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Collaborating for

Better Business

Bhaskar Majee, CSCP Director, Sales Planning and Operations Philips

What is Supply Chain

• The sequence of processes involved in the production and

distribution of a commodity

• APICS Definition: The global network used to deliver

products and services from raw material to end customers

through the engineered flow of information, physical

distribution and cash.

Huge Elephant !

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What is Collaboration

• The action of working with someone to

produce or create something.

The SCOR® model – a cross-industry open

standard

• The five integrated processes provide a boundary-free view of the true end-to-end Extended

Supply Chain

• Supports intra- and cross-enterprise optimization of arbitrary scale

Supplier

Plan

Customer Customer’sCustomer

Suppliers’Supplier

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

Return Return Return Return Return Return Return Return

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Integrated Business Planning

Material Ordering

ProductionScheduling

InventoryControl

PrimaryDistributionScheduling

SecondaryDistributionScheduling

SalesOrder

Processing

Production/ Material Supply

Market Replenishment

Customer Supply

Objectives& Policies

Inventory Planning

DemandPlanning

Capacity Planning

Sales & Operations Planning

Key Tasks

Supply Chain Strategy

Strategic Foot Print

Service Policies

Inventory Polices

Production Policies

Roles & Responsibilities

Accountabilities

Metrics

Process

Activity schedules

FG Inventory Levels

Production/material supply:

Scheduling of labor and equipment

Placement of purchase orders on suppliers for

equipment or services

Market replenishment:

Reporting of inventory levels at all points of

the supply chain

Distribution scheduling and warehouse control

Customer supply:

Management of the order process

Distribution and picking scheduling

STRATEGIC

TACTICAL

OPERATIONAL

Where does S&OP fit ?

Hig

h

HighLow

Com

plex

ity

Rate of Change

S&OP

and

Executive

S&OP

S&OP

Quality/ Reliability

S&OPERPMRP

Stocking Strategy

TQMPoke-Yoke

ISOSix Sigma

Lean MfgChangeoverSet Up TimeSingle Flow

JIT

CoordinationLEAN

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S&OP Process: Generic

⁻ Final Decision and Game Plan

⁻ If any major change communicate across all functions

Data Gathering

Demand

Planning

Supply Planning

Pre S&OP

Executive S&OP

End Of Month Week 1 Week 2 Week 3 Week 1

⁻ Last Month Actual Sales ⁻ Baseline Forecast⁻ Actual Inventory

⁻ Market Forecast – 18 months⁻ Level depends on business –

Product Family, FG SKU , Option Etc.

⁻ Check Capacity⁻ Check Component Stocking⁻ Check Raw Material Stock⁻ Share Forecast Up Stream

⁻ Resolve Gaps⁻ Resolve Conflicts⁻ Propose Options for Gaps

that cannot be closed⁻ Align with all functions

including finance for revenue and inventory

⁻ Prepare Agenda for executive S&OP

What is S&OP

Supply Demand

Volume

Mix

� It’s a process – not a silver bullet

� It’s the only decision making regarding

volume, mix, demand and supply.

� It’s a fixed cycle : Weekly or monthly

planning rhythm.

� People are as important as process

and system , if not more

� It is consensus driven: Cross

functional – sales, marketing, product

development, finance, manufacturing

and supply chain.

� The ugly truth needs to be said as is.

� Execute the S&OP plan

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SIMPLE RIGHT

Challenges to collaborative planning!

The Bullwhip Effect

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Consumer Demand at Retailer

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Retailer’s Orders to Wholesaler

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Wholesaler’s Orders to Manufacturer

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Manufacturer’s Production

Small perturbation at the handle

Large swingsat the tip

Order

Order

Order

Delivery

Delivery

Delivery

What Causes It ?

1. Behavioral– Misperceptions of feedback

2. Systemic– Demand forecasting

– Order batching

– Price variations

– Rationing game

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Example: Effect of Lead Time

Retailer

100 units

100 units

100 units 100

units

Wholesaler

100 units

If demand drops by 10% (to 90 units) the order to thewholesaler drops by ________________

Stable demand: 100 units / week; lead time: 4 weeks;The retailer places an order every week.

Demand Forecasting

� Contributing factors– Lag in information flow

– Lack of information flow

� Counter measures– Shorten lead time

– Better information

� Current practice /state-of-the-art– EDI and cross docking– Sharing sell-thru data required by contracts (e.g., HP, Apple, IBM)– Vendor managed inventory (VMI) (P&G and Wal-Mart)– Quick response

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Order Batching

�Contributing factors– Sales quotas

– Transportation discounts

– Ordering costs

– MRP systems

�Counter measures– EDI & computer assisted ordering (CAO)

– Discounted on assorted truckload, consolidated by 3rd party logistics

– Regular delivery appointment

Price Variations

�Contributing factors– Promotions

– Quantity discount

� Counter measures

– Everyday low price

– No discount to retailers

– Direct discount to consumers via coupon

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Rationing Game

• Suppose limited production capacity during peak season

• Supplier/manufacturer will ration the supply to satisfy retailers’ orders

• Retailers know this

• Q: What happens next ?• At suppliers end – tight capacity (real or perceived)

• At retailers end –» Anticipate demand peak – order more, buffer, ?

» Competition with other retailers for the same product

Rationing Game cont’d..

� Counter measures

⁻ Vendor managed inventory

⁻ Stock up stream vs. downstream

⁻ Change to MTO/ATO vs. MTS

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Quick Response (CPFR)

�Vendors receive POS data from retailers, and

use this information to synchronize their

production and inventory activities.

�The retailers still prepare individual orders,

but the POS data is used by the supplier to

improve forecasting and scheduling.

Virtual Integration

� “Virtual integration means you stick together

a business with partners that are treated as if

they’re inside the company.”

� What does a tech company like Dell gain

from “virtual integration”?

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Gains from “Virtual Integration”

�Cutting costs– Employees– Inventories– Intermediaries

�Responsiveness– Inventory velocity (important when dealing with

obsolescence)– Smoother introduction of new products– Can easily implement price changes

�Visibility to “real” demand�Accounts Receivable = 0, Accounts Payable > 0

Technology Shift/ Product Life Cycle

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What is the right supply chain planning

for your product?

Outsourcing?VMI?

Quick response?

Make to order?

…….RFID

S&OP

Transparency - Collaboration

LOW

Supplier

HIGH

Customer

Level of Trust

Inventory Across the Supply Chain

QR CR ACR VMI

Consignment Information Sharing

QR= Quick Response ACR = Advanced CRCR= Continuous Replenishment VMI = Vendor Managed Inventory

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The Approach: Keep it Simple

Basic

Integrated

Time

S&OP Gets you into monthly planning rhythm

Stocking strategy

Compliments S&OP and drives standardized execution

Supplier stocking strategy & optimization

Collaborate with key suppliers

Multi–tier supplier collaboration

Collaborate across all tiers of supply chain, increase inventory velocity across the supply chain

Stocking Strategy

Analyze & Define Implement Control

Analyze & define• Determine component ABC/

XYZ (volume, value, order frequency)

• Determine stocking policy (MRP, ROP)

• Simulate safety stock level in relation to service level

• Agree on stock and service scenario

• Analyze current and define needed processes, tools and organization

Implement• Update the system settings

and the execution process• Add periodic parameter

review process (e.g. to adjust safety stock)

• Handle NPI and EOL properly (at S&OP level)

• Share forecast with suppliers

• Establish a meaningful set of leading KPI’s to monitor

• Prepare customer service offer and supply opt. phase

Control• Review current

implemented processes• Implement changes

where needed

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When Demand Uncertainty?

TimePlaceorder

Receiveorder

L

0Placeorder

L

Stockout!

Receiveorder

slope d slope d

d×L

Average demand rate d. Is ROP = d ×L good enough?

Safety Stock

Time0

d×LROP

L L

Increase ROP by SS

ROP = d ×L + SS

SS

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Safety Stock (SS)

�When demand has unpredictable variability, safety stock is held to cushion against uncertainties

�ROP = Average demand during lead time + SS

�With SS, will shortage still occur?- Yes, if actual demand during lead time > ROP

�What determines SS?– Service level– Demand variability– Lead time

What Determines Safety Stock?

d×L

SS

ROP

L L Service Level

Distribution of demand during lead time

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How to Compute ROP for a Service Level? Case 1: Normally Distributed Demand

d×L SS

ROP

Probability of stockout during lead time

Probability of no stockout during lead time(= service level)

Quantity0

SS = z σL

ROP = d L + SSz = NORMSINV(service level)

Stdev = σL

Survey

www.tinyurl.com/kmd5lrs

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Thank you for coming

Comments / Q & A