Supply Chain Network optimization Needs and Our Viewpoint 2 2014 ITC Infotech 4 Supply Chain Networks often move away from optimality over time because of external and internal factors.
Supply Chain Network optimization Needs and Our Viewpoint 2 2014 ITC Infotech 4 Supply Chain Networks often move away from optimality over time because of external and internal factors.
Supply Chain Network optimization Needs and Our Viewpoint 2 2014 ITC Infotech 4 Supply Chain Networks often move away from optimality over time because of external and internal factors.
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for distribution outside the organization without prior written approval from ITC Infotech 2014 ITC INFOTECH 1 Supply Chain Network Optimization April, 2014 Supply Chain Network Optimization Needs & Our Viewpoint 2 2014 ITC INFOTECH Suppliers Production Plant Centralized DCs Regional Warehouses Wholesale Dealers Availability Flexibility Responsiveness (order cycle time) 2014 ITC INFOTECH 3 Supply Chain Cost Structure and the existence of conflicting objectives (Internal challenges) Raw Material basic cost Taxes/ Duties Freight Cost Capacity addition & realignment cost Conversion Fixed cost Conversion Variable cost Facility Fixed cost Opening/Closing cost Capacity expansion & realignment cost Inbound/Outbound transportation cost Taxes & Duties Handling & Inventory cost Outbound transportation cost (Primary & Secondary) Handling cost Inventory cost Facility fixed cost Facility expansion cost Opening/Closing cost Taxes & Duties Conflicting Objectives SALES / CUSTOMER SERVICE Stable volume Large quantities High delivery lead time SOURCING Long runs Stable volume High buffer inventory (RM/FG) MANUFACTURING Warehousing Less inventory Smooth flow Less SKUs Transportation Full Truck Load LOGISTICS Function wise optimization exercise will give suboptimal result as compared to end to end optimization exercise. Analyzing various trade-offs that exists in the supply chain from Cost-to-company perspective and making policy decisions basis that: Expansion into new geographic markets New product introductions Changes in Fiscal Cost structure (tax, duties etc.) Shift in Volume or Price levels New competitive market entrants Capacity constraints New technologies Mergers and acquisitions 2014 ITC INFOTECH 4 Supply Chain Networks often move away from optimality over time because of external and internal factors Periodic assessments should be carried out to align Supply Chain Network with Supply Chain Strategy considering changing factors Inventory costs Facility costs Transportation costs Operating costs Asset costs Customer satisfaction Sales growth Levels of service Increased market share Improved response time Strategy is manifested through the configuration of the supply chain network and the material/information flows through that network An effective network strategy optimizes supply chain network considering real time constraints and options present The effective supply chain organization is best designed around the globally (Suppliers supplier to Customers Customer) optimized network configuration 2014 ITC INFOTECH 5 Strategic Network Design: Supply Chain Strategy Defined Network Design is a process to determine the unique network configuration for the supply chain that offers the lowest total cost/ maximum total profit considering operational and financial risk while achieving targeted Service Levels Number of Warehouses C o s t s
( $ )
Transportation Costs Inbound Outbound
Inventory Costs
Facility Costs
Total Costs Network Cost Drivers Range of Indifference Optimal 2014 ITC INFOTECH 6 Key supply chain levers for improving value through network design E n h a n c e
S h a r e h o l d e r
V a l u e
I n c r e a s e d
F r e e
C a s h
F l o w / R O C E
Improve future prospects Increase Revenue Increase Working Capital Efficiency Increase Fixed Assets Efficiency Reduce Cost SC Performance Attributes Value Levers Key Supply Chain Levers Reliability Supply Chain Costs Working capital productivity Fixed asset productivity Lower Supply Chain Risks Responsiveness Flexibility Resource acquisition/divestment: Opening/closing of Factories, Warehouse, acquiring technology etc Structural decisions: Supply chain design & defining roles of facilities Operational Efficiency: Efficient execution and control Operating Policies: Making policy decisions based on cost to company 1 2 3 4 2014 ITC INFOTECH 7 Key decisions that needs to be addressed S t r a t e g i c
T a c t i c a l
Asset Optimization Cost/ Service Optimization Flow Optimization Operational Efficiency L o n g
T e r m
M e d i u m
T e r m
S h o r t
T e r m
What are our priorities in supply chain design? How can we accommodate our growth with our current network? How many and where should the facilities be? Whether to open/ close plants, distribution centers? What is my actual cost-to-serve each product to each customer? In what areas could we reduce costs and improve service if we improved our network design? Should we realign our network given recent shifts in demand, production, or cost factors? How should we flow each product through the network? Where and when should we produce each product? From whom should we source? Where and how should we stock product to meet service level? Which route and mode to select? How to perform last mile delivery milk run etc.? How much to produce and stock at each location? How to manage exceptions? 2014 ITC INFOTECH 8 Supply Chain Network Design: Our transformation approach Long Term Planning Corporate Strategy Business Plan Investment Window Agile supply chain framework Facility, process & product related investment decisions Decisions involve high level of cost involvement, high lead times to realize benefits and return on investment involves a bigger horizon Majorly involves Resource acquisition/divestments and supply chain structural decisions Lot of What-if scenario testing basis demand size and shape, cost inflation and deflation, fiscal policy etc Constraints involved in decision making are policy constraints which constrains structural definitions. Doesnt involve day to day operational constraints and variability Medium Term Planning Defined supply chain framework (Time based Facility/Product and process framework) Firm business plan (Medium Term) Cost benefit decisions Structural decisions & Operating policy in medium term Decisions based on strategic message (supply chain framework) from Long term planning Focus change from investment to cost benefit decisions Set of assumptions are less compared to long term planning. Business conditions and possible changes are more firmly known What if analysis done on possible changes which are more firm, e.g Forecasting data and variations in it. Short term Planning Defined supply chain framework, structural decisions & operating policy Real time inputs Decisions which are cost efficient Decisions which help in day to day operations Takes the message from long term and medium term planning. Facility, process and product wise supply chain model is firm. Minor exceptions are handled in this planning exercise Frequency of such type of planning is high and time for execution is small. At such small lead times structural decisions can't be made as supply chain will not be able to align so quickly What if analysis are done using simulations so as to see fill rate, out of stock, line utilization etc to finalize the best operating decisions 2014 ITC INFOTECH 9 Network Optimization Typical Supply Chain Optimization Needs Strategy Modeling Inventory Modeling Transportation Modeling Network Analysis Facility Opening/Closing Asset Rationalization Network Re- alignment Capacity Augmentation Network Structure Safety Stock Optimization Cycle Stock Optimization Pre-build inventory Inventory vs. Service tradeoff Postponement strategy Mode Selection Shipment sizing and scheduling Load Optimization Route Planning What-if analysis Demand Variability Supply Variability Production Variability Lead Time Variability 2014 ITC INFOTECH 10 Network Design Approach - Design Principle 1: A Two stage approach may help create better optimality Optimization & Sensitivity Analysis Simulation within Optimized Zone Initial stage of exercise when lot of options are present Works basis given assumptions and average figures and aggregated product and geography (assumptions very close to real data and lead to decision making) Tells what can be the way to improve supply chain model
What if scenarios Major changes in network Next stage after optimization when optimized zone is very well defined and further play within that zone is to get close to real supply chain scenario
Works on more accurate figures and operational details are involved Tells in a detailed way what improvements are realized by changing different parameters
What if scenarios Small changes (taking few parameter changes at a time) $
C o s t
Zone of Indifference Scenario 1.n Zone of Indifference 1 1 2014 ITC INFOTECH 11 Network Design Approach - Design Principle 2: Responsive Needs Periodic vs. Continuous Periodic time E f f o r t
C o s t
actual optim al Lost Opportunit y Continuous time E f f o r t
C o s t
actual optim al Alignment Perspective How Dynamic? How Responsive? Long term Mediu m term Short term Long term Mediu m term Short term 2014 ITC INFOTECH 12 Network Design Approach : Convergence on key decision parameters Parameters Short term Medium Term Long term Horizon 1-3 months 1-24 months 1-5 Years Frequency Monthly Quarterly Semi annually/Yearly Planning Bucket Weekly/Monthly Monthly Quarterly/Yearly Product Clustering Not needed/Slightly higher level Needed Needed Geography Clustering Not needed/Slightly higher level Needed Needed Supply Chain Network Optimization Our Approach & Methodology 13 2014 ITC INFOTECH Project Specification & Scoping Information Gathering Baseline Development Scenario Visioning Scenario Analysis Recommenda tions 2014 ITC INFOTECH 14 Our Methodology has been tried and tested over multiple engagements Define business objectives and scope Understand customers supply chain Gather customer requirements Develop modeling strategy
Detail information requirements Develop templates for data gathering Collect data required Assess data available & its hygiene Develop time estimates
Develop model & create database formats Detail assumptions made Run & analyze baseline model Compare results with the actual cost incurred Define the degree of error for different cost heads (Tolerance level). Review baseline assumptions & result with business Make necessary changes if needed Perform sensitivity analysis Develop various what if scenarios
Model the different what if scenarios and analyze results Perform cross alternative sensitivity analysis Detail recommendati ons from different scenarios
Using scenario results, focus on top 1-2 scenarios Determine the best alternative along with business approval Develop the implementatio n roadmap
1 2 3 4 5 6 2014 ITC INFOTECH 15 The Visioning Scenario Framework sets the baseline for optimization models to be created and run U n c e r t a i n t y
I n c r e a s e s
w i t h
D e g r e e
o f
S p e c u l a t i o n Market Strategies Company initiatives focused on influencing customers and/or suppliers to improve their impact on company performance. Examples of customer market strategies would include new channels of distribution, sales & promotional activity focused on specific segments/products, and/or elimination of unprofitable customers. Examples of supplier market strategies would be consolidation of suppliers for increased pricing leverage, identifying new global sources of supply, etc. Operating Strategies Company initiatives to implement new models for manufacturing and distribution to improve company performance. Examples would include eliminating existing facilities, expansion of new/existing facilities, outsourced manufacturing, focused factories, etc. Business Conditions The assumptions market and operating assumptions regarding demand, costs, capacities, etc. to be modeled when optimizing and testing different strategies. Scenarios A set of strategies and business conditions to be tested, optimized, and sensitized through a series of optimization runs. Sensitivity A range of uncertainty around a specific business condition or data element. Increased uncertainty requires increased number of runs to insure confidence/robustness. Optimization Run A single optimized instance of the model based on a specific set of data elements that represent a combination of strategies, business conditions, and their sensitivities. Planning Horizon: Strategy 1 Strategy 2 Strategy n Strategy 1 Strategy 2 Strategy n Strategy Combo 1 Strategy Combo 2 Strategy Combo n Business Conditions: Data Elements: Demand +/- 5% Transportation +/- 2% Variable Manufacturing +/- 1% Inventory Carrying + 0 - 5 % Raw Material Costs Transportation - 5-6% Manufacturing Labor + 4% per year Demand + 2% per year Raw Material Costs -8% Design Data New Locations n/a 0 - 12 months New Market Strategies New Operating Strategies Strategy Combinations Strategies: Optimize Current Network Current Conditions Known Changes in Conditions Forecasted Changes Uncertainty Increases with Time Year 2, 3, K e y
V i s i o n i n g
D e f i n i t i o n s
2014 ITC INFOTECH 16 Illustrative Timelines NO (Network Optimization) only Strategy Modelling Network Structure Optimization Product Planning Operations Planning Inventory Planning (only cycle stock & pre-build decisions) Transportation Modeling (only mode selection) Solutions Offerings The timeline mentioned below is for a project done in leading CPG major in India. Scenarios : Baselining + 5 Scenarios (Short term, medium term & long term scenarios ). Multi period modelling Number of SKUs: 80, Factories: 17, DC: 5, Warehouses: 50+ Phase 1 Phase 2 2014 ITC INFOTECH 17 Illustrative Timeline (Network Optimization & Inventory Optimization/Vehicle Route Planning) 2014 ITC INFOTECH 18 Model type Parameters Simple model Detailed Model Large Scale Model Product Complexity < 50 Products 50-300 products 300+ products, effort needed for product clustering Site Complexity < 20 sites 20-500 sites 500+ sites, effort needed for geographical clustering Demand Points <10k demand points 10k-50k demand points 50k+ demand points Others Single period, some alternatives in sourcing & transportation Multi period, multiple alternatives to sourcing & transportation Multi period model, many variations and alternatives in sourcing, transportation and demand Project Scope Simple Model Detailed Model Large Scale Model Network Optimization 4-6 weeks 3-4 months 5-6 months Inventory Optimization 4-6 weeks 2-3 months 4-5 months Network + Inventory Optimization/Vehicle Route Planning 8-10 weeks 6 months 8-10 months Where have we done this before? A few case Studies 19 2014 ITC INFOTECH A leading Joss Sticks and Safety Matches manufacturer in India Network Optimization Client Client is leading joss sticks & safety matches product manufacturer in India. Client manages marketing, sales and distribution of the products across India and production is governed by the contract manufacturers who plan for raw material procurement based on clients demand and supply plan. Challenges High Volatility of demand of Joss Sticks due to the nature and typical use of the product in India leading to frequent changes in production scheduling and fulfillment planning High impact of change on contract manufacturer framework because of planning and scheduling changes leading to sub-optimal network utilization Less efficiency and adaptability of the supply chain network due to inherent constraints Benefits Production mix with 85% firm and 15% flexible based on market exceptions ~90% firm distribution network and ~10% flexible network with two supply options to answer changing market dynamics Increase of direct delivery to regional warehouses from 29% to 50% Reduction in outbound transportation cost by 25% Overall cost saving of ~2.5% and increase in inventory turns from ~6 to ~10 More visibility on costs (to negotiate contracts with contract manufacturer, logistics providers etc.) and space requirement (at manufacturing premises for raw material and finished goods). Solution Decide a supply chain framework with end to end network cost visibility Optimized network considering all cost elements and constraint supply, production and logistics costs inherent value chain constraints, credit rules and complex tax structure in India Solution also incorporated complexities related to supplier capacity constraints, procurement contracts, multi BOM scenario, production activity wise capacity constraints product mix constraints, inventory policies A leading Agriculture Product business in India Sourcing/ Dispatch and Warehouse Space Optimization Client Client is leading Agricultural Products exporter and focuses on export & domestic trading of products like Soya meal, Wheat, Shrimps and Prawns, Fruit Purees/ Concentrates, IQF/ Frozen Fruits, Organic Fruit Products, Coffee etc. One of the major activities of the client included procurement of wheat and supplying it to largest wheat flour" company in India. Challenges Multiple marketplaces of procurement spread across India and Delivery to multiple factories Increasing sourcing locations, warehouses, wheat varieties and dispatch to factories 3 months (in a year) availability window of major varieties of wheat leading to 75% procurement in 100 days from highly dynamic markets with price varying daily Complex tax structure in India and different local taxes & rents at different states Frequent government intervention on wheat pricing leading to complexity. Benefits Best sourcing network to serve the demand based on the prices and availability at different marketplaces leading to 2-3% reduction in total cost Suggested the best mode of transportation (rail/ road) among different options available for various flour mills. Best warehousing locations for the stocks before dispatch considering both existing infrastructure and leasing options Dispatch Plan based on weekly stock and monthly demand leading to 7-8% reduction in outbound costs Before starting of the buying season, based on price forecast, suggested locations and space requirements, thus providing a defined warehouse booking framework. Solution Suggest deciding the best network to serve the demand based on the prevailing prices in the market Optimized network considering end to end costs elements involved in the supply chain basic costs, labor charges, different taxes bagging charges, warehousing charges, inward and outward freights Consider the substitutability options among various varieties Select best mode of transport (Rail or Road) for various supply locations Suggest optimized warehousing locations. A leading FMCG company in India Network optimization Client Client is one of the leading FMCG company in India and is growing at a very fast pace YoY. The growth of the business can be attributed by the fact that the overall sales has increased by three times in last 5 years and now it is >1 billion USD business in India only. Background and Challenges Mature integrated planning system - demand planning, supply planning, production planning and MRP. SAP integrating the production locations and various echelons present till service to market Introducing many new product variants in a highly dynamic and competitive market Low margin and high challenges like high responsiveness and improved fill rate Network needs to be flexible and adaptive to absorb cost implications as well as supportive to fast growth of business in long run. Benefits Capacity expansion and new facility opening decisions in next 5 years in time phased manner Network optimization and giving a solution for increasing direct serve to market Suggesting utilization of centralized Hubs based on product categories and demand variation Inventory reduction by 15% across the supply chain Recommended short term optimization potential by 1.03% and long term optimization potential by 2.4%. Solution Decide a network considering end to end cost and real time constraints of the value chain Exhaustive roadmap for strategic initiatives for next 5 years based the long term plan Plan for the capacity enhancement/ addition in next one year and related tactical network decisions Detail out the monthly planning and RCCP activities from which production and network inputs were given to SAP APO for cost effective and efficient supply planning execution. Costs incorporated - sourcing, taxes, conversion and transportation cost Constraints - serviceability, truck load, product mix loading, capacity and complex tax laws Include variant and sub variant level product change-overs. A leading consumer product company in India Network optimization Client Client is leading company in notebooks in India. Client manages marketing, sales and distribution of the products across India and production is governed by the contract manufacturers who plan for raw material procurement based on clients demand and supply plan. Background and Challenges Highly seasonal business (~3.5 times sales in peak month vs the average monthly sales) where 5 months of season (Feb-Jun) contributes to 60% of the annual sales. This seasonality puts multiple pressures on the supply chain (Manufacturing capacity vs. Inventory build-up, execution capacity, Warehouse space etc.) Highly Fragmented demand of the current portfolio is ~700 SKUs. Regional preference on size, binding & Rulings for Notebooks, Each Pen model means 6 SKUs(3 colour variants of pen & refills each) Forecast Accuracy: Apart from end user preference, the demand is largely influenced by external factors like school curricula, recommendations by individual schools Multiple Supply Chains: Range of SKUs being sold needs a category specific view of supply chain. Benefits Production strategy Lean season vs. peak season and accordingly gear up strategy Pre build strategy and space allocation in a time phase manner Increase in inventory turns from 2.5 to 4.05 and reduction in overall supply chain cost by 2.1% Movement by parcel reduced from 40% to 30%. Solution Finalized framework related to production, stocking, space at centralized warehouses, pre build inventory strategy and transportation mode finalization. Demand segmentation for vast product portfolio was done before optimization and decisions were supported based on various segments of demand. Strategies were devised for various product categories regarding direct serve to market vs. hub and spoke model and accordingly pre build strategy at centralized warehouses and hubs Reduce the Parcel mode of transportation which was proving to be a costly option for servicing to the customers. How to Reduce Costs through Supply Chain Network Optimization - http://www.industryweek.com/planning-amp- forecasting/how-reduce-costs-through-supply- chain-network-optimization
Value creation through Supply Chain Network Optimization to address dynamic Supply Chain http://www.itcinfotech.com/Business- Consulting/Business-Consulting- Download.aspx?pk=5
Looking Ahead The Big Opportunity for Network Design - GST Introduction in India - http://www.itcinfotech.com/Business- Consulting/Business-Consulting- Download.aspx?pk=6
2014 ITC INFOTECH 24 Our Thought Leadership Publications 2014 ITC INFOTECH 25 How we can help ESPB 2013 ITC Infotech 26 Customer Value Chain and Challenges RM 1 Board RM 2 Papers Contract Manufacturers Raw Material & Packaging Material Supplier Contract Manufacturer Centralized Hubs Warehouse Service Provider Demand Region Hub WSP Distributor Traditional Retail Rural Modern Trade Challenges Seasonality: This seasonality puts multiple pressures on the supply chain(Manufacturing capacity vs. Inventory build-up, execution capacity, Warehouse space etc) Highly fragmented demand: Product portfolio is huge . Complexity adds on with regional preferences of size, bindings, rulings etc. 1. Notebooks usually sell in sets, a small contribution odd ruling can be critical for the major selling ruling variant(Ex: Maths ruled vs. Single Ruled could sell in 1: 6 ratio in certain markets). Hence such odd rulings are to be retained 2. Each Pen model means multiple SKUs Forecast Accuracy: Apart from end user preference, the demand is largely influenced by external factors like Syllabus, recommendations by individual schools, and hence relatively difficult to predict. Multiple Supply Chain: Different products with wide range of sale value, product life & supply chain length. Other RMs 2014 ITC INFOTECH 27 Types of Planning From ESPB context Strategic Planning Tactical Planning Operational Planning Decisions having high lead time and cost involved: Supplier or manufacturer capacity expansion New facility opening/closing Warehouse space decisions New product category introduction Supply Chain design basis Pre & Post GST Takes input from Strategic Planning decisions and purpose is to design cost effective supply chain: Addition of new facilities and accordingly high level network Production & Procurement framework Production strategy & Pre build strategy Direct service vs. Hub & Spoke model Works on more realistic input and thrives for sustenance of cost effectiveness: Material requirement planning & sourcing network Converter SKU wise production planning Finished goods network till WSPs Mode of transport between source and destination Degree of K1/K2/K3 servicing Vehicle route optimization at WDs Supply Chain Design tool Optimization tool Planning tool like SAP APO but many inputs required from Optimization tool 2014 ITC INFOTECH 28 Why Network Design tool required? Why not only SAP APO.. SAP APO and Network Design tool operate in entirely different realms. SAP APO is meant to be an execution tool, Network design tool is meant to be a design tool for supply chain. The window for end to end cost and real time constraints based optimization is very limited in SAP APO and generally promotes localised optimization. Design related and cost to serve based optimization is not an answer from SAP APO. SAP APO is not suitable to perform what-if scenarios - e.g The structure of the network must remain fixed, and APO simply optimizes quantities on a fixed network. Network Design tool is built to conduct what-if analysis. It is easy to open/close facilities, change product flow paths and test the impact on outcomes One cannot test the impact of different inventory policy, transportation & sourcing policies types to determine the appropriate policy. One sets the policy type and SAP executes it on a daily basis SAP APO works on set of rules which are input as a master rule sets. In Network design tool the best fit rules and basis that what is supply chain design is outcome Modeling horizon of SAP APO are short (from few months to a year). Network design tools allows strategic exercise for much longer timeframes (for next 5-10 years). Bottom-line: to make decisions about supply chain design, one would use Network Design tool, to execute on a daily basis once the decisions are made, one would rely on SAP APO. This is how SAP itself sees the relationship between the products! 2014 ITC INFOTECH 29 Parameter Sub-Parameters SAP SC Guru Strategic 2-3 year strategic network planning X Consolidation of warehouses X Consolidation of sourcing locations X What-if scenario analysis X - Risk of closing a plant X - Decide location of a new plant/ warehouse X - Green field network revisit analysis X - Adding a new hub(Consolidation center) X - Space required in new DC/ old DC with increased demand X - Risk mitigation by adding location partial Tactical 6-18 months plan Supply/ Capacity/Product Mix/Transportation/Stocking Space and many other constraints & cost Very localized Inventory Pre-build and accordingly production strategy Assumptions based
What if analysis Very localized - Adding/ removing lanes Partial - Direct shipment vs. trans-shipment Partial Optimization based on RM/PM Sourcing cost, production cost, transportation cost Sub optimal Tax implication on total supply chain cost Not feasible for Indian scenario
Why Network Design tool required? Why not only SAP APO.. 2014 ITC INFOTECH 30 How it can help in operations planning? Monthly Production Planning: How much/where and what product to produce? Sequence in which to produce Converter space requirement decisions From SAP: Demand Plan Firm production plan Stock on Hand at Hubs & WSPs Capacity constraints From Tactical Planning: Opening & Closing requirements Sourcing/Transportation/Stocking policies Capability enhancement inputs Cost Sheet: Sourcing cost (Basic + Freight + Tax) Conversion cost Transportation cost Changeover cost Tax & Duties Other Master Sheets: Sourcing constraints Capacity related constraints Truck load and product mix constraints Other soft/hard constraints The illustrative figure above gives a clear idea that Network design tool will provide an opportunity to do most of the planning activities basis end to end cost involved in the supply chain and also tries to find out optimal point for operating in a limited space created by multiple constraints set 2014 ITC INFOTECH 31 Approach 2014 ITC INFOTECH 32 Timeline 2014 ITC INFOTECH 33 Commercials 2014 ITC INFOTECH 34 LLamasoft Supply Chain Guru Sample Customers 35 Automotive / Industrial Manufacturing Consumer Goods Defense Hi-Tech / Electronics Food Beverage Life Sciences Grocery Logistics Apparel Manufacturing Petroleum Public Health Retail Chemical Supply Chain Visibility Interactive Dashboards Analyze current cost-to-serve Highlight a geographic region Explore a business segment
Rich Visuals of supply chain Flow of products Risk profile & locations Demand segmentation Drill Down Reports & Metrics % sourced from specific region Product profitability & cost structure Service levels & coverage 36 2014 ITC INFOTECH Scenario Analysis OPTIMIZE SUPPLIER CONFIGURATION Single source vs. multi source Low cost vs. local High risk vs. low risk EVALUATE ALTERNATIVE STRATEGIES Transportation mode selection Production footprint Inventory stocking locations and levels SIMULATE & PERFORM WHAT-IF ANALYSIS Fluctuations in lead-times Supply Disruptions Demand increases or decreases Fuel-cost spikes
What if we try THIS? What if THIS happens? 37 2014 ITC INFOTECH Rapid Response Use the supply chain models to evaluate contingency plans Balance production & sourcing against changes in demand Prioritize demand during supply short-falls Restructure when cost assumptions fail
How should I respond to an unforeseen event? 38 2014 ITC INFOTECH Supply Chain Guru Key Service Lines Supply Chain Guru Network Optimization Inventory Optimization Transportation Guru Simulation Safety Stock placement Cycle stock optimization Pre-build inventory Service vs. inventory trade offs Postponement strategies Replenishment frequencies Strategy modelling Network optimization Operations Planning Product planning Pre build strategy Mode selection Vehicle routing Shipment sizing & scheduling Asset utilization Load building Demand variability impacts Supplier delays, quality analysis Risk analysis Managing data Technology enablers MS Excel Import/Export Input pipes Auto aggregation/disaggregation of product data Automated model building & Integration Data connector utility Easy integration with ERPs (Certified partner with SAP and direct integration with SAP ERP data) Access from Supply chain guru UI Select, filter, extract modelling data Competition Comparison
Network Optimization Greenfield Analysis Inventory Optimization Strategic Sourcing Cost-to- Serve Vehicle Routing Program Multiple Scenarios w/in a Model Simulation Reporting Mapping SAP Compatible Phone Support Dedicated Devlopment Staff LLamasoft Supply Chain Guru + + + + + + + + + + + + + Transportation Guru + + x x + + + + + + + + + CAST Aurora + + x x + x x x + + x ? ? CINO x x + + + x x x + + x ? ? Optimiza Inventory Optimizer x x + x x x x x + x x ? ? IBM ILOG--Logic Net Plus XE + x x + + x x x + + x x x ILOG Transportation Analyst x x x x x + x x + + x x x ILOG Inventory and Product Flow Analyst x x + x + x x x + x x x x
Infor SCM Network Design + + + + + x x x + + x ? ? Infor 10 Supply Chain Planning x x x x x x x x + x x ? ? JDA i2-Strategist + + x + + x x x + + x + x i2-Transportation Modeler x x x x x + x x + + x + x Oracle SNO + x x + + x x x + + x ? ? Inventory Optimization x x + x x x x x + x x ? ? Excel Solver Supply Chain Guru Spreadsheet based Add-in, LP/MIP formulation to be converted into data matrices Full fledged software tool, Input data to be entered in tables, intuitive to use Size limit of up-to 200 variables No problem size Limit Solves LP using Simplex and MILP using B&B method Uses Fico Xpress solver, that has highly optimized version of the simplex and branch and bound algorithms Each scenario/what-if analysis to be done separately Multiple scenarios within a model Generic approach to solve LP/MILP, smooth NLP and meta-heuristic (basic genetic algorithm) based problems Specializes in problem based approach: Network Optimization, Inventory Optimization (using MILP) and Vehicle Routing (using Heuristics) Basic Monte - carlo simulation can be done Separate Simulation tool available for detailed analysis As model size increases it becomes complex to use this tool Relatively easy to model large problems Other spreadsheet based solvers such as Excel premium, open solver and Whats Best (Lindo) also suffer from same drawbacks Special constraints and business rules can be easily incorporated into the model as compared to in excel solver Comparison between Excel Solver & dedicated tools Thank You 2014 ITC INFOTECH 43 2013 ITC Infotech 44 Annexure-1 Network design gains importance because of changes happening in internal and external environment. Fiscal policy change is one of the important factor which some times compel companies to look away from operational efficiency. The illustrative case study explains how network design exercise helps in making decisions related to strategic supply chain design in Pre/Post GST scenario. Here it has also been explained how it will help in deciding the future course of actions and strategy to be adopted by the company (in long term & short term). Further it also explains the operational benefits that will come along in due course of time after network design exercise.
GST introduction will be one of the strong compelling factor for companies to revisit their supply chain network in India. We expect the changes in the dynamics to be so big that the roles of many of the existing facilities (sourcing/manufacturing/distribution) may come into question. The optimum network Post GST can suggest realignment/closing/opening of facilities. Such type of transitions is seen to have long lead times (3 months to 3-4 years depending on type of industry and type of transition).Companies must revisit their network for a horizon of next 2 to 5 years so as to be proactive enough to answer the changes happening in the big tickets like GST. Fiscal Changes often drive the need for Supply Chain Network Design Many things changes with fiscal policy. So for having competitive advantage companies have to keep on revisiting this exercise so as to know the changing roles of different facilities and changes in network 2013 ITC Infotech 45 In some countries including India, fiscal cost have been key factor in determining the supply chain network. In some cases it becomes so important that manufacturing locations and distribution network are designed to take advantage of fiscal benefits. Manufacturing Units Distributor Retailer Tax structure changes Tax exemptions & denial changes Role of different facility changes Market benefits changes Supply chain mix changes Test case India GST Introduction Impact on Purchase of Goods (Pre & Post GST) ** GST rates are not yet finalized but it is expected to be between 16% 20% Source: ICAI(2010) 2013 ITC Infotech 46 2013 ITC Infotech 47 Factory Warehouse (WSP) Market (WD) Vendors Excise rate 10%, VAT 12.5%, CST 2%, GST 16% Some sort of manufacturing at Vendor, Manufacturing location and Warehouses Stock movements from manufacturing location to warehouses is treated as a stock transfer (ownership doesnt change) From warehouses to WDs (wholesale dealer) ownership changes Vendor is in Karnataka state, Manufacturing unit in Karnataka state, WD (wholesale dealer in Tamil Nadu state) There are two warehouses-one in Karnataka & one in Tamil Nadu Value wise margins for different echelons are kept same Assumptions Test case Impact of GST 2013 ITC Infotech 48 Test case Impact on Purchase of Goods (Pre & Post GST) Scenarios: Scenario 1-Pre GST & Interstate sale happens during ownership change Scenario 2-Pre GST & Interstate stock transfer and then sales happening Scenario 3-Post GST & Interstate sale happens during ownership change Scenario 4-Post GST & Interstate stock transfer and then sales happening Warehouse only at Karnataka Warehouse only at Tamil Nadu Warehouses in both states (one each in Tamil Nadu and Karnataka) Possible Scenarios 2013 ITC Infotech 49 Benefits Pre & Post GST (Network Design exercise) Quick summary of analysis on one of CPG major in India: Number of warehouses has reduced to 36 from current 45. Many existing warehouses closed and new warehouses opened. Days of Inventory reduced by 20% Primary freight cost reduced & secondary freight cost increased slightly Positives Negatives Bigger consolidation of demand at warehouses Route planning becomes a challenge as warehouse have to deal with dealers in a bigger geography Reduced variation in demand at warehouses Secondary freight cost will increase Improved inventory management Truck load utilization will reduce in secondary distribution Improved demand planning In lower lead times the service level will experience a little impact. Reduced production complexity (less changeovers) Reduction in number of echelons in supply chain Increase in truck load utilization (especially in primary freighting) Reduced cost for improving service level 2013 ITC Infotech 50 Benefits Future Strategy Supply Chain Costs S e r v i c e a b i l i t y
Post GST Pre GST Zone of Flexibility (Cost vs. Serviceability) Possible strategies: Invest more to get better serviceability Develop efficient supply chain to get cost benefits Pricing strategy Zone of flexibility provides businesses opportunities to reconfigure their supply chain as per their strategic requirements It is important for business to regularly take Network design exercise to know their zone of flexibility 2013 ITC Infotech 51 Benefits Future Course of action
Contract renegotiation Inter vs. Intra state sourcing options Process redesign Price renegotiation Reliability & Quality consideration
Capacity expansion/closing Capability realignment Flexible manufacturing Manufacturing process redesign Role finalization
Improve forecasting process Improve inventory management Trade off between customer serviceability and cost associated Improve Pricing & Promotion Strategy
Increase responsiveness by reducing number of echelons Warehouse opening/closing Shared roles of warehouse with mfg unit Maximum utilization of multi modal & multi-tier