You may experience situations, where no batch on stock is able to meet the shelf life requirement stated in a customer agreement. For some customers, the shelf life agreement might be flexible, and thus Sales can contact the customer to ask if they are willing to accept a batch with less shelf life than the one agreed upon. In these situations, you can offer a discount which can avoid both scrapping the products and losing the customer order.
Quality assurance (QA) is also an important stakeholder to engage for securing the right flow of products. QA is a key process especially in the pharmaceutical industry, and the sequence in which they review and approve batches is just as important as having the right flow in the warehouse. A batch waiting for approval from QA can cause that the batches are shipped to customers in the wrong sequence, potentially resulting in scrap and poor customer service.
Production also needs to adhere to the order quantities and timing made by the planning department. We often see the case where Production increases a production order quantity or changes the sequence of orders to achieve better capacity utilisation. However, this might come with the consequence of scrap or even missed deliveries if too much is produced, or if products are produced too early. Here, you can use a simple planning adherence report to help visualise and tackle such challenges.
It is also key to communicate clearly about demand and shelf life requirements in intercompany replenishment. We see too often that companies only take care of the shelf life requirements of external customers but neglect the internal flow of goods between their own sites. Thus, the shipped batches end up being scrapped as they have too little remaining shelf life when they reach the receiving distribution centre.
4. Build proactivity and plan ahead
When the key departments in your organisation are aligned, and the right focus and flow have been established, the next step will be to start building supporting tools to support the process. These help avoid reactivity and firefighting behaviour.
Some advanced planning systems (APS) support some degree of planning with shelf life expiry (e.g. SAP APO and SAP IBP). However, you can also use simple BI reporting tools or Excel reports, that can be developed to provide an overview of potential scrap scenarios, as well as if there are future customer demands where the shelf life of current stock cannot cover the requirements.
A foundation for this is that your organisation can couple demand elements (forecast and sales orders) with the shelf life requirements. Afterwards, you can compare demand elements and shelf life requirements with stock on hand and then create simple reports to highlight potential risks and give proactive alerts.
Finally, your organisation should also track scrap and delivery issues caused by shelf life in the daily KPIs used in operations.
5. Fuel the shelf life process with advanced planning systems
Some advanced planning systems can plan with shelf life, for example SAP APO and SAP IBP. It can be advantageous to look into how APS solutions can support shelf life planning, if you want to ensure an integrated process where the organisation reacts on the same set of numbers. It is important that you do not focus only on a single process, but consider various aspects of the supply chain planning.
Firstly, for demand planning, a good shelf life planning solution must be able to plan with different customer requirements for both forecast and actual sales order demand.
There are often different shelf life requirements in the intercompany replenishment as well, and you should make sure to account for these too.
Inventory management is highly impacted by shelf life planning. Different lot sizing policies impose different risks for scrapping. Inventory optimisation must not just take holding cost into account but should also seek to reduce the risk of scrap. In addition, time-dependent safety stock planning can add significant complexity to the requirements of MRP heuristics.
For detailed scheduling and production planning, you must consider how scrap and customer requirement information is highlighted in the daily production planning to support an efficient process. In addition, you should consider if/how the solution should support shelf planning on different levels in the bill of materials structure in terms of both semi-finished goods and raw materials.
SAP offers a shelf life planning solution in both their APS offerings: IBP and APO. As a standard, APO has some shelf life planning functionality available but is limited by not supporting shelf life planning with different customer requirements. However, enhancements can be made to APO so it can support differentiated shelf life planning for both DP, SNP and PP/DS. Contrary to APO, standard IBP can plan with differentiated shelf life requirements for both customers and internal logistics flows.
Summary
Managing shelf life planning is a complex subject. First and foremost, it requires the right process and subsequently also the right tools to support the process.
If you do it right, shelf life planning and execution can be a differentiator towards your customers and lead to more efficient operations. As a result, a good shelf life planning process can lead to:
- Better balanced inventory
- Lower scrap from expiry
- Improved supply chain sustainability
- Improved delivery performance
- Lower firefighting in the organisation
- Improved transparency