Matthew Herridge Kerri Klidas Molly Tafrate

SKU Rationalization/Cover Reduction Project

The Ohio State University – Fisher College of Business

1. Greif Background1.1 - The Company

Greif operates in the global plastic product and packaging manufacturing industry. They currently hold the top

position in both fibre and plastic drums within the specialty segment and produce a variety of other products comprised

of both rigid and flexible material. The industry has grown 2.5% over the past five years resulting in an estimated $800

billion by the end of 2015. As a major player in this industry, Greif’s core competence is the production and supply of

packaging products and services, utilizing efficient and precise operations with an emphasis on environmental

sustainability. Operating in more than 50 countries, Greif is poised to serve the globe with high quality products and

services.

1.2 - The Project

The SKU rationalization project involved many goals surrounding the reduction of item numbers and the

recreation of part numbers based on previously ordered products (Appendix 3). Currently, Greif holds inventory for 417

different SKU’s with 19 different gasket heights. This number has grown over the years due to custom orders from many

customers as well as manufacturing issues where instead of fixing the process, a new gasket height was introduced. As a

result, the number of items and the costs associated with managing and keeping them have greatly increased over the

past several years. The goal of this project was to systematically determine which part numbers are no longer being

ordered and can therefore be eliminated from production. Additionally, the various gaskets heights have increased

complexity within the supply chain and therefore a goal was to reduce the number of potential heights. Successfully

reducing the number of SKU’s will also save the company money not only from managing the products, but also from

inventory holding costs and possible income from scrapping unneeded parts.

Throughout the project we worked directly with Kevin Kling, the North America Regional Sourcing Director. We

talked weekly by phone to provide progress updates, receive answers to questions, and push the project forward.

During the semester, the project team visited Greif headquarters in Delaware, Ohio to meet personally with Kevin and

see first-hand many of the plastic covers in question from the project. The culmination of this project resulted in this

report as well as a final presentation on findings and a comprehensive excel spreadsheet including which item SKU’s to

eliminate and costs saved to the company.

2. Make/Buy Framework2.1 - Make/Buy Analysis

Assessing the current state, Greif currently operates with a long-term contract/partnership with IPCC for the

manufacturing of their plastic covers. This hybrid relationship forms a strategic alliance in which both companies benefit

from the production of the plastic lids. Until recently, buying the product from the strategic partner was most effective

for Greif (as indicated at point “A” on the Kraljic matrix), but after further consideration, in-sourcing may be a better

option. When the partnership began, there was medium asset specificity

and fairly low uncertainty which pointed to outsourcing or strong

contracts. As time went on, there has been shift towards more uncertain

conditions as customers are driving extremely custom orders and

requiring a large increase in the number of SKU’s (as indicated at point

“B” on the matrix). Greif is seeking to have a better grasp of the item

numbers and quantity of products, and therefore either reduce

uncertainty and continue to outsource the production, or make a

decision on producing the products themselves.

2.2 - JV Gray 5-Step Process

In order to confirm the sourcing strategy and suggest steps going forward, we applied the JV Gray 5-Step process

to the manufacturing of plastic covers at Greif.

Assess the Current State

As noted above, there are currently too many SKUs in inventory at IPCC due to increased uncertainty from

customers. The abundance of item numbers is costly to both Greif and their relationship with the supplier. They

currently have the information to execute a SKU rationalization in an effort to reduce the number of items. The strong

contracts in place with IPCC give Greif the ability to integrate information across plants and geographies, however this

Figure 1: Kraljic Matrix

project is focused only on North America. The past and current spend on both inventory holding and transportation of

storing the covers is too high.

Develop Ideal State

Starting with the necessary terminology, the plastic covers are a direct spend for Greif as the product is sold

directly to customers. The items are a leveraged product for the company, as indicated on the Kraljic matrix; the supply

risk is low to medium while the impact on business is very

high. The decision making for sourcing is centralized in

both personnel with Kevin and geographically here in

central Ohio. Any relationship with a supplier must be

relational and cooperative, and operate as a trust-based

partnership using the Booz-Allen “balanced sourcing”

matrix. This will ensure the product quality remains high

and the profitability for both companies remains steady.

Action Plan based on Gaps

The current gap in the strategy is the very high number of SKUs that were produced as a result of multiple

custom orders. In an effort to reduce the SKUs and the costs associated with keeping them, Greif has opted to do a SKU

rationalization project with Fisher Business School students. They have two feasible options: decrease the number of

SKUs thereby decreasing the uncertainty, or bring the production in-house and make the covers themselves. The first

step in the action plan is to reduce the number of SKUs and then determine if staying with the outsourced

manufacturing is still the best option for Greif.

Find/Select Suppliers

In this analysis, step four of finding suppliers is not relevant as Greif already has a strong relationship with IPCC.

Both the make/buy analysis and the first three steps of JV Gray’s framework confirmed the need to either reduce SKUs

and continue outsourcing with IPCC, or move production in-house.

On-going Management

Figure 2: Booz-Allen "Balanced Sourcing" Matrix

The high number of SKUs and inventory holding costs are a direct result of the lack of on-going management for

these products at Greif. In the future, the centralized sourcing director should continually monitor the SKU levels and

eliminate those items that have not been ordered in the past 12 months. This process should be done once a year using

the MKM Framework™, which was developed during this project and is explained in detail below.

3. Work Process & MKM Framework™Our approach to the project provided to us by Greif was two-fold: first, we needed to examine the current SKUs

and recommend a set to eliminate from Greif’s database. Second, we sought to reduce the number of gasket heights

available to Greif’s customers in order to reduce overall inventory complexity and decrease the risk of a mistake. To

determine which SKUs to consider for elimination, we used a step-by-step process to ensure that our recommendations

were robust.

First, we examined the database of cover closures and gasket types in order to familiarize ourselves with both

the structure and content we had. Once we understood the file and its contents, we compared the current complete list

of SKUs to the list of products that had been ordered by Greif’s customers in the previous 24 months, referred to as the

receipts list. Any SKU that did not appear in the receipts list was flagged for further review.

With the lists of potentially obsolete SKUs in hand, we then drafted emails and contacted the 19 relevant plants

to confirm both the accuracy of our information and to seek agreement on the elimination of those SKUs. Rearranging

the information by plant rather than by SKU allowed us to easily list the SKU and total current inventory that each plant

had on hand. A substantial portion of the SKUs that fell out of the receipts list cross-reference had zero current

inventory, which made eliminating that SKU easier. We quickly received replies from most of the plants, and as expected

they agreed with our elimination recommendations.

With the fully confirmed list of SKUs to eliminate and inventory to sell as scrap, we were able to calculate the

resulting inventory holding cost reduction and the scrap value for the on-hand inventory of the SKUs slated for

elimination (see Appendix 2). The sum of these two calculated amounts is the amount of savings directly attributable to

our recommendations, totaling over $4,700.

Following the SKU reduction recommendation, we also needed to determine how to cut the number of gasket

heights that Greif offered to its customers, in order to reduce overall inventory and ordering complexity. Following

advice from Kevin, we determined that the best plan would be to move several of the gasket heights up to a new height

offering, resulting in an overall reduction. After conferring with Kevin about the possible new gasket heights that were

feasible, we created the new list of gasket heights (see Appendix 3). Once we had a cross-reference table built, we

created new part numbers for the products with changed gasket heights. The new part numbers will help the supplier,

IPCC, get up to speed and integrate the changes into their system more quickly.

As a generalized approach, the process we followed (referred to as the MKM Framework™) was:

1. Assess current state of SKUs

2. Cross-reference SKUs with those that have been ordered in the last 12 months

3. Any that have not been ordered, slate for elimination and request confirmation from applicable plant(s)

4. Once confirmed, officially remove identified SKUs and schedule a pickup for any leftover inventory to be

sold as scrap

Using this approach in the future will ease the identification of obsolete SKUs and allow Kevin to rapidly make

the decision, rather than manually checking each item in the future.

4. Final OutcomeAfter working through the process described above, the OSU team was able to eliminate 86 SKUs that

corresponded to obsolete/unused covers. This reduction in SKUs will positively impact Greif because it will make their

inventory easier to manage, saves them inventory costs, and reduces the likelihood of shipping error.

After eliminating the SKUs we were able to use the equations shown in Appendix 2 to calculate the amount of

money we were able to save Greif through our project. Eliminating

inventory from the plants resulted in a yearly inventory holding cost savings

of $1,563.77. The leftover inventory that is being eliminated can also be sold

as scrap and this yields $3,170.66 for Greif. Adding these values together

results in a total savings of $4,734.43. Figure 3 displays the savings by

percentage. Although Greif is saving on inventory holding costs, the majority

of the benefit of SKU reduction comes from the revenue Greif can obtain by

selling the obsolete covers as scrap. Figure 3: SKU Elimination Savings Comparison

The OSU team was responsible for creating the e-mail template enclosed in Appendix 4 in order to continue the

process of reducing the SKUs. This e-mail template was used in conjunction with the data extracted from Appendix 1 as a

way to quickly e-mail each plant that had SKUs for covers that had not been purchased in the last twelve months. Of the

19 total plants that were e-mailed using this template, 14 plants responded stating that that the inventory and/or parts

information was requested for were obsolete. Three of the plants that did not respond held no actual inventory but

their records included those specific item numbers. Two of the plants that did not respond held some inventory.

Appendix 5 includes a response from Plant 339 as an example.

In addition to eliminating obsolete SKUs, gasket heights were reviewed. Gaskets are essential when creating a

seal between the cover and the container. If a gasket is too thin then the seal will not properly form resulting in leaks. If

the gasket is slightly too thick it can easily be squished and results in a very effective seal. In order to reduce complexity

of the part numbers, the number of gasket heights were reduced from 19 to 10. In order to ensure that a seal would

always be present, a rounding up method was taken to ensure that no gasket height would result in an ineffective seal.

Reducing the number of gasket heights substantially simplified the SKUs needed and resulted in a change to over 200

part numbers.

The OSU team was also tasked with conducting an analysis on how much it would cost to add UV protection to

every cover in inventory. This additional cost was quantified by multiplying the cost of adding UV to each type of cover

by the quantity of each type of cover currently in inventory. This process is documented in the Appendix 1 excel file and

used the UV equation given in Appendix 2. Each of the specific cover costs was then summed to result in a total cost to

add UV of $5,082.55. While this cost is lower than expected it is still a significant cost and Greif is continuing research as

to whether or not including the UV additive will result in a positive NPV for the company.

5. Considerations5.1 – Effects

There were many second and third order effects that had to be considered throughout the process. We

understood and considered that eliminating too many SKUs could potentially give customers the impression that Greif

had a limited ability to customize products. While customers will always be able to have products specially made, Greif

needs to ensure that customers know and understand this while internally maintaining and minimizing SKUs.

Requesting information from plants and asking them to scrap and eliminate inventory takes away time from these

employees to do necessary plant activities such as shipping. Although it is a small request, the time required can still

lead to mistakes as it is out of the typical plant schedule.

Although the decision is not yet finalized on whether or not to add UV, the effect it may have on products that

required specific tastes and/or odors was kept in mind. Coca-Cola was mentioned during the midterm as an anecdotal

story about the effect that UV additives can have on a product that prides itself in consistent taste and quality. Coca-Cola

purchases customized products from Greif that meet their specific needs therefore this UV analysis does not directly

impact them, however, the UV effects should still be considered and communicated to customers if it is added to all

commodity covers.

Reducing the SKU count of the products supplied by IPCC will also decrease the asset specificity in the Greif -

IPCC relationship. Eliminating a significant number of custom products reduces the level of tacit knowledge required to

fulfill Greif’s needs. A reduction in asset specificity leads to a decrease in overall switching costs, which would make

changing suppliers easier and may ultimately lend itself to that decision.

5.2 – Risks

Risks of eliminating SKUs were also considered. Although the risk is low, there is the chance that customers may

return to Greif and request a product that has been removed due to obsolescence. These customers will likely not be

happy to learn that Greif does not carry inventory of it, however, if the customer needs it Greif can always create a new

part and with it a new SKU. To alleviate this risk Greif should consider including a stipulation in contracts with customers

that any excess inventory not ordered after 12+ months will be properly disposed of. Greif can proactively increase

communications by reaching out to customers to ask if they have a need or are planning on ordering specific inventory

again within a 6-12 month timeframe.

The risk of not rationalizing and reducing SKUs is that the inventory for obsolete products can add up thereby

taking inventory space and increasing plant complexity. If there are too many SKUs, mistakes can be made when

shipping which can result in unhappy customers.

5.3 – Relationship Management

Greif needs to continue to manage both their supplier relationships as well as customer relationships. In order

to prevent another buildup of SKUs in the future, Greif needs to keep open communication with their customers and

should revisit their orders at least twice a year.

Greif has had some recent issues with their cover supplier, IPCC, due to immigration raids that led to an increase

in unskilled temporary workers. To avoid this issue again in the future Greif should maintain and enforce strong

contracts that include a stipulation regarding illegal labor issues. Although severe, Greif could push to include a clause

that not only allows them to switch suppliers but requires that the supplier who can no longer provide the necessary

service level to pay for the costs of switching to another supplier.

5.4 – Challenges

Although straightforward this project presented some challenges. Not only did we need to balance our project

tasks with our other workload in Global Sourcing and other classes, we needed to take the time to understand and sort

through the documents given by the client as well as understand the project as a whole. At times the project was so

black and white that it made it difficult to directly apply course concepts and find places to go above and beyond in

order to impress the client and ensure he was satisfied with the work we were producing. As student consultants who

only spent an average of 1-2 hours per week working on this project, another challenge was understanding the company

as an outsider. Luckily our client was helpful and responsive in answering and addressing all questions and concerns.

Another challenge was understanding and analyzing the UV costs. At the outset we were fairly sure that we

could reduce the costs but as we continued to work on the project we realized there were many other factors to look

into when analyzing whether or not to add UV to all commodity covers. This was a slight derailment from what we

expected in our scope. The last challenge we faced was realizing that we did not clearly communicate certain aspects of

the project during the midterm presentation. During our client meeting we were told an interesting anecdote regarding

Coca-Cola and the quality/taste tests they undergo and how adding UV to the container can change the taste and smell

of their product. This story was interesting and in our retelling of it to the class we did not communicate that Coca-Cola

purchases customized products from Greif that will not be affected by any additions of UV.

5.5 – Recommendations

The first recommendation we have is to revisit the SKUs every 12 months and apply the MKM Framework™ in order

to eliminate obsolete SKUs and remove its associated inventory from plants. The second recommendation is to create a

robust spreadsheet based on the MKM Framework™ and work done in this project. This spreadsheet should

automatically process imported receipts in order to easily cull legacy SKUs rather than go through all the steps manually.

Our final recommendation is to increase supplier scrutiny through enhanced SRM and heightened presence on-site to

reduce the risk of similar issues.

6. AppendicesAppendix 1 – Excel File

GREIF cover closures project working document.xlsx is included as an attachment to this document.

Appendix 2 – Equations Used

ScrapValue=Weight∗Quantity∗(Scrap Plastic Cost per Pound )

Inventory HoldingCost=Price∗Quantity∗(Weighted AverageCost of Capital )

Net UV AddCost=(Cost¿add UV )∗(Number of Coverscurrently∈Inventory )

Weighted Average Cost of Capital (WACC) = 8.04% Scrap Plastic Cost per Pound = $0.29/lb

Appendix 3 – Gasket Height List*

Old gasket height New gasket height 0.160 0.160 0.220 0.220 0.230 0.240 0.235 0.240 0.240 0.240 0.250 0.260 0.265 0.260 0.275 0.280 0.295 0.300 0.305 0.300 0.315 0.320 0.325 0.320 0.335 0.340 0.345 0.340 0.350 0.360 0.355 0.360

0.365 0.440 0.425 0.440 0.435 0.440

*newly created gasket heights are highlighted in blue

Appendix 4 – E-mail Template to PlantsSubject: SLOB cover project

Hi [PLANT MANAGER],

We’ve been working with the Ohio State graduate business students (cc’d) on a SKU rationalization/reduction

project for our covers. Below is a list of items we have either identified that you have inventory but have not

been ordered by a customer in over 24 months, or items that you don’t have inventory and haven’t been

ordered.

Can you:

1. Confirm that this information is correct

2. Provide explanation for inventory on hand (e.g. specifically asked to hold inventory by customer?)

3. If there is no reason to hold onto the inventory are the available to be picked up for reprocessing?

4. Please provide insight into any issues that could arise in your view from discontinuing these SKUs.

Below is the list of part numbers and amounts that our system shows you have on hand:

ITEM PLANT CURRENT ON HAND

[PART NUMBER 1] [Plant Number] [AMOUNT 1]

[PART NUMBER 2] [Plant Number] [AMOUNT 2]

[PART NUMBER 3] [Plant Number] [AMOUNT 3]

[PART NUMBER 4] [Plant Number] [AMOUNT 4]

[PART NUMBER 5] [Plant Number] [AMOUNT 5]

[more if needed] [Plant Number] [more if needed]

Thank you!

Kevin

Appendix 5 – Example Response from PlantFrom Plant 339:

1. Confirm that this information is correct

All Correct

171 used in 1 item – not selling

247 used in 1 item – not selling

304 in no items

2. Provide explanation for inventory on hand (e.g. specifically asked to hold inventory by customer?)

No inventory on hand for any of these

3. If there is no reason to hold onto the inventory are the available to be picked up for reprocessing?

Not applicable

4. Please provide insight into any issues that could arise in your view from discontinuing these SKUs.

These SKU’s can be discontinued

Appendix 6.1 – Signed Scoping Document Page 1

Appendix 6.2 – Signed Scoping Document Page 2

Appendix 7 – Photos

Figure 4: Covers with gaskets

Figure 5: Cover with components

Figure 6: The OSU Team (10/15/2015)

Figure 7: The OSU Team (10/15/2015)

Figure 8: Kevin and Matt discussing the container (10/15/2015)

Figure 9: Spare Containers (10/15/2015)

Figure 10: Matt and Kerri Inspecting Cover Gaskets (10/15/2015)