Better service with less inventory.
Sax sanitair working on inventory management.
Who is Sax Sanitair?
Sax Sanitair has focused on excellent service towards their customers for years. However, little time was made for good inventory management. Until recently that is. To analyse and optimise the inventory situation, the wholesaler in sanitary facilities, heating, ventilation and wellness contracted Optim Consulting. Successfully, because the inventory rotation in the distribution centre has been much improved without affecting the service. Ronald Kerckhaert (CEO) and Stefaan Wanten (Purchase manager) explain the project.
Sax Sanitair was established by Laurent Sax and was taken over in the early nineties by Ronald Kerckhaert. The organisation’s headquarters are in Melle and it is active chiefly in the East and West-Flemish market. The organisation employs about 300 people. The wholesaler primarily supplies to installation companies and currently has about 1,500 active customers. The organisation generates an annual turnover of about 100 million euros.
Sax Sanitair’s great strength is the logistics organisation. The beating heart is located in Wielsbeke with a distribution centre covering 20,650m2 (see box). At the start of this year the storage capacity was expanded with 3,500 extra pallet places and adapted storage facilities for radiators and long pipes. Both the 15 points of sale – a combination of showrooms and pick-up points – as well as customers, at home or on site, are supplied from this distribution centre. The logistics operations are operational six days out of seven and 24/24.
A closer look at the inventory
But the organisation also had a major weak link. By insisting on perfecting the service for years, too much inventory was kept and obsolete inventory was hardly detected.
CRH, the Irish construction materials group that took over Sax Sanitair two years ago, also thought this could be improved. CRH owns various companies in the construction sector such as Klaps, Marlux, Ergon, Gamma and Schelfhout in Belgium. The take-over of Sax Sanitair fitted in CRH’s strategy to get a foothold in the field of Sanitary, Heating and Plumbing (SHAP) in Belgium. In this context, the firms Schrauwen in Antwerp and Lambrechts in Hasselt were also taken over.
“We knew for some time that inventory management was not exactly our strongest point, but we were always too busy keeping our customers happy. And as we grew, we noticed our stocks starting to accumulate”, says Ronald Kerckhaert. “When possible areas for improvement were being investigated following CRH’s take-over, we were not surprised our inventory was a sore point. Our distribution centre contains about 12 million euros in products. If we add the branches to this, we easily end up with another 5 million extra. If we want to continue to grow as we are doing now, it was necessary to curb that figure. However, we did not possess the knowledge nor have the time to carry out this inventory exercise ourselves.
Inventory variety in the goods flow
Every day about 35 truck loads are delivered to Sax Sanitair’s distribution centre in Wielsbeke. On average this is about 100 pallets a day but on peak days it can be up to 300. The transfers from the 15 points of sale, about 150 delivered parcels and the returns, need to be added to this.
In the high-rise warehouse (covering approximately 5,000 m), goods up to 15m high are put away by three Crown narrow aisle trucks. This area has enough room for more than 17,000 pallets. Approximately 3,500 SKUs (stock keeping units) are stored here. Radiators can be kept in a separate storage space of 2,700m2. There is room for 3,600 pallets and more than 10,000 radiators are stored here. The first and second level in the racks are picking locations, the third and fourth level are buffer locations. The pipes are also in a separate zone, at bulk locations, in brackets on ground locations or in cantilever racks. There is also a storage space with travelling cranes for heavy goods and outside storage for PVC and PE-pipes.
Small products are stored in the Kardex. This is an automated horizontal carrousel which brings the goods to you. The operators are controlled via a pick-to-light-system. Each of the 15 horizontal Kardex machines has 50 shelves. That results in 20,700 locations where almost 8,000 SKUs are being stored.
Delivery handling, reception and storage takes place during the day. The night shift prepares all the orders from 9 p.m. In the early evening the route planners give all orders that need to be delivered the next day a freight number. When all routes have been drawn up, every order is given a picking list number to start the order picking. Approximately 3,000 order lines are picked at night. Picked goods end up in a consolidation zone of 1,800 m2, where they are sorted based on freight number so that the drivers can load them starting at 6 a.m. Via the 20 load quays they leave the distribution centre to the customers. All transport uses own lorries and vans. This is why CRH put us in touch with Optim Consulting a year ago.
The aim of the project was to increase the inventory rotation and at the same time improve the customer service. To deal with these seemingly conflicting interests, the entire inventory management had to be approached holistically. A decision was made to first focus on the distribution centre in Wielsbeke. In a first phase, Optim Consulting took the necessary time to make an in-depth analysis of the existing methods and to detect the most important problems. Based on these analyses an action plan was drawn up with a view to making various improvements in the field of inventory strategy, inventory planning, supply processes and IT-systems.
Optimising with Optimact
The introduction of Optimact, Optim Consulting’s own supply chain planning tool, was a major step forward in the optimisation process. Before, Sax Sanitair used Excel to calculate the inventory parameters. “Making the necessary calculations in Excel was very time-consuming”, says Stefaan Wanten. “In addition, our tool was not accurate enough to determine the inventory parameters for our 15,000 inventory items. This resulted in inventory shortages, overstocks and products that remained in the warehouse for far too long”. “We immediately made it clear to Optim Consulting that we were definitely open to new software, but that the integration into our IT system had to be done at the lowest possible cost, which worked out very well. Indeed, we would like to implement a new ERP (Enterprise Resource Planning) and WMS (Warehouse Management System) system in a few years’ time, which means we will have to rethink everything anyway,” adds Ronald Kerckhaert.
Today, the new tool allows Sax Sanitair to keep a close track of new items and to align purchases better to the evolution of the demand. “Items that don’t sell well, will be ordered less and if the tool indicates that a product is very popular, we can consider purchasing more”, Stefaan Wanten illustrates. “We systematically take a closer look at all obsolete products as well now. This concerns products that were sold less than once in the past year. We can try to sell these products through special promotions, for example.”
Every month, Optimact processes the sales data of the past month and the forecasts are being generated. If there are exceptions in the forecasts, Optimact highlights the SKU’s. All these exceptions are reviewed and a new forecast can be made for these specific SKU’s, taking into account preset minimum and maximum parameters. “This way we not only avoid undersupply but also systematic oversupply. Meanwhile, Optim Consulting also developed a performance measurement system for us. This allows us pinpoint and visualize the difficulties every month. This way, the improvement dynamic remains within the company,” says Ronald Kerckhaert.
In addition, Change Management was an important point of attention during the improvement process. The changes involved many employees – purchasers, order followers, etc.
Stefaan Wanten: “During the entire optimisation process we put a lot of time in the necessary support and training. For example, employees used to order everything way in advance from the supplier. Just to be sure, because “then we have everything”. But everyone knows construction projects regularly run into delays, in other words, quite often we had to store the material here for up to half a year. Now our employees only order when necessary. This implies they have to call the installer regularly to make sure the timing is still the same. Naturally, this requires discipline of our people.”
Branches to follow in the next phase
The first results of the optimisation exercise within the distribution centre are promising. Inventory rotation improved 30% and at the same time customer service increased from 93% to 97.5% (order line level). “In other words, we can safely say that our objective – better inventory management in combination with an even better service – has been successful “, concludes Ronald Kerckhaert.