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ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

Supply Chain Case Challenge

Modern Trade
Opportunities?
Team ACES
NITIE Mumbai
Aritra Saha - IE17 - aritra.saha.nitie2015@gmail.com
Gourav Chellani - IE111 - gourav.chellani.nitie@gmail.com
Mohit Assudani - IE51 - mohit.assudani.nitie@gmail.com
Swati Premchandani - IE95 - swati.premchandani.nitie@gmail.com

ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

EXECUTIVE SUMMARY
Problem Statement:
To study the existing processes in the supply chain, identify the key issues which are hindering the fill rate
performance of ITC for modern trade and recommend changes in the supply chain strategy/processes so as to
achieve a fill rate of > 95%.
Background:
Organized retail is still in the nascent stage in India (Rs. 14,536 Cr per annum) but it is growing at a commendable
13.2% per annum. MT contributes to 21 % (industry average is 9.7 %) of ITCs other FMCG business, but as
compared to last year it has grown at a whopping rate of 35 %. The contribution of premium products in ITCs
MT portfolio is extremely high (>70 % for 8 product lines), but at the same time the MT environment is famous
for frequent price discounts. Hence it is of paramount importance to revisit and redesign the supply chain
strategy to focus on efficiency and responsiveness.
Methodology:
Initially, we have identified the pain areas in the order fulfillment process and their underlying causes, by means
of an Ishikawa diagram, so that these causes can be addressed in a focused manner. Next, we have documented
the ideal flow of the order fulfillment process, incorporating changes in the as-is process that are immediately
implementable. The changes that need time in implementing have also been mentioned. The present order
fulfillment processes involves a lot of ambiguity and have specific Reason Codes tagged with them. But they
might not be sharply defined in SAP. So we have suggested a new set of Reason Codes to do away with the
ambiguities. Implementing this will require IT integration and People Change Management.
In order to reduce our dependency on forecasting, which is not much reliable owing to frequent promotions,
we have suggested to shift the Customer Order Decoupling Point from the WSP to the Hub. This will reduce
the total safety stock in the supply chain and make it more responsive. Moreover, in order to enable the
customization of the MT supply chain, we have suggested the code conversion for MT inventory in SAP (at hub).
Stocks will flow to lower nodes as per Allocation Report based on Norms & Penetration Levels. The MT outlets
have been categorized into platinum, gold & silver so as to formulate specific service offerings for each type.
In keeping with the strategy of making the supply chain more responsive, we have suggested the shift from Push
based Distribution Requirement Planning to Pull based Multi Echelon Distribution Planning. This will nullify
the Bullwhip Effect by synchronizing the demand across all echelons. In order to support this strategy further,
we have introduced the concept of zonal buffers, which will enable the inventory reduction at the hub.

Automatic
Replenishment

Zonal Buffers

Multi Echelon
Distribution
Planning

SC
Customisation

SAP Code
Conversion

Shifting of
CODP

Reason Code
Revamp

Ideal Order
Fulfillment Process

Fill Rate Issue


Investigation

Root Cause
Analysis

Last, but not the least, we have suggested the introduction of Automatic Replenishment Process through
implementation of Vendor Managed Inventory. This will ensure cost benefit through inventory rationalization
owing to better visibility into retailers demand and service improvement through better scheduling of
deliveries.

ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

Pain Area identification Root Cause Analysis:


The following issues have been identified in the current operational processes which are hindering the
fill-rate performance of ITC Limited for Modern Trade:

Demystifying the fill-rate problem:


0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
Fill Rate
No Stocks
MO - Sales
MO - Technical
No Funds
Auto Closure
Not assigned

80.00%
Are No Stocks real No
Stocks?

A
B

Are these Reason Codes


sharply defined?

A
x%
y% B
z%
a%
b%
c%

A
0.00%
No stocks
Regular SKU's
Discontinued

5.00%
x%
p%
q%

10.00%

r%

Promotional

ITCs current fill rate levels for MT are about 80%. But does
this necessarily mean that for 20% of the times, the stock has
not reached the retail outlet? There might be other reasons
for the stock unavailability at the retailer. So, we need to
track these reasons and target them individually.
*KA Key Account

Reason Codes in SAP - To find out why a difference existed in the flowing line item, reason codes are
assigned to these items. Reason codes are indicated by keys that we define in customizing.

ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

Order fulfillment Process Flow How it should be:

The issue of driver


unavailability can be
resolved by use large
capacity trucks with
subsequent milk-runs
during festive seasons

Loading issues that occur mostly


due to inefficient or improper
usage of dock, can be improved
by dock modification i.e. using
protruding dock where 3 trucks
can be simultaneously loaded

ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

Doing Away with ambiguity in Actionables:


Are the Reason Codes in SAP sharply defined for the ITCs processes? And what are the actions these
Reason Codes trigger?
Say, there are X billing officers who must be punching at least 200X orders (assuming every billing officer
punches at least 200 orders in a month) which means there are more than 3000X lines every month. For
any line that cannot be serviced they have to punch in a reason code. For such an intricate process, most of
the problems arise because of the lack of right information with billing officers i.e. what to use when
and secondly, the process is time consuming.
How about bringing simple changes with new reason codes. The new reason codes could be clearly defined
after close interaction with the business, order processing team, logistics, planning & IT; hence there
is an overall buy-in. The new reason codes can be:

The new reason codes might require the following two changes:

IT Change
Reason codes created in SAP
Only available for MT
Field created for PO expiry date
Auto exception report - 24 Hrs. prior PO expiry
BIW report on fill rates with reason codes

People Change
Deatiled presentation on Reason Codes
Billing officers trained
Business & Supply Chain sensitized on Actionables
Trigger ongoing MIS on Reason Code Report
Better information flow from KAMs to Billing
Office

Supply Chain Customization for Modern Trade:


Elements of Segmented Supply Chain
Create MT Outlet codes for Platinum & Gold
Set Norms at each of the Nodes
Publish Penetration/SOQ status in BPR
Update SAP Masters with New Codes
First time Norm Filling at all Nodes
Issues like Credit Limit of Retailers Reached can be resolved by this method where 15-20% relaxation
may be provided to Platinum MT Retail design types and 5-10% to the Gold Customers.
*From the sales analysis, it can be founded that X and Y number of MT Retail outlets contribute to 90% of the
business. Hence making a separate code for these Design types would cover 90% of the business.

ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

SKU gets produced at


the Plant and is booked
in GT Code
GT
MT
SKU

Code Conversion

Plant

At the next node PWH/RWH the


same physical SKU can be
converted to MT Stocks based on
Norms. This will be a Code
Conversion in SAP

Stocks will flow to lower nodes as per Allocation Report


based on Norms & Penetration Levels

Segmented Supply Chain will ensure Stock Availability for MT based on Auto Replenishment

Moving Towards a Responsive Supply Chain:

ABC - FSN - XYZ classification of Premium SKUs


Inventory of slow moving and non-moving
products pooled at hubs and safety stock is
reduced
Stock to be maintained at each echelons of the
supply chain for fast moving SKUs
Pull of products based on TOC replenishment
model
Over all inventory level will be reduced
SKU classification for setting inventory norms:

A Premium Products; B Intermediate Priced; C Mass Sellers


F Fast Moving Products; S Slow Moving; N Non-Moving

X Uniform Demand; Y Varying Demand; Z Abnormal Demand


AS Slow Moving Premium; AN Non-Moving Premium; BN NonMoving Intermediate priced products

ITC Interrobang Season 4 | Supply Chain Challenge | Team Aces

Order Planning & Fulfillment Options:


Distribution Requirement Planning

Multi Echelon Distribution Planning

PUSH based system


Integration of demand forecasts with production
scheduling & balancing stock requirements with
plant & supplier capabilities
Prediction of inventory depletion & order
placement before shortages are expected to occur
Demand distortion from the bullwhip effect as a
result of inaccuracies in forecast
No linkage of safety stock or inventory norms
between two echelons

PULL based replenishment with order


fulfilment based on actual sales instead of
independent demand forecasts in each echelon
Aims to reduce overall inventory level across the
distribution network on a global scale
Prevents bullwhip effect as a result of
synchronization of demand across echelons
Order quantity and maximum inventory level at
each echelon determined by the order
replenishment time and sales at each echelon

Network Optimization - Introduction of zonal buffers:


Zone formation and WSP selection for holding buffers to be based on:

The same-zone WSPs must belong to the same region with similar Segments
Lead Time for delivery among same-zone WSPs
Estimated Demand in each WSP and hence the total cumulative demand of the Zone
Proximity of Hub from each Zone
Trans-Shipment

Current Scenario
A WSP can source from only a Hub. In case of a
stock out at WSP, only its HUB can come to rescue.
In case of a stock out at both WSP and its Hub,
no stock is available
Stock Outs are thus happening in WSPs when
other WSPs are maintaining high Inventory levels

Future Scenario
A WSP can source not only from a Hub but
from another WSP belonging to the same Zone
In case of stock non-availability at both WSP
and its Hub, stock might still be made available
by transferring from other WSPs with local
buffer

Vendor Managed Inventory:


For suppliers VMI is beneficial
because it mitigates uncertainty of
demand
Buyers are attracted because VMI
resolves the dilemma of
conflicting performance measures:
End-of-month inventory level and
customer service level
Buyers stock up at the beginning
of the month to ensure high
levels of customer service, then
let inventory drop at the end of
the month to meet their
inventory goals.