Themenfeld

Sharpen your Pencils...

Re-engineering the supply chain at Montblanc

Burkard J. Kiesel, Director of the Technology Department at Montblanc-Simplo GmbH, Hamburg

Dr. Götz-Andreas Kemmner,Managing Director of the Business Consulting Abels & Kemmner Gesellschaft für Un-ternehmensberatung mbH, Herzogenrath/Aachen

Abels & KemmnerGesellschaft für Unternehmensberatung mbH

Kaiserstr. 100 -- D - 52 134 Herzogenrath / AachenEurope: Tel.: +49 / (0) 24 07 / 95 65 - 0 -- Fax: +49 / (0) 24 07 / 95 65 – 40

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Abels & Kemmner Gesellschaft für Unternehmensberatung mbH Re-engineering of Supply Chain at Montblanc

Sharpen your Pencils...

Re-engineering the supply chain at Montblanc

Burkard J. Kiesel, Director of the Technology Department at Montblanc-Simplo GmbH, HamburgPeter Kluge, Head of the Manufacturing Technology Department at Montblanc-Simplo GmbH and project manager of the kan-ban projectDr. Götz-Andreas Kemmner, Managing Director of the Business Consulting Abels & Kemmner Gesellschaft für Unternehmens-beratung mbH, Herzogenrath/AachenAndreas Gillessen, Principal Abels & Kemmner GmbH

Ensuring that supply is always on time while reducing the inventory means a challenge to all

stakeholders of a supply chain. A rough calculation is not enough; only the sharpest pencil will

give us exact results. Montblanc, world-wide well-known for its writing devices, is also a model

in this field. The Roman saying "nomen est omen" is more than true for Montblanc.

Only a few years ago, Montblanc´s range of products included less than 1000 different models. The

sales forecasting for Montblanc´s luxury goods, including the regional splitting factor was realized

monthly by the individual distribution units. The data were then centrally collected and processed ac-

cording to procurement and production requirements and the supply of the regional inventories.

Today, with more than 1,000 product groups and 3,000 items, this forecasting methodology appears

too complicated and involves too much workforce. In addition, the accuracy of this method began to

deteriorate. Management therefore started re-engineering the whole forecasting procedure in Spring

2001, from budget planning through forecasting to rolling – monthly – demand planning and supply of

regional inventories.

The result is a clear distinction between strategic and operative planning. Today, the planning input of

the distributors concentrates on the strategic planning on a highly aggregated product level with ap-

prox. 120 positions to determine the "track" for production and procurement. The operative planning,

however, is dedicated exclusively to the item level and subdivided into two feedback control systems

operating independently from one another but following the same methodology.

For the supply of the regional inventories, a replenishment system has been implemented, which is

controlled by regional logistic managers with clear responsibility for their inventories.

At the same time, the role of planning and inventory at the Hamburg location was strengthened con-

siderably: the central inventory at Hamburg is now responsible for securing the supply. In order to be

able to fulfil this new task, a two-step planning approach has been developed in cooperation with

Abels & Kemmner consultants:

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1. The Logistic Category Managers, assigned according to product areas, are responsible for sales

forecasting of items from the central inventory. Their main task consists in forecasting as exactly

as possible future demands per item considering all information available. In this forecast capacity

limits are not considered in a first stage. The Logistic Category Managers are responsible for as

exact a sales forecasting as possible and are measured according to the quality of their forecast.

2. The data determined by the demand forecasting process are then used to balance the production

capacity and to coordinate the procurement of components with suppliers. Peaks in demand ex-

pected in future can now be identified and managed in time.

By way of implementing this planning approach, the items are analysed according to their predictability

by means of DISKOVER 4.1, an MRP-optimizing software developed by Abels & Kemmner. Then, the

system determines the optimal planning methods and parameters for the items identified as predict-

able. AB-XY items (approx. 30% of all items), which can easily be forecasted, make up for 66% of the

turnover and more than 75% of the annual production capacity. For these items, DISKOVER forecasts

future demands and forwards the data to the sales-and-operation-planning function (SOP) of the SAP

system. In order to coordinate the data with the production programme planning, the SOP planning

table was adjusted so that it can be used as a central planning tool: on the basis of the forecasted de-

mand, production and procurement quantities are planned monthly – rolling - according to the demand

and following the supply chain with regard to the capacity load of workforce and machinery. In the

case of capacity overload at some stage, necessary measures - such as advancing part of the quantity

required - can be identified in the SOP table and pre-planned at an early stage.

Structural approach to optimize sales forecast according to items

In order to determine the appropriate planning method per item within the sales forecast, the structural

approach to the classification of items, developed by Abels & Kemmner, was implemented:

The individual demands for each item by all distributors will be cumulated and examined according to

their importance for turnover (ABC analysis) and current demand behaviour (XYZ analysis). This ex-

amination is realized by means of the MRP-optimizing software DISKOVER 4.1 developed by Abels &

Kemmner. The demand behaviour examination is also based on an analysis of the trend and season-

ality per item and the examination of the regularity of demand. Each item is therefore differentiated into

an ABC category and an XYZ category. The results of such an analysis can be shown in an aggreg-

ated ABC-XYZ portfolio.

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Regularityof demand

Sales value

salesvolume

low

high

high low

items items

salesvolume

items

salesvolume

items

salesvolume

Figure 1: The aggregated item portfolio shows that as much as 66% of the turnover with more than 75%

of the annual production capacity can be determined.

Figure 1 shows an example of such an item portfolio for one main product category. X and Y items

show a regular demand behaviour with small to medium fluctuations. These items can easily be fore-

casted. Z and Z2 items, in contrast, are characterized by occasional demand and are subject to con-

siderable fluctuations without previous notice. Future demands of this category are difficult to forecast.

This is why other planning methods seem appropriate, e.g. order point or minimum inventory methods.

The determination of the optimal planning methods and parameters as well as the identification of res-

ulting inventory levels according to desired service levels per item category are also realized by

DISKOVER 4.1. The expected average inventory per item according to different service levels is simu-

lated and an optimal combination of methods and process parameters is selected so that the required

service level is achieved at a minimum average inventory. Integrated in this simulation is the determin-

ation of the safety stock. The overall forecasting accuracy depends on the right combination methods

for demand forecasting methods and for safety stock calculation. Then, the values for X and Y items

are forecasted for the sales planning and submitted to the SOP (Sales and Operation Plan) module of

the SAP system. Reorder point and safety stock are determined for Z and Z2 items and submitted to

SAP for order point planning.

The task of the Logistic Category Manager consists in verifying the submitted planning values within

the SOP planning table. To this end, the planning table has been adjusted (see figure 2). In principle,

the Logistic Category Manager disposes of both last month’s forecast and the current forecast. He de-

cides which forecast to use for the further planning of the item. In addition, he can consider - on the

basis of the trend report or in the case of non-forecasted special orders - additional demands by

means of a percentile overhead or exact additional amounts per month. All required volumes are then

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cumulated to the (total) sales. The line "(total) sales" shows the decisive number of items calculated

per month for production and procurement.

Figure 2: Adjusted SOP schedule for processing X and Y items

The SOP table is also to be used for production control and procurement planning: on the basis of the

expected sales and considering the capacity resources of workforce and machinery required along the

supply chain, production and procurement volumes can be planned in time or part of the volumes re-

quired can be ordered in advance. This is especially important for Montblanc, as seasonal demands

play a decisive role; coordination and adjustment is therefore inevitable especially for the quarters with

a high turnover. The key figure of this coordination procedure is the targeted inventory. The targeted

inventory as well as the planning values of the forecast are determined by DISKOVER and submitted

to SOP. This targeted inventory includes a safety stock also determined by DISKOVER. It is supposed

to guard against coincidental and unforeseeable deviations from the planning data occurring in future

periods. The production control varies the production and procurement volumes in a way to avoid ca-

pacity bottlenecks on the one hand and on the other make the targeted inventory always available,

also in future planning months. In this context, SOP allows the current capacity situation to be identi-

fied resulting from the finished products to be manufactured each month. All capacity loads concerned

may be shown for every planning month and for the actual item or planning category. If there is a ca-

pacity overload in one planning month, the planner can split the volumes of finished items and bring

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them forward in order to put volumes in demand in whole or in part off to earlier months and avoid im-

pending capacity bottlenecks. At Montblanc, this coordination in the future will also include the main

suppliers (e.g. of leather products), which allows an adjustment of the capacity along the whole supply

chain at an early stage.

The presented planning methodology was first tested for two product categories. Since February 2003,

it has been applied for all product categories, securing a 98 % service level to the regional inventories.

Learning to play your cards right: Kanban halves production inventory

After concluding the re-engineering of the sales forecasting process, the project focused on securing

the replenishment of the central inventory in Hamburg and on reducing the lead time and the work-in-

process inventory. Due to the large vertical range of manufacture, the long time required for re-pro-

curement and the wide, and continuously growing, variety of products, efficient value chains were to

be realized by establishing decentralized kanban control cycles; These kanban control cycles were

designed to reduce the supply risk on all production levels to a minimum. The MRPII logic applied (see

figure 3), which requires a high amount of coordination, did not lead to a satisfying result. The proced-

ures applied before lacked flexibility, especially in the case of short-term fluctuations in demand of

some final products. In order to guarantee the required service levels on the market, oversized invent-

ories were required throughout the whole value chain up to the finished goods inventory.

Figure 3: Principal difference between MRPII planning and kanban logic

At Montblanc, the optimization of service levels while reducing inventory was mainly achieved by the

establishment of a just-in-time final assembly and a shift of the inventories from the final product with

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its numerous variants to the variant-building level of components.

The analysis of the throughput and setting-up time showed that a JIT manufacture was possible

without much additional cost. Installing a JIT manufacture, however, requires a secure supply of the fi-

nal assembly with components and external parts. For this reason, a central kanban inventory was put

before the final assembly, which is controlled via a number of kanban control cycles in previous pro-

duction phases. At present, the suppliers are being incorporated one by one into the system.

Thanks to precise planning within the kanban system and due to intensive and thorough preparations,

the kanban system could go live without major problems. Within only three days, all the preparatory

work for the switch to the new system had been completed. Given that kanban systems are self-con-

trolling and generally do not require an additional IT system for production control, the kanban system

at Montblanc was designed so as to run even without the SAP system in operation. To this end, a so-

called signal kanban has been implemented. This is a kanban system ruled by kanban cards ex-

changed between internal or external suppliers and internal consumers. However, in a signal kanban

system, the receipt of a single kanban card by suppliers does not trigger an additional production or-

der; this can only be started after a minimum amount of cards has arrived (yellow area) and must be

started after a maximum amount of cards has been received (red area). In contrast to simple or box

kanban, a signal kanban has the advantage of reflecting different production lot sizes between differ-

ent production departments in a simpler way.

In order to be able to introduce the kanban system, the SAP processes were reorganized in a first step

so that they would not obstruct the procedures of the kanban system by creating more administration

work. In a first step, when starting the production of one lot, the workers only opened a production or-

der and registered it after its completion. No other SAP processes were involved. All inventory and

stock transfer entries were already realized automatically in the background. In a second step, the

kanban system was linked more closely to the SAP system. To this end, SAP´s own kanban control

system was introduced. The opening and closing of the order is now realized automatically by scan-

ning the bar codes of the kanban cards. In order to safeguard simple, easy and clearly arranged pro-

cesses in practical operation, a number of details had to be considered in the design and preparation

of the implementation.

Implementation and introduction

The introduction of the kanban system required a change in the working habit and behaviour of the

workforce involved at Montblanc. This change was also necessary because the production control was

decentralized back to the individual production departments. Problems that occur in many companies

when introducing kanban systems are often due to the lack of a clear definition of the rules of the kan-

ban system and the unwillingness of the workforce to comply with these kanban rules. For example,

products are manufactured in advance; components are stockpiled while lot sizes and throughputs are

not attended to. If the workforces involved are not convinced of the kanban system, they will not com-

ply with its rules and the system will be obstructed. One main reason for the success in implementing

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kanban at Montblanc was, therefore, the integration of the workforce into the design of the system. All

organization procedures were worked out together with the staff of the production department in-

volved. In this way, the staff had confidence in the design and an understanding of and even identifica-

tion with the overall procedures, and the detail processes of every production department were

fostered.

In general practice, many companies experience disasters during the introduction phase, because the

kanban system has not been adjusted to the reality of the manufacturing processes. At Montblanc

therefore, before designing the kanban control cycles, all relevant materials, information and order ex-

ecution processes have been recorded and tailored to the requirements of the kanban processes to-

gether with the staff of the production departments. The processes have been analysed according to

the following aspects in the process:

- Is it possible to realize a flow production across the production departments without establish-

ing kanban stocks?

- In case kanban stocks are inevitable, can they be established on a lower value step or before

a variant-building production step?

- Can the time required for production and setting-up and the lot sizes be reduced?

- Is the stability of the process sufficient to guarantee certain production times and can the qual-

ity of the process be controlled?

- Is the capacity situation (workforce / machinery) sufficient or sufficiently flexible to guarantee

supply safety?

- Is the staff disciplined and qualified enough to manage the kanban system?

All major reorganization potentials identified at Montblanc during the development and design of the

kanban system have deliberately not been attended to until some date after implementing the kanban

control system. This was sensible because practical experience with the new system could be gained

only after implementing kanban; this experience influences the decision how, to what degree and in

which time other reorganization potentials identified could and should be made effective. In addition,

this approach avoided doing the job twice and guaranteed that acceptance problems due to other reor-

ganization measures that were adopted with the introduction of kanban, were not projected onto the

kanban system itself. Finally, the implementation of the kanban system should not be delayed due to

other reorganization projects.

One size does not fit all

At Montblanc, the range of items with their different characteristics means very different requirements

to the design of the kanban feedback control systems. There are production-processes working with

high lot sizes due to the process applied, and there are other areas characterized by minimum or no

preparation time at all. The different requirements implied could only be met with the design of equally

different kanban systems. The real design of every single kanban control cycle and the determination

of the number of kanban cards to be used were therefore put on a broad mathematical-analytical

basis. When conventional kanban control cycles are designed, only the re-procurement time per kan-

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ban, the average consumption of the item (related to past experience), the amount per kanban box

and a so-called safety factor usually are considered. According to this methodology, the number of

kanban cards used and therefore the inventory level depend mainly on a factor determined not math-

ematical-analytically but on the basis of a mere "feeling". Important data for further processing such as

- lot size of the supplier (collective kanban).

- lot size / consumption of the customer.

- consumer behaviour of the item (XYZ behaviour) and the right safety inventory.

- scrap rate, and

- future consumption

often are not considered at all. An optimization of inventory, lead time and service level can be

achieved by this simplified kanban design only in a limited way. Overstock and understock in the kan-

ban system require "fumbling around" during months or even years, can lead to acceptance problems

and finally to inactivating the kanban system. This is the second main reason - next to not involving the

staff in the design - why many companies find kanban systems difficult to introduce and do not achieve

the desired results.

One major weakness in designing a kanban control cycle can consist in a calculation based on con-

sumption in earlier periods. When designing the Montblanc system, "future" consumption, that is a

rolling sales forecasting for basic consumption values, was considered. This was possible due to the

formerly revised, high-performance sales and production forecasting. kanban at Montblanc therefore

turned out to be a proactive, not a reactive, process.

Another weakness of operating kanban systems often consists in the lack of a periodical adaptation of

the kanban stocks. However, a quick and easy adaptation of the kanban stock must be possible, either

periodically or when required, e.g. when sales forecasts are modified or production parameters

changed. At Montblanc, this is the responsibility of the production control department. This department

recalculates the kanban stock of every single item as required or periodically by means of a SAP-

ABAP programmed by Abels & Kemmner on the basis of its special kanban calculator. As a result, the

kanban cards required per item, among other values, are recalculated. When the number of cards is

increased, additional cards have to be introduced into the system, and when the number of cards is re-

duced, cards have to be removed from the system.

The kanban calculator by Abels & Kemmner used for the dimensioning of the kanban control cycles

not only helped to determine the actual number of kanban cards required per item and per kanban

cycle. It also calculated the yellow and red areas of the kanban boards and realized a simulation of the

capacity situation of every single production department. This simulation determines the maximum and

minimum number of setup cycles per time unit and compares them with the current capacity situation.

In addition, the stocks required for the kanban items are sized by calculating the minimum, average

and maximum area required per item and kanban stocks in the course of time. The data obtained

formed the basis for the procurement of sufficiently large kanban boards and shelf systems.

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ERP systems and kanban

Since kanban is a self-controlling system, it generally does not require an additional MRPII- or ERP

system. For this reason, an existing ERP system should not be forced into the kanban system. It is

much more important to see to a logical interface between the ERP system and the kanban system. At

Montblanc, kanban was therefore designed in a way to run production basically without the operating

SAP system. Nevertheless, the production processes had to be reflected in an MRPII- or ERP system

for invoicing, procurement and inventory planning purposes.

Why not recur directly to the kanban function available in many ERP systems and do without the

manual kanban system? A kanban system is mainly characterized by visualizing all processes for the

whole staff. This visualization is not available in an ERP system. However, it provides the individual

production departments with a completely new overview.

At Montblanc, for instance, SAP kanban is operated in parallel with the manual kanban system, and

normal users are not even aware of it. They only set a different status in the system by scanning the

bar codes on the kanban cards. The materials balance in the SAP system is also synchronized with

the physical changes in the inventory. Another disadvantage of a kanban control only through the SAP

system would be that the SAP system still shows important weaknesses in kanban design and does

not offer a direct solution for the realization of collective kanbans.

One frequent objection to the kanban system is that there is no room in the production site for a kan-

ban inventory and kanban board. However, our experience has shown that after switching to a kanban

system, there is more room available than is required for the kanban system. In order to identify kan-

ban boards that are easy to read and yet require little space, Montblanc and Abels & Kemmner worked

closely with Orgatex GmbH at Langenfeld, a leading manufacturer of kanban organizational materials.

This cooperation resulted in the development of a kanban folding board that now forms part of Orgatex

´ standard programme.

The results in short

Forecasting method rearranged MRP planning optimized by linking SAP R3 (SOP) to Diskover 4.1 Final assembly adjusted to JIT Finished goods inventory dismounted Supply control for final assembly adjusted to kanban Kanban made operative within 3 days Supply readiness with a 98% guarantee 48 % of the stock value at project start - reduced Work in process reduced by 50% SAP with simple bar code interface integrated into kanban processes More than 75% of the annual production can be forecasted.

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About Abels & Kemmner

Abels & Kemmner GmbH was founded in 1993 by the engineers and economists Dr. Helmut Abels and Dr. Götz-Andreas

Kemmner. Balancing inventories, service levels and lead time of supply and production chains is the core activity of the com-

pany. A&K works for production and trading companies. Among our customers are FT500 companies lt. CORUS, Siemens or

MONTBLANC-DUNHILL as well as leading mid-size companies. Twice already supply chain concepts developed in cooperation

with our customers have been awarded best-practice prizes.

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