Development of Replenishment and Planning Strategies - A case study at Duni AB

Abstract: Success through product differentiation A popular science article based on the Master Thesis “Development of Replenishment and Planning Strategies” by Fredrik Kapellner and Felix Kaltea, 2016. Matching supply with demand is a continuous struggle, now more than ever since customers expect deliveries within days after placing an order. In order for a company to be profitable in these demanding times differentiation of products, targeting the most important customers and applying proper inventory control are vital. Companies offer often a wide range of products to different customers. The same products and customers have diverse characteristics and needs. In order to fulfil the customers’ needs differentiation is called for. Differentiation enables companies to target the most important products, customers and at the same time providing the necessary service commitments to be competitive. Commitment to customers consists of determining service level and accomplishments for different customers and products. Providing the same service commitment to all customers for all products will generate high costs and low service level. (Jonsson & Mattson, 2011). Focus on the most profitable products or customers gives a competitive advantage. Differentiation is part of the overall strategy and different service commitment affects the entire supple chain. However, the service commitment towards the customers is ultimately set in the inventory trough replenishment strategies and safety stock settings, which makes inventory control and replenishment strategies of significant importance. Companies today have realised the true importance of inventory control systems that controls the flow of goods and optimises the inventory costs (Axsäter, 2006). However, companies are failing to sustain promised service commitments while tied up capital increases in inventory. The study “Development of Replenishment and Planning Strategies” consists of a comprehensive literature review in the fields of inventory control and supply chain management. This study was conducted at Duni AB (Duni). Duni is a supplier of disposable consumer goods for drinking and eating occasions. In order to develop justified replenishment strategies a differentiation of Duni’s product range was necessary. The differentiation was performed based on gathered data through interviews and data mining of transactional data for 2015. The factors that were used in the differentiation were variation and volume. The volume made it possible to target the most valuable products and the variation illustrated which products that were easy to control. Different classes were constructed based on the factors and corresponding service commitments were established. The higher service commitments were given to the classes with lowest variation. Furthermore, the value of the products divided the service commitment further between the classes with low variation. Classes with high variation were given a low service level, since the high variation would make it difficult to main a high service level. Justified replenishment strategies were developed to the classes which increased the overall service level and decreased the tied up capital substantially. Differentiation and inventory control made it possible to achieve the results. As Axsäter (2006) writes: “An efficient inventory system can be a competitive advantage that can bring either a higher service level and/or decrease costs in inventory, and releasing cash for other purposes”.