Debottlenecking Resources Maximize Capacity Utilization to Optimize the Capital Investment
Agribusiness is driven by the environmental sensitivities and hence the Agro chemical companies are exposed to fluctuations in the demand for their products & services; additionally the demand for the products is very seasonal and these seasons vary per geography. In general, Agrochemical business is mainly driven by the Sales forecasts plan given by sales and commercials, which is very optimistic because “Demand for food all over the world is growing and whatever you can make, can be sold”.
To sustain in this agrochemical market which is highly dynamic and fragmented, besieged by intense competition, the ability to anticipate new product introductions and marketing strategies is particularly important…and spells the difference between success and failure.
To help the farmers for their need of crop protection products, Supply chain needs to be very responsive with all product mix required by sales and to address the problem not by creating more space but by utilizing the existing space. This is where we and our solution come in.
Supply Chain of Agrochemical industry
Agrochemical industry need specialized manufacturing facilities and hence plants cannot be setup at all demand locations but production facilities at certain sites act as a local, regional and sometime global source of supply for the market demand. Various manufacturing stages and time taking activities are involved in the whole process to get a finished product (Manufacturing of Active ingredient – Premixing – Bulk Formulation – Filling into small sizes – Packing and – Libeling). Complexity of processes, wide range of products, shelf life restrictions such factors definitely influence the responsiveness of the supply chain in this industry. Besides raw material availability, one of the major factors that create constraints in manufacturing process of a supply chain is a resource factor – Machine and Labor. In addition to dependency of demand locations on these manufacturing sources, the seasonal nature of demand creates bottlenecks in the supply chain by overloading the manufacturing facilities beyond their capacities in peak seasons and keeping them idle during lean season.
To facilitate the production and replenishment planning, our business has adopted SAP APO tool and SNP heuristics as a solver based on various business requirements. This engine works on the principle of MRP logic that assumes infinite capacities of production resources, suggests a rough-cut production plan for all products (on that resource) and in the same/near bucket of demand considering the manufacturing lead time. Such type of plan arrived from SNP heuristics creates sudden demands for critical raw materials and also causes peaks and lows on the resource loading. On the other side in spite of changing sales forecast plan given by Sales & Marketing, these people need all type of product mix to inhibit loss of sales and maximize the profitability (High profit margin products, less margin but high volume products)
Necessity of the solution – APO Capacity Levelling
Such pains of business and supply chain gets transferred to Supply chain/Asset planning community and to tackle such situation and respond to dynamic market demand they have to do lot of manual and redundant work in excel sheets for alignment of production volumes with resource capacity which is planner centric. This activity being cumbersome is carried out for selected few products in immediate short horizon, missing the visibility of possible consequences down the line and across all the processes from filling Packing, Formulation, and critical Active ingredient manufacturing. Sometimes planners carry out long term campaigns for few pack sizes consuming its component stocks which leads to global imbalance as one country keeps huge inventory and other country in short of its component, increased inventory levels, the carrying costs of unnecessary products, shelf life issues and loss of sales of required pack sizes and hence demanding extra capacity to produce more in peak time. But in this challenging economic condition, only expanding capacities– which is huge capital investment – is not a justifying solution for peak season demand and comparatively keeping capacities idle during lean seasons.
Solution was required to de-bottleneck the existing resource, optimize the capacity utilization throughout the year and have a real plan that can be brought into production. Resolve the key challenges in manufacturing process and increase production efficiency. Also the aim was to analyze the real constraints in capacities and arrive at the factual long term expansion plan, if any.
Post APO implementation it was felt that RCCP (Rough Cut Capacity Planning) would be better fit for such debottlenecking, Efforts were put in looking at various alternatives to address the need. Focus was on refining the process to arrive at a simple, reliable and sustainable long term solution.
Capacity Levelling with Product Priority Concept
Though APO capacity leveling is an extended functionality of SNP heuristic, it is seldom used. But if we rightly model the combination of business requirement and SNP heuristic concept we can arrive at optimized and feasible plan even with heuristic planning and that is what we are getting benefits from- without switching to other solvers like SNP Optimizer and CTM which has their own constraints.
While implementing RCCP we used some of the standard functions of capacity leveling with product priorities to achieve a rough cut feasible plan where high priority product demand was satisfied by the resource just near and without loss of sales, build ahead plan for medium priority product and for low priority products managed by campaigns during lean season which can be built in advance with low inventory carrying cost or can accept calculated lost sales sometimes.
Major Benefits seen from this project:-
- Adopted a solution using standard functionality in SAP APO tool
- No additional Capital investment on the implementation
- Quick implementation and can be easily rolled out
- Visibility of capacity and phasing components at early stage that serve as critical inputs to Sales and operations planning.
- Decision of future Capital and Labour investments in manufacturing
In addition to tangible benefits, this RCCP helped all planning community from their daily drudgery and spend their already constrained bandwidth on more business relevant activities. Supply chain planning became more global in nature and trying to ensure all business interests are met in best possible ways. Supply chain metrics specifically concerning inventory, supply chain reaction time and fulfillment ratios are expected to turn to the better in near future.