CASE # 2 Inventory Management Assignment
Andrexa Peluso
WOCase2PLCB2.pdf
Deloitte. l!'-lr pennsylvania 1,,j/,j/ LIQUOR CONTROL BOARD
Implementing supply chain collaboration and vendor managed inventory in the public sector
Submission for Supply Chain Innovation Award™ Competition March 11, 2013
~## ~ WWW& ~----- J .. ,.... . ....... . .... . ... . ... . ......... . .................... . ....... \) .. . ....... . Shipment ••••••••••• ~------
Vendor calls Warehouse to Schedule Appointment
Receive Receivm lnstrucllons
Ba1lment Merchandise 1s purchased w1th1n PLCB
inventory when 1t 1s d1stnbuted by the
warehouse
,----------L---1 Distribute l'----lt-
Receive Ba1lment Consumption
Sell Sales History
Setup
Purchase
Pay
Measure
Sales History, WH Inventory, Forecast
Ship
ASN
Pl n
Invoice
Implementing supply chain collaboration and vendor managed inventory in the public sector
Executive Summary Title: Implementing supply chain collaboration and vendor managed inventory in the public sector
Organization(s): Pennsylvania Liquor Control Board (PLCB) & Deloitte Consulting LLP (Deloitte)
Author(s): John Metzger (PLCB), Doug Hitz (PLCB), Tzarni Mangosong (Deloitte), Gourav Banerjee (Deloitte)
Speaker(s)/Presenter(s): John Metzger (PLCB), Doug Hitz (PLCB), Tzarni Mangosong (Deloitte), Gourav Banerjee (Deloitte)
Summary of the Initiative: The Pennsylvania Liquor Control Board (PLCB) intended to reduce its working capital by implementing a vendor-managed inventory model termed Bailment. It would legally
enable the PLCB to maintain physical possession of merchandise in its warehouses, even though the
goods are owned by its suppliers. Thus, the PLCB delayed ownership of merchandise in its warehouses
until the goods leave its warehouses to fulfill store orders.
PLCB’s unique customized solution brought 28 vendors into one web-based portal that supports
collaborative planning based on shared forecasts and historic sales information. Furthermore, the
merchandizing system was customized to enable a hybrid inventory management model that allowed the
PLCB to store vendor-owned merchandise and PLCB-owned stock in the same physical warehouse
location without changing the warehouse management system.
Fig: PLCB – Bailment Distribution Model High Level Process Flow
Submission for Supply Chain Innovation Award™ Competition Page 1 of 12
DC Inventory Value ($) $160
V) C
$140
~ $120 .E $100
' "' ~ $80 - Total $'s 1::- $60 - No n-Bailment 0 c $40 --"' ., - Ba ilm ent > ~ $20
$-
Implementing supply chain collaboration and vendor managed inventory in the public sector
Innovation statement
The PLCB-Bailment project is an innovative approach that enables collaborative planning,
forecasting and replenishment within integrated enterprise architecture of closely interfaced
Oracle applications and Robocom’s warehouse management system.
Impact statement
The implementation has reduced PLCB's working capital by approximately USD 100 million in
FY'12. It has provided for a drastically improved balance sheet, with ample cash to run the
business.
Fig: PLCB Inventory valuation trend during Bailment Implementation
Applicability
PLCB-Bailment may be referenced by any organization that intends to use vendor managed
inventory to reduce costs and working capital and is challenged by dependent processes on an
interfaced enterprise architecture that involves multiple technology ERP solutions.
Submission for Supply Chain Innovation Award™ Competition Page 2 of 12
Implementing supply chain collaboration and vendor managed inventory in the public sector
Introduction
The Pennsylvania Liquor Control Board (PLCB) is an independent government agency
responsible for retail sales, wholesale sales and distribution of wine and spirits in the
Commonwealth of Pennsylvania. With annual sales of nearly $2 billion, it is the second
largest distributor of wines and spirits in the world.
The PLCB operates more than 600 retail and wholesale stores, plus online consumer
and wholesale sales channels, through which it offers an assortment of more than
30,000 SKUs to its customers. These products are obtained from a complex network of
100+ suppliers across five continents.
Until recently, the PLCB followed a traditional distribution model wherein the agency
purchased merchandise based on sales forecasts, officially took ownership of it, and
then stored it in warehouses. However, this model was costly, causing the agency to
hold $120 - 200 million in warehouse inventory, dependent on time of year, which far
exceeded industry benchmarks.
The PLCB partnered with Deloitte to reduce its inventory investment without lowering
selection and quality.
Submission for Supply Chain Innovation Award™ Competition Page 3 of 12
Implementing supply chain collaboration and vendor managed inventory in the public sector
Problem Definition
The PLCB sought to reduce its warehouse working capital cost by 80% or $100 million
by implementing a vendor-managed inventory model. This model, termed bailment, is a
legal arrangement that allows the PLCB to maintain physical possession of the
merchandise owned by its liquor suppliers. This enormous shift would fundamentally
alter how the PLCB did business. In order to successfully make this transition, the
agency first needed to address several challenges related to:
Process
Bailment would require the PLCB to delay ownership of merchandise until it became
essential to replenish its stores, even though in many instances it would have physical
possession of the merchandise in its warehouses. To make this model work, the PLCB
would need to transition procurement functions, such as planning and forecasting of
inbound logistics for PLCB-owned warehouses, to the vendors themselves. However,
the PLCB still needed to manage vendor behavior and ensure efficient inventory
management.
Technology
The PLCB required a common medium to communicate and work with its vendors who
would be participating in the bailment model. This meant that PLCB’s existing Oracle-
based integrated enterprise solution, including merchandising and inventory
management packages and their inherent interfaces, would need to be customized.
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Implementing supply chain collaboration and vendor managed inventory in the public sector
Another challenge faced by the PLCB was to customize its current enterprise
architecture that integrates Oracle-EBS, Oracle-RMS, Robocom Inventory Management
System and Manugistics. The PLCB needed technology to manage vendors' operating
efficiencies while the vendors accept a part of PLCB's responsibilities such as inventory
planning and inbound logistics to PLCB owned warehouses.
People
Training of PLCB personnel would be required so they could support an operating model
that allowed third-party vendors to carry out procurement functions that were previously
handled in-house. The vendors too would need help in learning the new system.
High-Level Solution
The opportunity to convert to a bailment model was made possible by the agency’s
Oracle ERP implementation, for which Deloitte also served as the implementation
services provider. Through this model, most wine and spirit suppliers would completely
own all of their products stocked within PLCB warehouses. Bailment was viewed as one
of the programs that would be enabled by the Oracle ERP solution in order to reap the
primary benefits of reducing working capital and improving vendor collaboration.
In order to enable the bailment model, Deloitte assisted the PLCB in its efforts to design
and implement a solution that leveraged existing Oracle Retail and Oracle EBS
applications by modifying interfaces and extensions.
The customized solution ultimately brought 28 vendors into one web-based portal that
supports collaborative planning based on shared forecasts and historic sales
information. Particular controls were implemented to authenticate users and to protect
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Implementing supply chain collaboration and vendor managed inventory in the public sector
proprietary vendor information that could be potentially used by competitors. Among
other capabilities, the portal allows vendors to track daily stock levels of products and
redistribute the merchandise within and between the warehouses by an efficient use of
reverse logistics.
Solution Details
In devising and implementing the solution, the PLCB and Deloitte engagement team:
• Enabled a hybrid inventory management model that allowed the PLCB to store vendor-
owned merchandise and PLCB-owned stock in the same physical warehouse location
• Reengineered six business processes (Vendor Collaboration, Inventory Planning and
warehouse replenishment, Inbound Logistics, Inventory Management, Store
replenishment, Inventory Returns & Bailment Penalties) to incorporate a 100% vendor-
managed inventory model in three distribution centers for goods supplied by 28 large
vendors
• Assisted nine of the 28 vendors in purchasing back their existing inventories in third-
party warehouses
• Transitioned planning functions such as inventory planning, warehouse replenishment,
and inbound transportation to the respective vendors. Communicated vendor
expectation and responsibilities by two-fold training - classroom sessions for internal
PLCB team members and web delivery of training, for the vendors, using interactive
material developed on Oracle’s User Productivity Kit.
Submission for Supply Chain Innovation Award™ Competition Page 6 of 12
Bailment Vendor - WH Receiving
Manage
Ship
Manually Create I Update PO, Allocation
Update Shipment Receipt information on
the Vendor Portal
Portal
Implementing supply chain collaboration and vendor managed inventory in the public sector
• Established customized control mechanisms in the form of penalties to enforce vendor
performance and accountability, which is defined through service-level agreements for
replenishing PLCB-owned liquor stores
Business Process flows relevant for bailment merchandise are provided below for the
key distribution functions, inbound logistics, inventory management and outbound
shipments from the distribution center.
Inbound Logistics
• Bailment supplier notifies PLCB of an incoming shipment using and Advanced Shipment
Notice (ASN)
• Bailment supplier can send bailment and non-bailment merchandise on the same truck.
Bailment merchandise is received using ASN information and non-bailment merchandise
is received based on the Permit-PO information.
Fig. Bailment Supplier- Warehouse Receiving
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BailmentVendor- WH Inventory Management- Inventory Adjustments
Receive
Manage
Distribute
Inve ntory Ad ju stments
Perform daily Shipping/Picking error
adjustments- 0825
Adj u st inventory for In House damages- NOPE
Adju st inven tory after quarterly cycle counts
lN VA
Claims are generated whenever a DC service provider's contract ends
\ Adjust inventory for
Physica l Count- PH YS
Generate Quarterly Claims
Adju st inventory for Inbound damages
NOPE Generate Week ly Clai ms
Implementing supply chain collaboration and vendor managed inventory in the public sector
Inventory Management
• Warehouse Management System (RIMS) will not differentiate between bailment and
non-bailment inventory while making adjustments
Fig: Bailment Supplier- Warehouse Inventory Management – Inventory Adjustments
Returns
• The Vendor initiates a merchandise return request using the shared portal
• Oracle RMS uses information in the return request to create Pick Instructions for the
Warehouse
Submission for Supply Chain Innovation Award™ Competition Page 8 of 12
Bailment Vendor - WH Inventory Management - Returns
Returns
Receive
Manage
Distribute
11
Implementing supply chain collaboration and vendor managed inventory in the public sector
Fig: Bailment Supplier- Returns
Shipments
• Store Replenishment program creates transfers for replenishing the stores. Pick
instructions are generated in the host system (RMS) and sent to warehouse.
• Non Bailment inventory in the Warehouse is prioritized while replenishing the stores
• Bailment inventory is consumed when the entire non bailment stock of a particular item
has been consumed in prior shipments to the store.
Submission for Supply Chain Innovation Award™ Competition Page 9 of 12
BailmentVendor- WH Distribution to Stores
Receive
Manage
j Di stribute
Receive Pick Instru ctions for Store Transfers
Sh ip merchandise t o Stores
Perform Pick
Recei ve merch and ise
Load Merch andise to Truck
Update st ock-l edger
Implementing supply chain collaboration and vendor managed inventory in the public sector
Fig: Bailment Supplier- Warehouse Distribution to Stores
Business Benefits
The PLCB achieved over 100% of its target working capital reduction earlier than
planned with an overall inventory reduction of USD 100 million being realized only
six months after go live
This was accomplished by shifting the point of purchase for products and by transferring
title of the inventory through the bailment model, which was enabled by a customized
Oracle-based system that was designed specifically to meet PLCB’s business
requirements. Other benefits included reduced stock-outs and enhanced supply-chain
efficiencies through electronic document exchange and the automation of processes
such as forecasting and planning, and purchase orders and payables.
In addition to devising an innovative technical solution, the engagement team also
supported the PLCB through change management to help smoothly transition vendors
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Implementing supply chain collaboration and vendor managed inventory in the public sector
and internal PLCB personnel to the new system. Change management was particularly
critical because the bailment model greatly expanded vendor responsibilities related to
managing inbound supply planning and warehouse replenishments. This included
providing vendors with real-time planning data, making them responsible for warehouse
replenishment decisions, and holding them accountable for their performance. The
bailment model also transformed the responsibilities of PLCB procurement personnel
from mainly purchasing products to primarily collaborative planning and managing
vendor relationships.
This project is a great example of Collaborative Planning and Forecasting
Replenishment (CPFR) being used “live!”
Conclusion
The PLCB-Bailment project is an innovative approach that enables collaborative
planning, forecasting and replenishment within integrated enterprise architecture of
closely interfaced Oracle applications and Robocom’s warehouse management
system. This effort helped the client save over $100 million in inventory working
capital over a period of 6 months in FY’12. Furthermore, the project was also
recognized by Oracle with a Titan award.
PLCB-Bailment may be referenced by any organization that uses Oracle-RMS/EBS
and intends to use vendor managed inventory to reduce costs and working capital.
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Implementing supply chain collaboration and vendor managed inventory in the public sector
For more information about this case, please contact:
John Metzger Doug Hitz Director of Supply Chain Director - Bureau of Planning and Procurement The Pennsylvania Liquor Control Board The Pennsylvania Liquor Control Board 910 Capitol St. 910 Capitol St. Harrisburg, PA 17124 Harrisburg, PA 17124 +1 717 705 0776 +1 717 346 1461 [email protected] [email protected]
Tzarni Mangosong Gourav Banerjee Senior Manager Senior Consultant Deloitte Consulting LLP Deloitte Consulting LLP 1700 Market Street 1700 Market Street Philadelphia, PA 19103 Philadelphia, PA 19103 +1 610 657 9164 +1 215 209 9278 [email protected] [email protected]
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Copyright © 2013 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited
Submission for Supply Chain Innovation Award™ Competition Page 12 of 12
