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Putting a Fuse to Forecasting

The world’s leading provider of commercial blasting solutions relies on Demand Solutions worldwide

So many forecasting problems are brought on by spare parts—but that’s only one side of the coin. Imagine an industry that doesn’t carry a single spare part and you would have described Orica Mining Services, one of the top 50 companies on the Australian Stock Exchange.

From the gold rush of the 19th Century to the sapphire mines of today, mining and the role of explosives played a developmental role in Australia’s history—so much so that Alfred Nobel routinely patented his explosive inventions in Australia even after patenting them worldwide in Swedish courts. That move by the father of dynamite seems prescient as Orica recently acquired the European, Middle Eastern, African, Asian and Latin American businesses of Dyno Nobel, a global leader in the commercial explosives industry that traces its roots back to William Bickford’s invention of the safety fuse in 1831 and Nobel’s legacy.

There is still plenty of mining going on in Australia, but the company now also supports everything from road construction to quarries. As the world’s leading provider of commercial blasting solutions—from the manufacture of packaged explosives to training—the company operates manufacturing plants strategically located around the world.

Acquisitions left Orica with three different ERP platforms in Australia, EMEA and North America. Now on a globalized SAP system, Orica’s ERP collects forecast adjustments from sales representatives in Australia, North America and Brazil but continues to use Demand Solutions at those locations for forecasting.

At one of the company’s Australian manufacturing facilities , Demand Manager Lloyd Bennett is the “forecast guru” for Australia and the Pacific Rim. A Demand Solutions user for eight years, he came to Orica from Initiating Explosive Systems (IES), an Ensign Bickford Company joint venture with Orica.

Orica has three strategic stocking centers in Australia—one each primarily for detonators, detonating cord and boosters and packaged explosives—close to manufacturing plants. Complicating replenishment is that these items can’t generally travel together on the same vehicle, so the company has 60 smaller magazines. They may supply anywhere from one to 50 customers, but it’s a fairly complex network.

“Since Demand Solutions forecasts at an item and customer level, item level tells me which stocking center or magazine it’s being replenished from,” Bennett said. “So it drives our distribution system through sales forecasts.”

Bennett said prior to Demand Solutions Orica relied on “reactive replenishment with high reorder levels.” With half the inventory of four years ago, Bennett is maintaining a high service level at any remote site at any time.

Canada was the first Orica location to use Demand Solutions. Royden Brown is the director of supply chain for Orica’s Initiation Systems and Packaged (IS&P) products. He was shown the first Demand Solutions system in 1985 and has been a convert ever since.

“We weren’t doing any forecasting at all, just looking at aggregate numbers, and it was truly a sales-driven organization,” Brown said of the situation before Demand Solutions. “We were implementing MRP to enable forecasting at the SKU level. We went from reorder points and not looking at any forecasts to an environment where we could actually rely on forecasts. We weren’t even breaking down the numbers by customer or plant back then—we just rolled off a SKU number—but it was a big improvement.”

Brown’s experience mirrors Bennett’s, who recalls that before Demand Solutions there was no overall sales and planning system. “We were simply told each month, ‘this is what we want you to make.’” As a result, Bennett says, manufacturing was full-bore some months while at other times operators sat around with nothing to do.

However for Brown, the pattern evolved slowly after many years of using the system. “We started using Demand Solutions at certain product group levels. Previously we had used the MRP Planning Bill Percentages, which was a high-maintenance effort because we had to constantly update the percentages to reflect seasonality and abnormal demand.” Brown said with Demand Solutions the company only needed to blow down the forecast into percentages of SKUs based on a 12-month history to find an objective starting point, saving hours of manual calculations over using the MRP system.

Bennett’s manager looked at some other systems but knew that Orica North America had been using Demand Solutions for some years. “The implementation here went well,” Bennett said. Including the set up for exchanging data with the SAP system, the Australia launch took four days.

“I believe Demand Solutions could actually acquire patents in weather forecasting,” Bennett said. “The type of explosives customers purchase depends a lot on weather patterns—you can see a shift in the type of explosives being used in wet seasons. This was always suspected but Demand Solutions picks up the pattern without any information other than the sales history. It also learned another seasonal swing—that the second half of the financial year is always stronger than the first in the mining industry. We’ve built our stocks in anticipation of that second-half surge, and it’s a strategy that’s paid off.”

Connected to the Global ERP

“When we first got into SAP in 1991 we just took what we’d done in Demand Solutions and loaded the aggregated SKU level,” says Canada’s Brown. “We had a bit of a different business environment with one or two manufacturing sites, shipping from those locations, so it worked well because we were using DS to stock the main center. As we evolved we took all the data from SAP into DS so we had characteristics of end-customer sales in North America, such as a salesman’s ID, sold-from plants, product hierarchy and an ABC classification. We run through iterations and filters we’ve built up over the years and we load that back into SAP—all of which takes only minutes. Our key managers can make adjustments but we don’t ask them for a 12-month horizon, just the next four to five months. The system forecast drives the months outside that period.”

Bennett now has a basis for a Sales and Operations Planning process. “We have evolved to a point where we can go out to key account managers for review,” Bennett said. “Forty Australian account managers and 15 more in the South Pacific make adjustments on the Demand Solutions forecast using SAP. This makes it much quicker to go to production planning.”

With a baseline for S&OP Bennett has seen significant improvements in the bottom line for Orica Australia’s 1,300 SKUs and 300 line items representing bulk products—the company can sell upwards of 54,000 detonators of various types in a single day. “We were holding around 17 million Australian dollars in inventory and have brought that down to 8 million after four years. Our inventory turns have gone from three to six per year on most items.”

In North America Brown has to contend with about 3,000 SKUs, without classifications for plants, salesmen and other fields. Including that information the data file, Brown says, is about 100,000 records.

“Because there’s such a vast amount of data, one of the things we get from Demand Solutions is flexibility to do something different with the history or make adjustments if the business changes,” Brown says. “You can manipulate the data without having to go on you hands and knees to someone else who programs scripts for creating reports.”

Click the link below to review the DS Magazine article.

DS Magazine Article – Orica

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