Breaking the curve

Royal Greenland optimises its supply chain

How Royal Greenland is reducing inventories in its supply chain around the world

“Breaking the curve” is a list of initiatives for reducing inventories in Royal Greenland’s supply chain around the world. For the last couple of years, two large initiatives have been running, namely the implementation of sales and operations planning (S&OP) and the implementation of master/tactical planning.

Royal Greenland optimises its supply chain

Royal Greenland supply chain

This article was originally published in the Danish journal “Effektivitet”.

As illustrated in the figure below, several levels of planning need to be carried out in organisations. The S&OP process level is about aggregated volume planning in the long-term horizon for balancing demand on the market with the capacity/resources required (whole fish). Master planning is about planning the more detailed mix (which cuts). This article will focus on the implemented S&OP process.

S&OP Royal Greenland

Reducing inventories

For several years, Royal Greenland has been working on optimising its supply chain planning. At the beginning of 2013, this was further professionalised by the introduction of an S&OP process used as an enabler for obtaining transparency and for making timely decisions in regard to balancing global supply and demand. In other words, does the global S&OP process enable Royal Greenland to exploit the existing possibilities throughout its supply chain? This was initiated as part of the “breaking the curve” initiatives for improving planning and reducing inventory levels across the supply chain.

A complex supply chain

Royal Greenland controls an extensive supply chain, from harvesting of raw materials (fish) to processing and filleting semi-finished goods to putting it in boxes as finished goods and to further distribution to the retailers and food service providers. The pushed supply of fish is a special characteristic of the supply chain context at Royal Greenland. A large proportion of the supply is made up of the fish caught in the waters around Greenland and is based on the fishing quotas.

Thus, the supply from Greenland is more or less fixed; however, if required, sourcing of additional fish from other locations around the world is an option. An additional factor is long lead time, often 6-9 months, which increases the complexity and makes it difficult to gain an overview of global supply and demand and being able to plan appropriately. To make up for the complexity, many expensive inventories exist across the supply chain.

So the fundamental question for Royal Greenland is: How can we establish a global end-to-end supply and demand plan for making timely and consensusbased decisions in order to reduce inventory levels across the supply chain?

Main supply chain flow for cod 

Royal Greenland Supply Chain Flow

Balancing the aggregated long-term supply and demand

A cornerstone of the S&OP process is the balancing of aggregated longterm supply and demand. One of the previous steps in the projects was to establish a long-term volume forecast at an aggregated level for which sales managers and category managers could provide their input. At this level, input regarding market trends, growth initiatives etc. is added to the long-term forecast. Structured input meetings with key account managers are scheduled, where input on e.g. contract negotiations/ expiration etc. is discussed and incorporated into the forecast as well.

This will form the basis of an organisational-wide and agreed-upon consensus forecast.

Implementation of enterprise-wide simulation functionality in SAP, the possibility of breaking down the consensus forecast into actual raw materials requirements (fish) and capacity requirements (machinery, manning etc.) were introduced. This functionality enables three important things:

  1. Firstly, the ability to see how many fish and what types of fish are required to meet the demand on the market. As mentioned earlier, the push flow from Greenland determines the amount of fish available, and is, thus, more or less a given. Transparency in the requirements provides the possibility of balancing the supply of fish and making timely decisions. Decisions, such as: “Do we need to source additional fish from external markets”, or “do we need to sell off fish before processing them into finished goods”, which were not possible to make before the S&OP implementation.
  2. Secondly, the ability to make timely decisions about adjusting the capacity requirements, e.g. the number of production lines, manning etc. is much easier, when we now know more about what the market demands will be.
  3. Thirdly, this enables us to plan the inventories in an appropriate manner. Fishery is seasonal, while the demand remains more or less stable across the year. This means that stock build is a necessity. Also, by adding catch plans (fishing seasons) to the system, it is possible to match the receipt of fish with capacity utilisation, which enables adjustment of capacity across periods.

Using these data as input, monthly review and decision-making meetings with organisation-wide participation were established. At these meetings, representatives from sales and supply meet for the purpose of balancing the calculated demand requirements with the capacity and possible constraints and decide on the necessary actions to take. In order to support the decisions, an extensive list of KPIs was created to get an overview of catch plans, capacity plans, demand plans, inventory developments, forecast accuracy etc.

Mathias Maegaard Mikalsen
Mathias Maegaard Mikalsen
+41 79 489 45 55

Impact derived from the S&OP implementation on cod

The impact of the S&OP process on cod has been substantial. By achieving more transparency in the long term and having the ability to balance supply and demand more accurately, Royal Greenland has been able to reduce its overall inventory by approximately 10 % on average this year compared to last year, see the graph below. It is expected that the reduction will continue and that 2015 will show further improvement.

According to Mette Fabricius, S&OP manager, several important decisions have been made based on the S&OP process:

A good example of a decision made on the basis of the S&OP implementation was to reduce the capacity in relation to our sub-contractor – this decision would definitely not have been carried out without the S&OP process in place.

Mette Fabricius, S&OP manager

"Another example of a decision derived from a higher level of transparency in regard to balancing supply and demand was that it became clear to our organisation that additional sales efforts were required to increase the demand for cod. This decision was initiated, and it has had a direct effect on the reduction of our inventory”.

The catch and the sales vary across the year

Catch and sales royal greenland

Perspective: Reduction of capital tied up in stock

Royal Greenland is a case about optimising Sales and Operations Planning (S&OP) to meet large seasonal fluctuations.

Prior to making the decision to introduce S&OP, Royal Greenland carried out a project known as “Breaking the curve”. The purpose of the project was to identify initiatives for reducing inventory levels and thereby the capital tied up in the company’s supply chain. Based on the catalogue of ideas, it was decided that S&OP would have a great effect.

Why S&OP?

S&OP is about long-term balancing of supply and demand and is an important management tool for creating transparency in the supply chain. The fishing season in the waters around Greenland takes place in the summer months, which means that Royal Greenland must be aware of the customers’ needs and cover e.g. the expected demand for cod for the part of the year when the fishing season is closed. If the volume of fish caught is too high, it results in capital tied up in inventories, and if the volume is too low, the customers will start buying fish from the competitors. In this complex management dilemma, S&OP shows its full potential, as it allows the company to plan on the basis of aggregated volumes and provides an overview of how many kilos of fish to move through the company’s supply chain.

Royal Greenland could simply choose a different location for fishing?

Obviously, this would remove the concern about seasonal fishing. However, Royal Greenland has always had deep roots in and strong ties to the Greenlandic people, and they work in close cooperation with the Greenlandic fishermen. For that reason, Royal Greenland’s primary business focuses on fishery in the waters around Greenland and making sure that local fishermen are also able to sell their fish. Only then are fish sourced from other countries in order to meet consumer demand.

What results do you expect after the implementation of improved planning?

The company expects a better capital utilisation of approx. 10 % on a year-on-year basis within a 3-year horizon. They anticipate less wastage as a result of e.g. not overproducing or using too many resources for what needs to be produced. In addition, the amount of stock-outs, rush orders and overtime work is reduced. But what is perhaps most important is to move focus from sub-optimisation in each individual functional area to a cross-organisational decisional forum, where decisions are made.

Good advice when making the decision to introduce S&OP:

  1. Seek inspiration from people and companies who have already implemented S&OP, before you design your project.
  2. Set ambitious corporate goals for S&OP to achieve.
  3. Involve all the stakeholders who take part in both the supply chain processes as well as the anchoring of S&OP in the day-to-day work.
  4. Design the supply chain processes so that they support the S&OP principles.
  5. Make sure that S&OP is systemsupported, e.g. by implementing SAP APO.
  6. Be aware that S&OP is built around data and that this part of your project will require substantial resources.