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GAINS Australia Inventory Management

GAINS Assists Mitsubishi Engine in Finding a New Source of Profit

Mitsubishi Engine North America (MENA) was confronted with shrinking market share for its engines due to the eroding customer service levels of spare and repair parts. MENA tried correcting this issue by hiring a prominent international consulting firm. The consulting firm re-engineered MENA’s processes and implemented a leading edge demand planning software system. However, such six sigma re-engineering and leading edge demand planning software was only improving MENA’s customer service levels by also increasing their inventory investment. The level of inventory investment the new system was forecasting in order to turn around their shrinking service business was not economically acceptable.

“We were seeking a solution to help us increase customer service levels, increase productivity, reduce expedites, reduce operating expense, and therefore increase profits,” stated the MENA’s General Manager. “Our inventory is comprised of over 30,000 items. All of our parts are purchased from our parent companies in Japan. We were experiencing high expedite costs due to unbalanced inventory levels, caused by long and variable lead times not matching short term demand changes.” 

MENA’s management recognised that the demand planning and forecasting point solution they implemented was not helping them regain market share and was driving increased, not reduced, operating costs. The MENA management team recognised that they needed a comprehensive solution that could deal with a dynamic customer demand and long lead times in a real time environment. MENA found that solution in the GAINS, a dynamic, real-time, inventory planning and profit optimisation solution that uses expert systems, stochastic algorithms and advanced management science to dynamically manage error and variability, across the flow of materials in the enterprise. The GAINS ensures that all targeted customer service levels are met with no expediting and with the greatest contribution to profit.

Shortly after the implementation of the GAINS, MENA started seeing the results they wanted and needed.
  • Customer service levels increased 23% (100% complete order fill by line item)
  • Sales grew 15% - 17% annually due to higher customer service levels
  • Expediting costs were immediately reduced by 23%
  • Planning and purchasing costs were reduced by 50%

Since the implementation of the GAINS, MENA has been able to consistently grow their business at a rate of 15 to 17% over the past five years. Even with MENA’s sales volume doubling and the addition of 19,000 new items in inventory, MENA has not had to increase their dollar investment in inventory or add additional planning, purchasing, or inventory management staff to handle the significant increase in volume. The dynamic planning elements of GAINS have not only supported this growth, but have automated the increased order and planning activities so that additional personnel were not needed.

“GAINS is not your traditional approach to managing a business,” explained the MENA’s General Manager. “However, if you are open-minded enough to set aside what everyone else is telling you about supply chain planning and demand planning; GAINS will enable you to find a whole new source of profit in your business, even in a down economy. If it were not for GAINS, we would never have made our corporate targets this quarter.”

Several of the unique optimisation and inventory planning capabilities found in GAINS, that enabled MENA to achieve their results, are:
  1. Dynamic Forecast Model Selection that tests for plausibility and accuracy to provide an objective demand plan baseline and eliminate as much human bias as possible.
  2. Dynamic Analysis of Supply and Demand for every SKUL (SKU by Location) across the enterprise that considers all error sources including the variability in supply and user variance from plan. Only through this comprehensive approach can precise Service Level attainment be achieved (most alternative approaches overshoot for most items and undershoot for some leading to excess costs). The goal is to attain exactly the cost-minimising or profit-maximising Service Level, not more or less.
  3. Profit-Optimised Inventory Policies (e.g. Replenishment Order Sizing and Safety/Service Stock) calculated at the SKUL level, considering total annual cost, comprehensive error, targeted customer service levels, and all relevant dependencies and constraints.
  4. Leading Indicator, Extrinsic Variable, and Viability Analysis to ensure forecasts and plans are not just a “look in the rear view mirror.”
  5. Real-time simulation to support both GAINS internal scenario analysis as well as to give executives the ability to simulate scenarios for both tactical and strategic initiatives including Stocking Policy (what to stock where) and Network Flow Optimisation (how best to provision it).
  6. Automated and optimised replenishment planning that determines the profit and service level optimum source for each replenishment (parent location, primary vendor, surplus location, alternate vendor, substitute, etc.). Purchase constraints and opportunities (e.g. bulk buy discounts or rebates) are dynamically analysed in the generation of specific orders to meet or fulfill these parameters at least total annual cost given targeted customer service levels.

“Before implementing GAINS, MENA had the worst service levels in North America. Our major problem was driven by long lead times coming from Japan and the fact that Japan pushed inventory out to us according to their production plan, not our demand. GAINS enabled us to educate Japan to accept an inventory plan that would level load their factory, build order quantities to buffer for long lead time, and ensure we have the right product at the right time” – General Manager, MENA

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