Moq Case to Improve Efficiency

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Improving Store and DC Productivity through Minimum Order Quantity Analysis Lean Six Sigma in Retail & Distribution

Mitch Millstein, CFPIM, C.P.M., CQM, CQE Supply Velocity, Inc. mitch@supplyvelocity.com (314) 406-4962 November 2009 info@supplyvelocity.com Copyright: Supply Velocity, Inc. 1

Background A Value Stream Assessment (See White Paper: Finding Productivity Improvements from Field to Table) at this Grocery Retailer & Distributor identified poor productivity in its distribution centers during order selection and in its retail stores during shelf restocking. A very high percentage of the items selected (picked) in the distribution centers and re-stocked in the stores were in quantities of 1 case. This company’s roots were as a high volume, limited assortment retailer and distributor. Over time the business had shifted allowing the stores to reorder a higher mix of items at lower volumes. Given the companies market position as a low-price leader, this reduced profit margins. The two root causes of this shift were identified as: 1. Stock-keeping-unit (SKU) count growth outpacing sales growth, and 2. Allowing minimum order quantities from the stores to the distribution centers to drop to a quantity of one This white paper will study how this company quantified the impact of allowing its stores to order in one case quantity and then recalculated minimum order quantities for higher volume items. (For details of how SKUs were reduced see White Paper “SKU Reduction – Biggest SKLUsers”) A Supply Velocity Consultant led a team of employees through this 5 week project. The Supply Velocity consultant facilitated, but the employees did most of the analysis and therefore owned the improvements.

info@supplyvelocity.com Copyright: Supply Velocity, Inc.

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Project Outline  Evaluated all SKUs and the case quantity they are most frequently ordered at, to establish baseline data for how stores are ordering  Time studied retail store shelf restocking and distribution center order selection labor to determine the negative labor productivity impact of the current ordering policy o Graphed the results in a trend chart o Determined that the greatest labor productivity improvement happens when the order quantity increases from just 1 to 2 cases  Recalculated minimum order quantity for all items using Multi-Variable Pareto analysis based on: o Item unit movement o Pack-out (number of units that fit on the shelf space allocated in stores) o Shelf life  About 20% of all SKUs had a re-calculated minimum order quantity greater than 1 case o The most conservative methods were used to ensure this project didn’t just push inventory out to stores, resulting in shrink (throwing away items that go beyond their shelf-life limit or are damaged)  Communicated all items on the minimum order quantity to all stores through a comprehensive communication plan o Communication plan included data to show stores how increasing minimum order quantity on select items would improve their labor productivity  Created a control plan to ensure new items, SKU reduction and sales history will be used to update the minimum order quantity on a twice yearly basis

info@supplyvelocity.com Copyright: Supply Velocity, Inc.

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Time Study Analysis To quantify the problem, we time studied order selection in the distribution centers and shelf restocking in retail stores. We conducted a few snapshot analyses of different distribution centers to understand the current state of “order quantities”. The graph below shows that out of the approximately 2800 items, a majority are ordered in quantities of 1 case. The time study data also showed that the second case selected or stocked is essentially “free” and the same movement is used for two cases as for one case. At the outset of this project the team was worried that any increase in minimum order quantity would be viewed by store managers as an attempt to push inventory out from the distribution centers to...
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