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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