Lecture Series: Consumer Electronics Supply Chain Management

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1 Lecture Series: Consumer Electronics Supply Chain Management Mohit Juneja i2 Technologies Divakar Rajamani, Ph.D. University of Texas at Dallas Center for Intelligent Supply Networks () 2003 Mohit Juneja & Divakar Rajamani

2 Lecture 3: OEMs and Sales Companies Processes 2003 Mohit Juneja & Divakar Rajamani

3 Agenda CE Products and Supply Chain Structure CE Processes and Roles OEM and Sales Companies Processes Demand Supply Allocation Summary: Demand and Supply Balance 2003 Mohit Juneja & Divakar Rajamani Slide 3 Center for Intelligent Supply Networks

4 CE Products and Supply Chain Structure 2003 Mohit Juneja & Divakar Rajamani

5 End Product Offerings - Diverse Product Range Digital Still Cameras PV-SD month life cycle Plasma TV Hi Tech Low turn High Margin Electric Shavers 50 % sales done in December VCR S Commodity Low Tech High Turn Low Margin 2003 Mohit Juneja & Divakar Rajamani Slide 5 Center for Intelligent Supply Networks

6 Consumer Electronics US Market Sales US Consumers bought 95 billion dollars of CE product in Mohit Juneja & Divakar Rajamani Slide 6 Center for Intelligent Supply Networks

7 Supply Chain for End Product 2003 Mohit Juneja & Divakar Rajamani Slide 7 Center for Intelligent Supply Networks

8 Industry Characteristics 4 month lead time Coordination Built to stock Delays, Out of stock Overstocked 2003 Mohit Juneja & Divakar Rajamani Slide 8 Center for Intelligent Supply Networks

9 CE Industry Issues COMPONENT SUPPLIERS OEMs SALES COMPANIES RETAILERS High degree of parts customization Long R&D design process times Long lead time to create additional capacity for custom parts Poor customer service / supply flexibility Low re-use of parts Short component life cycles leading to service issues High supply risk due to reliance on custom parts Short product lifecycles High demand unpredictability, inflexible manufacturing Unresponsiveness to demand signals due to manual monthly planning Fragmented procurement across factories Inventory boom-bust cycle (bull-whip effect) Low customer service levels Geographically fragmented supply chain Margin erosion High spares inventory, inconsistent availability Stock outs Reducing margins High logistics costs High inventory, store level stockouts High promotions costs 2003 Mohit Juneja & Divakar Rajamani Slide 9 Center for Intelligent Supply Networks

10 CE Processes and Roles 2003 Mohit Juneja & Divakar Rajamani

11 CE Industry Key Processes COLLABORATION Supplier Collaboration Factory Collaboration CPFR DEMAND Demand Demand Demand LOGISTICS SUPPLY ALLOCATION Factory Master Factory Transportation Allocation Distribution Transportation Replenishment Transportation 2003 Mohit Juneja & Divakar Rajamani Slide 11 Center for Intelligent Supply Networks

12 CE Industry Key Roles COLLABORATION Supplier Buyer & Factory Collaboration Planners Procurement Factory & Demand, Master Collaboration Planners Merchandise & Demand CPFR Planners DEMAND Demand Planner Demand Planner Demand Merchandise Planner ALLOCATION Demand Allocation Planner SUPPLY Factory Planner Master Master, Factory Planner & Buyer Procurement Distribution Planner Replenishment Buyer LOGISTICS Logistics Transportation Logistics Transportation Transportation Logistics Planner Planner Planner 2003 Mohit Juneja & Divakar Rajamani Slide 12 Center for Intelligent Supply Networks

13 Processes in OEMs and Sales Companies Demand, Supply and Allocation 2003 Mohit Juneja & Divakar Rajamani

14 Demand and Supply Balance Unconstrained Demand Plan Constrained Demand Plan Supply Plan Constrained Demand Plan Supply Plan Allocation Plan Demand Supply Allocation Information about Industry growth Market shares Regional sales Inventory levels Promotions New product plans Consensus with Sales Finance Factory Marketing Allocation Rules by Family Region Channel 2003 Mohit Juneja & Divakar Rajamani Slide 14 Center for Intelligent Supply Networks

15 Demand Definition, Process and Organizations 2003 Mohit Juneja & Divakar Rajamani

16 Demand Definition The Demand process helps predict and influence future sales by customer Benefits Decrease inventory obsolescence and mark downs Increase customer service and fill rates Sales companies forecast based on shipments and historical sales, market information as well as planned promotions. They forecast across retailers in a market. OEM s forecast across sales companies based on market analysis, business plan as well as historical shipments to sales companies Mohit Juneja & Divakar Rajamani Slide 16 Center for Intelligent Supply Networks

17 Demand Process Basic Data Structure for DP Basic Forecast Types Typical Forecast Generation Process Forecasting Techniques 2003 Mohit Juneja & Divakar Rajamani Slide 17 Center for Intelligent Supply Networks

18 Basic Data Structure for DP Organization Hierarchy Product Hierarchy Time 2003 Mohit Juneja & Divakar Rajamani Slide 18 Center for Intelligent Supply Networks

19 Basic Forecast Types Revenue Forecasting Unit Forecasting Key Parameters Horizon Frequency Buckets : 9 24 months : Weekly/Monthly : Weeks > Months 2003 Mohit Juneja & Divakar Rajamani Slide 19 Center for Intelligent Supply Networks

20 Typical Forecast Generation Process Top Down (Strategic) $, Executive, Annual Statistical forecast works here Forecast based on Market Share for Business plan Bottom Up (Operational) SKU, sales rep, customer, Weekly or Monthly Consensus forecast works here Middle Out $, Manager, Weekly or Monthly Consensus (statistics vs sales rep) / Collaboration (sales rep vs customer) SKU, Sales rep, customer, Weekly or Monthly 2003 Mohit Juneja & Divakar Rajamani Slide 20 Center for Intelligent Supply Networks

21 Typical Forecast Generation Process System 1: Baseline Statistical Forecast (M, W) 5: Forecast Netting (D) 6: Aggregation & Comparison to Top Down Targets (W) Sales Marketing Planner 2a: Bottom-Up Forecast Entry (D) 2b: Bottom-Up Forecast Entry (D) 3: Consensus Forecasting & Set Top Down Business Plan Target (M) 4b: Event (E) 4a: Event (E) Unconstrained Demand Customer 2c: EDI Input (D) 2d: Demand Collaboration (D) 2003 Mohit Juneja & Divakar Rajamani Slide 21 Center for Intelligent Supply Networks

22 Forecasting Techniques Statistical Techniques Exponential Smoothing Moving Average Mohit Juneja & Divakar Rajamani Slide 22 Center for Intelligent Supply Networks

23 Organization involved in Demand Sales Companies Sales Marketing Demand Group OEMs Demand Group Revenue Unit Top- Down Middle- Out Bottom- Up Attach Rate Statistical Rule Based Sales Marketing Demand 2003 Mohit Juneja & Divakar Rajamani Slide 23 Center for Intelligent Supply Networks

24 Supply Process Definition, Process and Organizations 2003 Mohit Juneja & Divakar Rajamani

25 Supply Definition The supply planning process optimizes the use of both capacity and material in order to maximize satisfying anticipated demand Benefits Reduce cost of inventory, expediting Global coordination sharing information across supply chain entities Sales companies perform a distribution plan creates the material purchase creates the inventory deployment across warehouses OEMs create a capacity and material feasible master plan across factories and make factory sourcing decisions OEM/Component supplier - Factory each factory creates a material and capacity feasible production schedule and detailed material procurement plan based on its vendor allocation and preference rules 2003 Mohit Juneja & Divakar Rajamani Slide 25 Center for Intelligent Supply Networks

26 Supply Process Supply Process Sales Companies-Distribution plan Requirements plan Inventory balancing across DC s Maintain target safety stocks Generate desired procurement requirement Inventory deployment plan Generate warehouse allocation OEM-Master plan Requirements plan Factory sourcing Direct procurement Inventory deployment plan Generate sales company allocation Factory plan Generate capacity schedules Generate detailed procurement plans Generate commit against master plan requirement 2003 Mohit Juneja & Divakar Rajamani Slide 26 Center for Intelligent Supply Networks

27 Supply Process Inventory 2: Adjust Purchase and Sales 9: Adjust Warehouse Allocation Factory System 1: Generate Purchase Plan, constrained, unconstrained demand 3: Updated Purchase Plan 3a: Generate Factory Allocation 4: Factory gets Purchase Plan 7: Netting Forecast and Allocation 6: Updated with Factory Commit 5: Factory generates a commit 8: Generate & Update Warehouse Allocation 10: Sends Adjustments and Destinations Constrained Demand 11: Factory receives adjustments and destinations 2003 Mohit Juneja & Divakar Rajamani Slide 27 Center for Intelligent Supply Networks

28 Organizations OEM Procurement Purchase Plan (typically alternate suppliers and agreements in place for key components) Recommended Purchases Exceptions Master Plan Meet demand at earliest given constraints 2003 Mohit Juneja & Divakar Rajamani Slide 28 Center for Intelligent Supply Networks

29 Allocation Definition, Process 2003 Mohit Juneja & Divakar Rajamani

30 Allocation Definition Allocation planning process refers to disaggregating expected supply / commits to the customer against anticipated demand. The order promising function is an extension of allocation planning where a sales order is promised against this allocation. Benefits Increased customer service and retention Increased profits Increased order promising accuracy hitting promise dates in execution Sales companies create allocation plans from warehouse / Sales org to different retailers / groups of retailers Promise sales orders against allocated supply OEMs create allocation plans for allocation of finished goods between various sales companies this is usually done as a part of the master plan 2003 Mohit Juneja & Divakar Rajamani Slide 30 Center for Intelligent Supply Networks

31 Allocation Process Allocation planning Data structure for allocation planning Rules FCFS, order priority, customer priority Order Promising Provide order shipment date to customers Rules ship complete, ASAP, alternates 2003 Mohit Juneja & Divakar Rajamani Slide 31 Center for Intelligent Supply Networks

32 Allocation Process Demand 4: Review Allocation System 1: Net Forecast 2: Generate Warehouse Allocation 3: Generate at Account Level 5: Check Sales orders against Allocations 6a (DP-6): Aggregation & Comparison to Top Down Targets (W) Customer 3a (DP-2d): Demand Collaboration (D) 2003 Mohit Juneja & Divakar Rajamani Slide 32 Center for Intelligent Supply Networks

33 Summary: Demand and Supply Balancing Create Unconstraine d Demand Send Purchase Plan to Factories Generate Collaboration & Consensus Forecast Net Orders and Forecast Generate Constrained Demand & Purchase Plan Create Factory Plan and Confirm Generate Statistical Forecast Demand Loop Allocate Inventory to Accounts Receive Inventory at Warehouse Supply Loop Generate Warehouse Allocations Allocate to Orders Receive Sales Orders from Customers Generate Purchase Orders 2003 Mohit Juneja & Divakar Rajamani Slide 33 Center for Intelligent Supply Networks

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