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This report is solely for internal use. No part of it may be circulated, quoted, or reproduced
for distribution outside the organization without prior written approval from ITC Infotech2014 ITC INFOTECH 1
Supply Chain Network
Optimization
April, 2014
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Suppliers Production Plant Centralized DCsRegional
WarehousesWholesale
Dealers
Availability
Flexibility
Responsiveness (ordercycle time)
2014 ITC INFOTECH 3
Supply Chain Cost Structure and the existence of conflicting
objectives (Internal challenges)
Raw Materialbasic cost
Taxes/ Duties
Freight Cost Capacityaddition &realignment cost
Conversion Fixed costConversion Variable cost Facility Fixed cost
Opening/Closing costCapacity expansion & realignmentcost
Inbound/Outbound transportationcost
Taxes & DutiesHandling & 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.
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Analyzing various trade-offs that exists in
the supply chain from Cost-to-companyperspective 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
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2014 ITC INFOTECH 6
Key supply chain levers for improving value through network
design
EnhanceShareholderValue
IncreasedFre
eCashFlow/ROCE
Improve futureprospects
Increase Revenue
Increase WorkingCapital Efficiency
Increase FixedAssets Efficiency
Reduce Cost
SC Performance AttributesValue Levers Key Supply Chain Levers
Reliability
Supply ChainCosts
Working capitalproductivity
Fixed assetproductivity
Lower SupplyChain Risks
Responsiveness
Flexibility
Resource acquisition/divestment:Opening/closing of Factories,
Warehouse, acquiring technology etc
Structural decisions: Supply chaindesign & defining roles of facilities
Operational Efficiency: Efficientexecution and control
Operating Policies: Making policydecisions based on cost to company
1
2
3
4
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Key decisions that needs to be addressed
Strategic
Tactica
l
AssetOptimization
Cost/ ServiceOptimization
FlowOptimization
OperationalEfficiency
LongTerm
MediumTerm
ShortTerm
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 eachcustomer?
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 deliverymilk run etc.? How much to produce and stock at each location?
How to manage exceptions?
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Supply Chain Network Design:
Our transformation approach
Long Term PlanningCorporate 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 PlanningDefined 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 PlanningDefined 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 quicklyWhat if analysis are done using simulations so as to see fill rate, out of stock, line utilization etc to finalize the best operating decisions
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Network OptimizationTypical Supply Chain Optimization
Needs
Strategy
Modeling
Inventory
Modeling
Transportation
Modeling Network Analysis
FacilityOpening/Closing
Asset Rationalization
Network Re-alignment
CapacityAugmentation
Network Structure
Safety StockOptimization
Cycle StockOptimization
Pre-build inventory
Inventory vs. Servicetradeoff
Postponementstrategy
Mode Selection
Shipment sizing and
scheduling
Load Optimization
Route Planning
What-if analysis
Demand Variability
Supply Variability
Production Variability
Lead Time Variability
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N t k D i A h D i P i i l 2
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Network Design Approach - Design Principle 2:
Responsive NeedsPeriodic vs. Continuous
Periodic
time
Effort
Cost
actual
optimal
LostOpportunit
y
Continuous
time
Effort
Cost
actual
optimal
Alignment PerspectiveHow Dynamic? How Responsive?
Longterm
Medium term
Shortterm
Longterm
Medium term
Shortterm
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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 ClusteringNot needed/Slightly
higher levelNeeded Needed
Geography
Clustering
Not needed/Slightly
higher levelNeeded Needed
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Supply Chain Network Optimization
Our Approach & Methodology
132014 ITC INFOTECH
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ProjectSpecification
& 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 gatheringCollect data
required
Assess data
available & its
hygiene
Develop time
estimates
Develop
model & create
database
formats
Detail
assumptionsmade
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
Makenecessary
changes if
needed
Perform
sensitivity
analysis
Develop
various what if
scenarios
Model the
different what
if scenarios
and analyze
results
Performcross
alternative
sensitivity
analysis
Detail
recommendati
ons from
different
scenarios
Using
scenario
results, focus
on top 1-2
scenarios
Determinethe best
alternative
along with
business
approval
Develop the
implementatio
n roadmap
1 2 3 4 5 6
Th Vi i i S i F k t th b li f
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The Visioning Scenario Framework sets the baseline for
optimization models to be created and run
UncertaintyIncreaseswith
DegreeofSp
eculation
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 RunA 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,
KeyVisioningD
efinitions
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Illustrative TimelinesNO (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+
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Model type
Parameters Simple model Detailed Model Large Scale Model
Product Complexity < 50 Products 50-300 products 300+ products, effortneeded for productclustering
Site Complexity < 20 sites 20-500 sites 500+ sites, effort needed forgeographical clustering
Demand Points
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Where have we done this before?
A few case Studies
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A leading Joss Sticks and Safety Matches manufacturer in IndiaNetwork Optimization
Client
Client is leading josssticks & safety matchesproduct manufacturerin India.
Client managesmarketing, sales anddistribution of theproducts across Indiaand production is
governed by thecontractmanufacturers whoplan for raw materialprocurement based onclients demand andsupply 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 (atmanufacturing 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
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A leading Agriculture Product business in IndiaSourcing/ Dispatch and Warehouse Space Optimization
Client
Client is leading
Agricultural Productsexporter and focuseson export & domestictrading of products likeSoya meal, Wheat,Shrimps and Prawns,Fruit Purees/Concentrates, IQF/Frozen Fruits, OrganicFruit Products, Coffeeetc.
One of the majoractivities of the clientincluded procurementof wheat and supplyingit to largest wheatflour" 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% reductionin 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 adefined 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.
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A leading FMCG company in IndiaNetwork optimization
Client
Client is one of theleading FMCGcompany in India andis growing at a very fastpace YoY. The growthof the business can beattributed by the factthat the overall saleshas increased by threetimes in last 5 years andnow it is >1 billion USDbusiness in India only.
Background and Challenges
Mature integrated planning system - demand planning, supply planning, production planningand 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 tofast 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 networkdecisions
Detail out the monthly planning and RCCP activities from which production and networkinputs 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.
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A leading consumer product company in IndiaNetwork optimization
Client
Client is leadingcompany in notebooksin India.
Client managesmarketing, sales anddistribution of the
products across Indiaand production isgoverned by thecontractmanufacturers whoplan for raw materialprocurement based onclients demand andsupply 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 putsmultiple 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 & refil ls each)
Forecast Accuracy: Apart from end user preference, the demand is largely influenced byexternal factors like school curricula, recommendations by individual schools
Multiple Supply Chains: Range of SKUs being sold needs a category specific view of supplychain.
Benefits
Production strategyLean 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, prebuild inventory strategy and transportation mode finalization.
Demand segmentation for vast product portfolio was done before optimization and decisionswere 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 forservicing to the customers.
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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 Chainhttp://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5
Looking AheadThe Big Opportunity for NetworkDesign - GST Introduction in India -
http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6
2014 ITC INFOTECH 24
Our Thought Leadership Publications
http://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimization8/12/2019 Supply Chain Network Optimization_Final
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2014 ITC INFOTECH 25
How we can help ESPB
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2013 ITC Infotech 26
Customer Value Chain and Challenges
RM 1Board
RM 2Papers
ContractManufacturers
Raw Material & PackagingMaterial Supplier
Contract Manufacturer Centralized Hubs Warehouse Service ProviderDemandRegion
Hub
WSP
Distributor
Traditional Retail
Rural
Modern TradeChallenges
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
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2014 ITC INFOTECH 27
Types of PlanningFrom ESPB context
Strategic Planning
Tactical Planning
OperationalPlanning
Decisions having high lead time and cost involved:Supplier or manufacturer capacity expansion
New facility opening/closingWarehouse space decisionsNew product category introductionSupply Chain design basis Pre & Post GST
Takes input from Strategic Planning decisions andpurpose is to design cost effective supply chain:
Addition of new facilities and accordingly highlevel networkProduction & Procurement frameworkProduction strategy & Pre build strategyDirect service vs. Hub & Spoke model
Works on more realistic input and thrives forsustenance of cost effectiveness:Material requirement planning & sourcingnetworkConverterSKU wise production planningFinished goods network till WSPsMode of transport between source anddestinationDegree of K1/K2/K3 servicingVehicle route optimization at WDs
Supply Chain Design tool
Optimization tool
Planning tool like SAP APObut many inputs required
from Optimization tool
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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 costChangeover 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
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2014 ITC INFOTECH 31
Approach
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2014 ITC INFOTECH 32
Timeline
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2014 ITC INFOTECH 33
Commercials
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2014 ITC INFOTECH 34
LLamasoft Supply Chain Guru
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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
http://www.cocacola.co.jp/http://www.syngenta.com/en/index.aspxhttp://carestreamhealth.com/http://www.pinnaclefoodscorp.com/index.htmlhttp://unilever.com/default.asphttp://www.chrysler.com/en/http://www.rockwellautomation.com/http://en.wikipedia.org/wiki/Image:JohnsonandJohnsonLogo.gifhttp://www.slb.com/index.asp?http://www.conocophillips.com/http://www.meadwestvaco.com/index.htmhttp://www.pepsico.com/http://www.generalmills.com/corporate/index.aspxhttp://www.transcom.mil/http://www.northropgrumman.com/index.html8/12/2019 Supply Chain Network Optimization_Final
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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
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id
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Rapid Response
Use the supply chain models toevaluate contingency plans
Balance production & sourcingagainst changes in demand
Prioritize demand duringsupply short-falls
Restructure when costassumptions fail
How should I respond to an
unforeseen event?
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S l Ch i G K S i Li
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Supply Chain GuruKey Service Lines
Supply ChainGuru
Network
Optimization
Inventory
Optimization
Transportation
Guru
Simulation
Safety Stock placement
Cycle stock optimization
Pre-build inventory
Service vs. inventory trade
offsPostponement strategies
Replenishment
frequencies
Strategy modelling
Network optimization
Operations Planning
Product planningPre build strategy
Mode selection
Vehicle routing
Shipment sizing &
schedulingAsset utilization
Load building
Demand variability
impacts
Supplier delays, quality
analysisRisk analysis
M i d T h l bl
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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
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Competition Comparison
Network
Optimization
Greenfield
Analysis
Inventory
Optimization
Strategic
Sourcing
Cost-to-
Serve
Vehicle
Routing
Program
MultipleScenarios
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 + xi2-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 ? ?
Comparison between Excel Solver & dedicated tools
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Excel Solver Supply Chain Guru
Spreadsheet based Add-in, LP/MIPformulation to be converted into datamatrices
Full fledged software tool, Input data to beentered in tables, intuitive to use
Size limit of up-to 200 variables No problem size Limit
Solves LP using Simplex and MILP using B&Bmethod
Uses Fico Xpress solver, that has highlyoptimized version of the simplex and branch
and bound algorithms
Each scenario/what-if analysis to be doneseparately
Multiple scenarios within a model
Generic approach to solve LP/MILP, smoothNLP and meta-heuristic (basic genetic
algorithm) based problems
Specializes in problem based approach:Network Optimization, Inventory Optimization
(using MILP) and Vehicle Routing (usingHeuristics)
Basic Monte - carlo simulation can be done Separate Simulation tool available fordetailed analysis
As model size increases it becomes complexto use this tool
Relatively easy to model large problems
Other spreadsheet based solvers such asExcel premium, open solver and Whats Best
(Lindo) also suffer from same drawbacks
Special constraints and business rules can beeasily incorporated into the model as
compared to in excel solver
Comparison between Excel Solver & dedicated tools
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Thank You
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Annexure-1
Network design gains importance because of changes happening in internal and external environment. Fiscalpolicy change is one of the important factor which some times compel companies to look away fromoperational efficiency. The illustrative case study explains how network design exercise helps in making decisionsrelated to strategic supply chain design in Pre/Post GST scenario. Here it has also been explained how it will helpin deciding the future course of actions and strategy to be adopted by the company (in long term & shortterm). Further it also explains the operational benefits that will come along in due course of time after networkdesign exercise.
GST introduction will be one of the strong compelling factor for companies to revisit their supply chain network inIndia. 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 suggestrealignment/closing/opening of facilities. Such type of transitions is seen to have long lead times (3 months to 3-4years depending on type of industry and type of transition).Companies must revisit their network for a horizonof 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
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g pp y
Network Design
Many things changes with fiscal policy. So forhaving competitive advantage companies
have to keep on revisiting this exercise so as toknow the changing roles of different facilitiesand changes in network
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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 structurechanges
Tax exemptions &denial changes
Role of differentfacility changes
Market benefitschanges
Supply chain mixchanges
Test case
India GST Introduction
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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)
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Test case Impact of GST
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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 caseImpact of GST
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B fit P & P t GST (N t k D i i )
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BenefitsPre & 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 warehousesopened.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
Benefits Future Strategy
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BenefitsFuture Strategy
Supply Chain Costs
Serviceability
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
Benefits Future Course of action
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BenefitsFuture Course of action
Contract renegotiation
Inter vs. Intra statesourcing options
Process redesign
Price renegotiation
Reliability & Qualityconsideration
Capacity expansion/closing
Capability realignment
Flexible manufacturing
Manufacturing processredesign
Role finalization
Improve forecastingprocess
Improve inventorymanagement
Trade off betweencustomer serviceability andcost associated
Improve Pricing &Promotion Strategy
Increase responsiveness byreducing number ofechelons
Warehouseopening/closing
Shared roles of warehousewith mfg unit
Maximum utilization ofmulti modal & multi-tier
Sourcing Manufacturing
DistributionOther Areas
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