Aerzener Maschinenfabrik streamlines procurement and inventory management

IBM identifies inefficiencies and supports process optimisation

Published on 05 Sep 2012

Validated on 03 Mar 2014

"In the manufacturing industry today, procurement requires an integrated approach and cannot focus only on offering low prices. The savings and process optimisations provided by intelligent supply chain management solutions based on IBM and Nicando Software solutions help us improve our competitive position significantly." - Hanno Hildebrandt, Director Procurement, Aerzener Maschinenfabrik

Customer:
Aerzener Maschinenfabrik GmbH

Industry:
Industrial Products

Deployment country:
Germany

Solution:
Automation, Smarter Planet, Supply Chain Management

Smarter Planet:
Smarter Supply Chain

IBM Business Partner:
Nicando Software GmbH

Overview

Aerzener Maschinenfabrik GmbH is one of the world’s leading manufacturers of blowers and compressors. The company was founded in 1864 and employs approximately 1,800 people worldwide in more than 35 countries. The entire Aerzener group achieved consolidated sales revenues of €277 million in 2011.

Business need:
The company realised that streamlining supply chain processes would help it to improve efficiency and reduce costs in its procurement and inventory management, resulting in increased competitiveness. Forecasting procurement demands and communicating them to suppliers in a seamless, automated manner is critical for managing today’s complex, global supply chains. Failure to calculate the quantity of products or raw materials needed, or to invoice suppliers in time to maintain stock levels, can damage customer satisfaction, impair efficiency, and reduce profitability.

Solution:
IBM Global Business Services identified two areas for optimisation and discussed how Aerzener Maschinenfabrik could restructure its supply processes. Part of the strategy developed involved implementing a new software solution. IBM created a business case for the customer for a business-to-business integration solution developed by IBM Business Partner Nicando Software. As part of its solution, the partner deployed the IBM Advanced Cross Inventory Optimiser (AXIO), which was previously known as Dynamic Inventory Optimisation Solution, for dynamic inventory planning and advanced forecasting.

Benefits:
Streamlined supply chain and inventory management processes, producing inventory savings of €4 million annually (measured against previous assumptions). Cost savings mean that the IBM AXIO solution is expected to return its investment within two years. More accurate planning, improved processes, communications and relationships with suppliers, through close integration, providing more accurate forecasts and placing orders automatically and more regularly. Process optimisation and automation have released staff from administration tasks enabling them to engage in value-adding work.

Case Study

To read a German version of this case study, click here.

Smarter Supply Chain: Increasing efficiency with optimised supplier integration
Instrumented: Demands, inventory and payment data is collected from multiple business applications and consolidated into a single portal application. IBM AXIO analyses the data and returns the results to the integrated ERP systems.
Interconnected: Orders to suppliers placed in the comprehensive business-to-business integration solution connect to the company’s ERP system and archive solution. The orders are then linked to relevant data, providing information that suppliers can process automatically in their own business systems.
Intelligent: Close supplier integration and strategic partnerships together with the implementation of IBM AXIO, enable intelligent process automation, save costs, increase order processing efficiency and optimise inventory management.

Aerzener Maschinenfabrik GmbH is one of the world’s leading manufacturers of blowers and compressors. The company was founded in 1864 and employs approximately 1,800 people worldwide in more than 35 countries. The entire Aerzener group achieved consolidated sales revenues of €277 million in 2011.

The company realized that streamlining supply chain processes would help it to improve efficiency and reduce costs in its procurement and inventory management, resulting in increased competitiveness. Forecasting procurement demands and communicating them to suppliers in a seamless, automated manner is critical for managing today’s complex, global supply chains. Failure to calculate the quantity of products or raw materials needed, or to invoice suppliers in time to maintain stock levels, can damage customer satisfaction, impair efficiency, and reduce profitability. Additionally, with a high proportion of export orders, Aerzener Maschinenfabrik was managing a great deal of paperwork. Every time a supplier made a purchase, the appropriate related technical and regulatory documents needed to be located, a repetitive and time-consuming process.

Analysing weak points and advancing process optimisation
In a discussion with IBM Global Business Services experts, potential for improvements in the procurement and order processing processes at Aerzener Maschinenfabrik became obvious. IBM then analysed the company’s situation and created a business case. All people involved knew that the future success of the solution depended on the uptake of the new solution by the suppliers.

IBM Global Business Services suggested that Aerzener Maschinenfabrik should restructure its supply chain management and integrate its suppliers deeper into its inventory management procedures. In connection to the introduction of consignment warehouses at the customer site, IBM calculated possible additional savings of three to four million Euros based on the supplier managed inventory approach (measured against previous assumptions). To achieve these substantial savings, IBM advised Aerzener Maschinenfabrik to renegotiate its supplier contracts and support supply chain processes with a business-to-business integration solution developed by IBM Business Partner Nicando Software.

To tackle procurement administration inefficiencies, IBM encouraged Aerzener Maschinenfabrik to optimise its order processing for selected suppliers with the same portal solution. This contributes to a reduction in processing costs and speed up ordering processes with additional automation and integration capabilities.

Implementing an integrated business-to-business portal
After carefully evaluating and analysing the business case created by IBM, Aerzener Maschinenfabrik decided to implement the proposed solution. “IBM Global Business Services offered a comprehensive concept for improving our competitiveness by transforming suppliers into partners with tighter integration and improved order processing to speed up supply chain processes,” says Günter Kuhnert, CIO at Aerzener Maschinenfabrik. “Finally, the potential savings and process optimisation convinced us to follow IBM’s advice and implement the solution.”

Working with IBM Business Partner Nicando Software and IBM, Aerzener Maschinenfabrik deployed a comprehensive logistics process integration solution built on IBM WebSphere Application Server, WebSphere Message Broker and WebSphere MQ.

The company introduced various modules in parallel, with IBM AXIO at the core, and electronic document exchange, EDI, eOrdering and supplier managed inventory features that can be used with the solution.

The solution was implemented over a period of eight months. The server component was implemented on an IBM BladeCenter H chassis with IBM BladeCenter HS22 servers, using Intel Xeon processors. Aerzener Maschinenfabrik selected an IBM System Storage DS8700 device for data storage. The physical systems, supporting VMware virtualization, the OpenSuSE Linux operating system and IBM WebSphere Application Server are running in a managed hosting environment.

“We have found IBM WebSphere Application Server to be one of the most reliable application servers on the market,” explains Martin Bilstein, Senior Solution Seller B2B Integration at IBM Deutschland GmbH. “Besides its excellent transaction management, the IBM solution is also very fast and scales very well. Application administration and monitoring is optimally integrated and allows us to run the entire landscape with very little effort.”

Optimising the inventory costs
As Aerzener Maschinenfabrik sought to streamline its supply chain management and cut its inventory levels to save costs, it discussed with the IBM team which of its suppliers should be considered for the supplier managed inventory approach and which were suitable for the simplified ordering processes.
In a number of workshops with different suppliers, the project team, consisting of staff from Aerzener Maschinenfabrik, IBM Business Partner Nicando Software and IBM, examined the potential improvements of the intelligent supply chain communication solution. Cost savings of about 10 to 15 percent per supplier in the supply chain processes have been estimated as a realistic prospect.

For its key suppliers, Aerzener Maschinenfabrik decided to establish tighter integration and set up support for consignment warehouses using the supplier-managed inventory module of the Nicando Software solution. These inventories are managed by the suppliers, with no involvement from Aerzener. This arrangement gives suppliers better control over inventory levels and optimises their logistics while Aerzener Maschinenfabrik benefits from improved stock availability, as suppliers have more insight into upcoming orders and can plan their inventory management more efficiently.

Supplier inventory data is updated using IBM AXIO. This helps Aerzener Maschinenfabrik to reduce its carried inventory figures as well as providing an optimised availability strategy.
AXIO uses highly complex, individually configurable algorithms and advanced statistical analysis combined with a powerful “what if” analyser that helps to optimise procurement processes. The software analyses the impact that changes to service levels, supplier lead-times and lot sizes, for example, might have on costs, budget and inventory levels and displays the results in a way that is easy to understand.

Based on IBM AXIO, Aerzener Maschinenfabrik implemented an innovative inventory optimisation solution that enables the company to accurately simulate and forecast inventories, and integrate its supply chain into the company’s procurement process in a seamless, automated manner. IBM AXIO takes demand data, creates optimised order sizes for supplier parts, and then sends that data to the Aerzener Maschinenfabrik enterprise resource planning system.

The information is used to calculate optimal consignment stock levels for mission-critical parts consistent with meeting customer orders.

To optimise costs, the solution performs a product classification and calculates Economic Order Quantities (EOQ), order frequencies and safety stock, based on backwards-looking usage values and forward-looking assessments. IBM AXIO identifies inventory reduction opportunities with detailed inventory calculations at the stock-keeping unit level. The solution considers many factors, such as service levels, demand variation, supplier lead-times, batch size, and overage and underage levels, to identify opportunities for quick hits for reducing inventory and improving service levels.
To date, nine suppliers are using the supplier-managed inventory in consignment warehouse features to take advantage of the clear supply chain visibility provided by this solution. Aerzener Maschinenfabrik also manages ordering processes with 50 suppliers through the eOrdering component of the Nicando Software solution.

Optimisation of supply chain processes, including automated data exchange for about 300 articles, offers business process efficiencies for both Aerzener Maschinenfabrik and its suppliers. The solution cuts paperwork and errors for all the organizations involved, and, most importantly, cuts costs and improves service to customers. “We have not received a single complaint about the new system,” says Günter Kuhnert, CIO at Aerzener Maschinenfabrik. According to IBM’s calculations, the working assets at Aerzener Maschinenfabrik can be reduced by about €4 million within half a year as a result of this integration project and the introduction of consignment warehouses. This figure even outperformed the company’s ambitious initial cost saving estimates.

Benefits of close supplier integration and streamlined supply chain processes
The tighter integration and the enhanced supply relationships enable real cooperation, leading to more reliable partnerships and more efficient supply chain processes for both Aerzener Maschinenfabrik and its suppliers. Suppliers can organise and schedule production and distribution operations more efficiently, increasing production capacity usage and reducing logistics costs. With advanced inventory management and forecasting, this also leads to reduced emissions through optimised delivery routes.
Additionally, electronic order processing has sped up administration processes and reduced coordination costs. Slow and laborious fax and telephone communication has been replaced by fast and efficient online communicating, reducing processing times substantially.

Finally, with the IBM WebSphere and IBM AXIO solutions in place, Aerzener Maschinenfabrik has significantly streamlined and automated its order and supply chain management. Process optimisation has produced savings of €4 million annually, a fifth of the total €20 million raw materials inventory.
Suppliers benefit from an improved overview of upcoming orders and inventory levels, while Aerzener Maschinenfabrik itself has a better view of business activity and productivity.

Günter Kuhnert, CIO at Aerzener Maschinenfabrik says: “The collaboration between our IT staff, IBM and the Nicando Software team was very smooth. We are very happy that we chose to work together with IBM and IBM Business Partner Nicando Software on optimising our supply chain. The IBM consultants are excellent and actually know what they are talking about. Their competence in supply chain management is outstanding.”

Components

IBM products and services that were used in this case study.

Hardware:
BladeCenter, BladeCenter H Chassis, BladeCenter HS22, Power Systems, Power Systems running i, Storage, Storage: DS8700

Software:
WebSphere MQ, IBM i, WebSphere Application Server, WebSphere Message Broker

Operating system:
IBM i, Linux

Service:
GBS BAO: Advanced Analytics and Optimization, GBS BAO: Enterprise Information Management, IBM Global Business Services

Legal Information

© Copyright IBM Corporation 2012 IBM Deutschland GmbH 71137 EhningenDeutschland ibm.com/de IBM Österreich Obere Donaustrasse 951020 Wien ibm.com/at IBM Schweiz Vulkanstrasse 1068010 Zürich ibm.com/ch Produced in Germany August 2012 IBM, the IBM logo, ibm.com, Let’s Build A Smarter Planet, Smarter Planet, the planet icons, WebSphere, System x, BladeCenter, Power Systems, System Storage and Global Business Services are trademarks of International Business Machines Corporation, registered in many jurisdictions worldwide. A current list of other IBM trademarks is available on the Web at “Copyright and trademark information” at: ibm.com/legal/copytrade.shtml. Linux is a registered trademark of Linus Torvalds in the United States, other countries, or both. Intel, Intel logo, Intel Inside, Intel Inside logo, Intel Centrino, Intel Centrino logo, Celeron, Intel Xeon, Intel SpeedStep, Itanium, and Pentium are trademarks or registered trademarks of Intel Corporation or its subsidiaries in the United States and other countries. Other company, product or service names may be trademarks, or service marks of others. IBM and Nicando Software GmbH are separate companies and each is responsible for its own products. Neither IBM nor Nicando Software makes any warranties, express or implied, concerning the other’s products. References in this publication to IBM products, programs or services do not imply that IBM intends to make these available in all countries in which IBM operates. Any reference to an IBM product, program or service is not intended to imply that only IBM’s product, program or service may be used. Any functionally equivalent product, program or service may be used instead. All customer examples cited represent how some customers have used IBM products and the results they may have achieved. Actual environmental costs and performance characteristics will vary depending on individual customer configurations and conditions. IBM hardware products are manufactured from new parts, or new and used parts. In some cases, the hardware product may not be new and may have been previously installed. Regardless, IBM warranty terms apply. This publication is for general guidance only. Photographs may show design models.

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