The right inventory at the right time
Amway China improves replenishment time by 20 percent, customer satisfaction soars to 97 percent
Throughout its rapid climb to become the direct-selling giant's largest market, Amway China clearly understood the value of analytics. Despite significant progress in incorporating analytics into its growth strategy, Amway China lacked a forward view of its supply chain and struggled to improve accuracy in inventory and replenishment plans for retail outlets.
To support fast business growth and adapt information flow to the rapid development of its enterprise supply chain, Amway China decided to expand its application of business analytics. Using technology like SAS® Forecast Server and SAS® Inventory Optimization, Amway China developed an advanced inventory optimization system (IOS).
With SAS predictive analysis and inventory optimization, we can keep inventory at the right level at the right time. When business or customer demands change, we can quickly adjust via the flexible inventory optimization system. With the IOS, Amway China cannot only reduce logistics costs, but also enhance customer satisfaction and improve its competitive edge.
Distribution Vice President
The goal was to deliver the right products to the right place at the right cost and the right time. The result? Amway China can now quickly and appropriately respond to a fast-changing market of US$2.6 billion – which accounts for more than one-third of Amway Global's total sales.
Amway China ships more than 1,000 different products through 229 stores, 29 home delivery centers, 22 warehouses and a 40,000-square-meter logistics center in Guangzhou. Each year, the company transports products more than 13.96 million kilometers, equal to about 349 times around the Earth. Amway's uniquely diversified store selling, direct selling and distribution model – plus frequent marketing promotions to react quickly to market changes – make inventory management a particular challenge.
SAS drives IOS improvement
The inventory optimization system (IOS) effectively estimates and models optimum inventory levels based on service levels, delivery times and costs set up by the user. Using SAS, Amway China has used SAS to drive improvement in predicting demand, transport, inventory replenishment and key performance indicator (KPI) alerts.
To predict demand, the IOS applies SAS time series forecasting to data from 70 million orders placed over the past three years. Based on relevant historical sales data, the system automatically analyzes, models, executes and adjusts predictions for products and regions at different levels, and forecasts demand by specific product and outlet. The prediction data generated is more accurate than before.
Based on predicted customer demand, the system calculates the replenishment frequency of different regions per the optimized model. Meanwhile, taking into consideration transport data related to vehicle type, capacity and costs, the system determines the optimal transportation schedule for the following week, which is displayed directly in the system. Tasks and manpower can be arranged according to the schedule, and the planner can make adjustments according to the actual situation.
The IOS fully considers Amway's multilevel replenishment network – factories, logistics centers, outside warehouse and stores – alongside other influencers, including predicted demand and product variation, lead time, packing specifications, inventory costs, transport costs, transport frequency, customer service level, inventory strategy and minimum orders. The result is a more effective replenishment policy for reorder, order-up-to, and required quantity levels that can pinpoint each product in each warehouse and store, adjusting dynamically to market changes over time.
In addition, the IOS provides KPI reports and emergency and alert functions necessary for daily inventory management, including inventory level analysis, procurement proposal analysis, inventory alarm, analysis for items temporarily out of stock, transport no-load rate, and supervision and control over product sales.
SAS helps reduce costs, increase efficiency
Amway China has high praise for both the technology and services from SAS. Raymond Hui, Amway Greater China Distribution Vice President, says, "With SAS predictive analysis and inventory optimization, we can keep inventory at the right level at the right time. When business or customer demands change, we can quickly adjust via the flexible inventory optimization system. With the IOS, Amway China cannot only reduce logistics costs, but also enhance customer satisfaction and improve its competitive edge."
In the past the logistics planners arranged vehicles, destinations, quantity of goods and warehouse space based on experience. This resulted in errors and increased logistics costs. When Amway China implemented the IOS, the improved accuracy in demand prediction made it possible to plan replenishments, efficiently allocate vehicles, reduce empty loads, reduce the unnecessary transfer of goods among different warehouses and stores, optimize and save warehouse and storage space, prepare logistics plans, and reduce costs.
Further, Amway China has improved service, reduced errors and costs and met international standards by using the IOS to provide a unified standard for stock replenishment. Any errors can now be easily tracked within the system for a quicker solution.
The IOS has also improved operational efficiency because decisions are now based on optimized data, dramatically improving accuracy and saving time. Compared to the past, the stock replenishment time from the logistics center to the outside warehouse and then to stores has been reduced 20 percent. At the same time, the inventory of main products has been reduced by 10 percent, while the quantity and times of goods out of stock have decreased.
Utilizing SAS, Amway China has been able to increase customer satisfaction to 97 percent, cut stock levels, maintain an optimum inventory and minimize delayed deliveries, all while reducing average total costs, including order costs and inventory costs.
Inventory management was a particular challenge. Although Amway has reached an advanced level in logistics management, it lacked a forward-looking view and accuracy in its inventory, distribution and replenishment planning.
Amway China has cut stock levels, balanced product distribution and boosted customer satisfaction to 97%. The system enormously improves Amway China's operational efficiency and shortens replenishment time from the logistics center to retail outlets by 20%.