MECN7059 SCM Group Project 2016 Report 15may16

Supply Chain Management MECN 7059
Group Assignment
Project Title:
Analysis of ABC Pharmas Supply Chain with a focus on

Bullwhip Effect Reduction
Name
Ofhani Ralushai
Student No.
0313814W
Mbali Mahlangu
9801006D
Khutso Malesa
579774
James Johnston
1421481
Robert Phiri
1239752
Date:
18 May 2016
Number of Pages Submitted:
26 Pages + Appendices
Executive Summary
A poor supply chain of a pharmaceutical company not only impacts the bottom line, but also
the even more important customer service level, which can command the overall health of a
business. ABC Pharma is in the business of manufacturing, marketing and distributing
medicinal and cosmetic products within the Southern Africa region and abroad. They, like
any other business, are not immune to supply chain challenges. Over the years their FMCG
Division has experienced various inventory challenges, to name a few, overstocking, out of
stock situations, stock obsolescence and carrying incorrect inventory at various regions.
Customer service levels are also inconsistent and not at the desired levels throughout.
This investigation report set out to identify problems and propose recommendations or
solutions for ABC Pharma. The FMCG division would like to bring down their stock levels to
14% as a percentage of turnover and maintain or boost customer service levels at 95%
order fill rate. An underlying and ever-present threat, is that of the Bullwhip Effect; the
phenomenon where the demand order variabilities in the supply chain are amplified as they
move up the chain. Whilst analysing ABCs supply chain this was a focal point.
The investigation approach methodology centred on data analysis, surveys and interviews
with stakeholders. Due to the sensitive nature of ABC Pharmas business, there where
confidentiality restrictions with regard to data scope as well as data type. Three months
worth of data was provided for use, notably however, this was restricted to operational data
and no related financial data could be provided.
The following four areas were identified as critical for review:
1.
2.
3.
4.
Collaboration & Product Supply

Demand Replenishment & Planning Processes
Inventory Planning & Distribution Management
Stock-holding Policies
As a brief summary of the findings. The current ABC relationship with suppliers is adversarial
based on negotiated terms of performance and penalties for non-compliance by either party.
There should be a focus on Collaborative Planning, Forecasting and Replenishment. The
lead time for each SKU should be dealt with separately when planning. From a warehouse
perspective the priority recommendation is to focus on Warehouse 5 and investigate, why
understocked occurrences are so high, why more products are sent than ordered. From a
stock holding policy perspective. ABC needs to set policy parameters which use target
availability as a starting point. Then look at the inventory investment desires to dictate stock
cover (safety and cycle stock).
Overall, by studying the findings of this report and the recommendations put forward, ABC
can meet the service levels they are targeting. Increased collaboration, better planning and
constant policy reviews will swing the balance of power back to ABC Pharma. Not only will
their bottom line thank them, but their dependant customers as well.
Table of Contents
1.
Introduction .................................................................................................................... 1
1.1
Background............................................................................................................. 1
1.2
Motivation and Objective ......................................................................................... 2
2.
Methodology .................................................................................................................. 2
3.
Investigation & Analysis ................................................................................................. 3

3.1
Product Supply ....................................................................................................... 3
3.1.1 Supplier Collaboration ........................................................................................... 5

3.1.2 Current State......................................................................................................... 6
3.1.3 Desired State ........................................................................................................ 7
3.2
Forecasting and Demand Replenishment Planning Processes and Methods .......... 7
3.2.1 Demand Forecasting ............................................................................................. 7

3.2.2 Demand Replenishment & Planning Processes .................................................... 8
3.2.2.1 Current State ...................................................................................................... 8
3.2.2.2 Data Analysis ..................................................................................................... 8
3.2.2.3 Recommendations ........................................................................................... 11
3.3
Inventory Planning and Distribution Management ................................................. 12
3.3.1 Current State....................................................................................................... 13

3.3.2 Data Analysis ...................................................................................................... 13
3.3.3 Recommendations .............................................................................................. 16
3.4
Stock-holding Policies ........................................................................................... 18
3.4.1
4.
Policy Decisions ................................................................................................ 20
3.4.1.1
Safety Stock .................................................................................................. 20
3.4.1.2
Target Availability Levels ............................................................................... 21
3.4.2
Tools ................................................................................................................. 23
3.4.3
Risk Management ............................................................................................. 23
3.4.4
Recommendations ............................................................................................ 23
Conclusions ................................................................................................................. 25
References ......................................................................................................................... 26
Appendices ............................................................................................................................ i
Appendix A: Forecasting and Planning ........................................................................... i
Appendix B: Health of Inventory and Inventory Management Processes .......................vi
Appendix C: Product Supply ..........................................................................................xi
List of Figures
Figure 1: Distortion of demand as it moves through the Supply Chain .................................. 4
Figure 2: Techniques employed to reduce the bullwhip effect ............................................... 5
Figure 3: The Relationship Classification Framework ............................................................ 6
Figure 4: Customer Group Descriptions ................................................................................ 9
Figure 5: Customer Order Percentage per Region ................................................................ 9
Figure 6: Standard Deviation of Quantity per Order per Item................................................. 9
Figure 7: Warehouse locations............................................................................................ 13
Figure 8: ABCs Distribution Network .................................................................................. 13
Figure 9: Stockholding vs. Quantity shipped per warehouse ............................................... 13
Figure 10: Percentage of understocked as attributed to each warehouse ........................... 14
Figure 11: Percentage of surplus sent as attributed to each warehouse ............................. 14
Figure 12: Percentage components for Bulk Centre stock holding ...................................... 14
Figure 13: Ordering Quantity density distribution chart ........................................................ 15
Figure 14: Customer Group Descriptions ............................................................................ 16
Figure 15: Customer shipped quantity percentage per warehouse ...................................... 16
Figure 16: Key Components of Inventory Management Policy ............................................ 18
Figure 17: Investment vs. Availability3 ................................................................................. 19
Figure 18: Safety Stock Breakdown .................................................................................... 20
Figure 19: Safety Stock vs. Total Inventory (%Value).......................................................... 21
Figure 20: Safety Stock as a % of Total Safety Stock & Total Inventory (Qty) ..................... 21
Figure 21: Safety Stock as a % of Total Safety Stock & Total Inventory (Value)) ............... 21
Figure 22: Safety Stock Curve ............................................................................................ 22
Figure 23: The Inventory Management Policy Process ....................................................... 24
List of Tables
Table 1: Stockholding % and Order Fill Rate ......................................................................... 1
Table 2: Survey Topics and Audience ................................................................................... 3
Table 3: Top 15 Average order quantity per order ............................................................... 15
Table 4: Top 15 Standard Deviation per order quantity per product .................................... 15
.
Abbreviations
CPFR Collaborative Planning, Forecasting and Replenishment
DRP
Demand Replenishment & Planning
FMCG Fast Moving Consumer Goods

UK
United Kingdom
US
United States of America
SKU
Stock-Keeping Unit
ROS
Rate of Sale
SCN
Supply Chain Network
SS
Safety Stock
VMI
Vendor Managed Inventory
1. Introduction
1.1
Background
The pharmaceutical industry has evolved from medicines being produced in small
laboratories where doctors and pharmacists blended and administered drugs to patients and
observed the effects of the treatment. It has become a competitive industry turning almost
US$ 1 trillion in revenue worldwide in 2014 (Statista, 2015). Apart from the normal industry
challenges like stringent regulations from governments and their regulatory agencies, the
industry is not immune to supply chain challenges like any other industry.
Supply chain challenges may vary at different points of the supply chain; one such challenge
is the bullwhip effect. The bullwhip effect occurs when the demand order variabilities in the
supply chain are amplified as they move up the chain. It is detrimental to the efficient
functioning of a supply chain and if effort is not made to combat against it, unnecessary
costs and work will be incurred.
One such pharmaceutical company who have similar challenges with their inventory
management is ABC Pharma Ltd. ABC Pharma is in the business of manufacturing,
marketing and distributing medicinal and cosmetic products within Southern Africa and
offshore. The overall business turnover is just over R 5 billion. The business is divided into
autonomous business units to serve specific customer base and needs.
For the purpose of this project, the division that the focus will be on is their Fast Moving
Consumer Goods, the FMCG Division. This division contributes approximately 15% to total
company turnover. Over the years the FMCG Division has experienced all kinds of inventory
challenges, to name a few, overstocking, out of stock situations, stock obsolescence and
carrying incorrect inventory at various regions. These challenges subsequently had an
impact on customer service and loss of sales.
The following depicts the current inventory and customer service situation at ABC Pharma:
Table 1: Stockholding % and Order Fill Rate
Jul-15
Stockholding as a % of
Turnover
Customer order fill
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Overall
17%
17%
17%
18%
17%
16%
17%
84%
89%
93%
95%
95%
88%
91%
1.2
Motivation and Objective
As mentioned earlier, ABC Pharma experiences inventory challenges such as high inventory
levels on wrong items, frequent stock-outs and a high rate of obsolescence. These
challenges are mainly due to the application of blanket procedures on items, for example,
same stock-holding quantities including safety stock are held across a range of items without
proper visibility of each items demand pattern, lack of proper visibility into customer demand
resulting in forecast inconsistencies and weak customer responsiveness, and lastly the
dormant approach to inventory classification, i.e. no reviews of inventory class, which should
be at least once a year.
The FMCG division would like to bring down their stock levels to 14% as a percentage of
turnover and maintain or increase customer service levels at 95% order fill. They would also
like to maintain correct stocking levels in terms of quantity and range at their various regions,
namely, Eastern Cape, Western Cape, Kwa-Zulu Natal and Gauteng. Thus the motivation for
the investigation is mandated.
2. Methodology
The approach employed to execute the project comprised of qualitative methods to evaluate
the as-is situation and find the root-causes. The following methods were employed to collect
the data:
a) Actual data obtained from the company
b) Survey questionnaire
c) Observation and discussions between team members
The details of each data collection method are described below.
ABC Pharmas data comprising of the following was made available for the project:
Transactional data for the May - July 2015; three fiscal months
Forecast for the same period
Customer groupings
Suppliers and their geographic locations (international or local)
Distribution networks
Regional stock-holding in percentages per region
Safety stock percentages per item category classification
Additional to the data that was provided, a survey questionnaire was designed to gather
information specifically pertaining to the following concepts:
Product supply
Forecasting processes and methods
Inventory planning
Stock-holding policies
Refer to Appendices A, B and C for a detailed questionnaire and responses gathered.

The survey questionnaire was compiled using SmartSurvey, an online survey software with
origins from the United Kingdom (UK). The survey was distributed electronically to the
respective individuals within the FMCGs supply chain department as follows:
Table 2: Survey Topics and Audience
Survey Questionnaire
Product Supply
Distribution List
Procurement Manager
2 Buyers (1 response received)
Forecasting Processes & Methods
Demand Planner
Inventory Planning
Inventory Manager
Inventory Manager
During and post data collection the team had interactions and discussions among
themselves to formulate the data into meaningful information and also to provide and obtain
clarity on the project subject matter.
The data was analysed through graphical representations created using Microsoft Excel.
Key points, observations and thoughts were drawn from the survey responses for further
analysis.
3. Investigation & Analysis

3.1
Product Supply
The amplification of demand variation in a supply chain network (SCN) is a well-known

phenomenon called the bullwhip effect, which creates inefficiencies due to high variation in
the order quantities placed between companies, leading to a flow of a larger number of units
than the actual need, increasing stock and resulting in stock-outs, Roberto et al. As can be
seen from figure 1 below, the order variation is amplified as it moves up the supply chain,
giving rise to marked differences between the customer orders to retailers and the distributor
orders to the factory.
Figure 1: Distortion of demand as it moves through the Supply Chain
The increasing pressure exercised by technological development and demand variability,

compels firms to be agile, adaptable and aligned to the customer needs and requirements.
From the data gathered at ABC Pharma, it was observed that among other issues, there was
no effective supplier collaboration which is one of the key factors in achieving high service
levels.
T.O Donell et al identifies forecasting, collaboration, logistics and control (computational
intelligence) as major focus areas to reduce the bullwhip effect, see figure 2 below. All of
which were observed as being managed with significantly varying levels of success at ABC
Pharma. It is widely understood that collaborative behaviour reduces risk and greatly
improves efficiency of the overall supply chain, to achieve this it is imperative that all
members of the ABC supply chain network share strategic information, this information
should include transactional information at ABC warehouses and distribution centres,
promotional plans, expansion and growth plans and any information which maybe be useful
in scaling up/down operations and managing applicable costs and efficiencies.
Figure 2: Techniques employed to reduce the bullwhip effect
3.1.1 Supplier Collaboration

During the survey it was noted that there was no tracking/measurement of supplier
performance. This lack of supplier management and evaluation metrics to ascertain supplier
performance levels leaves ABC vulnerable in that it is not able to determine whether the
suppliers are performing below or above industry standards. Although ABC may currently be
able to identify service levels, it is difficult to identify which members of the SCN are causing
a bottleneck or not performing at a satisfactory service level. One of the probable causes
could be hesitancy in sharing valuable information on demand forecasts which then leads to
multiple forecasts along the supply chain.
This can be eliminated through collaboration and centralised forecasting and planning. A
collaborative approach shifts the business model from a loosely linked group of independent
businesses, to a multi-enterprise coordinated effort focused on supply chain efficiency
improvement and increased competitiveness. Information is key for collaboration to work.
Another opportunity to be enjoyed by ABC through collaboration is the elimination of
duplicate effort and elimination of waste. Functions like planning, forecasting, quality
inspections and expediting are frequently duplicated in un-linked supply chains leading to
waste, additional costs as well as amplification particularly in forecasting. Through
collaboration ABC will be able to establish a leaner SCN which will be adaptable and agile
thanks to centralised functions like logistics and planning to be explored in detail further on.
3.1.2 Current State

At present ABC performs its own planning and forecasting activities, with respective ABC
teams meeting at pre-determined intervals to place orders with suppliers, the suppliers also
perform their own planning and forecasting based on historical information to ensure long
production runs on their plants. This is very reflective of a contractor relationship with the
supplier, wherein the supply only performs as per agreed terms of contract/as instructed.
From D. Bowersox et al, The Relationship Classification Framework, figure 3 below, ABC is
currently in the first level i.e. contracting with limited outsourcing with its suppliers. This kind
of collaboration according to Bowersox is adversarial as it is a result of a negotiated
settlement, and although it is a form of collaboration it does not necessarily imply that
comprehensive supply chain integration takes place. These relationships are essentially
command and control in nature with ABC as the leader, information shared is limited and of
operational nature, the contracts are generally open to new bidding after a set period of time
and come with specific terms and conditions with regards to performance levels, failure to
perform which could result in disputes, sanctions and/or termination.
This is not an ideal position in that it fails to take advantage of the synergies to be had from
collaboration, it fails to exploit market knowledge/expertise which the suppliers might have
from the dealings they have with their other customers possibly operating in the same
regions as ABC as well.
Figure 3: The Relationship Classification Framework
3.1.3 Desired State

ABC should seek to be in either administered, alliance or enterprise extension relationships
with their suppliers and service providers, these relationships allow for more information
sharing and integration compared to contracting and outsourcing, consequently they yield
better results in terms of efficiency, satisfaction levels and also eliminating/reducing the
bullwhip effect which is the primary focus of this report.
With an administered relationship, ABC would assume the dominant/administer position.
Also a form of command and control relationship, in administered relationships however
unlike contracting there is some measure of joint planning as well as sharing of strategic
information (although limited) and there is the expectation that the relationship will be
continuous, with no predetermined termination date as in the former relationships.
Alliances and enterprise extensions are more advanced forms of collaboration, they focus on
the long term desires of the parties involved and the willingness to work together at
operational and strategic levels. At this level ABC will be sharing/integrating, human,
financial and operational resources to meet mutual objectives which will include eliminating
the negative effects of the bullwhip effect. It is at this level that ABC can fully utilize the
benefits of VMI (Vendor Managed Inventory) solutions which will be further discussed in
detail.
3.2
Forecasting and Demand Replenishment Planning Processes

and Methods
3.2.1 Demand Forecasting

Forecasting can be defined as a planning tool that helps management in its attempts to cope
with the uncertainty of the future, relying mainly on data from the past and present and
analysis of trends, (Dictionary, 2016). In virtually every decision, a pharmaceutical executive
considers some type of forecast. This process of predicting the future is crucial to many
aspects of the company - from next month's production schedule, to market estimates for
medicines in the next decade. The pharmaceutical forecaster needs to strike a delicate
balance between over-engineering the forecast - including rafts of data and complex 'black
box' equations that few stakeholders understand and even fewer buy into - and an overly
simplistic approach that relies too heavily on anecdotal information and opinion (Cook,
2015).
According to (Planning, 2016), the pharmaceutical value chain is dependent on two major
demand forecasts:
1. Very long-term forecast for new pharma launches and supply chain readiness. This
includes making accurate market potential and launch forecasts which drives the
capacity building so that it is ready for government approval and regulatory
compliance.
2. Short to medium term replenishment forecasts that are based truly on demand
plans and historical data. This is for established products but still driven by patient
demand.
3.2.2 Demand Replenishment & Planning Processes

Just as the consumer drives the demand in any value chain, here the patient drives the
ultimate demand. The patients can influence the providers to write a particular choice of a
branded prescription based on their knowledge or based on the education from major
marketing campaigns (Planning, 2016).
The patient and the provider jointly create the demand signal for the pharmacies to fill. So
the prescriptions filled by the pharmacies act as the ultimate driver of the pharma demand.
These could be somewhat influenced by marketing activities. Demand lumpiness may occur
due to pricing promotions and stocking by pharmaceutical wholesalers.
3.2.2.1 Current State

ABC Pharma currently has a Demand and Replenishment Planning (DRP) module in their
Enterprise Resources Planning (ERP) system to manage customer demand and
replenishment, this module utilizes historical data of each stock keeping unit (SKU) with a
programming algorithm to predict or anticipate future demand and smoothen the flow of
replenishment orders, ABC has approximately 200 SKUs, the historical data of each SKU is
kept in the database for five consecutive years.
3.2.2.2 Data Analysis

Based on the analysis of the data collected in the form of survey questionnaires and raw
data from the ERP system at ABC Pharma, here are some of the problems identified to have
a major contribution to the bullwhip effect with regard to forecasting and DRP.
The survey questionnaires highlighted the following areas of concern:
o
It was found that Collaborative Planning, Forecasting and Replenishment process is

non-existent, theres no collaboration between Sales and Marketing and Planning,
this has a very big impact on production and may lead to increased inventory per
SKU based on which product is on promotion,
o
The forecast is fixed for 3 months in advance with no flexibility, this makes it very
difficult to have promotions and the flexibility to respond to changing demand
The DRP system is not fully utilized and sometimes overridden by users relying on
their own manual system; users dont believe in the system. This causes a lot of
inconsistencies in the demand and replenishment process due to insufficient data to
make the decision for demand forecast and inventory planning.
Customer Analysis
Group Name
Group-1
Group-2
Group-3
Group-4
Group-5
Group-6
Group-7
Group-8
Description
Typical convenience pharmacies
Large retail
Wholesalers
Chain pharmacies
Hospitals
Independent agents
International
Doctors
Figure 4: Customer Group Descriptions
Group-1
Group-2
Group-3
Group-4
Group-5
Group-6
Group-7
Group-8
Eastern Africa Eastern Cape Free State Gauteng Kwazulu Natal Limpopo Mpumalanga North West Northern Cape Southern Africa West Africa Western Cape
0.00%
11.01%
2.11% 39.93%
18.02% 2.03%
1.64%
0.98%
0.28%
2.52%
0.00%
21.47%
0.00%
8.13%
0.04% 62.94%
17.36% 0.08%
0.03%
0.02%
0.00%
0.00%
0.00%
11.40%
0.00%
23.84%
0.00% 53.25%
12.95% 0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
9.95%
0.00%
2.07%
0.00% 70.01%
11.41% 0.00%
0.00%
0.00%
0.00%
0.10%
0.00%
16.42%
0.00%
6.93%
0.00% 59.14%
16.72% 0.00%
1.71%
2.65%
2.05%
0.00%
0.00%
10.80%
0.00%
1.89%
0.00% 83.15%
13.27% 0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1.69%
1.61%
0.00%
0.00% 15.32%
0.00% 0.00%
0.00%
0.00%
0.00%
1.50%
81.57%
0.00%
0.00%
11.11%
0.00% 0.00%
17.78% 0.00%
2.96%
0.00%
0.00%
0.00%
0.00%
68.15%
Figure 5: Customer Order Percentage per Region
9
Figure 6: Standard Deviation of Quantity per Order per Item
Each SKU was analysed per geographic area to determine the standard deviation of quantity
per order, the above figure shows that majority of ABC Pharmas customers are
geographically located in Gauteng, this also confirms that 80% of the different groups of
customers falls within the same region.
Knowing where majority of customers are, is important in planning however is not sufficient
to ensure that customers demands are met. Wrong items in wrong areas is major challenge
that can result in stock out, obsolete and increase costs if they have to be transported to
where they are in need. Planning should ensure that right items are in right place. Seasonal
items and promotions can trigger high demand in that period. This may result in variation on
the supply chain system. Planning should ensure that forecasting takes such variation into
consideration to ensure that sufficient buffer stock is kept and eliminate possibilities of stock
out or over production.
The figure below shows some the items that have significant variation in different month,
such as cough combat and multivitamins-60+.
Successful planning should meet customers demand that is customers should get the
quantity of items they have ordered at the right time. The issue of lead time becomes
significant from order to shipment. It is also a measure of supply chain performance. The
longer the lead times, the difficult is to forecast and also increase variation probability. An
ABC pharmacy lead time is averaged at 80 days, in which the reduction will improve supply
chain efficiency and make it easy to forecast.
The figure below shows variation of the orders versus shipments. Shipments of right quantity
of what is ordered reduce costs and relationship with customers. Frustration of customers
not getting what they ordered may reduce trust and reliability. Dissatisfied customers may
change to a new supplier and that is revenue lost.
10
The figure below shows the service level of ABC pharmacy. High service level retains
customers. Customers demand should be met to achieve high service level. ABC pharmacy
service level is at 61%, 95% should be ideal acceptance level for customers.
Service to group 8 customers is above 80%, whereas service to group 4 is below 50%. Such
variance should be addressed during planning and measures should be taken to ensure that
service to all groups of customers is not less than 95%.
3.2.2.3 Recommendations
After careful analysis of the all the areas of concern, the following recommendations are
more feasible with a high return on investment:
o
Implement a business process to assist in the standardisation of Collaborative

Planning and Forecast Replenishment within the business, this will result in the
alignment of common purpose between Sales and Planning Teams and harness the
synergy of collaboration,
11
Train or retrain all respective individuals in the use of the DRP system, ensure full
compliance and enforce discipline in case of deviations and get rid of all manual
systems.
3.3
Inventory Planning and Distribution Management
Inventory is an important component in the Supply Chain, particularly as a facet of

Distribution Management. The goal for a business is to invest the least amount in inventory
while maintaining specific operating requirements (Sandgate Solutions, 2013). Ideally, the
inventory control in place allows the business to supply needs with regard to production or to
the customer at the precise moment needed, at the lowest price. Effective inventory control
keeps waste and surplus at a minimum and efficiently handles storage, production and
distribution of inventory (Johnson, 2012).
There are costs in carrying inventory:
Cost of Obsolescence/Expiry
Stock out
Holding wrong products
Precise and up-to-date stock records are crucial to good inventory management. They are
the source of information used to calculate needs, and inaccurate records produce incorrect
estimations (and problems with stock outs and expiry). Each inventory system should
monitor performance with key indicators and produce regular reports on inventory, order
status, operating costs, and consumption patterns (World Health Organisation, 2012).
The principal reason for holding stock in a pharmaceutical supply system is to ensure
availability of essential items almost all the time. The range of items to stock should be
based on their value to public health and on the regularity and volume of consumption. VEN
(vital, essential, and nonessential) and ABC analyses are useful tools for identifying which
items on the defined list must be held in stock (Johnson, 2012). Although ABC analyses are
often based on the value of the medicines, for inventory management, ABC analyses based
on order frequency and volume are also important. Due to confidentiality, financial data
could not be provided and thus a comprehensive ABC analysis could not be conducted.
The ideal inventory model is the optimal stock movement pattern, in which inventory levels
are as low as possible (without risking stock outs) and optimized, consumption patterns are
consistent, and suppliers always deliver on time, but this model is rarely achieved in practice
(Sandgate Solutions, 2013). Average inventory levels (and holding costs) are expected to
decrease with more frequent orders.
12
3.3.1 Current State

ABC Pharma has 5 warehouses serviced by 2 bulk distribution centres located in Gauteng
and KZN.
Inter-depo transfers
5 days
WAREHOUSE-1
BULK
(GAUTENG)
WAREHOUSE-2
BULK (KZN)
WAREHOUSE-3
Location
WC
KZN
Gauteng
EC
Location
WC Gauteng
KZN
Warehouse Name
Warehouse-1
Warehouse-2
Warehouse-3
Warehouse-4
Warehouse-5
Figure 7: Warehouse locations
Gauteng
EC
Gauteng
WAREHOUSE-4
WAREHOUSE-5
Figure 8: ABCs Distribution Network
At this point in time, ABC does not regularly update and assess supply chain changes and
institute relevant modifications.
3.3.2 Data Analysis

Having taken the current state into account, ABCs data was analysed and the following
areas for concern were identified.
Figure 9: Stockholding vs. Quantity shipped per warehouse
13
Figure 10: Percentage of understocked as attributed to each warehouse
Figure 11: Percentage of surplus sent as attributed to each warehouse
Figure 12: Percentage components for Bulk Centre stock holding
The relationship or alignment between stockholding and orders shipped is not with respect to
the actual performance. For example, Warehouse 1 has the 2nd highest stock holding
quantity, yet is only ranked 4th for shipped quantity. Warehouse 5 has the highest shipped
quantity, yet holds marginally more stock than Warehouse 1.
However, even though Warehouse 5 has the highest percentage stake of understocked
orders, it also has the highest percentage contribution towards surplus sent. It is in essence,
both starving and choking the supply chain system.
External reasons contributing to Cost of Holding Goods such as security, utilities and
geographical location may contribute to favouring stockholding in certain places (Inbound
Logistics, 2014). However, with limited storage space, storing one product creates an
opportunity cost because the business cannot store as much of other products. Additionally,
over purchasing may also leave a company storing a product that consumers no longer
want. Notably also, moving from warehouse to warehouse leads to double handling adding
to costs and creating the opportunity for damage to occur (Ecklund, 2010).
The warehouses with the highest variability, 3 and 5, also have the highest occurrences of
understock and excess sent. This compounds the supply chain issue further. Looking at the
standard deviation from the various warehouses order quantity, this noisiness is reaffirmed
for Warehouse 5.
14
Figure 13: Ordering Quantity density distribution chart

Warehouse 1
1 Compounded Vits A-Z 120's
2 Snort Combat Rub - 10 ml
3 A-Z Vitamin Tabs 50's
4 Kids Pro-Food Supplement - Choc
5 Vitamin C - 50 ml Syrup
6 Heal
7 Ear Infection Gone 15ml
8 Tasty Gargle for Kids 200 ml - Cranberry
9 Anti-swell Cream - Mint
10 Whitening Toothpaste - Berry
11 Blister Ointment
12 Blockers - Sniff Free Ointment 30 g
13 Kids Pro-Food Supplement - Orange
14 Apple Supplement Powder 100 g
15 A-Z Vitamin Gel 100 ml
Warehouse 2
240 Orange Supplement Powder 100 g
152.875 Good-bye Cold Sores 20 ml Tube
137.7143 Mom's Trusted Food Supplement
127.7273 Anti-fungal Spray
98.5 Kids Pro-Food Supplement - Banana
98.03529 Mom's Trusted Shake
92.85417 Arm Rub
82.31343 Kids Pro-Food Supplement - Orange
82.125 Tasty Gargle for Kids 200 ml - Cranberry
81 Strawberry Supplement Powder 100 g
76.09677 Blockers - Sniff Free Ointment 30 g
75 Dext Mineral
72.6441 Feel Good Syrup
72 Vitamin C - 100 ml Syrup
72 Anti-bacterial gel
Average
Warehouse 3
576 Fever Doctor Capsules 20's
288.2 Bad Breath Combat Gel 50 ml
252.4556962 Wound Antiseptic
228.3333333 Throat Soother
137.0347826 Eye Dust Remover - Medicated
133.725 Hamba
130.1666667 Vitamin C - 200 ml Syrup
120.223796 Tasty Gargle 100 ml - Cranberry
107.5233645 Foot Rub 20g - Medicated
97.26315789 Kiddie Vitamin - Kiwi 90's
96.95918367 Smile Maker Lip-gloss
96.55882353 Body Wash for Men 1L - Musk
95.35185185 Apple Supplement Powder 100 g
92.71875 Kiddie Vitamin - Strawberry 90's
Warehouse 4
545.3333333 Fairy Frost Melts Capsules
286.3846154 Hleka
269.7581699 Tasty Gargle 100 ml - Original
263.3529412 Fragrance Free Mozzie Guard
260.7866667 Ear Infection Gone 5ml
251.9411765 Tasty Gargle for Kids 100 ml- Peppermint
177.1318681 Whitening Toothpaste - Berry
175.253012 Good-bye Nausea - Capsules 20's
168 Vitamin D - 100 ml Syrup
144 Good-bye Fever - Capsules 20's
133.4776119 Feel Good Syrup
Standard Deviation
Warehouse 3
1756.500014 Bad Breath Combat Gel 50 ml
1188.255079 Hamba
1098.24885 Throat Soother
1087.147732 Eye Dust Remover - Medicated
675.563883 Kiddie Vitamin - Kiwi 90's
589.3729408 Foot Rub 20g - Medicated
578.389427 Tasty Gargle 100 ml - Cranberry
578.0219229 Fever Doctor Capsules 20's
450.7409879 Jabula
378.9057743 Wound Antiseptic
347.3980546 Anti-swell Cream - Mint
340.1821851 Kiddie Vitamin - Strawberry 90's
318.2809091 Phila
Warehouse 4
2026.1739 Fairy Frost Melts Capsules
1782.411537 Tasty Gargle 100 ml - Original
1700.478898 Hleka
1098.27061 Muscle Coolant
989.1198989 Nail Polish
782.8372897 Vitamin D - 100 ml Syrup
602.1459877 Hamba
584.1070158 Kids Pro-Food Supplement - Choc
463.1773862 Tasty Gargle for Kids 100 ml- Peppermint
Warehouse 5
295.9777778 A-Z Vitamin Tabs 50's
147.4366197 Good-bye Ear Infection 100 ml Tube
116.5 Good-bye Amnesia Tablets 50's
95 Good-bye Cold Sores 10 ml Tube
93.06060606 Joy-Maker 60ml
83.13191489 Peaceful Sleep Tab
72 Body Wash for Men 1L - Musk
67.56923077 Good-bye Headache - Blisters 50's
63 Dizzie Spell Combat
58.16981132 Kiddie Vitamin - Orange 90's
57.88 Dext Mineral
2254.5
2083.4
1200
843
763.8
545.2051282
533.3546099
520.7357143
517.796875
454.2857143
451.3647799
400
334.2352941
316.0083333
315.75
Table 3: Top 15 Average order quantity per order

Warehouse 1
Warehouse 2
1 Heal
2 Multivitamins - 30 to 45 120's
711.5055 Cough Combat
3 Kids Pro-Food Supplement - Orange
4 Jabula
622.9524 Anti-fungal Spray
5 Ear Infection Gone 15ml
602.0098 Mom's Trusted Shake
6 Snort Combat Rub - 10 ml
7 Muscle Strength
389.2318 Multivitamins - 30 to 45 120's
8 Hleka
291.0532 Kids Pro-Food Supplement - Banana
9 Anti-swell Cream - Mint
10 Blockers - Sniff Free Ointment 30 g
263.4624 Tasty Gargle 200 ml - Peppermint
11 Tasty Gargle for Kids 200 ml - Cranberry 263.1123 Flu Combat
254.2167 Strawberry Supplement Powder 100 g
13 Dext Mineral
14 A-Z Vitamin Tabs 50's
223.1033 Joy
15 Good-bye Tummy Pain - Capsules 20's 200.8927 Tasty Gargle for Kids 200 ml - Peppermint
Table 4: Top 15 Standard Deviation per order quantity per product
Warehouse 5
609.747472 Power Drink
416.5869678 Kiddie Vitamin - Orange 90's
319.9228214 Teens Vitamins 50's Combo
284.2013931 Flu Combat
255.255703 Hleka
221.8357093 Peaceful Sleep Tab
194.2712591 Dizzie Spell Combat
184.3179836 Nail Polish
178.562263 Good-bye Headache - Blisters 50's
169.2500367 Splinter Keep-out Cream
144.0050377 Dext Mineral
15
5951.241446
3476.664355
2729.8423
2319.929464
2232.106559
2200.053731
1839.325403
1804.325331
1690.805178
1678.287289
1664.324303
1644.016413
1634.015736
1500.963523
1413.796471
Group Name
Group-1
Group-2
Group-3
Group-4
Group-5
Group-6
Group-7
Group-8
Description
Typical convenience pharmacies
Large retail
Wholesalers
Chain pharmacies
Hospitals
Independent agents
International
Doctors
Figure 14: Customer Group Descriptions
Figure 15: Customer shipped quantity percentage per warehouse
Further investigation needs to under taken into what is causing the variation. Notably, the
main customer supplied by Warehouse 5 is Large Retail.
3.3.3 Recommendations
The priority recommendation is to focus on Warehouse 5 and investigate:
1. Why understocked occurrences are so high
2. Why more products are sent than ordered
3. If it is possible to balance order quantities
From a product specific perspective, the A-Z Vitamins Tabs which come in packs of 50s or
80s, could rather be repackaged into packs of 10s and then assembled into orders of 50 or
80. This hybrid commonality or convenient SKU size as such would reduce the effect of
order quantity variance. The use of a master carton would facilitate this.
The following are proposed as causative factors (And ultimately Bullwhip effect contributors):
Neglecting to order in an attempt to reduce inventory
Order batching: Larger orders result in more variance. Order batching occurs in an
effort to reduce ordering costs, to take advantage of transportation economics such
as full truck load economies, and to benefit from sales incentives. Promotions often
result in forward buying to benefit more from the lower prices.
Shortage gaming: Customers order more than they need during a period of short
supply, hoping that the partial shipments they receive will be sufficient
16
While the bullwhip effect is a common problem, many leading companies have been able to
apply actions to overcome it. Here are some of possible countermeasures: (QuickMBA,
2012)
Countermeasures to order batching - High order cost is countered with Electronic Data
Interchange (EDI) and computer aided ordering (CAO). Full truck load economics are
countered with third-party logistics and assorted truckloads. Random or correlated ordering
is countered with regular delivery appointments. More frequent ordering results in smaller
orders and smaller variance. However, when an entity orders more often, it will not see a
reduction in its own demand variance - the reduction is seen by the upstream entities. Also,
when an entity orders more frequently, its required safety stock may increase or decrease.
Countermeasures to shortage gaming - Proportional rationing schemes are countered by
allocating units based on past sales. Ignorance of supply chain conditions can be addressed
by sharing capacity and supply information. Unrestricted ordering capability can be
addressed by reducing the order size flexibility and implementing capacity reservations. For
example, one can reserve a fixed quantity for a given year and specify the quantity of each
order shortly before it is needed, as long as the sum of the order quantities equals to the
reserved quantity.
The most important issue for ABC to focus on is to swing the balance of power in their
direction. By controlling what they can control and placing effort into collaborating to mitigate
what they cannot, they should be able to reduce the causative Bullwhip culprits. Regular
reporting and inventory reviews will also assist in picking up trends early on and allowing
time for corrective action.
17
3.4
The objective of putting sound Stock-holding Policies in place is to enable the decisionmaking process pertaining to the level of investment in inventory and the target availability
while covering and reducing risk and ultimately gaining control of inventory. The key
components in the policies are as illustrated below:
Figure 16: Key Components of Inventory Management Policy
The above illustration, in a nutshell means that the right inventory has to be put at the right
places in the right quantities and for the right reasons. This incorporates key policy decisions
that need to be made with regards to safety stock, target availability levels, frequency of
placing orders, i.e. the replenishment cycle as well as how often the inventory position will
be reviewed, i.e. the review period.
In order to make these important decisions, there are tools that may be useful, namely a
Stock-holding Model and Forward Plan Budget Projection
Stock-holding Model reviews the current inventory position against the desired position
through the analysis of current stock on hand, excess stock and shortages. This also looks
at the current stock investment analysis where a monetary value breakdown between safety
stock and cycle stock is reviewed.
18
Another tool that may be used to set the parameters for policy decisions is the Forward Plan
Budget Projection, this is like a scenario analysis which projects scenarios that may be
plausible should specified policy decisions be made. This tool reflects on what the inventory
position will be based on various policy parameters in a time-phased manner. The evaluation
comprises a financial implication of the business in terms of:
Cash flow
Inventory levels
Excess levels
Projected demand
The bottom line when it comes to inventory policy is drawing a fine line between investment
and availability. That will translate into the evaluation of various investment levels between
safety stock and cycle stock and the resulting service levels.
The illustration below shows the challenges that the different spheres within a business are
facing when it comes to inventory decisions. The bean counters (Finance) want to invest as
little as possible while the sellers (Sales & Marketing) want to have everything of everything
available. As illustrated below, it is important to have a fine balance between inventory and
availability, which is the basis of policy decisions in inventory:
Light
INVESTMENT
AVAILABILITY
Figure 17: Investment vs. Availability3
Lastly another important component of inventory management policies is the management of

risk. The inventory decisions may not be made in isolation of risk. In the first place, if there
were no risks involved in the supply chain, the investment would be minimal as there would
be no safety stock requirements and products were going to be made available as and when
required, the pull method. Due to uncertainties in the supply and demand, like lead time and
forecasting, risks have to be covered in the planning with the objective of minimising them.
The current situation at ABC Pharma pertaining the key components as illustrated in Figure
17 above will be expanded on.
19
As seen on the survey, ABC Pharmas Stock-holding Policies are either non-existent on
some parts or have not been formalised.
3.4.1 Policy Decisions

Item classification is one way in which data can be categorised into groups to enable
effective and convenient manner of translating information quickly and effectively. This forms
an important part when it comes to inventory policy decisions as some parameters work best
when classified for a group of items versus a single stock-keeping unit (SKU).
Consumer Divisions data is classified according to the rate of sale (ROS) and is adjusted at
fixed intervals to accommodate seasonal changes. Fast moving items are classified under Aitems, B-items follow, then C and the rest M. The latter includes slow movers and items that
have been delisted but still have stock on hand for sale. Each classification split as a
percentage of total inventory value is given below:
A items 69% of total inventory value
B items 17% of total inventory value
C items 4% of total inventory value
Rest of items (M) 10% of total inventory value
These classifications will be carried through the rest of the analysis.
3.4.1.1
Safety Stock
At ABC Pharma, safety stock is calculated at unit level based mainly on the rate of sale and
the required months cover. Months cover on the other hand is not computed at stockkeeping unit level but demand class level. That is, all A, B, C class items will have the same
months cover requirements irrespective of ROS, units lead time and sometimes forecast
respectively.
Based on the safety stock data that was provided, safety stock accounts for an overall
average of 16% of the total quantity of inventory. The cost of safety stock is 37.8% of the
total value of inventory:
20
Figure 18: Safety Stock Breakdown
This illustrates that it costs 37.8% of total inventory value to buy 16% of total inventory units,
which are kept as safety stock.
Breaking this down in terms of demand classifications results in the following illustration:
Figure 19: Safety Stock vs. Total Inventory (%Value)
For A-items, which account for 69% of total inventory value, 26.9% of that is safety stock, Bitems, account for 17%, 1.8% of which is safety stock and C and M items are as shown
above. As seen above, there is no safety stock that is kept for M items.
The graphs below illustrate the breakdown of safety stock per demand class as a
percentage of total average safety stock (quantity and value) and as a percentage of total
average stock (quantity and value):
Figure 21: Safety Stock as a % of Total Safety Stock & Total Inventory (Qty) Figure 21: Safety Stock as a % of Total Safety Stock & Total Inventory (Value))
3.4.1.2
Target Availability Levels
In terms of availability levels, as reported by Consumer Divisions Inventory Manager, a

100% availability level is expected across all SKUs. At the moment average availability is at
91%. This is not a true reflection per demand category level and for valid reasons the
21
availability levels for A, B or C items cannot be the same given that the investment levels on
each category are different. As depicted in Figure 2 above, the more inventory is stored, the
more cash is locked, which from a business sense perspective it would render it
unreasonable to invest in 100% availability on items that are slow movers, low risk and / or
have low returns.
Also, there is that concept of diminishing margins, where no matter how much investment is
made, it will not bring about large returns that are worth that investment. The figure below
illustrates this point:
Safety Stock Curve

Investment
Item A
Item B
70%
75%
80%
85%
90%
95%
100%
Availability
Figure 22: Safety Stock Curve
Observations on the above figure are as follows:

i.
The safety stock curve is non-linear, as an infinite amount of stock would be required
to cover every uncertainty.
ii.
Diminished returns are visible: to achieve an increase in availabilities above 95%,

requires far more investment than to achieve an availability of 80%. Investment
required is thus disproportionate.
iii.
Item A has a higher risk profile than Item B, meaning that Item A requires more
investment than Item B to achieve the same availability level.
3.4.1.3
Replenishment Cycle and Review Period
Currently items inventory position is reviewed on a weekly basis to assess which items are
outside their allocated months cover. For every item that is below the respective months
cover, either new orders are placed or moved forward if they are already in the system. This
process is purely based on months cover, which is assigned as a blanket cover per demand
groups. The replenishment cycle is the same for all product groups despite consumption
based on demand being different for each SKU. This poses a risk of items not being
identified timeously if demand consumption is faster than a forecast resulting in potential
stock outs.
22
3.4.2 Tools
ABC Pharma have begun a process to review their stock-holding model in order to analyse
their inventory position in detail. When they look at the balance of inventory as it forms part
of the stock-holding model analysis, they consider excess stock to be any units that are
above the set months cover for A, B and C items respectively. Any units below this cover will
be calculated as a deficit. Currently there is no much emphasis on target availability in a
sense that the same availability level is expected for all items and this is not matched against
investment in inventory per SKU.
With no particular policies in place at ABC Pharma, they have not had to look into any
Forward Plan Budget Projections as a tool to analyse their inventory position or their overall
supply chain to enable them to make better decisions.
3.4.3 Risk Management

The sources of risk in supply chain management among others, which are also causes of
inventory are forecast and lead time. In the case of ABC Pharma, they manage the forecast
risk by aiming for high forecast accuracy. As seen from the survey results on Forecasting,
the Forecasting process is done once per month and this is not in alignment with neither the
review period nor the replenishment cycle. This results in inefficiencies and causes a lot of
putting out fires and a reactive action to manage out of stock and overstocking situations.
On the other hand, there is a lead time risk that ABC Pharma faces. Both their international
and local suppliers seem to have a similar lead time ranging between 3 6 months. The
length of the lead time creates a lot of uncertainty on inventory management for ABC
Pharma. Sometimes in cases mentioned earlier when the demand runs faster than the
forecast, the length of lead time makes ABCs Pharmas efforts to respond to the situation
futile. Also, as seen in the survey results, their supply order receipts are oftentimes delayed
and not received right in time to accommodate demand. The effect of this is sometimes
stock-outs or forces ABC Pharma to ration their stock to key customers until stock is
received.
It is clear from above that ABC Pharma have to pay particular focus to reduce their forecast
and lead time risks as these have a damaging impact to their inventory position and
availability.
3.4.4 Recommendations
ABC Pharma should consider following the full inventory policy set-up process paying
particular attention to their desired availability levels as a starting point to determine their
23
requirements on the level of investment. It is evident that their demand classifications play a
major role in terms of the decisions that they make, e.g. their stock-holding is based on
demand class as well as their target availability levels. Item classification is a crucial part of
inventory management as it provides convenience when handling a large number of items.
For ABC Pharma, they should consider reviewing their items at SKU level in order to
understand their inventory position better and to enable them to make better decisions.
Currently they hold the same months cover for items in the same class, in some cases there
may be over and / or under-stocking of items within that demand class. They have about 200
SKUs, which is minimal when compared to other FMCG companies and this should allow
them the possibility of analysing their inventory at SKU level with ease.
Supply lead times are relatively long, ABC Pharma should consider collaborations with
Suppliers and incorporate this as part of their Collaborative Planning, Forecasting and
Replenishment (CPFR) process, which they are beginning to implement currently focusing
on the demand side. This may provide them an opportunity to negotiate better lead times
thus reducing the lead time risk, which may result in low inventory holding on effected
SKUs. As part of lead time risk management, ABC should pay particular attention on order
receipts, they must ensure that the suppliers deliver at the right time before they get into the
stock-out position.
The following process, courtesy of Barloworld Logistics Pty Ltd.s Advanced Inventory
Management Course (2010) may offer a good guideline to assist ABC Pharma to implement
their inventory management policies:
Figure 23: The Inventory Management Policy Process
24
4. Conclusions
Many diseases or aliments, when treated with the correct medicine, will be cured. The same
applies to ABC Pharmas supply chain. In this case the, the medicine being better business
practices.
Although the bullwhip effect is not the only issue that can pester ABC Pharma, the remedial
actions instituted to combat against it do provide far reaching benefit and touch on all
aspects of the supply chain.
From a product supply perspective. The present planning and forecasting activities are being
performed solely by ABC with respective teams meeting at pre-determined intervals to place
orders with suppliers. This needs to change. ABC should seek to be in either administered,
alliance or enterprise extension relationships with their suppliers and service providers,
these relationships allow for more information sharing and integration compared to
contracting and outsourcing. At this level ABC will be sharing/integrating, human, financial
and operational resources to meet mutual objectives which will include eliminating the
negative effects of the bullwhip effect
Looking at demand. ABC Pharmas current DRP module in their ERP system is not fully
utilized and sometimes overridden by users relying on their own manual system; users dont
believe in the system. This needs to be combated by a business process to assist in the
standardisation of Collaborative Planning and Forecast Replenishment within the business,
this will result in the alignment of common purpose between Sales and Planning Teams,
harness the synergy of collaboration. Train or retrain all respective individuals in the use of
the DRP system to ensure full compliance and enforce discipline in cases of deviations and
get rid of all manual systems.
Warehousing is a critical area to constantly assess. The 5 warehouses and 2 bulk
distribution centres that ABC has needs attention. At this point in time, ABC does not
regularly update and assess supply chain changes and institute relevant modifications. The
relationship or alignment between stockholding and orders shipped is not with respect to the
actual performance. For Warehouse 5 ABC needs to see, why understocked occurrences
are so high, why more products are sent than ordered and if it is possible to balance order
quantities
Policies ultimately control much of supply chain performance. At ABC Pharma, safety stock
is calculated at unit level based mainly on the rate of sale and the required months cover.
Months cover on the other hand is not computed at stock-keeping unit level but demand
class level. ABC Pharma should consider following the full inventory policy set-up process
paying particular attention to their desired availability levels as a starting point to determine
their requirements on the level of investment. It is evident that their demand classifications
play a major role in terms of the decisions that they make, e.g. their stock-holding is based
on demand class as well as their target availability levels
Actively trying to be healthy can mitigate the chances of falling ill. Again this real life aspect
can be draw across to the supply chain arena. Although the results in practice will validate
the recommendations put forward. The suggestions contained in this report will lead to
untended benefits across many facets.
25
References
Cook, A., 2015. Chron. [Online]
Available at: https://books.google.co.za/books?isbn=1472460111
[Accessed April 2016].
Dictionary, B., 2016. Business Dictionary. [Online]
Available at: http://www.businessdictionary.com/definition/forecasting.html#ixzz46qO6MGax
[Accessed 25 April 2016].
Ecklund, D., 2010. Supply Chain Management Review. [Online]
Available at:
http://www.scmr.com/article/warehousing_efficiency_and_effectiveness_in_the_supply_chai
n_process
Inbound Logistics, 2014. Inbound Logistics. [Online]
Available at: http://www.inboundlogistics.com/cms/logistics-glossary/
Johnson, A., 2012. Chron. [Online]
Available at: http://smallbusiness.chron.com/main-function-inventory-16156.html
Planning, D., 2016. Demand Planning. [Online]
Available at: http://demandplanning.net/pharma.htm
QuickMBA, 2012. QuickMBA. [Online]
Available at: http://www.quickmba.com/ops/bullwhip-effect/
Sandgate Solutions, 2013. SmartLite Inventory. [Online]
Available at: http://sandgatesolutions.com/SmartLite_Inventory.html
Statista, 2015. Statista. [Online]
Available at: http://www.statista.com/topics/1764/global-pharmaceutical-industry/
World Health Organisation, 2012. Apps WHO Int. [Online]
Available at: http://apps.who.int/medicinedocs/documents/s19600en/s19600en.pdf
26
Appendices
Appendix A: Forecasting and Planning
1. Who are the role players in the Forecasting process within your organisation?
Response Response
Percent
Total
1
Senior management
0.00%
Middle management
0.00%
Planning team, Sales, Marketing
100.00%
Suppliers
0.00%
Customers
100.00%
All of the above
0.00%
answered
skipped
Analysis Mean:
Std. Deviation: 5.83 Satisfaction Rate: 120
Variance: 34 Std. Error:
5.83
2. Is your organisation at a maturity level where they can implement the Collaborative
Planning, Forecasting and Replenishment (CPFR) process?
Response Response
Percent
Total
1
Yes
0.00%
No
100.00%
answered
skipped
Analysis Mean:
2 Std. Deviation:
0 Satisfaction Rate: 100

0
3. If No, what do you think needs to happen in your organisation to be able to consider
such processes as the CPFR? Please elaborate
Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 11/04/16 11:57AM Sales needs to understand their customer demand and possibly engage in a
collaborative forecast with them. If it is not possible for customers to provide a forecast
3. If No, what do you think needs to happen in your organisation to be able to consider
such processes as the CPFR? Please elaborate
Response Response
Percent
Total
ID: 35434708
on all items they should at least forecast for upcoming promotions. Currently sales is
unable to provide a detailed upcoming advice because their customers change
promotions around at short notice.
Sales needs to address that issue. Product listings with customers need to be
communicated in advance. Forecast is currently not measured versus the stock holding
and not reviewed on a weekly basis. I have requested for previous data and will build a
report that will enable the weekly review.
answered
skipped
4. How often do you review the Forecast? Tick applicable boxes

Response Response
Percent
Total
1
Daily
0.00%
Weekly
0.00%
Monthly
100.00%
Yearly
0.00%
Other (please specify):
0.00%
answered
skipped
Analysis Mean:
3 Std. Deviation:
0
Other (please specify): (0)

No answers found.
5. How do you incorporate marketing intelligence into forecasts to see the effect on
demand, e.g. competitive activities?
Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 11/04/16 11:57AM Marketing intelligence such percentage brand growth or decline, direct competing item
ii
5. How do you incorporate marketing intelligence into forecasts to see the effect on
demand, e.g. competitive activities?
Response Response
Percent
Total
ID: 35434708
long term out of stock volumes need to be included to ensure sufficient planning.
answered
skipped
6. Describe how seasonal demand and promotions are incorporated into your forecast?
Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 11/04/16 11:57AM Seasonality is built onto the system, the system uses models such as seasonality
ID: 35434708
(constant spikes over same periods) or seasonal trends (increasing or decreasing spikes
over the same period), history guides the forecast. Expected promotional volumes need
to be added for the stated promo period.
answered
skipped
7. How do you forecast and manage new product introductions?

Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 11/04/16 11:57AM It is difficult to forecast for a new item, to estimate the quantity you need to know how
ID: 35434708
many customers will the item be listed with and if there is a similar item ROS you can use
as a guide. If there is a launch, marketing to provide quantity forecast based on market
research and then a consensus forecast is determined.
answered
skipped
8. How do you group products into market segments for forecasting? Please tick
applicable boxes.
iii
Response Response
Percent
Total
1
by product line
100.00%
by sales region
0.00%
by customer
0.00%
by geographical location
0.00%
0.00%
answered
skipped
Analysis Mean:
1 Std. Deviation:
0

No answers found.
9. What are the forecast process performance measures that are in place, e.g. forecast
accuracy. Please list them
Response Response
Percent
Total
1
1.
100.00%
100.00%
100.00%
0.00%
answered
skipped
1 11/04/16 11:57AM Forecast accuracy

ID: 35434708
2.
1 11/04/16 11:57AM Forecast bias
ID: 35434708
3.
1 11/04/16 11:57AM Overstocks, understocks and write offs
ID: 35434708
4.
No answers found.
iv
10. Do you think Forecasting efforts within your organisation are effective to minimise
the Bullwhip Effect within the supply chain. Please elaborate.
Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 11/04/16 11:57AM Currently efficiency aspect such as production and storage capacity, timeous scheduling
ID: 35434708
of order receipts and the effect it has on stock are not considered when doing a forecast
and this results in a reactive pattern of managing two extreme situation of out of stock
and overstock. Long lead times and three months fixed forecast period does not allow for
flexibility which makes it difficult to proactively manage potential problems. Weekly review
of the forecast will potentially minimize the Bullwhip effect.
answered
skipped
Appendix B: Health of Inventory and Inventory Management Processes

1. Is your replenishment cycle distinguished between item classifications or is it the
same for all product groups or is it different for each supplier? Please select applicable
answer.
Response Response
Percent
Total
1
Set between item classifications
Same for all product groups
Different per supplier
Analysis Mean:
2 Std. Deviation:
0
0.00%
100.00%
0.00%
answered
skipped
2. What is your inventory review period, i.e. the frequency at which inventory is reviewed
with the intention of placing orders if required?
Response Response
Percent
Total
1
Weekly
100.00%
Monthly
0.00%
As and when required
0.00%
0.00%
answered
skipped
Analysis Mean:
1 Std. Deviation:
0

No answers found.
3. Do you have inventory policies in place?

Response Response
Percent
Total
1
Yes
0.00%
No
100.00%
vi
3. Do you have inventory policies in place?

Response Response
Percent
Total
Analysis Mean:
2 Std. Deviation:

0
answered
skipped
4. If Yes, how regularly are your inventory policies reviewed?

Response Response
Percent
Total
1
Quarterly
0.00%
Annually
0.00%
Never
0.00%
0.00%
answered
skipped

No answers found.
2. Inventory Management
5. In terms of your stock-holding, on average, how much does actual inventory position
differ from the desired or model stock?
Response Response
Percent
Total
1
Below 20%
0.00%
Above 20%
100.00%
0.00%
answered
skipped
Analysis Mean:
2 Std. Deviation:
0
vii
5. In terms of your stock-holding, on average, how much does actual inventory position
differ from the desired or model stock?
Response Response
Percent
Total
No answers found.
6. What has been your inventory investment split between safety stock and cycle stock
over the first 6 months of your current financial year? Please state values as a
percentage of total inventory.
Response Response
Percent
Total
1
Safety stock as a % of total inventory in Rand value
0.00%
0.00%
answered
skipped
No answers found.
2
Cycle stock as a % of total inventory in Rand value

No answers found.
7. Do you have set target availability percentage for each of your sku's or item
classification groups, i.e. A, B and C categories?
Response Response
Percent
Total
1
Yes
100.00%
No
0.00%
answered
skipped
Analysis Mean:
1 Std. Deviation:
0
8. If Yes, please state the set target availability percentage for each of the classifications
below:
Response Response
Percent
Total
viii
8. If Yes, please state the set target availability percentage for each of the classifications
below:
Response Response
Percent
Total
1
100.00%
100.00%
100.00%
answered
skipped
1 12/04/16 10:25AM 100%

ID: 35532003
B
1 12/04/16 10:25AM 100%
ID: 35532003
C
1 12/04/16 10:25AM 100%
ID: 35532003
9. What is the CURRENT availability percentage for your A, B and C items?

Response Response
Percent
Total
1
100.00%
100.00%
100.00%
answered
skipped
1 12/04/16 10:25AM 59%

ID: 35532003
B
1 12/04/16 10:25AM 87%
ID: 35532003
C
1 12/04/16 10:25AM 100%
ID: 35532003
ix
10. What are your biggest inventory challenges currently? Please elaborate.
Response Response
Percent
Total
1
Open-Ended Question
100.00%
answered
skipped
1 12/04/16 10:25AM Out of stocks

ID: 35532003
11. Do you experience widespread stock obsolescence in your organisation and how do
you manage it?
Response Response
Percent
Total
1
Open-Ended Question
100.00%
answered
skipped
1 12/04/16 10:25AM Yes. Improving forecasting process

ID: 35532003
12. Is the concept of the Bullwhip Effect prevalent in your current supply chain
operation? If Yes, what do you think is the biggest cause or contributor to the Bullwhip
Effect?
Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 12/04/16 10:25AM Yes. Bullwhip Effect can be minimized by information sharing. Through customer forecast
ID: 35532003
collaboration this can be minimized.
answered
skipped
Appendix C: Product Supply

1. How many suppliers and / or manufacturers do you use?
Response Response
Percent
Total
1
> 10 > 20
0.00%
> 20 > 50
0.00%
Over 50
100.00%
answered
skipped
Analysis Mean:
3 Std. Deviation:

0
2. Where are your suppliers based mainly?

Response Response
Percent
Total
1
Local
0.00%
International
0.00%
Both
100.00%
answered
skipped
Analysis Mean:
3 Std. Deviation: 0 Satisfaction Rate: 100
3. What are the average lead times for your products?

Response Response
Percent
Total
1
Local (state if applicable)
100.00%
100.00%
answered
1 11/04/16 9:03AM 8 weeks

ID: 35440409
International (state if applicable)

1 11/04/16 9:03AM 12 weeks
ID: 35440409
xi
3. What are the average lead times for your products?

Response Response
Percent
Total
skipped
4. Do you diligently measure the Supplier lead times to ensure orders are received on
time?
Response Response
Percent
Total
1
Yes
0.00%
No
100.00%
answered
skipped
Analysis Mean:
2 Std. Deviation:

0
5. Apart from lead time, what other Supplier performance measures do you have in
place? Please list.
Response Response
Percent
Total
1
1.
100.00%
0.00%
0.00%
0.00%
answered
skipped
1 11/04/16 9:03AM on time in full

ID: 35440409
2.
No answers found.
3.
No answers found.
4.
No answers found.
xii
6. Please describe how you do your planning for buying requirements, e.g. is it a manual
process or do you use a system that helps facilitate buying decisions in terms of how
much to buy?
Response Response
Percent
Total
1
Open-Ended Question
100.00%
1 11/04/16 9:03AM Contract Manufacturing / ERP together with in house manual system
ID: 35440409
answered
skipped
xiii

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Supply Chain Management MECN 7059

Analysis of ABC Pharmas Supply Chain with a focus on

Number of Pages Submitted:

Collaboration & Product Supply

Motivation and Objective ......................................................................................... 2

Investigation & Analysis ................................................................................................. 3

Product Supply ....................................................................................................... 3

3.1.1 Supplier Collaboration ........................................................................................... 5

Forecasting and Demand Replenishment Planning Processes and Methods .......... 7

3.2.1 Demand Forecasting ............................................................................................. 7

Inventory Planning and Distribution Management ................................................. 12

3.3.1 Current State....................................................................................................... 13

Stock-holding Policies ........................................................................................... 18

Policy Decisions ................................................................................................ 20

Safety Stock .................................................................................................. 20

Target Availability Levels ............................................................................... 21

Risk Management ............................................................................................. 23

Demand Replenishment & Planning

FMCG Fast Moving Consumer Goods

United States of America

Supply Chain Network

Vendor Managed Inventory

Motivation and Objective

Forecast for the same period

Suppliers and their geographic locations (international or local)

Regional stock-holding in percentages per region

Safety stock percentages per item category classification

Forecasting processes and methods

Refer to Appendices A, B and C for a detailed questionnaire and responses gathered.

Forecasting Processes & Methods

3. Investigation & Analysis

The amplification of demand variation in a supply chain network (SCN) is a well-known

Figure 1: Distortion of demand as it moves through the Supply Chain

The increasing pressure exercised by technological development and demand variability,

Figure 2: Techniques employed to reduce the bullwhip effect

3.1.1 Supplier Collaboration

3.1.2 Current State

Figure 3: The Relationship Classification Framework

3.1.3 Desired State

Forecasting and Demand Replenishment Planning Processes

3.2.1 Demand Forecasting

3.2.2 Demand Replenishment & Planning Processes

3.2.2.1 Current State

3.2.2.2 Data Analysis

It was found that Collaborative Planning, Forecasting and Replenishment process is

Figure 4: Customer Group Descriptions

Figure 5: Customer Order Percentage per Region

Implement a business process to assist in the standardisation of Collaborative

Inventory Planning and Distribution Management

Inventory is an important component in the Supply Chain, particularly as a facet of

Holding wrong products

3.3.1 Current State

Figure 7: Warehouse locations

Figure 8: ABCs Distribution Network

3.3.2 Data Analysis

Figure 9: Stockholding vs. Quantity shipped per warehouse

Figure 10: Percentage of understocked as attributed to each warehouse

Figure 11: Percentage of surplus sent as attributed to each warehouse

Figure 12: Percentage components for Bulk Centre stock holding

Figure 13: Ordering Quantity density distribution chart

Table 3: Top 15 Average order quantity per order

Table 4: Top 15 Standard Deviation per order quantity per product

Figure 14: Customer Group Descriptions