This project was a first step in a programme focused at introducing Lean Sigma thinking and methods into the supply chain of one of the UK’s most traditional companies. It followed a board decision to appoint Tom Falcon, a Six Sigma Black Belt, to the post of production and distribution director, a role traditionally occupied by a trained brewer.
Tom was recruited from Maersk Company Ltd (London), part of the A.P. Moller-Maersk Group, where he was the Director of Strategy and Process Excellence responsible for business and process improvement. His experience has been used to instigate a root and branch review of processes and organisation, from procurement of raw materials to delivering the final product to the consumer.
Shepherd Neame is an independent family business, trading for more than 300 years, which prides itself on its individuality. The integrated brewery and pub operator, based in Faversham, Kent, has on-site manufacturing and production facilities and warehousing in a purpose-built distribution centre. However, operational issues were challenging the normal buoyant culture, leading to staff and customer frustration due to unreliable supply.
John Morgan, from Catalyst Consulting, the sponsors of the award, said: “It is impressive to see that a company that has been around for 300 years is willing to take a fresh look at the way it works and has the vision to take the measures required to continue its success for another 300.”
So how did Shepherd Neame achieve these changes? As the company developed new channels of trade with longer payment terms, a reduction in working capital through inventory reduction was a logical place to start bringing lean thinking into the supply chain.
With Tom leading the task, the company has been able to avoid considerable expenditure on outside consultants. Business improvement and supply chain manager Ben Wright was recruited from within Shepherd Neame and supported by the brewery through a Six Sigma training course, qualifying as a Green Belt during the early stages of the programme.
Ben explained that issues related to the traditional ordering method, based on fixed safety stock, had not only created high stock levels but had also disguised supplier and product availability problems. Furthermore, the problems of slow-moving and obsolete stock remained unchallenged and difficult to tackle.
”Out-of-stock situations were commonplace, despite the high inventory levels, and customers were becoming frustrated with our service levels,” said Ben. “Demand was not at the centre of the process and safety stocks were not protecting the customers from out-of-stocks.”
It was decided to eliminate these fixed safety stocks. Instead, the company introduced dynamic safety stocks and variable purchasing lot sizes driven by demand. The new process was rolled out quickly, supplier-by-supplier.
Ben said: “There was some nervousness about the effect of reducing inventories in an area of the company where stock outs were a regular occurrence. However, as the inventory fell, the customer order fill rose at the same time. Three months later, the order fill was up 24% and it has since been increased further so that we now satisfy 99.94% of orders coming in. All against the back-drop of inventory reductions of over 50%”
The solution was developed using a team from across the business, taking on all their concerns about the performance of this important process. A key requirement from the stock ordering team was to make the ordering transaction on the SAP system much simpler and less time-consuming. A single screen inventory analysis per supplier was developed, cutting in half the time spent on creating orders. Involvement from warehousemen also ensured that the flow of goods-in created labour savings, while stock-handling was reduced by eliminating internal warehouse pick face replenishment.
“The potent combination of increased customer service through stock availability and reduced inventory had an instant application to how we managed the production of our own beer,” said Ben.
As a traditional manufacturing organisation, production planning was driven by long run/high efficiency mentality. The capability of the plant was determining stock levels and run sizes. This production planning methodology was able to deliver reasonable order fill in the arena of satisfying the pub trade, where demand patterns were consistent and predictable. However, as the proportion of trade going into the more promotionally-driven and less-predictable supermarket channel increased, this production planning methodology led to recurring out-of-stock problems
Product-by-product, stock levels were re-evaluated, with all unnecessary safety stocks cut, production lot sizes were reduced and packaging run frequency increased.
Ben said: “The changes are best illustrated in the way we manage key SKUs. Spitfire is now packaged daily in cask, as is local favourite Master Brew, when formerly two runs a week would have been our strategy. Our major bottled beer lines, Asahi, Bishops Finger and Spitfire, are now packaged on an almost weekly basis, whereas previously runs took place monthly or at even longer intervals.”
The results have been just as striking as the 90-day inventory reduction project. Order fill has been increased by 92% to a level of 99.98% on own-beer products and inventories are down 33%. Increased packaging frequency has allowed Shepherd Neame to be far more responsive to key customers, in particular the supermarket channel, which is far more promotions-driven than the traditional outlet of pub sales.
“We have been able to vary our strategy based on the demand patterns,” said Ben. “Consistent demand patterns, such as those from pub trade, have been exploited to deliver very low inventory levels. The lean strategy of packaging little and often has allowed us to respond quickly to the more promotion-driven demands of our supermarket customers.”
An additional advantage is that of beer quality. By reducing stocks across the board, the shelf life of the beer at the point of sale has increased significantly. With Shepherd Neame’s cask conditioned beers, returns have dropped by 48% since the beginning of the improvement initiative. This has become the company’s “Beer Freshness” agenda, a term which communicates a lean approach to supply chain management in a jargon-free way that resonates with the workforce.
Head brewer David Holmes said: “Our brewers are delighted to have our aromatic and quintessentially hoppy Kentish beers getting to the customer in peak condition.”
The next application of lean thinking will be to pull these improvements back further into the brewery itself and to fully exploit the potential improvements the new reduced inventory levels give Shepherd Neame in the area of warehousing and distribution.
On the brewing side of the supply chain, the team plans to exploit lean material flows from raw material intake to packaging which will cut working capital and fully exploit capacity.
Ben said: “It was noticeable that as we reduced packaging lot sizes we created a more consistent flow of material through the brewery and were able to exceed the capacity we believed we were capable of.”
Shepherd Neame plans to exploit this further by removing unnecessary safety stocks of beer in fermenting vessels, carefully managing production lot sizes and increasing the co-ordination between stocks of beer in fermentation vessels and customer demand. By these means, the company will be able to release capacity that previously would only have been realised through significant capital expenditure.
On the warehousing side, the lean inventory levels have already delivered tangible benefits, in terms of improved stock rotation, pick accuracy and reduced time spent on physical inventory processes. The increased space allows the development of put away and pick strategies that reduce fork-lift travelling time and double-handling of product.
Employing Lean Sigma principles, Tom and Ben plan to lead the integration of all aspects of information systems and management processes, including customer service and quality / returns, production and packaging, warehousing and distribution, documentation and credit control and to build a first class production, information and logistics capability.