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0Copyright(C)2020 AJINOMOTO CO., INC. All rights reserved
Confidential
Ajinomoto GroupMedium-Term Plan for Digital Transformation (DX) in Supply Chain Management (SCM)
March 23, 2021Takayuki KodaCorporate Vice President In charge of SCM ReformSCM SubcommitteeDX Committee
1Copyright(C)2020 AJINOMOTO CO., INC. All rights reserved
Confidential
Planned cost reductions and business profit in SCM
Challenges for Ajinomoto Co. and objectives for DX in SCMBusiness challenges related to Ajinomoto Co.’s SCM⇒ Inventory rationalization (reduce days inventory outstanding (DIO))
Direction and progress on reducing inventory1. Rationalize number of SKUs2. Reduce number of inventory locations: Reorganization of domestic
seasoning and packaged food production3. Improve demand forecasting and automate production
-1.5
-6.0
-7.5
-6
-4.5
-3
-1.5
0FY2020 forecast FY2020-2022 Plan FY2020-2025 Plan
Cumulative Cost Reductions (billion yen)
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved
Planned Cost Reductions (SCM related)
Cost reductions(billion yen)
¥4.5 bn
2
3Copyright(C)2020 AJINOMOTO CO., INC. All rights reserved
Confidential
Planned cost reductions and business profit in SCM
Challenges for Ajinomoto Co. and objectives for DX in SCMBusiness challenges related to Ajinomoto Co.’s SCM⇒ Inventory rationalization (reduce days inventory outstanding (DIO))
Direction and progress on reducing inventory1. Rationalize number of SKUs2. Reduce number of inventory locations: Reorganization of domestic
seasoning and packaged food production3. Improve demand forecasting and automate production
Business Challenges for the Ajinomoto Group
ROE > ROIC > ROA > WACC (is how it should be)4.9% > 3.0% > 2.1% < 5-6% (Ajinomoto Group’s consolidated FY2019 results)
ROA=7.2% (= business profit÷ total assets: announced publicly)
ROE = operating profit (1 – tax rate) ÷ shareholder’s equity
ROIC= operating profit × (1 – tax rate) ÷ (shareholder’s equity + interest-bearing debt)
ROA = operating profit× (1 – tax rate) ÷ total assets
★ All important managerial indicators are low, especially ROA.
SCM factors contributing to low ROA1. Denominator: Large inventory (FY2019 Group average DIO: approx. 93)2. Numerator: Low profit margin (room for improved efficiency in SCM-related business)
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 4
Trend in DIO⇒ Room for Reduced Inventory
・Average DIO of 50 days before 2005 increased to 93 days in 2019
Around 50 days up to 2005DIO rises after 2005
Note: DIO = Days Inventory Outstanding
Trend over past 40 years (CCC, inventory amount, etc. for fiscal years ending in March)Sa
les,
Cos
t of S
ales
, and
Inve
ntor
y (b
illion
yen
)
CC
C a
nd D
IO
売上高 売上原価 棚卸資産 棚卸資産回転日数
買入債務回転日数
売上債権回転日数 CCC
1,500
1,200
900
600
300
Sales Cost of Sales
Inventory DIO Accounts Payable Turnover in Days
Receivables Turnover in Days
1980
1982
1984
1986
1988
1990
1992
1994
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 5
Change with Group Consolidation (Manufacturing Cost vs. Inventory)
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
6,000 6,500 7,000 7,500 8,000 8,500 9,000 9,500 10,000 10,500 11,000
FY2008⇒FY2019 (end of year comparison) Group Consolidated Manufacturing Cost vs. Inventory
94 days
Inventory(billion yen)
75 days102 days
65 days
Maintained DIO and expanded business
Business thatincreased
DIO
Change in businesses in scope of consolidation
Business thatimproved
DIO
FY2008 results
FY2019 results
Note: DIO = Days Inventory Outstanding
210
200
190
180
170
160
150
140
130
120
600 650 700 750 800 850 900 950 1,000 1,050
Manufacturing cost
(billion yen)
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 6
Change in DIO – Breakdown and Target
50.0
64.5
93.7
70
27.3
8.2
14.5
10.1
0
10
20
30
40
50
60
70
80
90
100
Before 2005 3 years (nodata)
2008 Change inconsolidation
scope
Businessdecreased
Businessincreased
2019 Target2025
DIO
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 7
Identify core issues for resolving pain points in SCM and achieve the following by reducing DIO:
SCM Subcommittee FY2020-25 Plan
Resolvepain points
Improve productivityReduce lead times Reduce DIO
Visualize with value stream mapping(flow of items and information)
Design work from an overall viewSet KPI targets (emphasis on ROIC)Work based on data (OE)
Absolutely achieve theMedium-Term Management Plan for all organizations
1. Improve customer value (provide fresh products to customers)2. Improve shareholder value (improve capital efficiency)
Target KPIsFY2022 FY2025
DIO ⇒ 86.5 days(equivalent to ¥15 bn)
⇒ 70 days(about ¥50 bn)
Cost reductions ¥1.5 bn ¥6 bnPositioning Target value Goal vision
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 8
9Copyright(C)2020 AJINOMOTO CO., INC. All rights reserved
Confidential
Planned cost reductions and business profit in SCM
Challenges for Ajinomoto Co. and objectives for DX in SCMBusiness challenges related to Ajinomoto Co.’s SCM⇒ Inventory rationalization (reduce days inventory outstanding (DIO))
Direction and progress on reducing inventory1. Rationalize number of SKUs2. Reduce number of inventory locations: Reorganization of domestic
seasoning and packaged food production3. Improve demand forecasting and automate production
Inventory Classification and Reductions
The role of inventory is to:・Ensure a stable flow of products by levelling out and absorbing fluctuations in sales and production
Inventory Factors having an impact
Cycle stock Production frequencyLead time
Safety stock Fluctuations in realdemandAllowable stockout rate
Anticipatory stock(build up)
Production capacitySales promotions
Sales slippage Accuracy of sales forecastsInsufficient data
Productionslippage
Accuracy of production planBatch production
Plannedinventory
Unplannedinventory
Review work flow・Monthly⇒weekly production
1. Reduce inventory locations
Aiming for zero2. AI demand forecasting3. Production robustness
(automated production)
Reduce SKUs
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 10
Reducing SKUs: Approach (Current State)
Current State1. No way to understand
costs per SKU2. Shared costs on
allocation basis(Personnel,
warehousing, etc.)
Solution3. Digitalization to see
true cost⇒ Accurate reduction
Increase in quantities and unit prices of products with high BPM
Sales
BPM (%) Theory of Sales by SKU and Business Profit Margin
Reduced SKUs
Tightening of fixed costs andexpenditure = Improved profitability
Sales of this SKU
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 11
In the case of COVID-19 (within Ajinomoto Group)
1. Difficult to get production staff because of COVID-19 so continued supply with emphasis on main SKUs⇒ As a result, sales decreased but profit improved.
2. Strong demand was an important factor but lead times from factory production to shipping were reduced resulting in smaller number of days of inventory.
Reducing SKUs: Approach (Going Forward)
Got a visceral sense of this on corporate and department level⇒ Accelerate future initiatives
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 12
1. Reduce Inventory Locations: Reorganization of domestic seasoning and packaged food production
Reorganization planned to be completed at end of Sept. 2021
New Japanese dashi plant (Yokkaichi)
Manufacture of Japanese dashi
Packaging process
Ajinomoto Co. (Yokkaichi)
New soup plant (Suzuki-cho)
From 5 to 3 locations
New packaging plant
Planned construction of new manufacturing plant
Planned construction of new manufacturing and packaging plant
Located in Yokkaichi City,Mie Prefecture
Knorr Co. (Shimonoge)
Ajinomoto Packaging Co. (Takatsuki)
Ajinomoto Co. (Suzuki-cho)
Ajinomoto Packaging Co. (Suzuki-cho)
Knorr Co. (Shimada)
Located in Shimada City,
Shizuoka Prefecture
Located in Suzuki-cho,
Kawasaki City
The effect of the reorganization of the production system is not included in the cost reductions in this material.
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 13
2. Improve Demand Forecasting with AI3. Automate Production
Past shipments
Event planning
Sales forecasts Demandforecast
Current: based on personal intuition, experience, etc.
Past shipments
Weather info.
Info. oningredient prices, etc.
Demand forecast
Future: objective, data accumulation, constantly evolving
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 14
-2.5 -15.0 -10.0
-50.0
-60
-40
-20
0
1.0 +1.5 4.1
+6.0 +α
+α
0
2
4
6
8
10
FY2020 Forecast FY2020-2022MTP
FY2020-2022plan
FY2020-2025MTP
FY2020-2025plan
Cost improvements
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved
Planned Business Profit and Inventory Reductions (SCM reform related)
(billion yen)
(billion yen)
Planned Business Profit (BP) (Cumulative)
Planned Inventory Reductions (vs. FY2019)
15
Identify core issues for resolving pain points in SCM and achieve the following by reducing DIO:
Resolvepain points
Improve productivityReduce lead times Reduce DIO
Visualize with value stream mapping(flow of items and information)
Design work from an overall viewSet KPI targets (emphasis on ROIC)Work based on data (OE)
Absolutely achieve theMedium-Term Management Plan for all organizations
1. Improve customer value (provide fresh products to customers)2. Improve shareholder value (improve capital efficiency)
Target KPIsFY2022 FY2025
DIO ⇒ 86.5 days(equivalent to ¥15 bn)
⇒ 70 days(about ¥50 bn)
Cost reductions ¥1.5 bn ¥6 bnPositioning Target value Goal vision
SCM Subcommittee FY2020-25 Plan
Copyright © 2021 Ajinomoto Co., Inc. All rights reserved 16
Forward-looking statements, such as business performance forecasts, made in these materials are based on management's estimates, assumptions and projections at the time of publication. A number of factors could cause actual results to differ materially from expectations.This material includes summary figures that have not been audited so the numbers may change.Amounts presented in these materials are rounded down.
17Copyright © 2021 Ajinomoto Co., Inc. All rights reserved