Shell's Road to Supply Chain Excellence
When you think of Shell, consumer products may not be the first thing that comes to mind, but the company’s branded lubricants business shares much in common with the fast-moving consumer goods supply chain. Its market-leading brands such as Pennzoil, Quaker State and Rimula are distributed globally through large retailers and contribute to a complex supply chain — 60,000 SKU/location combinations distributed in more than 150 countries, to be exact.
Historically, this business was organized by country, with decentralized planning and few standard processes. Shell’s on-time in-full measure of customer service relied on inventory to cover inefficiencies.
In 2005, Shell embarked on a supply chain excellence journey to significantly improve its planning capabilities by putting demand-driven best practices front and center.
However, improving demand accuracy would need to be tackled on many fronts. First, Shell centralized, becoming a global business with standard processes and organizational design supported by regional teams. Next, it adopted SAP APO as its single platform for supply chain planning.
By 2011, Shell was ready for the next step toward supply chain excellence, improving forecast accuracy to enable greater reductions in inventory. It established a global forecasting center of excellence, embraced segmentation by demand planning characteristics, and initiated an indirect collaboration program to work with distributors. These steps improved forecast accuracy, but Shell was just getting started.
“We continually challenge our process and system capabilities along with our planning teams’ competencies as part of our ‘Journey to Excellence’,” says Nick Lynch, Global Planning Excellence Manager in the Lubricants Supply Chain within Shell’s Downstream business.
As a visionary in its industry, Shell was the first oil and gas company to recognize that it could sense demand much like a pure-play consumer products company, creating daily forecasts that reflect current market conditions by using demand signals from across the supply chain.
To that end, Shell purchased Terra Technology’s Demand Sensing (DS) and Multi-Enterprise Inventory Optimization (MIO) after a successful pilot in Western Europe and South East Asia delivered significantly positive results. Using a single-instance ERP system enabled Shell to globally implement Demand Sensing (DS) and MIO relatively quickly. This means the vast majority of its finished product portfolio is now demand sensed, while users can go about their daily and weekly planning tasks without disruption.
“We use a small core team of SMEs to ensure the technology and infrastructure is working as it should,” says Lynch. “Supply planners in our business just have to get used to trusting the demand signals more than they did before.”
Today, DS adapts to changes in consumer behavior and market influences to produce the most likely prediction of future short-term demand.
“However, the improvement is not the same everywhere. We put this down to differences in regional cultures and practices as well as the influence of more macro-economic factors between countries and regions,” explains Lynch.
Meanwhile, MIO uses better math and daily granularity to generate superior inventory targets, which reflect real-world market conditions, even in volatile markets.
Together, the solutions enable Shell to improve forecast accuracy, which combined with other demand-driven initiatives, provide tremendous value to the company. Excess inventory is being reduced, improving working capital use and freeing cash flow.
Now, Shell is enhancing its use of global supply chain network data and analytics within Terra’s solutions to improve the S&OP process.
“One of our challenges had been managing the huge amount of transactional and planning data in order to make really effective and timely supply chain decisions,” explains Lynch. “Now, we can crunch big data to get to key value opportunities. This has been a core element of our Integrated Business Value program.”
Shell also plans to extend Terra’s tools into new areas, like its Key Customer Collaboration program.
Shell’s 5 Tips for Demand Sensing Success:
- Allocate dedicated resources to the project.
- Collaborate closely with both business and IT teams.
- Reach out to businesses that have done it before, learn as much as you can and apply best practices.
- Plan plenty of time to validate your data. Data is never as clean as you need it to be.
- Lastly, but by no means least, work very closely with your technology vendor.