When Armin von Buttlar became CFO of Leybold Vacuum in 2001, the company was in a critical situation. Unreliable delivery promises, lengthy throughput, and unplanned order processing were on the agenda – even though demand was getting lower because of general economic conditions. Planning, sales, service, and the operating processes of the supply chain no longer worked in harmony. Limited planning information and no overview of the available capacity made it impossible to make reliable promises about deliveries. Leybold Vacuum had to react to customer orders without any preparation, which resulted in drastically late deliveries and unsatisfied customers.
Preliminary study discovers weaknesses
Leybold Vacuum had to tackle the roots of the problem, so it created a project named Punctual Delivery in November 2001. A preliminary study produced a list of about 80 weaknesses. Many of them, such as long throughput times despite a low load on production, added costs. Missing inventory and too much inventory pointed in the same direction. The weaknesses lay in the planning chain and in how planning information was processed. Von Buttlar describes the situation this way: “It was clear to us that organizational changes would be required. But in any case, we wanted to avoid an expensive IT project that led to an uncertain conclusion. And we weren’t sure if the available combination of spreadsheets and SAP R/3 could meet our requirements or if we should purchase mySAP Supply Chain Management (mySAP SCM). The management team wanted to know exactly how we could achieve business improvements. Did we need a new planning and optimization tool, or could we achieve the same goals with optimized and disciplined use of the available planning tools?”
In January 2002, Jürgen Schwarz, the director of materials management, assumed responsibility for evaluating the individual business processes at Leybold Vacuum. This business assessment was to validate and enumerate business benefits, plan the implementation steps, and prepare for additional procedures. “It was important for us to drive the project from the factual side and not as a pure IT project,” says Schwarz. “Employees must see that it was primarily a matter of organizational changes and changed behavior.” An independent management consultant from what has become ae & company supported the business assessment. He developed a special process for the assessment and concentrated on optimization topics in the supply chain, sales and distribution, and service.
Supply chain optimized in seconds
The assessment made clear that only a comprehensive planning and optimization tool like mySAP SCM could meet all the company’s goals. In particular, the LiveCache memory management technology of SAP Advanced Planning & Optimization (SAP APO) was absolutely necessary. SAP APO can help comprehensively optimize the entire supply chain within a few seconds.
The realization project and the implementation of mySAP SCM lasted eight months, from April to December 2002. The Leybold subsidiary, perfect-IT, supported by axentiv AG from Darmstadt, Germany, ran the project. Now, after the implementation and the organizational changes, all preliminary work is now bearing fruit.
The analysis clarified the relationships within the business processes at Leybold Vacuum so that today, a year after the restructuring of the supply chain, the business benefits can be measured in key figures. When compared with the earlier situation, Leybold Vakuum has increased the punctuality of its deliveries in terms of the dates requested by customers in 2003 by almost 50 percent to 86 percent. In practically all cases, delivery occurs on the promised date (95 percent in 2003 and 85 percent in 2002). And today there are no delivery bottlenecks – even with growing demand.
Key figures prove the quality of delivery
Because of reliable parameters in capacity and production planning, throughput time decreased and the punctuality of internal orders rose by 68 percent. Throughput times were reduced by 15 percent. This led to faster cash flow and lessened capital encumbrances. The result affected liquidity directly because customer orders could be processed more quickly and revenues realized right away. Liquid funds are available now – funds that earlier required external financing. Better loads on production resources increase efficiency. Leybold Vakuum can now deal with 30 percent more orders than it could before. The rapid, comprehensive optimization of process steps from procurement to the end product has proven decisive. In addition, the company can now generally avoid special shifts and the related additional costs.
Because orders to be planned end-to-end are handled by standard processes today, the number of orders that require expedited special or express handling by in-house means has shrunk. That means a 27 percent decrease in courier costs. Warehouse inventory sank by about three percent. The inventory level of six percent is rather high when compared to sales, but it is acceptable because of the high number of product variants and special materials.
The business assessment showed a return on investment in 1.5 years at the latest, even in a conservative scenario. Today, Leybold estimates that the project has paid for itself already simply in terms of increased customer satisfaction.
A team of four controls the planning process
Before the implementation of the mySAP SCM solution, some 40 employees were involved in planning processes – from sales planning to production. Although all found ways to optimize their areas, the overall process remained fragmented and demanded a great deal of coordination. Today, a small team of four employees handles all of planning – from sales to detailed scheduling – with completely integrated planning information that is always available. The team produces requirements, capacity, production, and shift plans. The group is responsible for the entire supply chain and for individual product lines. Central material requirements planning coordinates procurement directly.
“The changes were not effected by technology, but by the Leybold Vacuum company itself and its employees,” says Schwarz. “But we have to admit that SAP APO forces us to – and helps us – analyze and plan our business effectively.” With success. In its manufacturing processes, Leybold Vacuum aims at the availability of the right materials and semifinished goods at the right time, performs early and detailed order scheduling, and always keeps an eye on free production and assembly capacities. “We see the problems and bottlenecks with resources exactly and can work on them as needed,” says Schwarz. “And the opposite is also true. The effects of planned changes in procurement, production, and distribution can be estimated across the entire supply chain.”