CSCMP's Supply Chain Quarterly
Global
July 16, 2018
Global

From zero visibility to "night vision" at Shamir Optical

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A merger and subsequent expansion prompted the prescription lens maker to rethink how it was managing inventory. New technology provided companywide visibility for the first time, leading to a 25 percent cut in inventory without compromising service levels.

Technology may be improving many aspects of modern life, but one thing it's definitely taking a toll on is people's eyesight. Increased exposure to screens, a growing aging population, and better awareness of optical health all add up to more people around the world wearing prescription glasses than ever. According to Transparency Market Research, in 2011, the global market for eyewear was valued at US$81 billion and is forecast to reach US$130 billion by 2018. As a result, the global eyewear industry consists of many players battling for market share.

Today Shamir Optical Industry Ltd. is one of the top 10 players in the global prescription lens market. Based in Israel, we started out in 1972 making glass bifocal lenses and five years later became one of the early pioneers of the progressive-lens technology that so many take for granted today. Today Shamir employs some 2,200 people, operating two manufacturing facilities in Israel for molds and semifinished lenses and 16 optical laboratories throughout the world that turn semifinished lenses into make-to-order prescriptions. These labs, along with a global network of commercial sales and marketing sites, order finished and semifinished lenses (sourced mainly from Asia and Ireland) from Shamir's distribution centers (DCs). Shamir also has one mass production site of its own in Israel, which manufactures some lenses.

The year 2011 turned out to be a pivotal time in our history. Having been the first kibbutz enterprise to list on the NASDAQ stock exchange in 2005, in July 2011 we merged with Essilor, one of the largest optical industry companies, and became a private company again. This change opened up exciting possibilities for us; joining forces with Essilor meant we were in a unique position to seize the market opportunity and expand globally.

Supply chain under the spotlight
We recognized that in order to take full advantage of this opportunity, it was time to review and improve our supply chain operations. Our brand was respected among vision retailers for quality and great service, but behind the scenes we knew there was considerable room to improve efficiency.

I was chief information officer (CIO) at the time. To get started, the then vice president of global operations and I looked at how we could improve eight of our sales and distribution sites in the United States and Europe. Back then managers operated each site independently, relying on spreadsheets and their own inventory policies to replenish the roughly 35,000 stock-keeping units (SKUs) they received into stock directly from suppliers. This absence of central planning and coordination meant we weren't taking advantage of our network to balance our inventory or gain economies of scale.

Our initial goals, therefore, were to:

  • Centralize procurement to negotiate better pricing, taking advantage of economies of scale;
  • Establish a multiechelon network so that inventory could be rebalanced across the distribution operations as needed; and
  • Overhaul the information technology (IT) systems to support and optimize planning in this new model.

Most would agree that these would be the logical changes to make in our situation. However, as any supply chain leader who's tried moving from a distributed to a centralized organization knows, it's not an easy task. Most people resist when asked to trade control and autonomy for sharing information and collaborating.

Fortunately we had the ideal person to place at the heart of our planned initiative—someone who not only knew the business inside out, but also knew all the people involved. Nili Azura joined Shamir in 2002 as a production planner at our Shamir-Eyal manufacturing plant. This was an entry-level administrative role, but through interest and considerable initiative, Nili spent her first decade getting involved with many facets of the operation, including marketing, manufacturing, and IT. She developed into that rare, valuable person who not only sees the operation's big picture, but also understands in detail how each component part works and contributes to the whole. So in 2011, Nili joined the global supply chain team at Shamir's headquarters.

Phase one: visibility
Acknowledging the difficulties in introducing change too quickly, we set out at first to gain better planning visibility to address the problem local managers in our optical labs and commercial sites cared about most—minimizing stockouts. Prior to the change, site managers used spreadsheets embedded with their own logic and formula for setting inventory levels. DCs didn't have any visibility of each site's inventory levels, so when it came to ordering from external suppliers, their planning was based purely on assumptions. Even though our distribution operations held excess safety stocks, stockouts on popular items were still too high for such a competitive market as ours.

In order to achieve visibility, we accepted that it was time to stop using spreadsheets and introduce a real planning system. The former vice president of global operations and I spearheaded this effort. We were looking to implement a single, shared system to optimize and centrally manage the inventory across an initial network of eight sites. Crucially, though, we had to maintain service levels of at least 99 percent, not only to meet our business goals, but also to build trust and credibility in the system during this big change.

Rather than a generic system from a large enterprise resource planning (ERP) vendor, we wanted a "best of breed" solution that had already been proven in inventory optimization. We met local supply chain specialists Rasner Logistics Software at an event in Tel Aviv where they demonstrated ToolsGroup SO99+ planning software for us. Rasner was able to show us that the software's functionality would allow us to optimize our inventory against 99 percent service levels. Based on this and other factors, such as customer references, we invited Rasner to manage an implementation for us.

Rasner worked closely with Nili and our IT team to implement a single, on-premise instance of the software to handle networkwide demand planning, fulfillment, and replenishment. In only seven months the team designed the interfaces, prepared and modeled the data, and carried out custom development, including training and integration with our ERP system. The team created a truly "seamless" integration whereby SO99+ ingests data from the ERP system to automatically generate forecasts and purchase orders. This data is then fed back into the ERP system.

Nili's wealth of acquired business knowledge was instrumental in tailoring the planning system to our needs and designing a new centralized process to handle all procurement from external lens suppliers to the DCs, and from the DCs out to the optical labs and commercial sites. She explains, "Working up from the ground level gave me detailed insights into every planning variable in the business—lead times between different points, how often new SKUs supersede old ones, seasonality, predictable 'exceptions' such as the Chinese New Year (when the whole country shuts down)—and how to build all these into the planning system."

Phase 2: Fine-tuning and expansion
As expected, we did go through a big cultural change, which our top managers stepped in to sponsor and lead. Fortunately things started to get easier once the first sites started to experience the positive effects of the new processes and system. Inventory levels overall started going down, yet we were having fewer stockouts. Site managers no longer needed to spend hours every week poring over cumbersome spreadsheets and could start devoting more time to customers. At the same time, our top managers could see how easy it was to control global inventory levels and also add new sites to the network.

Over the next six years, Nili fine-tuned the planning system so that it got smarter at making tradeoffs in an increasingly complex and growing distribution network. By painstakingly adding intelligence about every possible combination of logistics variable—lead time, costs, and more—among the different sites, Nili kept finding more ways to reduce inventory write-offs, rebalance inventory across the network, improve service levels, and cut logistics costs.

In this extraordinary growth phase we expanded our centralized inventory approach from eight to 20 sites and transformed what was a siloed operation into a fully networked, multiechelon sourcing model. A team of only three central planners—the same as when we started—was able to manage all planning, fulfillment, and replenishment for these sites from our global headquarters. This includes all the lenses that the DCs procure from external suppliers and all inventory for our optical labs and commercial sites. The only aspect of procurement the central team doesn't manage today is sourcing raw materials for our mass production lab in Israel. In recognition of Nili's huge contribution, I promoted her to global supply chain planning manager across the whole Shamir Optical group in 2016.

Rasner and the new planning system were both integral to maintaining seamless business continuity during this time. A key test of this came when we had to shut down our European distribution center in Portugal for two months to introduce a new warehouse management system (WMS). We managed to reroute all of our orders through other parts of the network and maintain our service levels without our customers noticing a thing.

Far exceeding initial goals
Our transformed distribution network is performing far better than we ever could have expected. Whereas before we were supply-driven, focusing mainly on product availability at sales and distribution sites, today we are demand-driven and service-oriented. Our system reads demand signals from the market to determine optimal inventory levels, and our planning team continually fine-tunes and rebalances this as needed to squeeze out even more efficiencies. This has resulted in some remarkable outcomes:

  • Inventory levels reduced by more than 25 percent overall while consistently achieving service levels exceeding 99 percent
  • Ability to run a much larger network of 26 locations with 65,000 SKUs, across the different sites, using only three planners
  • Average number of stockouts reduced from 600-700 SKU locations to fewer than 400, despite increasing the number of stocking locations from eight to 26
  • New capability for managing individual forecasts for major customers
  • Inventory reallocation between sites
  • Changed organizational culture to focus on service levels
  • Seamless integration between our planning and ERP systems that eases network scalability and day-to-day operations

We knew that we had really succeeded in laying the foundation for sustainable growth after we passed our first big test: "draining the network" of old product lines and replacing them with new versions. This is a major company event that used to take a couple of weeks to plan and was honestly quite painful. Using our new systems and processes we managed to get this done in only a few hours.

I'm extremely proud of how well my team has been able to support Shamir's growth during this exciting time, maintaining high service levels and positively impacting the bottom line. After starting out with zero visibility across our network, we now have what one team member described as "night vision"—the ability to see everything clearly everywhere and at all times—and have optimized operations to a greater degree than any of us originally expected. This clarity of vision stands us in good stead for whatever challenges and opportunities arise in our future.

Nir Shmuel is currently serving as Vice President Global Operations & IT at Israel-based Shamir Optical Industry Ltd.

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