July 2016 | Case Studies | Casebook

Making Scents of Demand Planning

Tags: Inventory Management, Demand Planning, Transportation, Logistics, Supply Chain

Bedoukian Research juggles small batch production with intermittent demand by getting smart.

More to the Story:

High quality products and exceptional customer service are the essence of Bedoukian Research's operation. To achieve both, the chemical manufacturer requires superior supply chain and logistics management of 2,000 raw materials to produce and deliver more than 400 fragrance and flavor ingredients used in everything from cookies and soup to detergent and perfume.

While some high-selling products with straightforward demand forecasting curves are easier to plan for, the complex issues of balancing small-batch production with intermittent demand posed significant challenges for the Danbury, Conn.-based company.

Bedoukian Research Inc., like many companies today, contends with supply chain complexity. The family-run, 80-employee specialized process manufacturer deals with complexity every day, in a dizzying number of ways.

On the sourcing and purchasing side, the manufacturer manages approximately 2,000 raw materials. Many of its suppliers are based in Asia, and many products ship by boat, which means it could take two to three months between the time an order is placed and when the goods arrive, says Leona Eggleston, Bedoukian's purchasing manager.

Although it specializes and customizes many of its finished products for the end customer, Bedoukain uses many of the raw materials it buys in various products for various customers, which, in turn, involves bulk ordering and consolidating shipments.

On the demand side, Bedoukian's global customers have a wide range of needs. Some of its biggest customers require 55-gallon drums and pallet shipments frequently. Other clients need occasional shipments of small quantities—maybe just a few pounds that might last an entire year.

In addition to producing fragrances and flavor ingredients that are rolled into a variety of end products, the company makes 50 insect pheromones that are used to attract and control insect pests, and that have longer lead times to produce. Bedoukian repackages and resells about 100 other products that require higher quality than the original base product.

The Challenges of Unpredictability

While some of Bedoukian's high-selling products follow relatively standard demand and fulfillment flows, about two-thirds of products have hard-to-forecast, intermittent demand, making it difficult to source and keep adequate amounts of raw material on hand to make an unpredictable amount of finished goods.

The reverse is also challenging: Out-of-stock items or inventory gaps could result in costly emergency shipments or lost sales opportunities.

Complicating matters, many of Bedoukian's finished goods have an expiration date directly impacting product quality. It faces a juggling act of having enough product on hand, ensuring that the inventory holding phase matches the product shelf life, and being flexible enough to manage the ups and downs of sales and forecasting cycles.

Bedoukian's production and packaging operation also schedules small-batch runs to match customer requirements. The team aims to produce, stock, and deliver whatever customers need whenever they need it. That could mean a customer wants a pallet of product delivered tomorrow because another supplier was unable to fill an order, or someone else is looking for an eight-ounce jar of another essential, built-to-order ingredient that will be shipped a few weeks out, Eggleston says.

The company strives to keep its manufacturing process as flexible as possible to accommodate last-minute orders, order changes, or unexpected demand. But it also must consider the cost, time, and impact on equipment usage, equipment cleaning and prep time, as well as decide what production runs could be efficiently and cost-effectively postponed in favor of a scheduling change.

Essentially, the company needed a solution that would provide accurate stock-level estimates for all of its products, including those with intermittent demand, and integrate with its enterprise resource planning (ERP) system to produce snapshots of inbound raw material demand and orders as well as outbound finished goods inventory, sales projections, and delivery targets.

Bedoukian Research found what it was looking for in Smart Software Inc.'s SmartForecasts tool.

Smart Software's solution helped smooth Bedoukian's demand planning and forecasting management practices, and allowed it to improve customer service, reduce shipment costs, and more efficiently handle raw material and finished goods inventory levels.

The relationship between the two companies stems from personal ties and goes back about three decades. Robert Bedoukian, Bedoukian's president, and Nelson Hartunian, Smart Software's chairman, met through their father's mutual friendship, says Jeffrey Scott, Smart's vice president of business development. Bedoukian licensed SmartForecasts to support Bedoukian Research's business planning, and the relationship grew from there.

"They all knew each other, and Robert Bedoukian loved the idea behind the SmartForecasts solution," Eggleston says. "I've looked at other tools, and I don't want to change. I like working with Smart Software, and when I ask them a question, they always come up with an answer."

"Bedoukian is one of our oldest customers," adds Scott. Bedoukian has been using Smart's solutions since 1987 to forecast both standard and intermittent demand. "We are customer service oriented, and working with customers like Bedoukian gives us insight into the real issues companies face today."

One such issue is helping companies deal with variable demand, says Scott, noting that Smart's core concept centers on the business of planning future demand, or, more accurately, helping clients understand and define what it means to have just enough product available across their portfolio.

Because it's impossible to know exactly what the future will bring, forecasting becomes more of an art to determine how to maximize customer service, optimize inventory, manage highly variable demand, and gain control over safety stock levels, reorder points, and order quantities.

Planning for Variability

"Standard demand planning often reveals nice curves showing where demand picks up and falls off. But with intermittent demand, there are no nice curves. It spikes up and down, and is impossible to forecast," Scott says. "We help companies figure out how to have just enough product available to handle intermittent demand."

By factoring in different risk scenarios, calibrating the "just enough" amount, and considering customer service targets, companies can better understand how quickly they can ship product or consolidate shipments, replenish inventory, order raw materials, measure safety stock levels, and advise the sales team of lead times.

Because SmartForecasts is integrated with Bedoukian's ERP system, the company can forecast demand for every finished goods item four months into the future, and estimate optimal inventory stocking levels for its raw materials.

What Eggleston likes most is understanding the math behind SmartForecasts' formulas, and converting that data into information that can be used to improve shipping and delivery practices; help the sales, research, and development (R&D), and production teams better meet customers' needs; save money on freight; and avoid lost sales.

"The value is that we can see if we have enough raw materials coming in and enough finished goods in stock," Eggleston says. "If demand goes down or sales shift suddenly, we can adapt to those changes.

"For example, we can do a partial shipment to meet the customer's immediate need, schedule a new batch in the factory sooner, examine our reorder points, and get our sales and R&D teams involved to make sure orders are filled and customers are happy," Eggleston adds.

The results to date make a good case for continuing with the solution. Primary benefits include recognizing product demand patterns and giving the sales team accurate information they can provide to customers about lead times or remedial actions the company is taking to meet demand.

In the past few years, Bedoukian has also been able to support increased sales with less inventory. Sales, for example, increased 15 percent while finished goods inventory increased by 4 percent and raw materials inventory rose by 5 percent.

Additionally, the company has improved customer service by reducing the number of late shipments to customers due to insufficient stock from 16 percent to 3 percent. Improved planning also enables Bedoukian to consolidate ocean shipments for almost every raw material, which decreases total freight expenses, and cuts down on emergency airfreight costs—moves that save more than $1,000 for every drum, according to Eggleston and Scott.

On the Forecast: A Bright Future

Going forward, Bedoukian also plans to use Smart's bill-of-materials forecasting capabilities. The hope is that it will further simplify the planning process across product lines, and ensure that standard costs keep pace with the escalating costs of raw materials.

Eggleston expects this to be a useful addition for better identifying products in short supply, and improving Bedoukian's ability to consolidate orders and supplier shipments. The continually updated feed and integration between the ERP, SmartForecasts, and bill-of-materials tools will also create a more accurate snapshot of what is going on in Bedoukian's supply chain and how it can respond.

"With this software, we have an even better idea of what materials we have and when we need to order more. We can tell suppliers farther in advance what our demand looks like, and give them a six-month forecast, detailing what materials we need and when we need them," Eggleston says. "It will also help us ship smarter and consolidate shipments more effectively."






Visit Our Sponsors