Foundations of Global Supply Chain Management Supply Chain

Foundations of Global Supply Chain Management Supply Chain Planning Dinesh Garg Indian Institute of Science Bangalore-India September 27, 2003

Outline of the Talk q What is Supply Chain Planning q Supply Chain Planning Process q Supply Chain Planning Decisions q Software Tools q GSCM at Digital Equipment Corporation q Conclusions

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

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

Dynamics of Material Flow Supplier Plant Warehouse Logistics Retailer

Dynamics of Order Flow Supplier Plant Warehouse Logistics Retailer

Supply Chain Planning Processes Material Requirement Planning Component Requirement Supplier Demand Forecasting Demand Planning Production Plant Warehouse Logistics Order Management Retailer

Supply Chain Planning Decisions STRATEGIC TACTICAL OPERATIONAL Procurement Manufacturing Distribution Logistics

Supply Chain Planning Decisions Selection • Allocation of Suppliers to the Plants • Location, Number, Capacity of Plants • What Products to Produce • Which Plants to Produce them • Procurement Policy • Warehouse Allocation • Inventory Decisions • Manufacturing Policy • Customer Allocation • Distribution Policy • Production Schedule • Scheduling on Machines • Workload Balancing • Finished Goods Inventory • Supplier • Location, Number, Size of Warehouses • Mode of Shipment • Port Selection • Vehicle Routing • Fleet Size • Vehicle Routing

Software Packages i 2 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

Software Packages ARIBA Spend Management: It helps companies driving down enterprise wide spend my. SAP SCM: planning solution i. Bann: A complete supply chain A complete solution suite from demand collaboration to order management

Results Ø Reduced inventory levels by 10 -15% Ø Reduced markdown & scrap by 10 -15% Ø Used resources 10 -20% more efficiently Companies that utilized best-in-class Ø Improved delivery reliability by 95 -95% Ø Reduced outages to 0 -5% Ø Reduced cycle time by 10 -20% Ø Reduced transportation cost by 10 -15% SCM solutions have

Global Supply Chain Model (GSCM) @ Digital Equipment Corporation

GSCM at Digital Equipment Corp. ØHISTORY 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

GSCM at Digital Equipment Corp. ØDEC in Late 80 s and Early 90 s: 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: ØDigital reengineered the business processes throughout manufacturing and logistics. ØCorporate Logistics and Manufacturing initiated the development of GSCM for simultaneously balancing the conflicting attributes of manufacturing and logistics

GSCM at Digital Equipment Corp. Ø Decision Variables for GSCM Ø Number, location and capacity of plants Ø What product to build at which plant Manufacturing Ø Significance & location of tax heavens ØNumber, location and capacity of DCs Logistics Ø Which DC should serve which customer Ø Number and location of repair centers Spare Parts Ø Optimal design of spare parts

GSCM at Digital Equipment Corp. Ø Which supplier to keep Ø Which product to buy in a nation Supplier Selection Ø Which supplier should supply each plant Ø Location & availability of cheap labor Ø Length of material pipeline in time Ø Export regulations, duty rates Miscellaneous

GSCM at Digital Equipment Corp. Ø Objective Function for GSCM Ø GSCM minimizes a weighted sum of total cost and activity days Ø 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

GSCM at Digital Equipment Corp. Ø Constraints for GSCM Ø Customer demand is met for each product, in each period, in each customer region ØLimits on number of facilities making each product Ø Limit on number of facilities using each manufacturing style ØFixed charges for products made by each facility ØFixed charges for facilities making any product Ø Fixed charges for manufacturing style used by each facility Ø Limited production capacity, inventory storage, and shipping volume

GSCM at Digital Equipment Corp. Ø 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

GSCM at Digital Equipment Corp. Ø Impact of GSCM on DEC (1990 -1994) Ø A reduction of $167 million in annual manufacturing cost Ø A reduction of $200 million in annual logistics cost Ø Number of plants was to be reduced from 33 to 12 ØFive times more computers were manufactured Arntzen, Brown, Harrison, and Trafton “ Global Supply Chain Management at Digital Equipment Corporation”, Interfaces, 1995, pp. 69 -93

Conclusions Ø Supply Chain Planning: A critical factor in the success and profitability of a company Ø Short Product Life Cycle: Improper planning can take the company out of business Ø Bad News: Planning is an hard problem to formulate as well as solve Ø Good News: Plethora of Commercially available software for supply chain planning

Thank You Over to Dr. Mathirajan ….