Poster
Client Context
Our client, Merck & Co., also known as Merck Sharp & Dohme (MSD) outside the U.S. and Canada, is a leading global pharmaceutical company with MSD Ireland generating approximately $14 billion in annual revenue. This project focuses on MSD Ireland's inbound logistics for their various manufacturing sites, which produce a diverse range of products including vaccines, small molecule drugs, and cancer medications. Demand flows from customer contracts and market forecasts, and purchasing is managed in SAP, which recommends purchase orders based on projected production. The project aims to address concerns of excess inventory driving cost increases due to a lack of standardized ordering policy and a risk-averse culture. Our team developed a safety stock calculator and methodology to augment Merck's global MRP Automation process improvement effort, with a projected completion date by the end of 2023. The project scope was narrowed down to a subset of materials at two operationally mature sites, MSD Ballydine and MSD Carlow, with other sites being potential candidates for future implementation.
Project Objective
We identified two valuable opportunities to reduce MSD Ireland's operating costs after analyzing SAP data and conducting discovery sessions with four sites. The first opportunity involves excess inventory reduction and safety stock calculation, as current safety stock levels represent 70% of the stock in the system at their targets, and there is a lack of standardization in determining these levels. This, along with supply chain uncertainty, drives excess inventory. The second opportunity focuses on minimizing operational disruptions caused by suppliers often failing to deliver within contractual delivery windows, resulting in unanticipated delivery surges and adjustments to production schedules. Addressing these opportunities will help MSD Ireland move closer to their objectives by reducing operating costs, optimizing inventory management, and improving operational flow.
Design Strategy
Our design strategy involved developing a safety stock calculator using a statistical model to standardize and automate the process of setting safety stock, supplemented with a delivery analytics graphical user interface (GUI) for sites to examine variability drivers. We gathered data from interviews with eleven managers across four sites and 17 datasets from SAP, addressing common concerns like unpredictable supplier behavior and the pandemic's aftereffects. We selected King's Method as the best fit for our client's available data and safety stock optimization, accounting for material-specific risk tolerance, total lead time distribution, and demand distribution. We conducted a sensitivity analysis to ensure data quality, filtering out pandemic-skewed lead times and extreme outliers. Our team performed a variability study to analyze how different material attributes affected lead times and lead time residuals across supplier deliveries and goods receipt processes, utilizing a Mann-Whitney U-Test to evaluate the difference in means between two groups for significance. This approach allowed us to test a broad range of possible variability drivers and validate our safety stock recommendations for MSD Ireland.
Deliverables
We provided MSD Ireland with a comprehensive graphical user interface (GUI) that offers two key features to help solve their problem. First, the GUI includes a Safety Stock Calculator that enables users to easily calculate King's optimal safety stock level for any material at any site. This calculator reduces manual efforts and allows for dynamic updates when eventually embedded within SAP. Second, the GUI features a Variability Analytics Tool that allows users to prepare data and run Mann Whitney U-Tests to analyze sample means and medians for delivery times and delivery residuals. By utilizing the Variability Analytics Tool, MSD Ireland can focus their efforts on reducing variability, enabling further safety stock reductions and operational flow improvements. The findings from this tool can serve as a basis for further investigations and can be leveraged in supplier negotiations. Overall, our integrated GUI, combining the Safety Stock Calculator and the Variability Analytics Tool, enables MSD Ireland to lower operating costs and improve operational efficiency by addressing safety stock optimization and reducing variability.
Value and Impact
Our project is estimated to deliver an expected net present value of $43 million over ten years, with the potential to expand to other sites within the organization. The quantified value stems from two sources: 70% of the savings come from reductions in safety stock spending, while 30% of the savings results from reductions in holding cost spend. Alongside the monetary value, our project offers significant unquantified value through operational simplicity derived from the discovery analysis and variability recommendations. The discovery period uncovered insights and framed conversations around process improvement, while our analysis highlighted drivers of delivery and goods receipt variability that can be addressed for further inventory reduction.
In addition to these benefits, our project contributes to risk mitigation by maintaining data integrity and fostering adoption by site planners. We have collaborated with Merck's MRP Automation team to ensure standardized data practices and have received enthusiasm from site planners, which mitigates adoption concerns. Besides the monetary value, our project can have a positive impact on the environment by reducing excess inventory and promoting efficient resource utilization. Overall, our project delivers both monetary and operational value, along with potential environmental benefits, to stakeholders and contributes to improved efficiency within the organization.
Project Information
Student Team
Aidan Anderson, Kevin Dee, Emma Gratton, Elizabeth Lindley, Lily Joy Tothero, René van Hoorde
Faculty Advisor
Faculty Evaluator
