A Focus on Planning Helps Castrol Reduce Inventory, Improve Service

A Focus on Planning Helps Castrol Reduce Inventory, Improve Service

By Jean V. Murphy

Castrol's European operation faced a common supply-chain conundrum: excess inventory and poor customer service. A new planning department separate from execution, coupled with technology from ToolsGroup, got the company's supply chain back on track.

For more than 100 years, Castrol has been a leading name in the development and manufacture of high performance lubricants that keep the engines of cars, trucks and motorcycles running smoothly. The U.K.-based company, now a division of British Petroleum, prides itself on developing products for the most demanding situations—such as Formula 1 racing and attempts at new land-speed records—and then making these competition grade lubricants available to the everyday motorist.

The high performance of the company's products, however, has not always been matched by the performance of its supply chain. In the late ‘90s, Castrol's European division for commercial and consumer products was struggling with high inventory levels and customer dissatisfaction.

"We had a classical problem," says Alesandro Tenaglia, logistics manager at Castrol Europe, based in Swindon, U.K. "Our customer satisfaction surveys showed very clearly that one of the pains for our customers was low stock availability. They would order 10 items and we would ship only five and then ship the other two, then the other three. This was not good for our customer or for us. Having to make three shipments instead of one and having to make urgent shipments increased our costs a lot. And our inventory levels were also quite high."

At this time Castrol had a minimum of one plant per country in Europe and at least one stocking point per country. The company's customer base varied greatly by region. In some countries, especially Eastern Europe, orders were shipped to a few large distributors, while in other countries orders went to thousands of retail customers, from service stations to mass market stores.

"We tried to analyze our program and understand why we were having these problems," says Tenaglia. "We went with network optimization, trying to reduce the number of warehouses; we tried but didn't succeed in rationalizing the product portfolio. Then we came to understand that the problem was really that we had insufficient or non-existent planning."

Previously, he explains, sales and marketing would make a sales plan based on their best estimate of future demand and then communicate those figures directly to manufacturing, which would create a production plan. "But the quality of the information didn't allow us to make a proper plan for replenishment," says Tenaglia. "It only allowed us to be reactive. So we were in a situation where we had too many warehouses, too many plants and a lot of unnecessary production capacity, but we couldn't reduce those if we first did not do a much better job of planning the operation. What we really needed to do was to improve our understanding of market demand and to improve the communications between sales and marketing, and also our execution of manufacturing, purchasing and distribution."

The company recently had implemented an inventory optimization application from ToolsGroup, Amsterdam, called DPM (formerly, Distribution Planning Model). But Tenaglia knew that technology was only part of the solution. After gaining some experience with the software to understand its capabilities, the European division of Castrol undertook the hard work of organizational change, creating a supply-chain planning department that was totally separate from execution functions.

Tenaglia emphasizes the importance of this move. "Planning was simply non-existent or the function was somehow mixed in with execution, so buyers became planners and manufacturing schedulers became planners," he says. In reality, everyone simply reacted to whatever was happening. "People were very busy anticipating and expediting and they were convinced they were doing a great job, but they were putting all of their efforts in the wrong direction. The point I make is that skills were missing, so we had to first make this big change in the organization.

"Basically, we said to sales and marketing, ‘you have been doing the sales forecast, but now we are going to do it using analytical tools that will produce a statistical forecast automatically. Then you can apply your marketing intelligence, but only by exception, to improve the statistical forecast.'"

Forecasting continued at the country level in order to take account of this local market intelligence.