Imagine halting an automotive production line because the manufacturer ran out of a special powder that goes into the gearbox filter. If that were to happen, then Höganäs AB might very well be to blame.
Based in Sweden, Höganäs makes raw iron and metal powders for a variety of applications. Automakers constitute its largest market, which extends to every major country.
Like all automotive suppliers, Höganäs is under intense pressure to deliver product reliably, often on a just-in-time basis. In recent years, however, that mission has become increasingly difficult to carry out.
In the wake of the 2008 global recession, the metals powder industry was subjected to increasing demands by customers for better cost control, even as commodity metal prices were becoming more unstable. Meanwhile, suppliers like Höganäs had to keep providing a wide range of highly customized products to multiple markets.
The situation called for a much better forecasting system than Höganäs had on hand. The existing application required extensive manual work by the 50-person sales team, says supply chain manager Richard Molin. Demand within a given country can be influenced by a number of factors, including the local economy, environmental regulations and consumer tastes.
For sales managers, it was a hit-and-miss situation. “They spent a lot of time keying in numbers, and trying to guess sales for different products and customers,” Molin says.
In addition, Höganäs had too much stock in its global supply chain, the byproduct of forecast error. What it needed was a new system that involved the entire global management team, and drew on the discipline of a formal sales and operations planning (S&OP) process.
The previous technology had merged aspects of several forecasting systems, but could not handle key functions such as inventory planning. So Höganäs began looking for an alternative. It was seriously considering a couple of options when Optilon, its Swedish systems consultant and integrator, recommended an application from its IT partner ToolsGroup. (Optilon, which represents ToolsGroup in Sweden, had previously helped Höganäs with implementation of its enterprise resource planning system.)
Höganäs Chooses ToolsGroup
Höganäs opted for ToolsGroup’s demand modeling and forecasting application known as SO99+, in tandem with the vendor’s Demand Collaboration Hub. The latter is an environment for joint participation in forecast planning.
Molin says SO99+ was “very user-friendly,” yet contained a number of essential features behind the screen. The planning platform embraces demand forecasting, modeling, sensing and collaboration, says Jeff Bodenstab, vice president of marketing with ToolsGroup. Going beyond inventory optimization, it also ventures into replenishment.
It was the forecasting part of SO99+, with an emphasis on inventory control, that appealed to Höganäs. The company began implementation in May 2012, with the system going live for 85 countries, involving 13 sales companies, by the following November. Preliminary work was confined to a pilot that used historic data for China to prove the concept. After that, the company went for a complete rollout.
There were few bumps in the road along the way. Simmons says Höganäs was careful to involve sales managers from around the world in the process. “They flew in people from all their markets to help with inputting the solutions.”
Höganäs did have to make one small modification in the SO99+ software to account for future pricing, says Molin, but the adjustment was achieved within the company’s implementation timetable.
A major goal of Höganäs was to get market intelligence from sales managers into the system quickly and accurately, says Johan Simmons, business consultant with Optilon. With the proper data in hand, Höganäs could proceed to calculate better statistical forecasts.
ToolsGroup’s Demand Collaboration Hub helped to smooth the path. Bodenstab says the system was designed “to allow a non-expert user to quickly come up to speed on being a collaborator, and providing market intelligence and account knowledge into the forecast process. The goal was to create an interface that could be used virtually without a user manual.”
System’s Early Benefits
The system has been in place for less than a year, but Höganäs is already seeing the benefits. It has been able to speed up the reporting process by at least 25 percent. Work by the sales organization has been cut by 50 percent, even as the company has seen improved forecast accuracy, says Molin.
Höganäs now holds monthly S&OP meetings and generates reports at the same frequency, supplementing the usual quarterly reports. The discussions center on volumes and inventory levels. “Each person now leaves these meetings with a much clearer picture of what needs to be accomplished,” says Höganäs sales director Ralf Carlström.
The task is far from complete. The company is halfway to its goal of reducing inventory by at least 10 percent, says Molin. He expects to reach that target within a year.
The second phase of the rollout includes implementation of a new warehouse optimization system. ToolsGroup is contributing the module that addresses forecast accuracy and determines the proper level of safety stock. In addition, says Molin, Optilon is providing the iPlanner tool from InSync to run production planning.
Tying all of those systems together hasn’t been a problem, Molin says. Höganäs benefits from having one instance of an ERP application across the organization. “Optilon has proved very good at integrating [IT],” he says.
Bodenstab says Höganäs is following a path tread by many ToolsGroup customers – starting with simple tools like Excel spreadsheets, then migrating to more sophisticated technology as their businesses grow in complexity, whether through acquisitions, new brands or additional sales channels.
As for Höganäs, it is focusing at the moment on deriving the maximum benefit from the ToolsGroup applications.
“We’re looking at every location within the group,” says Molin. When we have a new forecast, and see that it has improved, we adjust down on the safety stock for each product.” In the process, he says, Höganäs can keep a lid on inventory costs while ensuring high levels of service to its demanding customer base.
Keywords: supply chain, supply chain management, inventory management, inventory control, automotive supply chain, inventory management systems, supply chain planning