BSL - Parts and Parcels

Leading industrial aftermarket service provider BSL distributes over 100,000 individual product lines each year – often with lead times measured in hours rather than days. No surprise, then, that inventory management is at the forefront of its management’s agenda, as Adam Lawrence reports.

Distribution companies have changed beyond recognition in the last ten years – so much so that many such companies no longer identify themselves as distributors, preferring to be known as ‘service providers’. A combination of greater competition, increased pressure of time and the growth of outsourcing has forced distributors to reinvent themselves, shipping an ever-expanding range of products to customers, with total supply accuracy and a fast, efficient delivery service.

BSL

Industrial maintenance, repair and overhaul (MRO) specialist BSL is an excellent example of this trend. BSL offers a complete range of products – including bearings and seals, mechanical drives and conveying, industrial automation, gears, drives and motors, hydraulics, pneumatics, tools and general maintenance products – categorised in most companies as ‘engineering stores’. Engineering stores, in companies throughout the UK have been severely run down, as managers look to cut costs by reducing inventory. At the same time, though, strategies such as total productive maintenance (TPM) mean that there is less tolerance of downtime than ever before. BSL’s customers depend on such a service to keep their manufacturing & process operations running smoothly, keeping downtime to a minimum.

BSL’s National Distribution Centre (NDC) in Wolverhampton is a state of the art, fully automated 80,000 sq ft warehouse facility, housing cutting edge storage and retrieval systems. The process of storage & handling for the site begins at goods inwards, where each product line enters a barcode tracking process as it is received to a modular conveying system, which runs the entire circuit of the warehouse.

Complete Automation

An automatic crane reads the barcode which indicates where each product is to be stored and transports it to its allocated space. Up to 20 'heavy items' picks per hour are made automatically from store. Picking operatives are guided by light and PC to pick station drawers. Screens tell them how many of which product to pick, and flash either red or green depending on whether the correct item has been scanned. Amazingly, there is no need for any human input into the branch ordering process.

Staff in the branch network enter their orders into the computer system, and this links directly into the warehouse control system – including to the cranes. Effectively, the whole process between order and despatch is completely automated.

Service Provider

“We’re not a catalogue seller – we offer our customer base a complete supply chain capability,” says BSL logistics manager John Marshall. “We started life as a distributor, but more recently, we’ve moved to a value-added service provider model.”

The scale of BSL’s operation is immense. Between 100,000 and 150,000 individual product lines are supplied to customers each year – but not necessarily the same 150,000. “The number is consistent, but the lines themselves are not,” says Marshall. “There’s quite a number of one-off items within that mix.” Overnight delivery is carried out from the NDC in Wolverhampton where customer response times are stated as ‘non critical’. A substantial proportion of orders however, are fulfilled from BSL’s network of over 100 branches strategically placed throughout the UK, often within a short time frame depending on a customer’s requirements.

Supplier Relationships

One way BSL adds value for customers is through its own relationships with suppliers. “A significant part of our business is our ability to supply quality products from the world’s leading manufacturers,” says Marshall. “Some of our customers do call us and request product X, but many others ask for ‘something to do X’ and leave the product selection to us.

“We’ve always competed on the basis of the quality of product we supply. That’s still the case, but nowadays, product quality is a pre-requisite. So now, our differentiation comes from adding value for customers through service quality – how responsive we can be.”

“We also look to differentiate ourselves from our competitors through our upstream competencies,” says inventory manager Ron Daff. “Our skill at materials flow management is also beneficial to our suppliers.”

Inventory Lifeblood

Inventory is a dead cost for any business, and BSL is no exception. But, at BSL, inventory is also lifeblood: if a product is not in stock, or can’t be obtained instantly, sales could be lost. “Inventory is our biggest asset – stock represents 70 per cent of our net asset base,” says Marshall. “What we hold in inventory is what we judge necessary to meet demand for ex-stock supply. But it’s not just about how much stock to hold – it’s also about where in our network it should be held. It’s very important for us to talk to our customers and find out how crucial their requirement is – because that determines from where the order will be fulfilled.” Stock held at branch level can obviously be delivered to customers rapidly – vital when the requirement is urgent.

Optimus

BSL has been working with inventory optimisation experts Optimus Inventory for several years. The firm uses Optimus’ IT tools and operational methodologies to monitor stock levels, forecast demand and planned ordering.

“One of the key challenges is deciding what stock should be held within the Branch network, and what should be held centrally,” says Ron Daff. “So we – together with Optimus – profile the demand from our branches and from the NDC, and are thus able to identify particular lines that move quicker in certain areas of the UK – such as products for agricultural equipment in East Anglia – and make sure that the local branches are fully stocked to meet local demand. Before we undertook this profiling exercise, stockholding in the branches was erratic.

“We used long-term scheduling based on forecasts. But you know what they say about forecasts – the only thing you can guarantee about them is that they will be wrong – so, more recently, we have moved more towards short lead-time planning, which enables our suppliers to see real demand rather than forecast demand. We couldn’t do that without the Optimus system. Modelling is absolutely key – we are able to use the Optimus tool to run ‘what-if’ scenarios, and we can refine our plans accordingly. Optimus helps us to understand stock levels and gives us the ability to make sensible decisions on the level of inventory investment needed to match our business goals,” says Daff.

Sales Trends

The Optimus system is also used to identify changes in sales trend data – helping management to identify which items are gaining or losing popularity. “That might seem fairly basic,” says Marshall, “but when your potential stock items can be measured in hundreds of thousands of pounds, it’s very difficult to work out which lines are moving without the necessary management tools.”

“At branch level, stockholding tends to be calculated on a transactional basis,” says Marshall. “Branches will keep two or three times the normal customer requirement of a product in stock at all times. We can replenish from the NDC overnight, so the branches only need to hold sufficient inventory to cope with a customer’s immediate fulfilment requirements.

“We are using – though not abusing – the reduced lead times which we have agreed with our suppliers to reduce our total inventory. If we can bring an item in and despatch it virtually immediately, then we will do so – but it’s important for us to take products from suppliers in a controlled manner. The greater visibility that we get from the Optimus system helps us to achieve this.”

Reliable Forecasting

Working with BSL threw up a unique set of challenges for Optimus. “The big difference, compared to some of our larger clients, is the size of their product portfolio. In Pareto terms, the tail is horrendous,” says director Brian Read. “There are a vast number of items that rarely move, and that makes forecasting much more difficult. We had to work in close proximity with BSL staff to identify the best forecasting algorithms for all these variables.”

This is, as John Marshall points out, absolutely critical. “It’s not just a question of forecasting accuracy, although that’s hugely important to us,” he says. “The more reliable our forecasting, the more we can automate our replenishment processes and turn our procurement professionals into value-adders who work alongside our suppliers to improve our quality – both in terms of products and service – rather than just paper-pushers. Procurement for stock should be an automated process – it’s a waste of time having skilled professional people carrying out what’s little more than clerical work.”

Exceptions Reporting

Read also adds that the scale of BSL’s branch network and the presence of so much stock outside the carefully controlled walls of the NDC add to the challenge: “Working at arms’ length, using profiling rather than live stock data, is obviously more difficult, but we have spent some considerable time refining our processes to cope.” He says that BSL’s developing strategy of releasing purchasing staff from clerical work enabling them to add even more value is important, and that systems need to be in place to support it:

“Exceptions reporting is the key. Dealing with exceptions is time consuming, but, by definition, isn’t the most important work.”

Cultural Issues

“There are major cultural issues here,” says Marshall. “We’re spending time with our procurement people working on key business issues. More and more, our purchasing people are providing a full procurement service for our branches. Purchasing staff, in most companies, aren’t regarded as people who add value to the business, so we are working with them to achieve this.”

Read agrees: “People want to see reports in product code order, for example, but it’s absolutely central to our process to see things in value terms: we present our reports in descending order of cash value. That encourages managers to deal first with the items that are costing them most money.”

Ron Daff admits that purchasing staff had to be convinced before they would put their confidence in the Optimus system, but reckons that the proof of the pudding is in the eating. “We’ve asked our people to focus more on monitoring what’s ordered in relation to what is actually required,” he says. “They should only change the system’s conclusions if they have a positive reason to do so. Obviously, they have an idea of what quantities should be ordered, and, as far as trust is concerned, it’s just a question of proving to them – through repetition – that the numbers the system produces are accurate.”

The Optimus Contribution

The Optimus system and methodology has been a major long-term project for BSL, and has accompanied – and aided – a massive shift in the way the company organises its distribution network. And, says John Marshall, the Optimus tools and people have played a major part in some very significant improvements in efficiency. “Central inventory is a big success story for us. We have seen significant stock reductions,” he says. “It’s not just down to the Optimus system, but in recent years we have reduced our central inventory by almost £4 million. We are holding less inventory at the NDC than ever before, and our service levels are as high as they have ever been, despite the fact that our business is growing. Consistency is vital for efficiency, so our procurement has to be well structured. And we’re doing that very successfully on the back of the Optimus system.”

SSI is Optimus Inventory’s strategic UK partner for manufacturing and distribution industries, and can deliver the complete Optimus solution, including initial, shared-risk, consultancy, implementation of the Optimus software tools and, if required, facilitation of inventory management workshops.