Adopting a demand-driven planning approach at Peterson

October 13, 2017

Adopting a demand-driven planning approach

The Norwegian packaging company Peterson struggled with high stock levels and lots of rush orders. OMP allowed the company to adopt a more proactive demand-driven planning approach. As a result, contractual obligations can now be fulfilled with lower stock levels, thus avoiding costly rush orders. In addition, production planning of both Peterson sites, which are mutually dependent, is now fully integrated, leading to major profitability improvements.

The planning context

Peterson provides highly-customized paper-based packaging solutions. The production process entails multiple steps on different machines:

The corrugator transforms multiple paper reels into corrugated board (“sheets”) of different sizes and board grades. These sheets are either sold or further converted internally.
Conversion machines further process the sheets into the final packaging material (printing, die-cutting, folding, gluing and more).

The challenges

Peterson operates in a multi-site environment, in which the Sarpsborg and Sykkylven plants frequently exchange orders. Since the Sykkylven plant has no corrugator, it needs to receive the required sheets from the Sarpsborg plant. As both plants didn’t have any visibility of each other’s production schedule, it was very challenging to ensure timely supply of sheets that consistently takes into account all schedule changes in both plants.

Due to several reasons (fierce competition, market pressure, customer requests, etc.), Peterson has made quite a lot of agreements with some of its most important customers. These agreements are reflected internally in a multitude of obligations that Peterson was having serious difficulties in fulfilling, especially in the high season.

These obligations can be subdivided into three categories, namely:

keeping minimum volumes of consignment stock
100% on-time delivery with short lead times (for which Peterson also kept stock)
Relatively short lead times all throughout the year

As a result, Peterson produced 40% of the order volume on a Make-to-Stock (MTS) basis. Given the high number of individual stock items and the lack of a good planning system, stock-out problems were detected as they occurred, causing a lot of rush orders to quickly replenish the stock. In addition, the short lead time obligations also resulted in rush orders to be able to keep the promises as contractually agreed.

On-time delivery obligations

OMP for Packaging allowed Peterson to implement a demand-driven pull strategy instead of the existing production-driven push approach. “We actually want to have the possibility to use both approaches, depending on the situation (e.g. seasonal variations in demand). With OMP this is possible! The plants are now able to really focus on giving our customers realistic delivery date promises and respecting the given promises,” says Terje Surdal.

“In reducing costs, OMP aims for the best possible solution. By setting key parameters, we steer the solution to what is truly optimal for our plant at that point in time. This way, we achieve the desired balance between waste minimization and machine efficiency.”

Terje Surdal, Supply Chain Manager at Peterson

For the short lead time obligations, the planner introduces capacity reservations to anticipate expected customers orders. In this way, rush orders are avoided and the capacity load plan remains unaffected by such short term orders. Furthermore, Peterson manages its consignment stock agreements with OMP.

“By proactively balancing the capacity load, potential production bottlenecks are eliminated in advance, which results in a smooth planning and production process. This makes it much easier to stick to our promises.”

For each stock item, OMP automatically proposes replenishments in optimized lot sizes, based on the actual stock levels, the production schedule, known orders and forecasts while taking into account actual constraints on machine capacity. In this way Peterson ensures reliable deliveries from stock for its most important customers, eliminating lots of rush orders.

Cutting optimization

OMP performs cutting optimization based on a global cost approach, taking into account all sources of material waste and capacity losses. A highly flexible mathematical model takes care of a wide range of machine-related requirements, and considers a variety of cost elements.

“In reducing costs, OMP goes for the best possible solution. By setting key parameters we steer the solution to what is truly optimum for our plant at that point in time, thereby achieving the desired balance between waste minimization and machine efficiency,” Terje Surdal explains.

Multi-site scheduling

OMP is used at both plants concurrently in a multi-site environment, which allows each plant to schedule its own machines with full visibility of the schedule at the other plant. The scheduling is performed on a central database which allows easy and synchronized treatment of orders running over both sites. In addition, the use of interlinks and stopcodes ensures that the conversion at Sykkylven cannot be scheduled before the expected arrival of the sheets produced in Sarpsborg.

“OMP helps us in ensuring efficient synchronization between corrugator and conversion production, with maximum respect for due dates and special attention for the WIP levels,” says Terje Surdal.

“Machine scheduling is a very dynamic and ongoing process at our plants.”

OMP clearly highlights all possible conflicts (capacity bottlenecks, order lateness, required materials, etc.), which immediately draws attention to those areas requiring corrective action. Easy drill-down functionalities make it possible to visualize the causes and identify possible solutions for any planning conflict remaining.

“Rush orders, last minute order changes and feedback from the shop floor (machine breakdowns, broken resources, etc.) all keep upsetting the production schedule. Thanks to the flawless integration with SAP and with the shop floor, OMP instantly displays the effect of these changes on the schedule.“

Shop floor integration

OMP has tight two-way integration with the corrugator and conversion machines, by making all scheduling decisions instantly available to the shop floor and by integrating actual production feedback into the schedule. Real-time communication with the corrugator automatically downloads setup details and retrieves actual production details.

“One year after the OMP implementation, all our expectations and many objectives are being fulfilled. We also see the potential for further improvements now that we have gained experience, with possibilities beyond what was defined during the selection process.”

OMP automatically captures real-time production details (machine speed, produced quantities, downtime, etc.) of the converting machines. This accurate production data updates the schedule and is stored for further historical analysis.

Benefits

Terje Surdal concludes: “If we look more specifically at some measurable improvements that can be directly linked to OMP, I would like to mention some elements which have a significant impact on the total cost for any company working in this branch.

The trim savings that we achieved thanks to OMP have reduced our total paper consumption by 1%. This makes a huge cost difference! Other cost benefits related to the corrugator are longer wet-end run lengths, which have resulted in more stable production with fewer stops, less paper changes and less waste. Finally the stock levels of finished goods have been significantly reduced. As an example, we see a lot of potential and benefits from the use of solvers and heuristics in further optimizing our planning. The use of the historical database for business analysis purposes and continuous improvement efforts are also good examples.”

Terje Surdal continues: “We now have more accurate information available in real time, enabling us to make the right decisions at the right time. To have an organization work proactively instead of reactively, as in the past, is undoubtedly a huge difference and an advantage for both the people involved as well as for all our customers.”

About OMP

OMP helps companies facing complex planning challenges to excel, grow and thrive by offering the best digitized supply chain planning solution on the market.

Its Unison Planning^TM concept has a unique approach. It handles all supply chain planning challenges in a unified way, synchronizing all planning stages, horizons, functions and roles. From source to deliver. From strategic to operational planning. From leadership teams to schedulers.

Hundreds of customers run OMP’s cloud-based solution to generate more value by making informed decisions. Valued as a thought leader by experts as Gartner, OMP invests one out of every three dollars earned into innovation.