Supply Chain Visibility removing Bullwhip Effect and Inventory - Values, challenges and opportunities of RFID in SCM Presented by: Sukyoung Chey Date: 14 th May, 2010
Agenda Bullwhip Effect - What is it? - Causes Real time visibility and SCM Real time visibility case reviews Application of real time visibility in SCM Summary and suggested future work 2
Bullwhip Effect Demand and inventory variations increase up the supply chain from customer to supplier The effect is stronger as information and material lead times get longer The Beer game Customers Factory Distributor Wholesaler Retailer Flow of Orders Flow of Beer 3
Causes of Bullwhip Effect 1. Long information and material lead times (long response time) 2. Panic ordering under short supply or false orders and subsequent cancellations 3. Sporadic sales promotions and forward buying 4. Sales incentive plan 5. Bulk ordering due to quantity discounts or transportation incentives - Current countermeasures include, Forecast based on POS data for higher forecast accuracy Supply allocation based on past sales Sharing supply and demand information through CPFR Everyday low prices to prevent sporadic promotions Vendor managed inventory Enforcing return policy How much of bullwhip effect can be reduced with real time visibility? 4
Agenda Bullwhip Effect Real time visibility and SCM Real time visibility case reviews Application of real time visibility in SCM Summary and suggested future work 5
Supply chain management Providing best products to the consumer with the best price, with the best service and be profitable Combination of process, organization, technology changes (cross functional and integral, driven by strong governing organization) Clear process and policies required between external entities Organization Global SCM and/or Global logistics Procurement (HQ and local) Production Sales & Marketing Local SCM /logistics Supplier Collaboration In-Bound Logistics Process Procurement Manufacturing Sales Out-Bound Logistics Customer Collaboration Suppliers Manufacturing DC 3p Logistics Customers 6
Scope of supply chain management Focused areas to reduce inventory, increase fill rate and reduce expenses: Supplier collaboration S&OP Demand Supply chain strategy & management Inventory management Component manufacturers Manufacturer W/H 3PL Retail stores DC Sourcing & procurement Capacity Optimization & production control Management & Logistics execution How can we define value of end to end visibility in SCM? What are the challenges? 7
What does end to end visibility mean in SCM? General understanding on end to end visibility: making optimal decisions for the supply chain in real time, with the ability to monitor every move of material in the entire supply chain Component manufacturers Manufacturer W/H 3PL Retail stores DC Challenges in making decision with real time end to end supply chain visibility -Too much data requiring application layer to present and interpret data -Need a win-win strategy based on trust among supply chain partners and decision making entities for information sharing 8
Real time visibility for higher efficiency in supply chain management Consider applying real time visibility on SCM focus areas Supplier collaboration S&OP Demand Supply chain strategy & management Inventory management Component manufacturers Manufacturer W/H 3PL Retail stores DC Sourcing & procurement Capacity Optimization & production control Management & Logistics execution How faster can we respond, or how more accurate can we plan and execute with real time visibility? How fast can your organization make decisions with real time information? -Can you change weekly forecast consensus to daily process? How about S&OP? 9
Application hierarchy for SCM with real time visibility Intelligence for decision making is captured in enterprise business application layer where capability and business process should be built in Governing organization Enterprise business applications: ERP, WMS, TMS, MES, APS, Information services Supplier Collaboration In-Bound Logistics Process Procurement Manufacturing Sales Out-Bound Logistics Customer Collaboration RFID middleware: controllers and info center Physical supply chain infrastructure with RFID tags and readers Suppliers Manufacturing DC 3p Logistics Customers Without having connection to the enterprise business applications, real time visibility will have minimal impact on supply chain management Enterprise business applications should be configured to make optimal decisions with real time visibility *Diagram is not intended to define RFID architecture, but an illustration of 10various layers that constitute SCM, and RFID s position among other layers
Agenda Bullwhip Effect Real time visibility and SCM Real time visibility case reviews Application of real time visibility in SCM Summary and suggested future work 11
Case Reviews: WalMart Initial focus on distribution network changed to retail store, with benefits realized WalMart s distribution network* - 137+ DCs in US (~1 for 34 stores), - 78% of WalMart s US domestic merchandises flow through DCs RFID history at WalMart - Aug 2003, WalMart announced suppliers to tag all pallets and cases by 2006 - Nov 2003, asked 100 suppliers to tag pallets & cases shipped to 3 DCs by Jan, 2005 - Oct 2007, WalMart s RFID focus changed to shipments to Sam s Club, and promotional displays at WalMart stores Benefits realized** - 16% reduction in out-of of-stocks - Out-of of-stock items with RFID were replenished three times faster than comparable items using traditional bar codes - 10% reduction in manual orders, which means reduction of excess inventory Some vendors reported that they can not find ROI to invest on RFID *Based on article from CFN services, 2007 ** Study result with University of Arkansas, 2005 12
Case Reviews: Best Buy Initial interests on SCM efficiency shifted to retail store, with benefits realized* Best Buy s advantages over CPG retailers - High value goods: tag cost is not a deal breaker - A lot of cases have single item: easier to get item level benefits RFID history at Best Buy - Aug 2004, announced it will deploy EPC technology to increase supply chain efficiency To increase supply chain velocity and move the product more efficiently and faster - Jun 2007, announced focus change from supply chain efficiency to store Benefits realized from pilot programs - Increased labor efficiency (instant scanning of video games, 45 mins without RFID) - 40% cut of number of customers not finding what they want - 14.1% increase in number of units sold Target areas to increase labor efficiency in future - Receiving, 100% real time inventory, displays, smart signs - Checkout without waiting line *From http://www.rfidsb.com, Issue #183 Friday the 13th, 2009 by Andy 13 Kowl
Case Reviews: Dell Focus on manufacturing and shipping control* Applications on manufacturing - Tracking code and computer assembly instructions are added to the tray - This determines the specific line to which the tray should go - At every stage of the assembly, the tags are read by the antenna for specific instructions Applications on shipping - Once assembled and tested, production information is inserted into the tags and sent to a shipping station - At the shipping station, the RFID tag transfers data to the control PC - This control PC uses this information to print the appropriate label Benefits - Production stops have reduced dramatically - Labor can be allocated by minimizing repetitive activities - Returns due to wrong shipping of product has been minimized *From Proceedings of the 2006 Southern Association for Information Systems 14 Conference
Case Reviews: Proctor & Gamble Focus changed from supply chain to retail store, with benefits realized* RFID history at P&G - In 2003, selected as one of the 100 suppliers to tag pallets and cases to WalMart with a goal to track goods throughout the supply chain, from P&G manufacturing plant to consumers purchase - Feb 2006, focus changed to* (i) reduction of out of stocks (ii) promotional compliance (iii) E-proof of delivery Benefit realized - Sales increase of 19~28% cited by the company But ceased working with WalMart on promotional displays - Feb 2009**, ceased placing EPC tags on promotional displays for Wal-Mart stores due to Shop execution issues (or WalMart sales associates not acting on data) - Continuously looking for value and ROI for RFID applications *From http://www.scdigest.com Feb. 9, 2006 ** From http://www.rfidjournal.com/article/view/4619 15
Case Reviews: CY* management CIMC (China International Marine Containers Group Ltd,) Improved efficiency in container yard operation with passive RFID Main functions - Automatic gate check in and check out - Verify container ID, trailer license number, operator, time for secure control - Automatic identification of containers during putaway and pickup - Accurate 3D position of each container - Integrate with the existing CIMC Yard Management System NYK logistics for Target - Wireless active RFID, RTLS and yard management software Main functions - Parking assignment - Automatic yard inventory, enabling carriers to take trailer out in 6 hours - Door assignment and efficient yard management (segregate by carriers) ROI - increased revenue from increased yard throughput - improved service performance through more timely processing of containers - reduced costs with increased productivity *CY: Container Yard 16
Case Reviews: domestic cases* Logistics center management - CJ GLS - Glovis Store and logistics center management - Cheil Industries: operational efficiency, sales increase Procurement management - LG electronics - Daewoo motors (Are there successful procurement management cases with independent suppliers?) Sales management - Skoolooks - BasicHouse Production management - HyunDai Motors *not a comprehensive list, government and public sectors not included 17
Summary of case reviews Initial focus of RFID on SCM changed to CRM :Companies initially focus on supply chain network optimization but many of their focus changed to retail store management Most cases with proven ROI are applications within the domain of authority, or 4 walls of an enterprise :WalMart and P&G case on promotional display did not last :CY management, logistics center management, store management, production management (In case of CY management, solutions with application S/W are available) Still not reaping the full potential of real time visibility to reduce supply chain inventory 18
Agenda Bullwhip Effect Real time visibility and SCM Real time visibility case reviews Application of real time visibility in SCM Summary and suggested future work 19
1. Sales & Operation Planning with real time material visibility Demand-supply match via S&OP, to determine which demand to meet, how much of what to produce, how many components to procure S&OP: demand-supply match Component manufacturers Manufacturer W/H 3PL Retail stores DC Business case: inventory reduction and increased availability through increased planning frequency with real time visibility Requirements: process and policy changes (for frequent demand-supply match within organization, and with partners) Decision making in S&OP process requires organizational agreement with executive management to increase frequency of this process clear business case for the change management is necessary 20
2. Demand management Demand forecasting based on POS data, CPFR with customer collaboration Sales execution and demand shaping based on channel inventory Forecasting, and Sales execution Component manufacturers Manufacturer W/H 3PL Retail stores DC Business case: reduced inventory, increased fill rate based on faster, accurate demand signal (and real time inventory monitoring) Requirements: retailers sharing real time POS data (and demand collaboration for extended demand visibility with market intelligence) Requires a win-win strategy to share data With CPFR, allocating benefits to RFID vs. CPFR is required for ROI estimate 21
2. Demand management: challenges with demand collaboration* Domestic companies agree on the importance of demand collaboration (sharing POS and demand data), however, application is limited to the following cases: - Samsung: CPFR with E-Mart and Hi-Mart (sum of all POS, not store level POS data) - Pilot performed by some CPG companies and retailers, with no further progress Challenges in applying CPFR with Korean domestic retailers - Retail stores not willing to share POS data, especially for electronics because major manufacturers have their own retail stores (other retail stores regard manufacturers as competitors in the market) - For CPG, validity of CPFR contract between the manufacturer and other retailers is not accepted (especially as a result of promotions) *From CIOBIZ.co.kr Why is CPFR spreading widely in Korean domestic retail market? 2009.5.17 article by HyoJung You 22
3. management and logistics execution W/H, logistics center management Increased efficiency in logistics and distribution management & Logistics execution Component manufacturers Manufacturer W/H 3PL Retail stores DC Business case with RTV: reduced inventory through JIT replenishment, reduced inventory shrink, reduced labor cost through increased operational efficiency Additional requirements: business rules and policies, enterprise applications and system integration 23
4. VMI with suppliers or customers Vendors managing inventory with real time visibility Supplier VMI at manufacturing site VMI at customer W/H and stores Component manufacturers Manufacturer W/H 3PL Retail stores Customer W/H Business case: reduced cycle stock inventory and stock-outs with real time monitoring and on time replenishment Need to consider transportation constraints To estimate ROI for RFID, allocating benefits to RTV vs. collaboration is required when collaboration is applied for extended visibility 24
5. Other areas Automating part selection, pick and pack, labeling, shipping, and customs process, etc. Manufacturing & Logistics execution Component manufacturers Manufacturer W/H 3PL Retail stores DC Business case: lead time and labor reduction through increased efficiency (lead time reduction at W/H and CY contributes to inventory reduction), accuracy of inventory data improves plan quality and increased efficiency - Logistics lead time analysis, plan quality analysis required for ROI estimate 25
Agenda Bullwhip Effect Real time visibility and SCM Real time visibility case reviews Application of real time visibility in SCM Summary and suggested future work 26
Summary and suggested future work Most of the successful RFID applications in supply chain are focused on operations within domain of authority, not across enterprise boundaries To realize benefits by optimizing finished goods inventory in retails, win-win strategies or new business models are required for information sharing - Is there a role for an external service provider on real time data sharing? For an end to end inventory reduction, real time visibility can be positioned as a part of supply chain transformation, with focus on inventory and lead time reduction through operational efficiency, increased speed and accuracy through real time inventory and POS data - This requires business cases to gain organization consensus and support Identifying specific opportunities for RFID applications on SCM, developing business cases for supply chain optimization require collaboration between companies and business consulting* (and/or enterprise application vendors, and academic research) Financial support by governmental agency can facilitate identifying and developing business cases *or, process consulting and system integrators 27