Agenda

Supply Chain Management: Myth vs Reality

Supply Chain Management: An Analytical Perspective

Strategic Sourcing

Sales & Operations Planning (S&OP)

Unification of Marketing and SCM

SCM and the Green Movement

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Strategic Supply Chain Design Analytical Tool

Computer-Based Mathematical Model of Entire Supply Chain

Crosses Organizational and Functional Boundaries

Relevant History From the Early 1970s (“Warehouse Location Models”)

Today Often Called a Network Design Tool This perspective is far too limited Too much emphasis on location questions True situation

Comprehensive strategy Considerable tactical power

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Multiple Stages of Production

Raw Materials In

Production Line 1

Production Line 2

Process 1

Production Line 1

Production Line 2

Process 2Finished Products

Out

Intermediate Product Production Lines

Finished Product Production Lines

Overall Objective

To find the set of facilities and transportation links and associated product flows that either minimizes total costs or maximizes total profit…

Subject to the Following Restrictions (Constraints):

Procurement availability limits Manufacturing capacity limits DC throughput limits Storage limits Inventory targets Customer service limits Other transportation link restrictions Energy consumption limits Carbon emission limits

Solver Engine: Mixed Integer Linear Programming

Classic Issues: Structure, Ownership, Mission

Number and Location of Raw Material Suppliers Plants/Vendors/Copackers Production Lines/Processes DCs

Transportation Links and Flows Inbound: suppliers to plants Transfers: between facilities Outbound: DCs to customers

Facility Ownership Issues Owned, leased, public, 3PL Outsourcing

Facility Mission Issues Commodities procured, manufactured, distributed per location Costs and capacities

Beyond Location: Critical “What If” Issues Business Decision/Policy Issues

Supply Chain/Marketing Integration S&OP Energy/Carbon Footprint/Sustainability Supply Chain Vulnerability/Hardening Strategic Sourcing Customer Profitability (Cost-to-Serve) Mergers and Acquisitions Master Capacity Planning Transportation Policy International Trade Long Range Planning Seasonal Demand/Supply Product Introductions/Deletions

Strategy is About MUCH More Than Locations!!

Summary of Inputs

Network Description Commodities

Raw materials Intermediate products (WIP) Finished products (typically aggregated from SKU level)

Locations Raw material suppliers Plants/vendors/co-packers

Drill-down to lines/processes DCs/pools/cross-docks/ports

Drill-down to lines/processes Customers (typically aggregated from ship-to level)

Other Customer channels Time periods

Customer Demands Table by customer/channel/finished product/time period

Summary of Inputs (cont) Transportation Costs

Inbound (supplier to plant) Transfer (between facilities) Outbound (to customer)

Facility Data (technically optional but critical) Mission data (eligibility of commodities) Procurement costs, capacities & violation penalties Manufacturing costs, capacities & violation penalties DC location costs, capacities & violation penalties Bills of material Inventory targets and holding costs Lock open/close options

Other (optional) Duties, taxes, currency conversions Selling prices (needed for profit max studies) Customer service limits Data scaling options Energy usage and carbon emission factors & constraints

Thoughts About Inputs So…Where Are You Going to Get This Stuff?

Demand and historical flows: transaction histories Transportation: typically left to the specialists Duties and taxes (say what?)…go find a specialist (if you can) Facility: ah, there’s the rub

Facility Data Types of costs

Fixed Variable (per unit of network flow) Step functions (CAUTION)

Thoughts About Inputs (cont) Procurement

Fixed costs: unlikely Variable costs (by raw material) Capacity limits Source: typically right from the contracts

Manufacturing Overall plant

Fixed costs Variable costs

Drill down to production line/process Fixed costs Variable costs (by intermediate and finished product) Capacity limits (by line and by line/IP and line/FP) Line rates (by line/IP and line/FP)

Bills of material Sources: accounting, ABC, engineering, experts, statistical analysis

Distribution Center (also cross-docks, pools, ports) Fixed costs Variable costs (by product) Capacity limits (throughput, storage, SKU count) Sources: accounting, ABC, engineering, experts, statistical analysis

Final Thoughts About Inputs ABC Costing is a Powerful Leg Up

Strategic decisions deserve the best possible inputs Not a necessary condition but it sure helps. To wit…

Data Accuracy is of Utmost Importance These are boardroom issues Millions are routinely at stake Defending the numbers is inevitable. To wit…

When The Opposition Rears Its Head (AND IT WILL) Not demand data (unassailable if transaction-based) Not freight costs (mystery mercifully left to the experts) Not duties and taxes (even greater mystery left to the experts) Facility costs and capacities (everyone is an expert)

Your Model Will Appreciate Accuracy As Well Major consulting/support challenge: cookie cutter models Tremendous influence on optimization algorithm performance

Agenda

Supply Chain Management: Myth vs Reality

Supply Chain Management: An Analytical Perspective

Strategic Sourcing

Sales & Operations Planning (S&OP)

Unification of Marketing and SCM

SCM and the Green Movement

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Unification of Marketing & Operations

Evolution of Network Tools & Perspective Finished goods distribution Integrated logistics Supply chain management Unify procurement, manufacturing, and distribution

Integrate Remaining Silo: Marketing Managerial objective: rigorous development of corporate strategy Mathematical (and managerial) objective: profit maximization

Expand Target Audience to Senior Management Above the pay grade of CLO and CMO Direct impact on C-level metrics

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Unification of Marketing & OperationsThe Rationale

Intense Pressure to Maximize (Protect?) Profit

Intense Competition Across Functions For Limited Resources

The S&OP Message Is Valid: Need For Cross-functional Business Process Integration. BUT…

Typical Weaknesses of S&OP

Demand given via forecast from marketing Limited supply chain scope: often manufacturing only No ability to redesign and/or rebalance entire network Weak supply/demand synchronization methodologies Typical procedure: “warring spreadsheets”

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Unification of Marketing & OperationsThe Solution

Start With Comprehensive Supply Chain Design Perspective

BUT: Traditional Analytics: Demand is Given

Suppose We Relax The Assumption Of A Fixed Forecast…

Add Marketing Campaigns or Initiatives Can represent any marketing activity

Advertising campaigns Coupon distribution and/or product samples Sales force adjustments

Typically customized by channel and brand Composition

Budget: fixed and variable costs Overall & market-level activity limitations (min/max limits) Response coefficients by product (projected lift)

Add Selling Prices

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Unification of Marketing & OperationsThe Solution

Analytics Response May optionally “buy” additional demand Must pay for

Marketing campaign Full supply chain fulfillment costs

Will Accept IF Profitable and IF Feasible

Will Reject If Unprofitable and/or Infeasible

Objective: Profit Maximization

Final Result: Profit Max Corporate Strategy

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