My final presentation for my summer internship at Hilti Inc.

1. www.hilti.com 1
RE-ORDER POINT AND
INVENTORY ANALYSIS
VISALIA DC
Kushaan Shah
Summer 2013

2. www.hilti.com 2
Agenda
● PROJECT BACKGROUND AND GOALS
● DATA COLLECTION
● DATA ANALYSIS AND IMPROVEMENT PLANS
● CONCLUSIONS
● FUTURE OF PROJECT
● QUESTIONS

3. www.hilti.com 3
● As a global leader of value-added, top-quality products, two of Hilti’s
main objectives are to:
• Increase the Quality of Service
• Optimize inventory
BACKGROUND

4. www.hilti.com 4
BACKGROUND
Increase Service Quality
• One of Hilti’s top objectives is to improve customer satisfaction by
delivering customer orders in a punctual and convenient matter
• Logistics uses a metric called COP to measure “Complete Orders
delivered from the Primary location”
• A product ordered from Visalia’s region should be shipped from
6150
• 1 point of HNA COP is equivalent to almost $250,000 in freight
• Big financial implications
• The target COP rate is 90% for each Distribution Center (Completed
Primary Orders/Total Orders)

5. www.hilti.com 5
BACKGROUND
Optimize Inventory
• Hilti currently uses the SB8 calculation to increase inventory levels in
the NDC’s
• In its distribution centers, Hilti is moving from the “Days of Coverage”
Method to the more Optimal “ROP” method
• ROP Method is intended to offset inventory increase in NDC’s
• Days of Coverage was a “blanket” approach:
• X and Y item from Miami will both have a 9 day average demand
• ROP is a more statistical approach
• X and Y item will be distinguished by lead time and average
demand

6. www.hilti.com 6
• RP1 Calculation = Safety Stock + (Lead Time * Avg. Daily
Consumption)
• Optimal for Stable Items and leads to Inventory Reduction
• Calculated ROP (System)
• RP2 Calculation = Average Order Size + (Lead Time * Avg. Daily
Consumption)
• Average Order Size = Quantity/Frequency
• Used for more sporadic items when needed
• Manual
• RP3 = Greater Value between RP1 and RP2
• Done Manually

7. www.hilti.com 7
Visalia
• Visalia processes about 1,500 orders a week and is the largest DC
after Tulsa and New Jersey
• Visalia accounts for roughly 13.6% of the HNA COP and more than
65% of the West Region
• ROP was implemented in Visalia on Week 24

8. www.hilti.com 8
GOALS
Project Goals:
• Analyze Hilti objectives in the context of a large distribution center
• Help implement ROP stocking logic within the Visalia DC
• Identify the most effective method to calculate manual ROP values
• Determine Impact of ROP on COP levels for Visalia DC
• Diagnose COP Failures and implement solutions to reduce failures
Ultimate Goal:
• -5% Inventory Reduction and +8% Improvement in service quality

9. www.hilti.com 9
DATA COLLECTION
Data Collection Plan:
• Review COP Failures:
• Used Business Analyzer Tool on Excel
• Ran weekly query to pull order and material numbers that failed
COP for Visalia
• Root cause analysis on the availability failures:
• Used SAP to pull relevant order and material data:
• Sales Order (VA03)
• Date of Order, Amount of Material, Location
• Stock and Requirements Situation (MD04)
• MRP Type, Purchasing Group, Material Status
• Stocks for Posting Date (MB5B)
• Amount of Stock Available on Date of Order

10. www.hilti.com 10
COP FAILURE ROOT CAUSE
PROCESS MAP

11. www.hilti.com 11
Visalia
COP
Failure
Not enough
stock
available
Item not on
Planning
Cycle (ND)
Item was
added after
order
completed
Item is
Discontinued
and is
phasing out Item is a
repair part
(U26)
Item is a
special order
(U51 – U59)
Stock was
available but
order was
routed away

12. www.hilti.com 12
84.00%
85.00%
86.00%
87.00%
88.00%
89.00%
90.00%
91.00%
92.00%
W7 W8 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 W19 W20 W21 W22 W23 W24 W25 W26 W27 W28
Visalia COP%
ROP

13. www.hilti.com 13
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
300
350
400
450
500
VISALIA COP PARETO
WEEK 24 – WEEK 28

14. www.hilti.com 14
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
5
10
15
20
25
30
Week 24 Week 25 Week 26 Week 27 Week 28
Part Failures - Visalia COP
0%
5%
10%
15%
20%
25%
30%
0
5
10
15
20
25
30
35
40
45
50
Week 24 Week 25 Week 26 Week 27 Week 28
RWS Failures - COP
• Observation: Spike in Parts Failures
after Week 26
• Due to the Harrisburg Spare
part project, Visalia Repair
Center is no longer shipping
customer orders and all repair
parts are temporarily routed to
Tulsa NDC
• Observation: Spike in RWS Failures
after Week 26
• Material Number 387514 is
reserved for a large project and
will continue to route away
until order is complete

15. www.hilti.com 15
ROP
0.28%
2.26%
1.29%
1.98%
1.35%
1.57%
84.00%
85.00%
86.00%
87.00%
88.00%
89.00%
90.00%
91.00%
92.00%
W7 W8 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 W19 W20 W21 W22 W23 W24 W25 W26 W27 W28
RWS: 387514
Parts
Visalia

16. www.hilti.com 16
• Roughly 50% of all failures in a week are attributed to availability
• Analyzed “Material Movements” to view schedule of replenishments
• Occasionally, a large order will deplete stock
• Also checked for National or Local Outages
• A national outage will subsequently route the item to the closest DC
with available stock
• Graph – No Real Trend for Availability Failures as of yet
0%
10%
20%
30%
40%
50%
60%
0
20
40
60
80
100
120
140
Week 24 Week 25 Week 26 Week 27 Week 28
Availability or “No Stock” Failures - COP

17. www.hilti.com 17
• Monitored a QRS – UVW chart
to check for erratic items
• QRS
• Number of Hits in last
6 months
• UVW
• Variability from
Normal Order
Quantity
• Action:
• QW and QR changed to
RP2 (Average Order Size)
• Result:
• Decrease in QW and QR
• In the future, there are plans
to start a process of
upstreaming very sporadic
items (S) to the NDC’s

18. www.hilti.com 18
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
10
20
30
40
50
60
70
Week 24 Week 25 Week 26 Week 27 Week 28
Not Planned Failures - COP
• Checked weekly for not planned materials with a high frequency
• Demand Hits: Items with more than 3 hits in the last 6 months
• Hilti currently has a process in place which reviews ND’s monthly
• For these particular items, looked at the TABCD status, material
status, and purchasing group
• MRP type is set to Y5 and a manual ROP (RP2) is turned on for items
using average order size, daily demand, and lead time
• To date, 24 Items have been turned on for Visalia
• Result: Decrease in “Not Planned” Failures

19. www.hilti.com 19
3.00
3.10
3.20
3.30
3.40
3.50
3.60
3.70
3.80
3.90
4.00
Week 21 Week 22 Week 23 Week 24 Week 25 Week 26 Week 27 Week 28
Millions
Inventory MUSD DC's
• Inventory Value (Provided by Global Team)
• Biggest success is the money saved on inventory
• 16.8% decrease in Inventory amount – 649,293 in reduction
• $77,915.16 in annual savings (based on a 12% carrying cost)

20. www.hilti.com 20
CONCLUSIONS
• Despite a slight decrease in COP, there is an offsetting savings in
inventory carrying costs. What is the impact?
• Visalia DC annual inventory savings: $77,915
• Calculated from carrying cost at 12%
• Visalia DC COP from week 24 -28:
• We have seen a .62% decrease in Visalia (if we disregard the
failures due to Harrisburg and item 387514)
• Loss of $24,800 annually in transportation costs
• +1% on Visalia COP -> 0.16% rise in HNA COP (+ $40,000)*
• -1% on Visalia COP -> 0.16% fall in HNA COP (- $40,000)*
*Based on $250,000 freight cost with all else equal

21. www.hilti.com 21
• COP relies on many factors outside of ROP and is fluid in nature.
• If ROP is helping us save money on inventory regardless of a
slight decrease in COP, its implementation should be encouraged
• Inventory shortage, unpredictable orders, and sporadic demand are
all problems that we cannot eliminate but work to reduce. There are
many factors of COP that are out of our control
• Manually monitoring COP failures, adjusting ROP levels where
needed, and distinguishing materials by their demand nature can help
combat some of the shortfalls
• It is recommended to have a manual eye even with automation
• Four or five weeks is not enough to see the full impact
• Short-term setbacks can be offset by long-term objectives
• Conclusion: Keep manually monitoring COP and adjusting ROP levels
CONCLUSIONS

22. www.hilti.com 22
FUTURE
• Will continue analyzing Visalia
• Note any changes in Stock Availability
• Replicate project with another large Distribution Center
• Toronto Roll-Out is being scheduled
• RP3 Calculation to be automated
• Will take the optimal value between RP1 and RP2

23. www.hilti.com 23
QUESTIONS?