Using Integrated Design to Enhance Supply Chain Agility

Transcription

1 Using Integrated Design to Enhance Supply Chain Agility Dr. Dinesh Kumar Dr. Dinesh Kumar Dr Dinesh Kumar is an Associate Director with KPMG South Africa and the regional country leader for supply chain and procurement service lines. Dinesh has more than fifteen years of diversified advisory experience in supply chain. In the capacity of a manager and an advisor, Dinesh has successfully executed numerous supply chain projects in Europe, Africa and APAC regions. Dinesh, a CPIM and a CSCP professional from APICS has also presented several papers on supply chain management at national and international forums. Dinesh has a bachelor s degree in chemical engineering and a master s degree in industrial engineering and a PhD in supply chain. Dinesh is a guest faculty advisory for leading international business schools. 2 1

2 Agenda Supply Chain Consumer Goods Industry and Supply Chain Supply Chain Management Functionalities Supply Chain Management Parameters Integrated Supply Chain Management Design 3 Supply Chain 4 2

3 Supply Chain What products to buy? Who are the main suppliers? How much to buy? When to buy? What products to transport? What are various transport modes? Can we consolidation? What products to sell? Who are the main customers? How much to sell? When to sell? Buy Make Move Store Sell What products to manufacture? Where is production possible? How much to make? What products to store? Where to store the products? How much to store? When to store? 5 Complex Supply Chain Buy Make Move Store Sell Complex Network 5 standard processes Issues Information that flows through a supply chain is often late and wrong Effective planning is difficult or impossible in a distributed multi-firm enterprise Supply chain dynamics impact both delivery and costs Suppliers can't trust forecasts and don't trust forecasters Support technologies are inadequate Standards are lacking for Data Interchange and Enterprise Control 6 Simplified Processes 3

4 Consumer Goods, Industry and Supply Chain 7 Consumer Goods Industry Consumer Goods are sold direct to end consumers Typical features of the industry Brands, marketing and advertising Importance of distribution o Geographical spread of products o Bulk breaking o Hold the FGI, optimise shelf space utilisation and manage inventories Profit depends on aggressive pricing and stock turns Some cases, Large retailers have started to dominate the industry: Wal Mart in the US Aldi in Germany Carrefour in France Tesco s in the UK Shoprite Checkers in SA etc. 8 4

5 Challenges of CG Industry Companies own various production plants o Co manufacturers o Co packers Distribution is handled by specialised companies o Wholesalers Usually consolidate goods of many CG manufacturers o Haulers and logistic companies o Warehouse service providers Retail sector pressurises CG industry: o to manufacture and supply at lowest possible price o to decrease the response time 9 CG Supply Chain Buy Ingredient and Component Store at Plant Move to DC Store at DC Make a Product Move to Store Move through DC Store at Warehouse Store in the Store Sell to Consumer 1 0 5

6 CG Supply Chain... Functional Attributes Attribute Content Products procured Standard Sourcing type Multiple Organisation of production process Flow lineli Repetition of operations Batch production Distribution structure Three stages Pattern of delivery Dynamic Availability of future demands Forecasted Product lifecycle Several years Products sold Standard Portion of service operations Tangible goods Structural Attributes Attribute Content Network structure Mixture Degree of globalisation Several countries Location of decoupling points Delivery to order Legal position Intra organisation Direction of coordination Mixture Type of information changed between partners Merely unlimited 11 A simple manufacturing process, but.. Raw Material MAKE_1 Int 1, Int 2 PACK_1 ItemA1,ItemA2,ItemA3 ItemB1,ItemB2,ItemB3 ItemC1,ItemC2,ItemC3 Routing_Intermediate_MAKE_1 Routing_Item(X)(Y)_PACK_1 Raw Material MAKE_2 Int 3 PACK_2 ItemC1,ItemC2,ItemC3 ItemD1,ItemD2,ItemD3, ItemE1,ItemE2,ItemE3 Routing_Intermediate_MAKE_2 Routing_Item(X)(Y)_PACK_2 12 6

7 ...a complex distribution network RDC_A1 DC_A Secondary, 1d RDC_A2 Plant 1 RDC_B1 DC_B RDC_B2 Plant 2 RDC_C1 DC_C RDC_C2 13 Supply Chain Management Functionalities 14 7

8 ER1 Key SCM Functionalities Supports simple manufacturing and complex distribution network Distribution planning integrated with master planning Multiple demand priorities Cost and profit optimisation Fairly distribute lack of inventory and excess inventory Co product modeling capabilities Generates material and capacity feasible ATP 15 ER2 Some SCM Functionalities Multi level (RDC DC plant) network Flexible horizon: days weeks months Distribution requirements planning Layered planning Inventory planning Inventory bands based allocation Multiple transportation lanes and modes Lot sizing Periodic replenishments 16 8

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10 ER3 Some SCM Functionalities.. Product substitution Shipment calendars Firm schedules Warehouse storage constraints Warehouse handling constraints Co production Alternate BOM Raw material constraints 17 Supply Chain Management Parameters 18 9

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12 ER4 Objective of SCM......is to find the trade-off between Customer Service, Inventory and Costs High Customer Service: o Delivery on time in accordance with customer expectations o Buffer against uncertainties in demand o Provide necessary variety of goods, including display and sample products High level of distribution efficiency (Operating and Transportation costs): o Minimum transportation and storage costs for optimal efficiency o Level of production and replenishment orders to minimise disruptions o Size and location of storage Service levels High level of inventory efficiency o Availability of inventory at a stocking location Costs Inventory o o Safety stock against uncertainties in supply Aging of stock 19 ER5 Objectives of Network Design Service levels Costs Strategic decisions are made to decide on the number of locations in the distribution network In order to realise the potential of the network, a number of tactical decisions are made: o Determine optimal routes and schedules o Determine modalities dl to be used o Determine minimum order sizes o Decide on order or batch driven production o Decide on product packaging o Decide on make or buy (on lane level) At an operational level: o Having the inventory in place at the distribution centre to fulfil orders for customers o Creating the maximum loading efficiency of the means of transports within the distribution network o Providing reliable dates in order promising (ATP) to customers based on the planning results Inventory 20 10

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14 ER6 Objectives of Inventory Design Service levels Strategic level decisions Costs o For manufacturing companies o Whether to carry inventory at a supplier and use a just in time pull process o Identifying risk pooling or postponement opportunities o Determining the impact of moving to a contract manufacturing model o For distribution intensive ib ti i t i companies Hub and spoke inventory placement and customer specific service level policies Tactical decisions o How should inventory positions be changed to account for potential supply disruptions? o What would happen to inventory costs if a supplier had less variability or if we cut manufacturing processing time? o If a product is in allocation mode, should we reserve inventory back at our hub for a higher value customer and direct ship it to them? Or should we replenish inventory at the spokes? Operational inventory policy setting o Identifying optimal safety stock and inventory targets for each item and location in the multi echelon network Inventory 21 ER7 Objectives of Forecasting Design Service levels Strategic level decisions are made to identify the long term demand over a 12 to 18 month period. Tactical decisions: o What products to forecast considering the revenue and the profitability contributions? i o Which forecasting techniques to use for which product streams? o What are the allocation strategies to be deployed for dis aggregation and aggregation profiles? Operational decisions: o Review and validate forecasting profile and sales history o Review products categories and views Costs Inventory 22 11

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16 Supply Chain Cost TLCM = where : Z x p j p ij : y i = (i, j,p) x p ij Δ p ij (i, j,p) ARP Logistics cost Θ y (j,p) NOP Solve the non- linear proble m! : flow variable (real number) x p ij + i NIG facility choose variable (binary) i i + Facility cost Λ p j (j,p) NOP Z p j Safety stock cost 23 Supply Chain Cost TLMC = SC + FMC + VMC + FFOC + VFOC + WC + CIC + PIC + ICOC + TC Where: TLMC = Total Logistics Management Cost SC FMC VMC FFOC VFOC WC CIC PIC ICOC TC = Supply Cost = Fixed Manufacturing Cost = Variable Manufacturing Cost = Fixed Facility Operating Cost = Variable Facility Operating Cost = Warehousing Cost = Cycle Inventory Cost = Pipeline Inventory Cost = Inventory Carry Over Cost = Transportation Cost 24 12

17 Integrated Supply Chain Management Designs 25 ER8 Independent SCM Design Sequential Flow o Design and develop the network model and optimise the model (not include inventory cost) lead to optimalsupply chaininfrastructure infrastructure o Design of forecasting profiles and percolation lead to optimal demand profiles o Design and develop the inventory model and optimise the model lead to optimal inventory investment decisions o Forecasting (Demand), Network model and Inventory models optimised in isolation Network Model Network Structu ure Demand View Forecasting Model 26 Inventory Model 13

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19 ER9 Demand and Network Demand is normally considered independent to Network Network interprets the demand in lieu of the supply chain setup; Network back populates the customer demands through lanes / channels into the supply chain Demand when interpreted by Network is recognised by the supply chain Network structure plays a significant role in defining the interpreted demand and must be optimised to understand the true demand at a location Demand Setup (at least geographic dimension) is critical in building up the demand along the Network 27 ER10 Network and Inventory Network design is driven by a few key factors: o Fulfill customer demand (current and future) and meet service targets (primarily delivery time) o And do this at the lowest cost Objectives are generally to optimize total cost Total Cost Range of Optimal Values Inventory Carrying Cost Annu al Cost Fixed Cost Transfer Freight Delivery Freight Few Number Of Facilities Many and maintain or improve delivery service levels: Order Lead Time On Time Delivery / Fill Rate Delivery Frequency Order Completeness Damage-free Receipt Reliability Inventory profiling based on the stocking locations and the warehousing constraints 28 14

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21 ER11 Integrated SCM Design Iterative Approach Integrate Demand and Network first; any discrepancies are closed in the iterative runs Integrate Network and Inventory as second step; any differences are closed in iterative runs; changes in the network model are reflected again in the demand design Iterations run until equilibrium is reached Network Structure Network Model Demand Geographic View View Inventory Profile Demand Model Inventory Model 29 ER12 Integrated SCM Design.. Parameter: Inventory cost Demand model is integrated to the Network model Inventory model returns Inventory cost to the Network model, dlwhich h provides Network configuration to the Inventory model Iterative process loop until both reach the same supply chain total cost Network Structure Network Model Demand Geographic View View Inventory Cost Demand Model Inventory Model 30 15

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23 ER13 Integrated SCM Design.. Parameter: Lead Time Demand model is integrated to Network model with respect to Lead Time Lead Time is a parameter in the Network model Lead Time is a decision variable in the Inventory model Iterative process loop until both reached the same Lead Time Network Structure Network Model Demand Geographic View View Lead Time Demand Model Inventory Model 31 ER14 Integrated SCM Design.. Parameter: Transport Mode Demand model is integrated to Network model Transport Mode is a decision variable in the Network model Transport Mode is a parameter in the Inventory Model Iterative process loop until both reached the same Lead Time Network Structure Network Model Demand Geographic View View Transport Mode Demand Model Inventory Model 32 16

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25 ER15 Comparison Demand Forecasting Lead Times Independent Design Independent forecasts and views in each echelon based on immediate customer s demands Uses immediate suppliers lead times and lead time variabilities in buckets Integrated Design Forecasts based on lowest echelon s primary demand signals and other information; demand variations along multiple network scenarios are also forecasted Uses and optimises considering all lead times and lead time variations of upstream suppliers and downstream activities Bullwhip Effects Ignored and not controlled efficiently Effects measured and accounted for in overall integrated replenishment strategy Network Visibility Immediate downstream customer s demands and immediate upstream suppliers lead times myopic view of the network All echelons have complete visibility into other echelons with respect to demand and inventory; this visibility is exploited in the replenishment logic Order Synchronisation Minimal Fully modeled to reduce unnecessary lags in network Cost Implications Minimal Fully modeled so true network and inevntory optimisation can be achieved 33 Contacts For any further information, please contact: Dr. Dinesh Kumar Management Consulting Associate Director Tel: +27 (0) dinesh.kumar@kpmg.co.za 17

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