Global supply chains are facing increased customer and portfolio complexity. Heightening consumer demands are leading companies to look at ways to transform existing processes to drive efficiencies, lower costs, provide quality customer service, all whilst lowering working capital and inventory.

No business is more invested than Shell Lubricants. The global leader (in terms of market share and branded product) in finished lubricants for the last 11 years, continues to house most of its downstream business on a single instance of SAP, enabling the company to standardise its work practices on a global scale.

However, growing complexities and ambitious business plans have led to amplified pressures across its supply chain operations.

“I think the challenge for supply chains, especially global supply chains that are heavily networked, is really what to do with this complexity,” explains Global Planning Excellence Manager, Nick Lynch.

“In 2013/4 Terra Technology, who are now part of E2open, published an annual cross-industry survey which showed that whilst the number of products sold increases, the total amount sold remains pretty flat in most industries. Therefore, as the volume sold per product goes down we can expect SKU level forecasting to get harder the more spread out a portfolio is. This is a trend we certainly recognise. The future is not likely to be simpler than our business of today.

“In practical terms this means that with our traditional forecast driven MRP planning tools, we purchase raw materials, manufacture products and put inventory into the warehouses based on our forecast that predicts that we'll sell it. In reality, the forecast is sometimes correct; often it is not even with best-in-class forecast performance,” he says.

“Products that don't sell to forecast tie up precious working capital and may become excess or obsolete inventory. With more than 10,000 saleable SKU's it is easy to understand the pressure that this may put on operations. Those products will have consumed capacity and materials that could otherwise have been used for other products that we do need at that moment. These may be products that weren't in the forecast which become a firefight and expediting chase. This bullwhip or noise isn't limited just to our internal supply chain.  It is clearly visible in our extended supply through to our suppliers.

“A strategy based around simply being "better" at forecasting was simply not going to be viable in the long term. Working harder with our traditional MRP processes and tools would not be enough. We had taken almost all the low hanging fruits already.”

With 40 lube oil blending, base oil and grease manufacturing plants, Shell Lubricants fills over 2mn bottles a day, and undertakes 30mn deliveries a year to direct customers and distributors.

Lynch’s role to drive Shell Lubricants’ long-term strategy and subsequent roadmap for its global supply chain planning, spanning business processes, systems and organisation design, is therefore one that cannot be underestimated.

“We’re also supporting the marine business, as well as 10,000 ocean-going vessels that carry Shell lubricants at any time. So, just in terms of scaling that, they're just huge numbers,” he adds.

Demand-driven planning

In 2015, Lynch sought to look at the advantages of demand-driven planning, which would seek to sidestep such pressures routinely seen within traditional forecast driven methods and enhance Shell Lubricants’ supply chain capabilities.

By implementing strategic inventory buffers, typically in areas where inventory is already held, demand-driven planning works to decouple the supply chain, breaking down traditional MRP processes which create a bullwhip effect. 

“You see this happening where you have a slight change in demand on one end of the supply chain, and by the time that has been filtered through all of the different replenishment calculations that go all the way along the supply chain, the variation that people at the end of the supply chain feel is significant,” explains Lynch.

“We use inventory buffers to therefore break this effect in the supply chain, and specifically in demand-driven planning, we do not use the forecast to drive our transactions. Instead, we set up a buffer, where we wait until we have actual demand, and then make a decision based on this demand.”

Deciding to take a very different approach to that of Shell’s implementation of SAP in the mid-2000s, Lynch adds that he wanted to see how the business would benefit in the face of ongoing cost pressures regularly seen in the oil and gas industry.

However, in today’s supply chain climate, big changes programmes like this require very solid and credible business cases. Lynch required leadership and financial backing, and strenuously looked at ways to harness available data and support the required results.

“We had to be absolutely clear on the business case and ran simulations around how demand-driven planning would work in a lubricant supply chain. There are very few industries doing this. Nobody's tackled it globally yet, so I think Shell Lubricants is the first global supply chain to adopt this methodology in its entirety,” he says.

“We're talking about 30-plus key manufacturing plants around the world and several hundred stocking points, distribution centres, regional distribution centres, warehouses etc. These supply both local and networked markets, so accurate data was absolutely crucial. It’s a multi-year project of significant change management scale, which required significant commitment to drive this transformation.”