Noce (ppt)

Software Applications in Supply Chain Management

Project Management and Implementation Implications

Guest Lecture - February 26, 2002

Dominic Noce [[email protected]]

2/26/2002 2

Formerly - Supply Chain Management Consultant PricewaterhouseCoopers

Manager, Production PlanningTraffic Manager Pet Incorporated (acquired by Pillsbury which was then recently acquired by General Mills)

My Background

2/26/2002 3

Agenda

Supply Chain Performance Improvement Project

Network Design / Optimization - typical project issues

Supply Chain Planning System Implementation

2/26/2002 4

Supply Chain Performance Improvement Project

Client: Fortune 200 Global Consumer Products Company (personal care products)

The client’s problem - Low Inventory Turnover

PeerCompanies Our Client

02468

Inventory Turnover Ratio (ITR)

2/26/2002 5

Supply Chain Performance Improvement ProjectExisting Client Issues

Long lead times - Manufacturing in few locations; 8 to 12 weeks delivery

Lack of supply chain management expertise

Explosive growth in some markets (Eastern Europe)

Lack of communications; data visibility; technology

Global ERP implementation would not impact the International Group for five years -- need improvements now

2/26/2002 6

Supply Chain Performance Improvement ProjectDiagnostic - Mexico and South Africa

Findings: ITR improvement to 6 turns was achievable in the near term

Improvement required a series of initiatives

Performance Measures

Training

Supply Demand Planning Process

Network Design

Inventory Management Methodology

ITR

6

3

Current Performance

2/26/2002 7

Supply Chain Performance Improvement ProjectProject results and realities

Most of the improvements implemented

Significant turnover improvement during the engagement

Delivered a plan and business case to achieve the rest– $100 Million inventory reduction– 60% Customer service improvement– Shorter lead times / improved flexibility

REALITY– International Group Leadership change (lost original sponsor)– Interim technology / process recommendation not approved– Project ended / International would wait for ERP to achieve additional improvements– Subsequent corporate restructuring eliminated International Group

2/26/2002 8

Supply Chain Network Design and OptimizationWhat to watch out for

Key project activities

Collect Data

Validate current network

Select optional scenarios

Model scenarios

Evaluate inventory impact

Sensitivity analysis

Present optimal andrecommended scenarios

2/26/2002 9


What’s wrong with this picture? - Consumer Packaged Goods

Demand

2/26/2002 10


You tell the model to select the best 6 distribution centers.

What happened?

CustomerIncumbent Network

Potential New Distribution Ctrs.

2/26/2002 11


Should we reduce the number of distribution centers.

What are the benefits?

Customer

Distribution Ctrs.

2/26/2002 12


What generally happens when we eliminate distribution centers?

Customer

Distribution Ctrs.

•Transportation expense rises•Handling costs - depends•Manufacturing costs - depends

•Inventory - decreases•Inventory carrying cost - decreases•Why?

2/26/2002 13


Network optimization tools don’t handle inventory very well.

Therefore, inventory is usually handled outside of the model.

As you reduce the number of distribution centers, the networks total required safety stock decreases.

Aggregation of demand reduces variability.

TotalInventory

# of Distribution Centers

Rule of Thumb - Square Root Law

Inventory Reduction result from network change

1 2 3 4 5 10 151 0% -29% -42% -50% -55% -68% -74%2 29% 0% -18% -29% -37% -55% -63%3 42% 18% 0% -13% -23% -45% -55%4 50% 29% 13% 0% -11% -37% -48%5 55% 37% 23% 11% 0% -29% -42%

10 68% 55% 45% 37% 29% 0% -18%15 74% 63% 55% 48% 42% 18% 0%E

xist

ing

# of

S

tock

ing

Poi

nts

New # of Stocking Points

2/26/2002 14

Supply Chain Planning System Implementation

Client: Global 100 Consumer Products Company (food and personal care products) North American Food Group - i2 Demand Planner / i2 Supply Planner

The client’s problem - Long, expensive and UNSUCCESSFUL system implementation

– Demand Planner - in place but not being used – Supply Planner - implementation halted

2/26/2002 15

Supply Chain Planning System Implementation Existing Client Issues

Poor forecast accuracy

System results not reasonable, therefore, ignored

Users were trained to navigate through the software, not how to forecast or manage the results

Client did not want to proceed with Supply Planner until demand planning issues were resolved

2/26/2002 16

Supply Chain Planning System Implementation Action Plan

Key project activities

Supply chain planning diagnostic

Supply chain synchronization processdesign

Demand planning pilot / process roll-out

Demand planning system integrationimprovements

Supply chain synchronization -Integrated pilot (DP and SCP)

Supply chain synchronization - Roll-outintegrated process - all businesses

2/26/2002 17

Supply Chain Planning System Implementation Results

Users trained on daily process and interpretation of outputs

2/26/2002 18


Improved forecasting algorithm - utilizes causal factors related to sales promotions (the largest driver of lift)

National Weekly Forecast Error

0%

10%

20%

30%

40%

50%

60%

70%

07-Nov 21-Nov 05-Dec 19-Dec 02-J an 16-J an 30-J an 13-Feb 27-Feb 13-Mar 27-Mar

Shipment Week

We

igh

ted

AB

S P

erc

en

t Er

ror

Percent Error Average

Before Changes After Changes

2/26/2002 19


Improved forecasting process

Diet Iced Tea

-

20.00

40.00

60.00

80.00

100.00

07-Nov 14-Nov 21-Nov 28-Nov 05-Dec 12-Dec 19-Dec 26-Dec 02-Jan 09-Jan

Week

Ca

ses

(000

)

Statistical Base Promotional Lift Sales

YTD / Current Consensus Last Year Marketing

2/26/2002 20


Documented new process design and business requirements

Activity: Generate StatisticalForecast

Timing: Weekly

Who: Demand Planning

What: Execute DemandPlanner system. Review and resolve exceptions.

To Whom: Sales, Marketing, Finance, Supply Planning

Inputs•Demand history•Sales events•VMI data•Marketing intelligence

Outputs•Statistical base forecast•Promotional lift forecast

Controls•Forecast error

Mechanisms•i2 Demand Planner•Data Warehouse

2/26/2002 21

Supply Chain Planning System Implementation Final result

Project stopped / sponsor wanted Manugistics

Corporate stopped all projects to select global Supply Chain solution (leaning toward SAP APO)

Major acquisition of another food company which had just implemented Manugistics Demand and Supply

Latest update – Still working out the politics

– Our client planning supply with spreadsheets (that we developed)

– DP is the better forecasting tool

– Manugistics is entrenched within the acquired company

2/26/2002 22

Software Applications in Supply Chain ManagementProject Management and Implementation Implications

Questions

Documents

Noce (ppt)