Contact our Team
E-Newsletter
Health checkCryovac
Gaining a Competitive Advantage with Replenishment
Cryovac provides flexible packaging systems. It is considered a premier company, focusing on quality with a total systems approach. In April 1998, Sealed Air Corporation acquired Cryovac from W.R. Grace.
This write-up focuses on Cryovac's industrial and consumer goods business which provides shrink film systems for the protective packaging of items such as cassette tapes, videos, software, and other bundled packaging.
In the United States, Cryovac sells the shrink film product line through a network of about 150 distributors. Each of these distributors gets the product from Cryovac's central warehouses across the USA.
It's up to the individual distributors to determine which of the Cryovac products they're going to stock and in what amounts. It's also up to the distributors to sell and provide service to in-use customers for their packaging solutions.
In 1996 Cryovac was faced with a problem. The company wanted to determine how to increase sales of its shrink film product line. The company saw that its constraint was external - in the marketplace. They had capacity to sell.
Cryovac began working with Dee Jacob of the Goldratt Institute on a market analysis. They used the three focusing steps to determine what to change, what to change to, and how to cause the change. The process was to first focus on the distributors and come up with an UnRefusable Offer (URO) to distributors and a URO for the distributors to take to their in-use customers.
They first looked at what were the major pains of the distributors. Cryovac discovered that the distributors' operating expenses (OE) were higher than they'd like. They also discovered that sometimes distributors miss opportunities to sell shrink film because they do not have the right product in the right place at the right time - resulting in a decrease in profitability when distributing Cryovac shrink film products.
The next step was to identify what change could be made in Cryovac to increase the profit for distributors. Cryovac examined the TOC Distribution Solution (Replenishment) because it provided them the opportunity to have the right product in the right place at the right time in order to be able to capitalize on business opportunities when they present themselves.
In the past, Cryovac's lead time for shrink film was 1-3 weeks depending on the exact product. This was in alignment with Cryovac's policies and philosophies that Cryovac wanted their distributors to keep 2 to 4 weeks of inventory on hand.
In order to provide the competitive advantage to the marketplace that Cryovac was looking for and to restore profitability to their distributors, Cryovac needed to look at what type of policy changes could be put in place, which lead Cryovac to look at their national stocking and lead time.
The next challenge was to determine how to implement new policies, how to put them into place such that cost was not added to the system and at the same time Cryovac ensured they got the throughput that was needed both for the total process and to restore the profitability to the distributors. Again the TOC Replenishment Solution provided the know-how.
Using the TOC Replenishment Solution, the first work that was begun was on the link between Cryovac's production operation and its central warehouse. Inventory buffers for those items that were stocked were established at the Cryovac central warehouse. Production is now scheduled such that the inventory buffers are replenished, which has become the top priority of the production. Buffer management techniques are utilized to ensure that that happens and that throughput is protected.
Also the Replenishment Solution provided the opportunity for production to be smoothed based on actual demand versus the way it was done previously. This provided for more predictability in the production process and for it to be managed more easily.
In the next step, Cryovac worked with the distribution link. Cryovac went out and worked with distributors to size their inventory to establish their inventory buffers using the same rationale that was used in the Cryovac central warehouse.
Each of the distributors then came up with the actual time interval that they expected to place their orders to pull inventory from the Cryovac warehouse to have the inventories replenished based on the actual consumption of the in-use customers.
Now Cryovac's mission was to determine how to get buy-in from their distributors to make these changes in their part of the process.
The distributor's dilemma Cryovac presented was one that every distributor could quickly relate to. All of the distributors want to provide their service to customers at the lowest cost. The distributors are under pressure to control costs, which leads them to hold less inventory. But they also must protect sales, which leads them to hold more inventory. This sets up a tug-of-war between holding less inventory and holding more inventory.
Each distributor wanted to ensure that they were able to have the product in the right place to be able to capitalize on the opportunities that presented themselves and at the same time to do that with minimal cost.
Again, the Replenishment Solution provided the answer to the question "what is the right amount of inventory to carry?" The right amount of inventory is just enough to protect yourselves during the time to replenish.
At the distributors' buy-in presentations Cryovac used the TOC distribution simulators to aid in that buy-in. Very quickly, with that hands-on tool, the distributors could see that this solution would provide them the opportunity to reduce their inventory and operating costs and at the same time the opportunity to be positioned to increase their sales.
The Results
Cryovac has improved its production scheduling, which provides for fewer disruptions in the process.
Major independent distributors are now synchronized with Cryovac, which has lead to an overall decrease in inventory and increase in throughput. While the results vary from distributor to distributor (all are independent businesses), and they are very early in the process, there has been an average of 5%-15% decrease in inventory, which has resulted in a corresponding decrease in the distributors' operating expense.
Prior to the implementation of the Replenishment Solution, the distributors found that in some situations they had stock that was overprotected; in other situations their inventory was underprotected. As Cryovac worked with them to size their buffers and implement the replenishment solution this became very obvious.
With the solution now in place, they have the right amount of inventory to protect their sales during the time to replenish and as a result of that they are seeing that their sales have increased.
Again, those results have varied from distributor to distributor, but the early results again from the distributors' perspective is somewhere between a 5%-20% increase in sales. From the overall perspective, sales currently have increased about 4%. Cryovac is expecting that to increase further during the next year.
A factor effecting these early numbers is that initially there was a lot of inventory in the pipeline that had to be sold out to in-use customers before some of those results could be realized from an overall systems perspective.
Additionally, distributors are now working with their major in-use customers to synchronize their portion of the supply chain of the distribution channel. It's important to get them involved so that each of those in-use customers can also realize the gains of being able to hold less inventory and at the same time being able to ensure that they have the products they need for their business success. This will make it very difficult for those in-use customers to want to change distributors or to want to change to a different packaging solution.
In addition to all of this, Cryovac found that being able to be more responsive to the marketplace aided in gaining some new major contracts from an overall business basis, and so the fact that they were able to offer the product now in much less of a lead time than in the past has helped in securing additional business.
A representative from Cryovac presented the company's story at the Jonah Upgrade Workshop in November 1998.
