Supply Chain Design Best Practices

Transcription

1 Supply Chain Design Best Practices John Ames Jr. Vice President, Alliances LLamasoft, Inc. CeMat, 2011

2 LLamasoft Overview Privately owned software company headquartered in Ann Arbor, Michigan USA Industry leader in supply chain design & predictive analytics Provide software and consulting services to help organizations design supply chains that will: Reduce cost Maximize profit Improve service Hedge Against Risk

3 Industry Diversity Auto / Heavy Equipment Consumer Goods Defense Hi Tech / Electronics Food Beverage Life Sciences Grocery Logistics Management Consulting Manufacturing Petroleum Public Health Retail Chemical

4 Supply Chain Design: The Business Challenge & Opportunity There is a lot of money invested in the supply chain Sourcing Manufacturing Facility Costs Warehousing Transportation A quality supply chain design initiative can identify as much as 10 20% total supply chain savings For most companies, this equates to millions in cost reduction Example Supply Chain Network Supply chain design decisions can be Strategic, Tactical, or even Operational in nature. 4

5 Millions in Operational Cost Savings Global Electronics Component Manufacturer $15 million in supply chain cost reductions through an examination of manufacturing & distribution footprint and optimizing the product flow paths Global Home Goods Store & Web Retailer $23 million in end to end cost reductions through smarter channel flow strategies for key product categories and optimized stocking locations for each product Global Food & Beverage Producer $32 million total cost reduction in by determining the optimal location to produce and flow each product, reducing transportation costs and minimizing inter facility moves North American Building Supply Manufacturer $10 million reduction in operational costs through the rationalization of acquired assets and adjusted product distribution flow 5

6 Agenda Supply Chain Design Questions to be answered Varied analysis techniques Corporate Best Practices Organizational structure Project methodology Case Examples 6

7 Supply Chain Design Questions to be Answered Varied Analysis Techniques 7

8 Supply Chain Design Questions What is my actual cost to serve each product to each customer? From whom should we source? How should we flow each product through the network? Where and when should we produce each product? Where should we stock product? How much inventory is enough to meet my customer service requirements? How much should I buy and at what price? How should I ship my products? 8

9 Supply Chain Design Metrics Service On Time Delivery Fill Rate Service Time (True Route Based) Financials Profit, Total Cost, Total Rev. Fixed and Variable Operating Costs Transport., Inv. HC, Facility, SG&A Supply Chain Facility and Equipment Footprint Inventory & Capacity Complexity Greenhouse Gas Emissions / Energy Sustainability Solid Waste H 2 O Usage

10 Metrics Supply Chain performance is defined by the following metrics. Each of the following examples will include an impact level on the various dimensions Impact on financial metrics. For example, working capital, freight, fixed/variable warehousing, tax/duties, potential revenue changes, etc. How sensitivity to macro and micro risk factors are impacted by solution. Examples include facility down time, spikes in commodity prices, demand spikes or dips, etc. Impact on environmental factors. CO 2 emissions, ability to generate green house gas credits, ability to meet regulations are examples of this metric. Impact on service provided such as fill rate, fill quantity rate, lead time, etc. Impact Index High Med Low Impact on Supply Chain operations. Examples include sourcing decisions, shifts operated, production schedules, routing changes, etc.

11 Network Optimization Increasing Facility Count Baseline Network Financial Service Risk Supply Chain Sustainability Additional of 2 Distribution Centers Key Benefits and Usage Greenfield analysis Identifies the next best location or locations based on customer foot print and their respective volumes Addition of 2 DC s provides better service and increases capacity Current and potential future store volumes can be incorporated into the analysis to create long term expansion plans Updated customer assignments are automatically determined based on additional site locations Combine with historical metrics to determine facility sizing based on newly optimized footprint Incorporate greenfield results in overall network study to balance opening/closing, fixed operating, inventory, handling and freight costs

12 Service Based Greenfield Optimization Technology Service Based Greenfield Formulation Financial Service Risk Supply Chain Sustainability 1 Day service increases by 38% from baseline with Center of Gravity Analysis. It further increases by 5% when Service Based GF Analysis is applied Center of Gravity Greenfield Formulation Key Benefits and Usage Depending on the objective, Greenfield analysis can either be performed using Center of Gravity or Service Based methods Service Based Optimization allow the model to decide How Many? And Where? given store locations and service requirements. Service Based Optimization can provide a strategic advantage from a service lead time perspective. The objective is to cover the most number of stores using the fewest number of distribution points within a defined set of service goals. Center of Gravity Formulation solves the Where? question given store locations, store volumes and number of DCs as inputs. The Center of Gravity method can often yield the lowest cost solutions from a freight perspective. It is often utilized for completely realigning the current footprint or identifying the next best location to setup a facility

13 Operations Planning Baseline Financial Service Risk Supply Chain Sustainability Plant line Shutdown Key Benefits and Usage Complement demand analysis with production and warehousing capacity Understand when and where to add capacity Synchronize interdependent production facilities, suppliers, 3P manufacturers Seasonal demand and supply balancing Understand production, transportation, inventory, and handling costs simultaneously New product capacity and supply planning

14 Vehicle Routing Optimization Single Stop Lanes Financial Service Risk Supply Chain Sustainability Multi-Stop Routes Key Benefits and Usage Complement network optimization studies with detailed understanding of routes and transportation costs Focused analysis on specific transportation assets, fleets, and customers Detailed understanding of service areas, times, and distance constraints using road networks across the globe Driver and fleet availability and fleet utilization metrics Inbound and outbound analysis of routes Periodic shipment analysis daily versus weekly replenishment 14

15 Product Segmentation Key Approach for Designing Supply Chains Product Classification Tool Key Benefits and Usage Automatically generate facility-product or product level demand profiles Can apply historical demand or forecasts Visualize product segments and tailor storage and distribution strategies based on demand characteristics to maximize return on assets Create facility-product or product groups directly using the Product Classification tool and apply policies within the model immediately Quickly identify critical versus non-critical items and apply appropriate service levels (fill rates) Identify outliers and eliminate costly inventory or distribution policies that offer little return in revenue Minimize working capital by allow fast moving, low variability items to bypass central storage points Take advantage of risk pooling by centralizing storage of highly variable/seasonal items

16 Product Flow Optimization Leveraging Product Segmentation Current Flow Path (All Products through WRDC) Financial Service Risk Supply Chain Sustainability Product flow path analysis determined opportunities to direct ship A items, reducing holding cost by $2.8M Optimized Product Flow Path (A-items DC Bypass) Key Benefits and Usage Answers the How do I best use the newly optimized network? question Utilizes optimal network design and creates flow paths at individual item levels Balances the trade off between lot sizes, freight rates, replenishment frequencies, working capital and lead time requirements Bridges the gap between traditional network optimization and safety stock optimization by identifying optimal storage locations Allows modeling of multiple time periods of varying lengths to account for seasonality, promotions and cyclicality

17 Safety Stock Optimization Multi-Echelon Safety Stock Optimization Financial Service Risk Supply Chain Sustainability Transport Time Variability $ Transport Time Variability Transport Time Variability Increasing OTIF to 97% increases working capital by 14% while Decreasing OTIF to 93% decreases working capital by 10% Sourcing Variability $ $ $ Production Variability Finished Goods Holding Costs Demand Variability Demand & Lead Time Profiling Key Benefits and Usage Multi-Echelon Safety Stock optimization allows the model to achieve savings in working capital while simultaneously maintaining or increasing service level to stores Scientifically quantify cost or benefits of service level, sourcing, and contractual lead time agreement changes. Combine with network optimization to set optimal inventory planning policies. ie Reorder point, order quantities by site by product Model can automatically profile historical sales data or use forecast and forecast error as inputs IO Select functionality allows automated filtering of products with nonnormally distribution demand

18 Green House Gas Optimization Baseline GHG Network Profile Financial Service Risk Supply Chain Sustainability STANDARD NON-GREEN CARRIER REDUCED EMMISSIONS CARRIER 35% GHG Reduction Network Profile Key Benefits and Usage Quantify financial benefit or costs of achieving sustainability goals Built in published emission factors accurately models and outputs emissions from various forms of transportation Optionally, carbon offsets are calculated as a part of the profit and loss calculations Fees and duties as a result of non-green equipment/facility usage can be incorporated into the overall profit and loss calculations Ramp up of sustainability efforts can be modeled as a multi-year green house gas reduction initiative STANDARD NON-GREEN CARRIER REDUCED EMMISSIONS CARRIER

19 Business Continuity Planning Facility Outage Baseline Sourcing Pattern Financial Service Risk Supply Chain Sustainability Huanghua DC shut down increases freight spend by 2% while service distance increases by 7% Business Continuity Plan Predict & Visualize Operational Impacts with Discrete Event Simulation Storage Capacity Limit Reached Stock Out

20 Risk Management Commodity Pricing Shocks Baseline Sourcing Pattern Financial Service Risk Supply Chain Sustainability SUPPLIER INBOUND LANES WRDC TO DC TRANSER LANES At 180% increase in fuel price, freight spend justifies setting up operations locally for sourcing Business Continuity Plan SUPPLIER INBOUND LANES WRDC TO DC TRANSER LANES Key Benefits and Usage Pre-plan supply chain responses in response to various risks in supply, demand, weather and geo-political events. Identify optimal alternate suppliers, carriers, production sites, distribution paths, etc. prior to supply chain risk events occurring Understand the impact to capital expenditures, operating expenses and service to customers Combine optimal designs with discrete event simulation to predict and anticipate impact to daily operations Model varying lengths of risks for different supply chain responses

21 Corporate Best Practices Organizational Structure Project Methodology 21

22 Organizing for Success Technology Individual Organization Acquire the right technology to address your specific issues Integrate all key planning metrics and approaches Scale to model the entire enterprise Continuously Innovate using the latest technology Empower Individuals to be successful with technology Deliver tools to promote ease of use for early success Provide support & training to ensure knowledge transfer Provide flexible power tools to enable advanced analytics Enable an Organizational Excellence through process Implement a methodology to enable retention of project knowledge Provide an IT system to foster knowledge management Deliver key metrics to all stakeholders 22

23 Project Methodology Project Specification & Scoping Data Collection & Analysis Baseline Modeling & Validation LLamasoft Customer Project Team Business objectives and problem definition Existing supply chain structure and processes Analysis objectives & high-level scenario definitions Project Scope Modeling strategy Data requirements Detailed Project Plan and Timeline Team assignments Scenario Analysis Cost summaries by categories (e.g. transportation, handling, production, inventory, fixed and variable costs) Service metrics (e.g. delivery times and service levels) Capacity utilizations Detailed maps for supply chain flows CO2 emission implications Reports interpreting scenario results Comparison of cost and service across scenarios Scorecard comparison of scenarios along qualitative measures Summary of input data in multiple formats Trends and patterns Documentation of any assumptions or alternative methods for data gaps Business Plan Business case Implementation roadmap Final executive presentation Validated baseline model Documentation of validation criteria Comparison of operational and financial statistics against model results Baseline presentation Knowledge Transfer Knowledge transfer Training Support for other supply chain projects Steering Committee and Reference Group 23

24 Supply Chain Design Case Examples 24

25 Automotive Distribution Network Analysis Objectives: Analyze and model Company part distribution network Conduct analysis on the number and location of depots needed to meet service requirement Focus less on cost, more on service Conduct an effective knowledge transfer of models and data to the company team to allow the team to do further analysis Scope Distribution network in ten APA countries (Japan excluded) with the total number of fifteen depots All dealers receiving products from APA depots in 2010

26 Greenfield Analysis Existing and Greenfield DC Existing DC Greenfield DC * New future dealers included, assume average dealer size

27 Inventory Optimization Use Case 1,608 products across six DC s Major vendors P&G, Kraft, Campbell s Eliminated items with less than 20 demand occurrences over 18 months Evaluate historic average inventory metrics 18 months of historic week ending inventory Compare historic inventory to optimized outputs from Guru Selected A, B, C items for detailed examples Bounty 8 RL White (A) Velvet Shell & (B) Maxwell House (B) Camp CRM MROOM (C) Pampers Jumbo (C)

28 Key Data Inputs Used in Model Raw Data DC to Store Shipments PO History DC Service Level Guru Data Tables Demand Demand Variability Product/DC information Shipment frequency Lead-times Vendor information Fill rate DC Inventory No field for comparison to Guru outputs Item File Item description cost, cube, weight

29 Results Summary Site Name Historic Ave Inventory ($$) Optimal Inventory Cost Cost Difference Cost Diff. % DC01 $ 5,545, $ 4,489, $ (1,056,761.03) 19.06% DC02 $ 4,093, $ 3,223, $ (870,403.43) 21.26% DC03 $ 3,504, $ 2,629, $ (874,171.33) 24.95% DC04 $ 4,838, $ 4,007, $ (830,984.72) 17.18% DC06 $ 1,983, $ 1,295, $ (688,300.42) 34.70% DC07 $ 4,008, $ 3,447, $ (561,276.17) 14.00% Total Savings $ (4,881,897.10) 20.36%

30 A Item Example: Historic Demand

31 A Item Example: Inventory Details DC Avg. Daily Demand Std. Dev Demand 2,131 1, COV 544% 500% 495% 517% 546% 530% Lead Time Target Service Level Historic Ave Inventory $63,211 $35,407 $30,001 $47,123 $18,260 $34,680 Optimized Inventory $113,920 $59,641 $46,426 $94,796 $24,455 $81,240 Increase/Decrease $50,709 $24,234 $16,425 $47,673 $6,195 $46,560

32 Cost to Serve Example Dairy Producer 3033 Dairy Only Ship-tos 672 Food Only Ship-tos 1215 Common Ship-tos By volume 27% of Diary goes to common ship-tos 23% of Food goes to common ship-tos Guru decides what to do unconstrained Give Supply Chain Guru all costs and prices Variable, fixed, production steps everything! Allow elimination of any products with the objective to maximize overall network profit Considers supply chain holistically in making decisions

33 Cost to Serve Example Results 3033 Dairy Only Ship-tos 672 Food Only Ship-tos 1215 Common Ship-tos By volume 27% of Diary goes to common ship-tos 23% of Food goes to common ship-tos Possibly 9 10% total savings Use the dairy network for some food items Drop products that are most costly AND enable shedding fixed costs Expanding chill room (outbound capacity) enables packing out at plants, which enables shutting down the DC

34 Example Value Impact Other Customers $60 million quantified savings from improving manufacturing sourcing and distribution footprint $40 million dollar total supply chain cost improvement from optimizing final assembly location Optimized DC to customer sourcing which reduced supply chain costs by 25% 5% total supply chain costs savings by implementing cross dock processes for inbound shipments 12% savings of annual transportation spend through sourcing and distribution optimization 10% improvement in working capital via optimizing inventory policies

35 Presentation Summary 35

36 Summary There is a big opportunity for cost savings within the supply chain of most companies A supply chain design tool can help identify those cost savings Corporate best practices for creating a core competency in supply chain design includes an approach for Selecting the right technology Empowering people Enabling the entire organization 36

37 Thank You 37

38 About LLamasoft 38

39 Knowledge about how companies organize to make the most of their supply chain LLamasoft Experience Have helped execute over 250 global supply chain network design projects Exposure to and understanding of many forms of supply chain operational best practices