Supply Chain Planning

1
Foundations of Global Supply Chain Management
Supply Chain Planning
Dinesh Garg Indian Institute of
Science Bangalore-India
September 27, 2003
2
Outline of the Talk

• What is Supply Chain Planning
• Supply Chain Planning Process
• Supply Chain Planning Decisions
• Software Tools
• GSCM at Digital Equipment Corporation
• Conclusions

3
What is Supply Chain Planning ?
Supply Chain is a set of activities (e.g.
purchasing, manufacturing, logistics,
distribution, marketing) that perform the
function of delivering value to end customer
Traditionally, all the business units along a
supply chain have their own objectives and these
are often conflicting
There is no single plan to carry out supply chain
activities
4
What is Supply Chain Planning ?
There is need for a mechanism through which the
execution of various business activities along a
supply chain can be planned in an integrated
fashion.
The supply chain planning is an effort to achieve
the primary goal of producing and distributing
the merchandise at the right quantity, to the
right locations, and at the right time with
minimum system wide cost in the presence of
conflicting goals of various business units
5
Dynamics of Material Flow
Supplier
Plant
Warehouse
Logistics
Retailer
6
Dynamics of Order Flow
Supplier
Plant
Warehouse
Logistics
Retailer
7
Supply Chain Planning Processes
Demand Forecasting
Demand Planning
Material Requirement Planning
Production Plan
Component Requirement
Retailer
Supplier
Plant
Warehouse
Logistics
Order Management
8
Supply Chain Planning Decisions
STRATEGIC
TACTICAL
OPERATIONAL
Procurement
Distribution
Manufacturing
Logistics
9
Supply Chain Planning Decisions
Supplier Selection Allocation of Suppliers to the Plants Location, Number, Capacity of Plants What Products to Produce Which Plants to Produce them Location, Number, Size of Warehouses Mode of Shipment Port Selection
Procurement Policy Warehouse Allocation Inventory Decisions Manufacturing Policy Customer Allocation Distribution Policy Vehicle Routing Fleet Size
Production Schedule Scheduling on Machines Workload Balancing Finished Goods Inventory Vehicle Routing
10
Software Packages
i2 Six A comprehensive solution suite for
spend/ production/ revenue/ logistics/
fulfillment optimization
Solution suites for network design
optimization/ manufacturing planning
scheduling/ global logistics management/ service
parts management
JD EDWARD The advanced planning software to
synchronize demand planning/ network
Optimization/ production distribution planning

11
Software Packages
ARIBA Spend Management It helps companies
driving down enterprise wide spend
mySAP SCM A complete supply chain planning
solution
iBann A complete solution suite from demand
collaboration to order management
12
Results

• Reduced inventory levels by 10-15

• Reduced markdown scrap by 10-15

Companies that utilized best-in-class SCM
solutions have

• Used resources10-20 more efficiently

• Improved delivery reliability by 95-95

• Reduced outages to 0-5

• Reduced cycle time by 10-20

• Reduced transportation cost by 10-15

13
Global Supply Chain Model (GSCM) _at_ Digital
Equipment Corporation
14
GSCM at Digital Equipment Corp.

• HISTORY

1957 Founded by Ken Olsen 1961 Started
Construction of first computer PDP-1 1978 Took
Over the majority of minicomputer market 1980
Second Largest Computer company in the
world 1990 DEC suddenly found its sales
faltering 1998 DEC was sold to Compaq 2002
Compaq was taken over by HP 2003 Digital Global
Soft is a well respected IT service company in
India. Earlier it was 51 subsidiary of DEC
15
GSCM at Digital Equipment Corp.

• DEC in Late 80s and Early 90s

• 1987
• DEC successfully supported a full range of
  products for over 20 years with 33 plants in 13
  countries including 30 distribution and repair
  centers
• 1989-1990
• A mismatch among capacity, infrastructure, and
  demands of new markets
• 1988 - 1993
• Digital reengineered the business processes
  throughout manufacturing and logistics.
• Corporate Logistics and Manufacturing initiated
  the development of GSCM for simultaneously
  balancing the conflicting attributes of
  manufacturing and logistics

16
GSCM at Digital Equipment Corp.

• Decision Variables for GSCM

• Number, location and capacity of plants

• What product to build at which plant

Manufacturing

• Significance location of tax heavens

• Number, location and capacity of DCs

Logistics

• Which DC should serve which customer

• Number and location of repair centers

Spare Parts

• Optimal design of spare parts

17
GSCM at Digital Equipment Corp.

• Which supplier to keep

Supplier Selection

• Which product to buy in a nation

• Which supplier should supply each plant

• Location availability of cheap labor

Miscellaneous

• Length of material pipeline in time

• Export regulations, duty rates

18
GSCM at Digital Equipment Corp.

• Objective Function for GSCM

• GSCM minimizes a weighted sum of total cost and
  activity days

• Total cost includes

1. Production Costs
2. Inventory Costs
3. Material Handling Costs
4. Taxes
5. Facility/Production Line Fixed Costs
6. Transportation Costs
7. Duty Costs

19
GSCM at Digital Equipment Corp.

• Constraints for GSCM

• Customer demand is met for each product, in each
  period, in each customer region

• Limits on number of facilities making each
  product

• Limit on number of facilities using each
  manufacturing style

• Fixed charges for products made by each facility

• Fixed charges for facilities making any product

• Fixed charges for manufacturing style used by
  each facility

• Limited production capacity, inventory storage,
  and shipping volume

20
GSCM at Digital Equipment Corp.

• Solution Approach

The problem of realistic size and detail, the
GSCM features constitute a formidable class of
large, difficult optimization problem
Users are invited to advise and assist the
solver by specifying with each constraint just
how much it would cost to violate the constraint
Elastic penalties help solver decide which
constraints are hard and which are soft
The solver uses branch and bound enumeration
21
GSCM at Digital Equipment Corp.

• Impact of GSCM on DEC (1990-1994)

• A reduction of 167 million in annual
  manufacturing cost

• A reduction of 200 million in annual logistics
  cost

• Number of plants was to be reduced from 33 to 12
  

• Five times more computers were manufactured

Arntzen, Brown, Harrison, and Trafton Global
Supply Chain Management at Digital Equipment
Corporation, Interfaces,1995, pp. 69-93
22
Conclusions

• Supply Chain Planning A critical factor in the
• success and profitability of a company

• Short Product Life Cycle Improper planning can
• take the company out of business

• Bad News Planning is an hard problem to
  formulate
• as well as solve

• Good News Plethora of Commercially available
• software for supply chain planning

23
Thank You
Over to Dr. Mathirajan .