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Recipes For Success at Synthite

SCM Strategies (Lean Approach)
by

Mina Farag

on 9 April 2015

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Transcript of Recipes For Success at Synthite

Recipes For Success at Synthite
Executive Summary
Established in 1972, was a family owned conglomerate based in Kerala, India.
A medium sized spice business.
Processed and supplied a wide range of spices in diverse forms such as, whole, powder, oil, and oleoresin.
Product Range included pepper, red chili, nutmeg, and ginger.
Synthite pioneered the spice oleoresin trade in India and was the largest exporter of oleoresins and essential oils in 2011, Their offerings included:
- Black pepper
- White pepper
- Decolorized
- Non-additive
What are the competitive pressures and priorities for Synthite?

Competitive pressures:

1) Commoditization of oleoresin- only ways to survive and grow are to reduce cost and move up the value chain
Reduced costs: - via a smart global sourcing strategy (e.g. off-
grade berries from countries with different
harvesting periods)
- by maximizing plant utilization (producing a
diversified line of spices)
Moved up value chain: - entered high value flavorings market
via a joint venture in Austria
2) Low-cost global competitors
- Began sourcing and production operations in
China in 2012
- Set up various international offices and
warehouses
Recommendations
1. Switching from an FG approach to an SFG approach.
2. Implementing a VMI and CPFR to improve forecasting.
3. Reducing raw material inventory and JITD approach.
4. Switching to a lean layout.
5. Reducing manual activities and implementing automation methods in product flow from extraction to homogenization and from SFG charging kettle to blending.
6. Implementing blend to order approach and variants separation.

Root Causes for Operational Challenges
Poor Procurement Strategies
Sources raw material (light berry) globally
Countries with different harvesting period
Stocks 900 MT light berry (3 months of production)
Mission to fulfill to varying customer demands
Accepted customer order from “half kg to thousand kgs”
No minimum quantity required
Major customers - signed contracts based on annual price and volume


Is Synthite operations efficient?
From the analysis, we can conclude that Synthite operation was inefficient. It caused a lot of wastes and unnecessary activities since it matched all of the seven wastes.

Frameworks to measure the efficiency of Synthite’s operation
The Seven Wastes (Key Elements of Lean Production)
Overproduction: Unnecessary production to maintian high utilization.
Waiting: Excess idle machine & operator & inventory wait time.
Transportation: Excess movement of materials & multiple handling.
Over-processing: Non-value added manufacturing, handling, inspection & other activities.
Excess Inventory: storage of excess inventories.
Excesss Movement: unnecessary movements of employees when working.
Scrap & Rework: Scrap materials & rework due to poor quality.

Analysis Of Current Operations
Reduction of Raw inventory is required to reduce waste and allocate space for the new storage tanks with a lean layout in mind.
VMI and CPFR implmentation through SRM and shared trust to become more equipped for Blend to Order strategy resulting in higher agility and resposiveness to customer orders.
Reduction of manual labor and automation introduction would also increase the efficency of the overall operations.
Taiichi Ohni

Overproducing: Synthite operated 24/7 but could not meet customers’ requirements and orders
Waiting: The long changeover times created bottleneck and excess idle machines
Transportation & Excess Movement: Frequent manual material transfer

Operations at Synthite
Operational challenges
Difficulty of fulfilling customers’ orders on time despite of high levels of inventory
Synthite might lose customers because of long lean-time (1 week v.s. 2-4 weeks)
Rarely had the right product in stock at the right time or product need re-packing and re-blend

- Difficulty fulfilling customer orders on time, despite having high levels of inventory.
- Difficulty caused mainly because of the high variety of products they had and the unpredictable demand of their customers.
- Almost daily, they had to pull out packaged, finished product from their stock, and re-blend it to the specifications of incoming customer orders.
This caused much frustration among the workers, as they saw it as a waste of time.
Key Issues for Synthite
Our team will be looking at whether Synthite should implement a new strategy to help meet customer orders on short lead times. The director at Synthtie, Aju Jacob is considering a strategy similar to that one used in the paint industry where semi-finished goods are stored and mixed when customers make an order.

Root Causes for Operational Challenges
Poor demand forecasting
Unpredicted nature of demand
100 variants of oleoresin
Average monthly stock 34 MT (None matching customer demand)
Workers demotivation due to repetitive tasks
Re-blending of FG to bring to shippable stage (Repetitive & Wasteful tasks)
Low labor costs
Huge investment in automation of material transfer
Long Production Lead time
Re-blending FG could take up to three weeks
Cleaning and emptying the production line of previous batch
Setting up the operations for the new production batch

What are the competitive pressures and priorities for Synthite?

3) Very short lead times (typically one week or less)
-Kept large finished goods inventories (as well as raw materials)
-Expedited orders regularly to meet specific customer demands
4) Market demand for suppliers to be able to fulfill orders of any size (from half kg to thousands of kgs)
-Synthite accepted orders of any size to stay competitive with market trends
5) Synthite’s large variety of products made timely delivery difficult
-Though cost efficiency was achieved (plant utilization), order fulfillment suffered
6) Constant need for expedited orders
-result of product diversity, demand variability, and inefficient processes


Priorities:

Re-design its forecasting, production, and inventory management processes to address problems of order fulfillment and ever-growing levels of inventory

1) Forecasting: leverage major customer relationships to explore CPFR and VMI opportunities

2) Production: switch to SFG mother-load concept and blend-to-order FG process

3) Inventory: reduce FG stock, increase SGF stock, better utilize raw material stock
Implementation of these priorities will help alleviate the listed competitive pressures
Over-Processing: Many finished goods (FG) that needed to be recycled and re-blended
Excess Inventory: 3-months raw material inventory
Scrap & Rework: Expensive FG level cleaning cost
Labor: 3 man hours per cleaning = INR 225
INR 225 x 44 cleanings = INR 9,900
Oil: 1/2 kilo oil per cleaning = INR 5,000 x 44 cleaning = INR 220,000

Operations at Synthite
3-months of raw material inventory evaporated during storage, causing a loss of INR 19 MM every quarter.
Manual material loading resulted in loss of material and capacity and extra costs of re-processing
Long changeover time and cleaning time incurred extra costs and prolonged lead-time
Extended tests took 1-7 days and caused longer lead-time
Operational challenges
Synthite currently has an average monthly demand off 33MT and a peak of 52MT (Exhibit 1).
No additional Equipment required for SFG production based on cycle time and volume analysis (Exhibit 5).
Additional investment required for the storage of the SFG, suggested five 10MT vessel to account for 1 month safety stock (Exhibit 14).

Additional Considerations
Given that 90% of Synthite sales are comprised of black pepper oleoresin and that all the other variants represent 10% or less, it would be interesting to conduct a profitability analysis to assess whether or not the ROI from producing these complex variants is worth the added operational cost?
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