sharing with this tool because on average two or three similar projects are being worked on at the same time. Click on the Search function on the control bar after logging in to ProjX to access the filter screen and search for a listing of projects associated with a search. It also is possible to save the criteria of the search to use it another time. Search criteria can range from tools used in other projects to specific key words that can be found in the project (as described in the Best Practice Network Team section). We recommend looking for similar projects on the software even before starting. Using what other people have learned can provide great value. We can learn from their formats and methods to make projects easier to implement.

ProjX: Inputting a New LLS Project

To input a project, use the new project box on the My ProjX page and click the Create New Project button. When the Create New Project wizard page appears, complete it and the system will create the entire project roadmap based on the selected methodology. Project ownership will be assigned by default unless otherwise assigned. The ProjX system is organized by Phases, and a Black Belt or Green Belt is responsible for populating the phases with information pertaining to the project. Each phase will have specific questions and inputs designed to walk team members through the project in a controlled manner. E-mail offers prompts when a Deliverable is due by a specific team member. A user can either click on the hypertext in the e-mail or log on manually and complete the input. The project leader can assign the project tasks to any team member, but at the end of each phase, appropriate approvals are required. Deliverables are the specific tools, Action Items or Milestones identified by the company to complete a particular phase of a project. The work breakdown structure is logically arranged in a top-down fashion in the suggested order of completion.

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Halden Zimmermann | Continuous Improvement

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ProjX: Sign Off Process for LSS Projects

This chart shows who has responsibility for the phase-by-phase Gate Review sign off, and it indicates when a joint Gate Review sign off is required. For example, in the Control Phase, both the Sponsor and CI Champion are responsible for Gate Review sign off. The chart also outlines Financial Phases for the project from forecasting savings to narrowing savings estimates down and tracking project savings. The Controller signs off these Financial Phases in ProjX. The ProjX system also sends the Controller an e-mail reminder about sign off. Please note: the Define Phase Financial Estimate is just that, an estimate. The calculation should be accurate and assumptions conservative, but the Controller should not stop progress on the sign off if 100% of all the assumptions are not known at this time. Scrutiny on the financials occurs in the Validate Phase.

Lean Six Sigma Sign-off Methodology

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Financial Valuation Tool Example

If a project is displayed in ProjX, update or review it in the Personal ProjX home page. Then complete a variety of functions to work on the project. Each of the options can be clicked on, and specific deliverables can be populated depending on the project requirements. One item that is very important in this process is the financial upload of project savings information. A standard project valuation tool must be uploaded into the project for it to be approved by the CI Champion of the sector. This financial software can be downloaded from the Alcan CI website (see page 76).

Using the financial guidelines, it is appropriate to estimate the potential savings of the project. Then go to the Financial section of the ProjX software and populate it by uploading the Financial Valuation tool file. This is the standard tool that everyone in Alcan uses for determining the Economic Value Added (EVA) savings of a project.

Validation Phase

• Project Status changes to the Validate Phase when the Control Phase is completed.

• The Validate Phase allows the financial savings for the project to be tracked in ProjX for up to 12 months after the project improvements have been made to help ensure the forecasted savings are being realized.

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Halden Zimmermann – Barilla SpA Case Analysis Part 4(Final)

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Recommendations

Based on the preceding discussion, Team 09 recommends the JITD system to Barilla SpA. We further propose the following steps be taken to solve Giorgio Maggiali’s

- Implement a collaborative planning system between Barilla and its distributors to ensure that ordering information is relayed to Barilla in a regular manner.

Furthermore, it is imperative that Barilla review the inventory savings to the distributors and their customers through the implementation of this system (i.e., vendor managed inventory system).

- Switch data gathering frequency, from weekly to daily, to allow a steady stream of delivery and production. This system eliminates the bullwhip effect from the downstream to upstream channels.

- Reduce the number of stock keeping units (SKUs) to a minimum number as it is known that retailers only carry the product in one and, at most two, packaging option(s).

- Utilize sales people to gather demand requirements from supermarkets and communicate the information to Barilla and to communicate promotions to logistics/factory.

- Implement a paperless ordering system (e.g. Electronic Data Interchange – EDI or Point-of-Sale [POS] terminals) to facilitate the transmission of orders from end-

users to Barilla. Through the POS terminals, reorder quantities are automatically transmitted to the manufacturer (similar to an electronic Kanban system).

- In the long run, eliminate the distribution channels and use the 18 Barilla-run depots to supply the chain supermarkets, independent supermarkets and small (Signora Maria) shops to smooth the production operation and optimize overall inventory by “bringing” Barilla operations closer to the end user (Chart II).Initially, while we anticipate resistance to these recommendations, we are confident that Barilla will be able to demonstrate that the JITD system will be a win-win solution for all. Considering that Barilla is selling directly to Signora Maria shops, Barilla is controlling inventory for mom and pop establishments and can easily implement the JITD system here. Through the successes with these small stores, Barilla will be able to show its end users how the collaborative planning and technology will work to everyone’s advantage.

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Halden Zimmermann – Barilla SpA Case Analysis part 3

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Logistics

Traditionally, logistics would work with manufacturing on the quantity of product to make to meet the orders from the distributors. This system is totally reactive and not giving enough control to Barilla. JITD systems would allow the logistics department to plan with production increases in demand due to holidays or seasonality and replenish only what is used up at the distributors. This system reduces the emotional effect of being out of stock or having low inventory because it is backed up by data. Logistics could work with the distributors and end users to allow them to have some safety stock and still implement a smoothed delivery system without having radical swings with orders (Graph III). Depending on customer demand, the same quantity could be delivered every week and still fulfill the 2-week safety inventory requirement by the distributors.

Proposed 2 Week Inventory

Barilla needs to implement an inventory control system being managed by Barilla instead of orders coming in from downstream channels. It is these downstream channels that are the causes of the amplified fluctuations. Furthermore, by having Barilla manage inventory, movement of goods (i.e., trucking and delivery) can be more effectively controlled and trucks filled with higher density. This method subsequently reduces the number of trucks required to deliver the same quantity of product. In addition, “milk runs” can be developed as a smoother schedule will allow for better planning on departure and arrival of trucks from depots.

Another major change required is a reduction in the number of stock keeping units (SKUs) to a minimum. Although Barilla offered many pasta products in multiple package types, most retailers would only carry the product in one and, at most, two packaging option(s). Instead of having multiple packages, pack pasta in the most popular package size.

On the marketing aspect, Barilla will be able to benefit from the fact that through the JITD system, the company can provide its customers with the inventory required using a “collaborative planning” of inventory.

Technologically, Barilla should implement a paperless ordering system (e.g., Electronic Data Interchange – EDI or Point-of-Sale [POS] terminals) to facilitate the transmission of orders from end-users. Through the POS terminals, reorder quantities are automatically transmitted to the manufacturer (an electronic Kanban system) thereby eliminating the need for distributors to gather inventory information to relay to Barilla.

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Halden Zimmermann – Barilla SpA Case Analysis part 2

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Barilla’s goal is to smooth demand and only ship and manufacture what the “end customer” will need. The desired outcome would be to reduce the fluctuations caused by overcompensation or padded ordering from downstream channels. By having a better ordering system, the manufacturer would know the approximate demand of the particular store or supermarket, and manufacture what is needed. This allows the manufacturing and logistics department to plan ahead to meet anticipated demand.

The major change in the ordering system would result in decision rights shifting the inventory management from the distributor to the logistics division of the manufacturer.

Logistics would review the anticipated or understood demand from the end customer, working with manufacturing, to deliver the product in time to the distributor to meet consumer demand. The distributor would only communicate what had been shipped to the customer that day and the producer would ship to replenish according to end customer demand.

Sales

The traditional role of sales was to get distributors to buy in bulk and give quantity discounts at different levels of volume. Sales could affect the distributors request for more product because of the volume discount. With the smoothed out deliver system, it must be explained that one doesn’t make profit on products one doesn’t sell and buying in bulk cost more money in the form of floor space and inventory. Furthermore, by offering incentives to buy in bulk, an inflated demand is created by the downstream channels to the manufacturer. This action results in an undesirable bullwhip effect.

Under the Barilla system, its sales force spends an estimated 90% of their time working at the store level. Through the JITD system, sales people would be able to sell additional services to the supermarkets to improve retail presence (e.g., shelf positioning, promotional signage, taste testing, etc.) and generate new business.

Potentially, Barilla’s savings due to the smoothed and planned delivery system could be passed on to the distributor (via reduced inventory levels by at least 2 weeks due to possibly daily replenishments from the factory) as well. In addition, stock outs would be reduced because there would be a connection between actual demand and production channels. Graph II shows the “shoot-by-the-hip” re-order system with a date-driven system. Graph II is a perfect example of a “Bullwhip” system. As seen below, sales relatively flat, but the inventory levels at the supplier are fluctuating dramatically.

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Halden Zimmermann – Barilla SpA Case Analysis Part 1

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Barilla SpA Case Analysis

Just In Time Distribution Systems

Background

Barilla SpA is one of the world’s largest pasta and bread products manufacturers. They ship to small “mom and pop” stores, large independent super markets and large chain supermarkets. These customers all purchase their products through a broker or an intermediary warehouse and then the distributors (also known as “Grande Distribuzione” and “Distribuzione Organizzata”) deal with Barilla’s sales and distribution centers for Barilla’s product line is composed of “fresh” and “dry” products. Fresh pasta products have a 21-day shelf life while fresh bread has a one-day shelf life. Dry products, represent 75% of Barilla’s sales and have shelf lives ranging from 10 weeks to 24 months. It should be noted that, in total, Barilla’s dry products are offered in 800 different packaged stock keeping units (SKUs). Although Barilla offered many pasta products in multiple package types, most retailers would only carry the product in one (at two) packaging options. Currently, Barilla’s distributors check their orders and place their orders once a week. Average lead time in the current scenario is ten calendar days. While the demand for pasta is relatively flat, the variability resulting from distributors’ sales volume and demand triggered the need to find a way to “take costs out of the distribution channel without compromising customer service.”

Proposal

Organizational Changes

Barilla’s dilemma revolves around how product is ordered by its distributors based on a weekly ordering system. Instead of using forecasted or actual demand data, distributors used a simple periodic-review inventory system and place orders for products whose levels fall below a targeted reorder level. This system causes an “emotional” knee jerk reaction issue when an end customer is out of product. Many times the end grocer will order more product than is necessary, as may the distributor, causing the plant to go into production for a specific product that is hugely inflated. After the customer receives the order they realize they do not need the large amount of inventory and discontinue future orders. This sinusoidal ordering effect is called the “bullwhip effect” (Graph I). As can be observed, the inventory/order levels are amplified from the downstream to the upstream channels (i.e., retailers to distributors to manufacturer) within the supply chain. This “artificial inflation” results in increased costs to the manufacturing plant, distributors and end customers because of the lack of planning, excessive overtime and inventory costs in the form of floor space and potential spoiling.

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