Logistics and Supply Chain:

Significance of Supply Chain Analytics:

A supply chain is the biggest asset that many companies possess—literally so, with significant
amounts of cash tied up in finished goods inventories, raw materials, and work-in-progress. But
how best to make that asset work harder? And more productively? The answer: supply chain
analytics.

And that, in short, is why supply chain analytics is so important. Because the insights that supply
chain analytics provides go right to the heart of how a business performs.

Not just from a financial point of view, in terms of increasing inventory turns and freeing up
cash. But right across the board: increased sales, better customer service, faster order fulfilment,
and more consistent—and reliable—supply chains.

In other words, an investment in supply chain analytics is an investment which touches nearly
every part of the business, and offers a long-term payback. So let’s take a look at exactly how
supply chain analytics delivers that payback.

Supply chain analytics: increasing sales.

To start with, all that material in the supply chain—finished goods inventories, raw materials,
and work-in-progress—is there for a single reason: producing products that customers want to
buy.

But is it the right inventory, raw materials, and work-in-progress? Fairly obviously, supply chain
analytics can highlight slow-moving or redundant stock, where forecasts have been wrong, and
estimates inaccurate.

SCOR: The supply chain operations reference model (SCOR) is a management tool used to
address, improve, and communicate supply chain management decisions within a company and
with suppliers and customers of a company (1). The model describes the business processes
required to satisfy a customer’s demands. It also helps to explain the processes along the entire
supply chain and provides a basis for how to improve those processes.

The SCOR model was developed by the supply chain council (http://www.supply-chain.org)
with the assistance of 70 of the world’s leading manufacturing companies. It has been described
as the “most promising model for supply chain strategic decision making (2).” The model
integrates business concepts of process re-engineering, benchmarking, and measurement into its
framework (2). This framework focuses on five areas of the supply chain: plan, source, make,
deliver, and return. These areas repeat again and again along the supply chain. The supply chain
council says this process spans from “the supplier’s supplier to the customer’s customer (3).”

Plan

Demand and supply planning and management are included in this first step. Elements include
balancing resources with requirements and determining communication along the entire chain.
The plan also includes determining business rules to improve and measure supply chain
efficiency. These business rules span inventory, transportation, assets, and regulatory
compliance, among others. The plan also aligns the supply chain plan with the financial plan of
the company (3).

Source

This step describes sourcing infrastructure and material acquisition. It describes how to manage
inventory, the supplier network, supplier agreements, and supplier performance. It discusses how
to handle supplier payments and when to receive, verify, and transfer product (3).

Make

Manufacturing and production are the emphasis of this step. Is the manufacturing process make-
to-order, make-to-stock, or engineer-to-order? The make step includes, production activities,
packaging, staging product, and releasing. It also includes managing the production network,
equipment and facilities, and transportation (3).

Deliver
Delivery includes order management, warehousing, and transportation. It also includes receiving
orders from customers and invoicing them once product has been received. This step involves
management of finished inventories, assets, transportation, product life cycles, and importing and
exporting requirements (3).

Return

Companies must be prepared to handle the return of containers, packaging, or defective product.
The return involves the management of business rules, return inventory, assets, transportation,
and regulatory requirements (3).

Benefits of Using the SCOR Model

The SCOR process can go into many levels of process detail to help a company analyze its
supply chain. It gives companies an idea of how advanced its supply chain is. The process helps
companies understand how the 5 steps repeat over and over again between suppliers, the
company, and customers. Each step is a link in the supply chain that is critical in getting a
product successfully along each level. The SCOR model has proven to benefit companies that
use it to identify supply chain problems. The model enables full leverage of capital investment,
creation of a supply chain road map, alignment of business functions, and an average of two to
six times return on investment (4).

Models of Supply Chain:

The way you manage your supply chain connection has a direct bearing on your business
performance in terms of product cost, working capital requirements, service perception by
customers, speed to market and other factors that influence your competitiveness in the
marketplace.

An organization's supply chain strategy is shaped by four key elements, including:

 The industry framework

 Your unique value proposition
  Internal supply chain processes
 Managerial focus

There are six main supply chain models that almost all businesses adopt. These can be grouped
into main categories:

 Supply chain models that are oriented to efficiency

 Supply chain models that are oriented to responsiveness

Supply chain models oriented to efficiency

In industries where the value proposition is oriented to metrics such as high relevance of asset
utilization, low cost, and total cost, the end-to-end efficiency is given high priority. Examples of
such industries include steel, cement, paper, low-cost fashion, and commodity manufacturing in
general. Three supply chain models fall under this category:

The ''efficient'' supply chain model

This model is best suited to industries that exist in highly competitive markets with several
producers, and customers who may not readily appreciate their different value propositions.
These are usually commoditized businesses where production is scheduled based on expected
sales for the length of the production cycle and competition is almost solely based on price. The
steel and cement industries fall under this category.

The key objective of the efficient supply chain model is that managers should focus on
maximizing end-to-end efficiency including high rates of asset utilization in a bid to lower costs.

The ''fast'' supply chain model

This supply chain model is best suited for companies that manufacture trendy products with short
lifecycles. Consumers are mostly concerned with how fast the manufacturer updates their
product portfolios to keep up with fashion trends.
Companies that adopt the fast supply chain model focus on shortening the time from idea to
market and maximizing the levels of forecast accuracy so as to reduce market mediation cost.

The ''continuous-flow'' model

This model is ideal for industries with high demand stability. The manufacturing processes in a
continuous-flow model are designed to generate a regular cadence of product and information
flow. This supply chain model is suited for mature industries with little variation in the customer
demand profile.

Competitive positioning for this model involves offering a continuous-replenishment system that
ensures high service levels and low inventory levels at customers' facilities.

Supply chains oriented to responsiveness

In industries that are characterized by high demand uncertainty and where market mediation
costs is the top priority, supply chain models that are oriented to responsiveness are usually
employed. These include:

The "agile" supply chain model

The agile supply chain model is ideal for companies that manufacture products under unique
specifications by their customers. This model is mostly used in industries characterized by
unpredictable demand. The model uses a make-to-order decoupling point that involves
manufacturing an item after receiving customers' purchase orders.

To ensure agility in the supply chain, managers focus on having the ability for excess capacity
and designing manufacturing processes that are capable of the smallest possible batches.

The "custom-configured" model

This model is ideal where products with multiple and potentially unlimited product
configurations are required. It features a high degree of correlation between asset cost and the
total cost. Product configurations is usually accomplished during the assembly process where
different product parts are assembled according to a customer's specifications.

The custom-configured model combines the continuous-flow supply chain model and an agile
supply chain where the processes before configuration of the product are managed under the
continuous-flow model while downstream processes operate as an agile supply chain.

The "flexible" supply chain model

This supply chain model is best suited for industries that are characterized by high demand peaks
followed by extended periods of low demand. This model is characterized by high adaptability
with capability to reconfigure internal manufacturing processes so as to meet specific customer
needs or solve customer problems.

For this supply chain model to be successful, the management should focus on ensuring ample
flexibility with emphasis on rapid response capability, having extra capacity of critical resources,
possessing adequate technical strengths, and developing a process flow that is quickly
reconfigurable.

Multiple supply chains or multifaceted supply chains?

Many organizations tend to prefer their supply chains to have the capabilities of the six supply
chain models. In practice, however, it's more intuitive to develop parallel supply chains within
the same organization with each model focused on serving a particular market segment or niche.

The Power of Digital Connections in Your Supply Chain/Logistics

In the not-too-distant past, digital supply chain visibility and collaboration solutions routinely
meant on-premise software solutions that operated in insulated company stacks. But such
solutions presented inherent challenges due to their limited visibility and difficulty when trying
to disseminate your data to all your trading partners quickly and cost effectively. A Supply Chain
Operating Network, or SCON, that involves a B2B infrastructure leveraging cloud technology
addresses this problem.
Descriptive Models in Supply Chain:

Descriptive Analytics

Descriptive Analytics are the stuff of dashboards. They tell you “what’s happenin’ now.”
Included in this category are such summary numbers as dollars currently invested in inventory,
current customer service level and fill rate, and average supplier lead times. These statistics are
useful for keeping track of your operations, especially when you track changes in them from
month to month. You will rely on them every day. They require accurate corporate databases,
processed statistically. This is the best type of supply chain management analysis that you can
use to check out the past performance of the supply chain. It will tell you what has happened, so
you can check if the results are matching with your plans and objectives. This method uses data
mining to gather raw information from the supply chain. Summarizing it and presenting it in a
compact form that will allow you get a clear image of the desired period in the past. With the
help of these supply chain analysis method and models, you will be able to take a closer look at
how a supply chain evolves and performs. Of course, you need to find the best method that
works in the case of your particular supply chain and not be afraid to adjust these methods

Predictive Analytics

Predictive Analytics most commonly manifest as forecasts of demand, often broken down by
product and location and sometimes also by customer. These statistics provide early warning so
you can gear up production, staffing and raw material procurement to satisfy demand. They also
provide predictions of the effect of changes in operating policies, e.g., what happens if we
increase our order quantity for Product X from 20 to 25 units? You might rely on Predictive
Analytics periodically, perhaps weekly or monthly, when you look up from what’s happening
now to see what will happen next. Predictive Analytics uses Descriptive Analytics as a
foundation but adds more capability. Predictive Analytics for demand forecasting requires
advanced statistical processing to detect and estimate such features of product demand as trend,
seasonality and regime change. Predictive Analytics for inventory management uses forecasts of
demand as inputs into models of the operation of inventory policies, which in turn provide
estimates of key performance metrics such as service levels, fill rates, and operating costs.

Prescriptive Analytics

Prescriptive Analytics are not about what is happening now, or what will happen next, but about
what you should do next, i.e., they recommend decisions aimed at maximizing inventory system
performance. You might rely on Prescriptive Analytics to best posture your entire inventory
policy. Prescriptive Analytics uses Predictive Analytics as a foundation then adds optimization
capability. For instance, Prescriptive Analytics software can automatically work out the best
choices for future values of Min’s and Max’s for thousands of inventory items. Here, “best”
might mean the values of Min and Max for each item that minimize operating cost (the sum of
holding, ordering, and shortage costs) while maintaining a 90% floor on item fill rate.

Supply Chain Analysis

These days, supply chains evolved in a great manner, as goods are being sent all over the globe
from various locations. As a business manager, it is important to know how to properly the
supply chain analysis is done. So you can adjust and change it according to the needs of your
business. While a supply chain may appear in an ideal shape at first, it may turn out to be not that
effective when it starts working. This is why you need to make efficient chain analysis, to spot
any leaks or problems before they trigger any issues for your company. You may also need to
perform periodic analysis.

What is Supply Chain Analysis?

Supply chain analysis is practically a tool you can use to check out the efficiency of your supply
chain and to spot any regional business opportunities. Every enterprise and business is a link of a
greater supply chain. This kind of analysis will allow you to see if there are any chances for you
to grow your business furthermore. With the help of chain analysis, you can see everything from
the availability and price of raw materials, to transportation and logistics, final products, demand,
and so on. In other words, the supply chain analysis won’t just help you understand how your
supply chain works, but will also make you spot those companies which, whom you can do
business with. For example, purchasing raw materials to create a new product or selling your
products to new businesses. And the final result being the expansion of your company.

Optimization Models in Supply Chain Management:

a world class supply chain network is essential for product to consistently flow from the point of
manufacture to the end user, regardless of the industry served. A well-designed supply chain
network can significantly improve margins, support expansion into new markets, enhance the
customer experience, and reduce operating costs. That applies to companies in all stages of
maturity:

Growth-oriented companies, companies in transition, and companies with stable business

operations can all benefit from distribution networks that are optimized to meet ever present
challenges and opportunities.

While there are more tools available than in the past to perform a network analysis, there remain
a number of important steps that must be taken. In this article, we present a blueprint for
successful supply chain optimization.

It Starts With a Network

A world class, transformational supply chain begins with a network that employs an all
encompassing view of the various business areas that manage delivery of products to customers.
The result is significant capital, operational, and tax savings while achieving optimal customer
satisfaction.

There are three critical elements to a world class supply chain network.

1. Strategy Before Network. With complex and competing business goals—such as

minimizing capital, improving operating margins, lowering the carbon footprint, and
enhancing the customer experience—a clear and concise supply chain strategy must be
fully aligned with your business strategy. Surprisingly, many companies begin reducing
network costs before they define how the network can be fully leveraged to support the
 business strategy. Uncertainty in product mix and volumes, expanding markets, margin
goals, dynamic customer service strategies, value-added opportunities, and product
returns and obsolescence are just some of the considerations that are often given minimal
consideration or overlooked entirely.
2. Focus on Total Profit Optimization. An increasing number of companies are asking the
question: “How can my supply chain be used to maximize profits?” This is a different
objective than traditional network optimization projects, which define the objective as
reducing costs and maintaining customer service levels. Currently, a combination of
operating scenarios are required that drive alternative network models. Then sensitivity
analysis is performed to evaluate impacts on how a company is working to improve the
parameters it uses to drive shareholder value. Some examples include: EBIDTA, capital
employed, working capital, operating expenses, tax effectiveness, margins, and cash-to-
cash conversion.
3. Project Versus Ongoing Process. World class supply chain networks evolve as sourcing
adapts to market changes, product line performance varies, and companies integrate. A
world class network incorporates an ongoing process that focuses on the flexibility of the
supply chain and ensures that objectives are met consistently and over a range of market
conditions while enhancing the key drivers of shareholder value.

Frequency and Types of Analyses

When an organization decides to evaluate its network, the internal leadership team must first
address the type of effort that should be performed. Strategic reviews of a distribution network
design often follow:

 a major business expansion, such as an acquisition;

 a change in business strategy, such as targeting new market opportunities; or
 the passage of time—a full review is typically needed every four to six years.

There are various methods of planning when it comes to guiding and positioning an organization.
Planning needs to cover predictable and unpredictable circumstances. Without sound plans, a
firm risks insufficiently anticipating problems and failing to implement solutions within the
required lead time. With plans, a company becomes active and not passive. A good framework
for planning is illustrated below.

Strategic Planning
Strategic planning is the process of deciding on the firm’s objectives. The goal of strategic
planning is to define the overall approach to stocking points, transportation, inventory
management, customer service, and information systems as well as the way they relate to provide
the maximum return on investment. It addresses such issues as organizational structures,
realignment of capacities, network planning, and impact on the environment.

Strategic planning is also a proactive tool designed to guard against predictable changes in
requirements in which timing can be anticipated. This type of planning is directed at forecasting
needs far enough in advance to efficiently allocate resources across the supply chain.

Granted, forecasting with a long planning horizon is a risky business, and distribution plans
based on such forecasts often prove unworkable. Nevertheless, the forecast is a supply chain’s
best available information concerning the future.
Tactical Planning
The tactical planning timeframe is one year to two years. Its primary purpose is to plan policies
and programs, as well as to set targets to accomplish the company’s long-term strategic
objectives. Tactical planning must anticipate the distribution center workload to prevent
overloading the primary resource—the workforce—during peak demand.

In addition, the tactical plan defines how to develop the resources needed to achieve the goals in
the strategic plan. For example, if a firm decides in its strategic plan that it requires a new
warehouse location to enhance customer satisfaction, then the tactical plan allocates resources
for the facility.

Tactical planning first attempts to provide timing for each step. Second, it considers major
issues, such as identifying specific skills required to accomplish the plan and the time needed for
each step. Third, specific capital requirements are identified for each step.

A fourth component is often the need for outside resources. In warehousing, this could mean
anything from engaging a consultant to hiring a construction company. Other types of tactical
planning include inventory policies, freight rate negotiation, cost reduction, productivity
improvements, and information system enhancements and additions.

Operational Planning
Operational planning implements tactical policies, plans, and programs within the framework of
the distribution system to devise the daily routine. An operational plan is where the rubber meets
the road. Ironically, it is where the planning process is most likely to fail because the majority of
the daily activities are routine. It becomes easy to lose sight of the planned goals.

The time horizon for operational planning can vary from daily to weekly to monthly. The major
components of operational planning are managing resources—such as labor and capital assets—
and measuring performance to aid operating efficiency and anticipate future operating issues. It
can involve tasks such as: distribution center workload scheduling; vehicle scheduling; freight
consolidation planning; implementing productivity improvements and cost reductions; and
operations expense budgeting.
Contingency Planning
One of the most overlooked yet meaningful tools for sound distribution management is
contingency planning. This is a defensive tool used to guard against failure resulting from
unpredictable changes in distribution operations.

Typically, contingency planning asks “what if” questions. For example: “What if a major
supplier is on strike” or “what if we had a recall” or “what if my primary supplier location is
destroyed due to a major weather event?” The prepared manager will look to contingency
planning to counter the potentially devastating impacts of the many emergency situations that
may directly involve distribution.

Contingency planning is the opposite of crisis management (“putting out fires”), which entails
developing a plan after something has occurred. The idea behind contingency planning is to
significantly reduce the lead time required to implement a plan of action. You do not wait for a
fire to start before installing sprinklers in the warehouse.

Events that can adversely affect a distribution system include:

 energy shortages,
 strikes,
 natural disasters,
 product recalls, and
 acts of violence.

Defining the Project Scope

Most business units within an organization are impacted by a network optimization. Therefore,
senior leadership must understand and support which direction the project will take in order for it
to be successful. This is where a clear definition of project scope becomes critical.

Prior to the project, the leadership team agrees to an overall business direction for the following
categories.
 1. Sales – What direction is the company taking to increase sales? (Global expansion,
acquisition, e-commerce, same store sales, etc.) Is marketing willing to reduce inventory
to see the impact to customer service levels?
2. Timeline – What is the desired recommendation date? This is tricky since it can result in
a push to meet a date versus providing the best overall recommendations.
3. Marketing – Are there changes in the business that will create a metamorphosis of
product distribution, such as Internet daily promotions vs. bi-weekly store level
promotions? Is marketing willing to reduce inventory if there is an impact to customer
service levels?
4. Production – Does production understand the impact of optimal manufacturing batches to
inventory to locations?
5. Finance – How critical is cash flow and the impacts to major investment?
6. IT – Are there systems in place to give the necessary information for the analysis to be
conducted properly? If not, agree to understanding the recommended approach from the
support teams.
7. Sacred Cows – Identify facilities, batch size, quality hold, product shortages, or other
constraints that will not change in the foreseeable future.
8. Sensitivity Metrics – This is a great time for the leadership team to identify metrics that
should be considered for sensitivity analysis. This can include but not be limited to fuel
costs, service time, planning horizon, and capital investment.
9. Internal vs. External – Who should perform this analysis? Senior leadership must decide
if it makes sense to perform the project in-house or to use an outside resource.

The distribution network planner must balance these conflicting needs to find the lowest cost
distribution network and inventory management technique that satisfies both the customer and
company objectives.
Exhibit 1 depicts the complexity that an end-to-end supply chain analysis should incorporate.
Network planning and optimization that is founded on fact-based, quantitative analysis should be
coupled with a review of processes, technology, and people that:

1. Ensures alignment with the overall business environment and growth strategy to
minimize costs and achieve desired service levels.
2. Utilizes the best analytical tool for the individual project objectives.
3. Analyzes alternative processes to maximize return-on investment while delivering
improved operational metrics for customer service, inventory control, and transportation
performance.
4. Models the design with the intent to be refreshed as inventory policies change;
transportation routes, cost, and service levels change; new products are launched; or
suppliers change.
Key Network Components
All distribution networks have these key components: stocking points, transportation, inventory
management, customer service, and ERP/MIS systems. Where and how these are located and
managed will be determined from a network optimization.

Stocking points can be distribution centers, consolidation points, terminals, ports, return centers,
or other points that receive goods from production plants or suppliers or are ship-to-demand
points. Their job is to receive, store, pick, and ship product. Any point through which produced
material flows to reach the customer is a stocking point.

Transportation includes movement from plant to warehouse, warehouse to warehouse, and

warehouse to customer.

Inventory management is the purchasing and control of products based on a market forecast.
Inventories are typically a buffer between vendors, production, and the customer to permit the
system to accommodate unexpected variations in demand or production. Inventory management
generally consists of forecasting requirements, procuring orders, and managing what is on hand.

Customer service is responsible for handling the key interactions between the company and its
customers in order to assure customer satisfaction. It involves handling customer inquiries and
order changes and managing other situations that occur in the customer/supplier relationship.
Customer service may also include the ordering process. In addition, it is responsible for
monitoring the goals management establishes for each product or market segment, (e.g., order
fill rate, delivery time).

Management information systems (MIS) or Enterprise Resource Planning systems (ERP) are
communication and/or control systems that support distribution. Their tasks range from taking
incoming orders to managing fleet operations. In short, MIS/ERP systems process data to
support the functions of the business. The types of systems most distribution operations make
use of are:

 forecasting,
 budgeting,
  inventory management,
 order processing and invoicing,
 customer relationship,
 omni-channel communications,
 warehouse management, and
 transportation management.

Launching a Strategic Network Analysis

Once the leadership team understands the components of its network, has defined the scope of a
project, and elects to do a network evaluation, the team responsible for the execution of the plan
should begin the primary data collection for the modeling effort. It is not necessary to have
everything prior to solicitations, but generally most reputable consultants will need the following
information:

 Growth by organizational tier–formularized

 Sourcing locations and flow by SKU
 Outbound Flow by SKU to customer
 Trans-shipment movements between facilities
 DC cost metrics
 Outbound distribution\fulfillment costs (fixed vs. variable)
 Facility characteristics (size, staff, lease/own, drawings, equipment within, capacities
 Fleet characteristics(Internal vs. external)
 Published costs metrics (case/cube/lb)
 General Ledger accounts for the businesses units involved
 SKU listing
 Inventory by SKU location
 Expected start date and requested completion no later than date (three or four required
alternatives)

Many times, this becomes a very challenging step. An organization must understand that
evaluations require significant resources that recognize a sense of urgency but also a need to
ensure that the information collected is accurate. There are costs and impacts to the accuracy of
the network analysis if the beginning information is in poor condition.

Establishing and Communicating - “What We Do”

When kicking off a network analysis, team members often forget that one of the most important
tasks is communication. Without communication, a plunge into the retrieval of information and
direction to perform a network analysis will surely experience gaps and intensive rework.

The second task is to re-establish the scope of the project, taking into account any changes that
have occurred to that scope. A third is to establish an executive strategies workshop. This should
be a formal meeting in which the business leaders agree to the primary drivers and direction of
the company.

Next, the team must document the existing network. It is critical to collect information from all
sites being considered because the study could result in recommendations for closing, moving, or
expanding them. Visiting those sites can be insightful. The following information needs to be
collected for each site:

 space utilization,
 layout and equipment,
 warehouse operating procedures,
 staffing levels,
 receiving and shipping volumes,
 building characteristics,
 access to location,
 annual operating cost,
 inventory, and
 performance reporting.

In addition to facility information, the following information should be collected for the
transportation system:

 freight classes and discounts,

  transportation operating procedures,
 delivery requirements, and
 replenishment weight/cube.

At the end of the data collection, a project team meeting is held to summarize the data collected
and assess each site. This assessment will give the team insight into the operation and costs of
the existing network. In addition, it will reveal information unknown to management that will be
useful in developing alternatives.

Ideally, this meeting provides a “sanity check” to ensure that the information captured is
representative of what will be modeled. Then the project team can provide a recommended
aggregated plan to be reviewed by the entire team. This process of identifying assumptions will
aid in information gathering and uncover any holes. Once everything is presented, the team can
move forward with the analysis.

From the executive strategy session, an understanding of marketing strategies and sales forecasts
should be applied to project the future state of the business. After all parties have conducted a
view, this establishes the two baseline states for modeling purposes: current and projected.

Modeling the Status Quo

The steps just taken provide the information the team requires to determine the network
operating requirements, the status quo. This involves examining the baseline cost and the service
and performance characteristics of the current network. Key elements to be identified include:

 current facility locations, capacity, throughput, cost, performance, flexibility,

effectiveness, and efficiency;
 inbound transportation costs from plants and suppliers;
 outbound transportation costs to customers and intra-company facilities;
 current inventory levels, in-stock percentages, and inventory carrying costs;
 delivery time to customers;
 current supply points for vendors and production facilities; and
 distribution of customer demand.
This information is developed into a model baseline from which alternative scenarios can be
compared. Without the baseline, it is difficult to evaluate the costs and benefits of each
alternative versus the status quo.

It is important to analyze and validate baseline information against information available from
alternate and independent sources within the company. It is not uncommon for databases or
database inquiries to yield incomplete results that would potentially skew the analysis.

Cost information should be compared against source documents, as well as the general ledger or
profit-and-loss statements. Volume information from production or distribution should be
compared with volume information from purchasing or sales. Graphical representations of
network flows are useful to identify erroneous information that could be in the data. Stakeholders
who would be affected by any changes in the distribution network will also want to review the
baseline information to make sure that it represents the world as they know it.

Developing Alternatives
Once the data has been collected and validated, the next step is to develop alternatives and
operating methods. The inputs used to determine alternatives are site visits, future requirements,
database analyses, and customer service surveys. The methods used for creation of the
alternatives will vary. The main factors influencing site location are listed in Exhibit 2.
Modeling the Annual Operating Cost
The real value in network planning is the knowledge gained from understanding the workings of
a company’s distribution system and applying imagination to the model in ways that will really
benefit the distribution network. Facility alternatives can be close in cost, but range widely in
other factors, such as service level capabilities. That makes it critical to have other criteria by
which to judge the modeled costs, such as:

1. Central administrative costs and order-processing costs.

2. Cycle and safety stock carrying costs.
3. Customer order-size effects.
4. Inter-warehouse transfer cost.
5. Negotiated reduction in warehousing and delivery costs.
There are several different approaches to network modeling (see sidebar below “Network
Modeling”).

Regardless of which modeling method is used, the overall approach should closely resemble the
following steps:

 Validate the existing network. Run a computer model to simulate the existing cost.
Compare this cost with actual cost.
 Run alternative networks. Once the model is validated, run alternative networks for
present volumes and forecasted volumes.
 Summarize runs and rank. Create a table to summarize costs by alternative. The table
should list individual distribution center costs.
 Summarize all annual costs and service factors. Create a table that shows, by alternative,
all cost and service factors.
 Perform a sensitivity analysis. This is based on the idea of setting up runs that fluctuate
some components of the data. One might be a cost that is uncertain or has potential to
change. By modifying this one parameter, the effect on the run can be determined.
 Determine all investment costs associated with each alternative. Look, for instance, at the
costs of new warehouse equipment required to save space, expansion, and construction
costs, or at any building modifications such as adding dock doors.

Determining Cost: The Economic Analysis

An economic analysis compares the benefits of a recommended network plan with the
implementation cost. To perform this analysis, determine all the investments and savings
associated with each alternative.

Cost considerations include:

 Personnel relocation
 Stock relocation (movement cost, model should have shown quantity)
 Computer relocation
 Taxes
 Equipment relocation
  Building components
 Inventory considerations
 Operating costs
 Severance
 Existing contracts
 Sale of existing facilities
 MHE or automation considerations
 Change in management

The result of this evaluation should be the ROI of each alternative compared to the initial
baseline of the status quo. Once you have the economic analysis, perform a sensitivity analysis
that fluctuates various costs and savings to see which alternatives are the most stable.

It is also a best practice to perform a qualitative analysis that looks at risk of factors such as
customer service, ease of implementation, cultural considerations, profitability, and cash impact.
These should be rated and presented as a topic for discussion.

Finally, once a conclusion has been reached, draw up a time-phased implementation schedule
that lists the major steps involved in transferring the distribution network from the existing
system to the future system.

Success is Not Simple: It is a Process

The output of a supply chain optimization project is a new plan for the network. A good supply
chain network plan relies on a defined set of requirements. It should not be composed simply of
ideas, thoughts, or possibilities. Possible requirements should be defined, analyzed, evaluated,
and validated. They should result in the development of a specific set of strategic requirements.
Normally, the planning horizon for such a plan is stated in years, with a five year plan being the
most typical.

An effective network plan is also action-oriented and time-phased. Where possible, the plan
should set forth very specific actions needed to meet requirements, rather than simply state the
alternative actions available. Future sales volumes, inventory levels, transportation costs, and
warehousing costs all come into play.
To get company leadership’s support for the plan, a detailed written document and maps should
accompany the recommended action to describe and illustrate how the network will be
implemented and how it will operate. The result should illustrate which strategy is best for the
company because it maximizes profits to stakeholders.

If the plan answers the questions senior leadership team requested at the outset, and your
company is prepared for this to become a process and not a project, you may be on your way to
optimization success. And, the next time you admire a company’s seamless, cost-effective and
customer responsive supply chain, think of the detailed network analysis behind it.

Off the shelf Modeling System:

Artificial Intelligence is an intelligence displayed by machines, in which, learning and action-

based capabilities mimic autonomy rather than process-oriented intelligence.

The simplest way to understand the potential application of AI is to clearly define it’s potential
value-added.

Introduced by Gartner Analyst, Noha Tohamy, at Gartner’s Supply Chain Executive Conference,
AI was broken down into two categories:

 “Augmentation: AI, which assists humans with their day-to-day tasks, personally or
commercially without having complete control of the output. Such Artificial Intelligence
is used in Virtual Assistant, Data analysis, software solutions; where they are mainly used
to reduce errors due to human bias.
 Automation: AI, which works completely autonomously in any field without the need for
any human intervention. For example, robots performing key process steps in
manufacturing plants” (arkieva.com 2017).

11 Supply Chain Trends changing your Business in 2019. - Free [eBook]

Take the supply chain trends of 2019 head-on, and leverage their existence to your benefit,
because they're here to…kodiakrating.com

Enhancing Productivity and Profits.

Understanding these two categories of AI capacities is important for future implementation of AI
into business work tools. In particular, the application of AI into Supply Chain related-tasks
holds high potential for boosting top-line and bottom-line value.

Previous studies, by the Tungsten Network, have suggested that valuable time and money is
wasted on trivial supply chain related-tasks that are conducted operationally by humans.

“Businesses estimate they spend on average per week around 55 hours doing manual, paper-
based processes and checks; 39 hours chasing invoice exceptions, discrepancies and errors and
23 hours responding to supplier inquiries” (mhlnews.com 2017).

This loss- has been equated to around 6500 hours, during the work year, that businesses are
throwing away by processing papers, fixing purchase orders and replying to suppliers.

Imagine if a business could automate such tasks that are (more or less) ‘wasting time’.

Well… There’s not really any need to imagine anymore. Companies, even at that enterprise
level, have already begun the implementation of AI tech into every day supply chain tasks. Tech
vendors such as IBM, Google, and Amazon have released products that utilize artificial
intelligence. Machine Learning (ML) for Supply Chain Planning (SCP)

Supply chain planning is a crucial activity within SCM strategy. Having intelligent work tools
for building concrete plans is a must in today’s business world.

ML, applied within SCP could help with forecasting within inventory, demand and supply. If
applied correctly through SCM work tools, ML could revolutionize the agility and optimization
of supply chain decision-making.

By utilizing ML technology, SCM professionals — responsible for SCP — would be giving best

possible scenarios based upon intelligent algorithms and machine-to-machine analysis of big
data sets. This kind of capability could optimize the delivery of goods while balancing supply
and demand, and wouldn’t require human analysis, but rather action setting for parameters of
success. Machine Learning for Warehouse Management
Taking a closer look at the domain of SCP, its success is heavily reliant on proper warehouse and
inventory-based management. Regardless of demand forecasting, supply flaws (overstocking or
under stocking) can be a disaster for just about any consumer-based company/retailer.

“A forecasting engine with machine learning, just keeps looking to see which combinations of
algorithms and data streams have the most predictive power for the different forecasting
hierarchies” (forbes.com 2017). ML provides an endless loop of forecasting, which bears a
constantly self-improving output. This kind of capabilities could reshape warehouse management
as we know today. ML and Predictive Analytics for Supplier Selection and Supplier Relationship
Management (SRM)

Supplier selection and sourcing from the right suppliers is an increasing concern for enhancing
supply chain sustainability, CSR and supply chain ethics. Supplier related risks have become the
ball and chain for globally visible brands. One slip-up in the operations of a supplier body, and
bad PR is heading right towards your company.

But, what if you had the best possible scenario for supplier selection and risk management,
during every single supplier interaction?

Data sets, generated from SRM actions, such as supplier assessments, audits, and credit scoring
provide an important basis for further decisions regarding a supplier.

With the help of Machine Learning and intelligible algorithms, this (otherwise) passive data
gathering could be made active.

Supplier selection would be more predictive and intelligible than ever before; creating a platform
for success from the very first collaborations. All of this information would be easily available
for human inspections but generated through machine-to-machine automation; providing
multiple ‘best supplier scenarios’ based on whatever parameters, in which, the user desires.

Calibration Model and Performance Gap:

Calibration
 After data have been modeled, using logistic regression, as 'best' as one thinks possible,
one is often interested in the model's calibration. Calibration "evaluates the degree of
correspondence between the estimated probabilities of mortality produced by a model
and the actual mortality experience of patients" (see Lemeshow & Gall (1994) ) and can
be tested using goodness-of-fit statistics.

Goodness-of-Fit Statistics

Goodness-of-fit statistics examine the difference between the observed frequency and the
expected frequency for groups of patients. The statistic can be used to determine if the
model provides a good fit for the data. If the P-value is large, then the model is well
calibrated and fits the data well; if the P-value is small (smaller than alpha), then the
model is not well calibrated. One such statistic is the Hosmer-Lemeshow goodness-of-fit
statistic. (see Hosmer & Lemeshow (1989)) .

Hosmer-Lemeshow Goodness-of-Fit Statistic

For the Hosmer-Lemeshow goodness-of-fit statistic, the patients are usually grouped into
"deciles of risk" by first using the logistic model to calculate each patient's predicted probability
of death and then ranking the patients according to this risk probability. The patients are then
divided into 10 groups, with each group containing approximately 10% of the total number of
patients.

A modified version of the Hosmer-Lemeshow goodness-of fit statisticis described by Phibbs,

Romano, Luft, Brown, and Radany ( Phibbs et al. (1992) ). If the outcome of interest is death, or
another rare event, then using the "deciles-of-risk" method for the Hosmer-Lemeshow statistic
will result in uneven numbers of expected deaths in the 10 groups. The alternative is to rank the
patients according to their risk probability and then to divide them into (usually) 10 groups so
that each group has the same number of expected deaths.

The modified version of the Hosmer-Lemeshow goodness-of-fit statistic can then be calculated
as described in Hosmer and Lemeshow ( Hosmer & Lemeshow (1989) ),and compared to a Chi-
square distribution with g-2 degrees of freedom, where g is the number of groups.
An adjustment can be done if a systematic bias is present in the deviation from the logistic
model. Often, the data will show a U-trend when the predicted probability is plotted against the
predicted over observed probability. This systematic bias can sometimes be reduced by a cubic
transformation on the fit of each set of logistic probability estimates. There are several examples
of clinical decision support tools that are based on classifiers learned from data, such as the
Framingham Cardiovascular Disease Risk Calculator.1 The quality of a classifier depends on its
discriminatory power (how well it can distinguish between two or more classes) and on its
calibration (how close the system output is to the “true” probability of an event). Historically, the
question of assessing a model’s discrimination has received much more research interest than the
question of assessing its calibration.2–4 This imbalance can be traced, at least in part, to the
difficulty of defining exactly what constitutes a true probability in the context of predictive
models.

The well-known Hosmer-Lemeshow (HL) goodness-of-fit statistic for logistic regression (LR)
models5 sidesteps this question by measuring to what extend a model’s prediction for a case
agrees with the relative frequency in the vicinity of the case. This only indirectly addresses the
main issue, because “vicinity of the case” is defined by proximity in terms of model output (HL-
H) or in terms of which decile of risk a particular case falls into (HL-C), and not in terms of
proximity in input space (i.e., how similar two cases are without respect to a particular model). A
diagnostic output of 0.2 obtained from a model that is considered well-calibrated in the HL sense
does not mean that two out of ten similar cases are diseased, but instead that two out of ten cases
with similar model output are diseased.

This seemingly minor but important distinction between similarity in input space and similarity
in model output space is hardly news to researchers in the field of biomedical informatics.
However, one cannot assume that the general public is aware of this distinction. The reason why
such a distinction is now relevant to everyone is that recent years have brought a proliferation of
self-help websites that calculate risk estimates for a variety of diseases. Although several of these
websites are endorsed by reputable institutions, they nevertheless vary quite widely in their risk
assessment of the same individual. From a purely technical point of view based on HL, these
models may all be well calibrated. However, they may not produce estimates that can be
considered calibrated from a common sense perspective. As an example, it cannot easily be
explained why, when predicting the risk of coronary heart disease, the personal risk score of 17%
obtained from one website (American Heart Association) and the personal risk score of “greater
than 30%” obtained from another website (NIH’s National Heart, Lung, and Blood Institute) can
both be well-calibrated. In this paper, we seek to ameliorate this situation by presenting a method
that modifies LR outputs by considering similarity in input space. This modified output is an
approximation of the true probability distribution in input space, and can be considered a hybrid
of local non-parametric regression and LR. Using synthetic data for which the true probability
distribution is known, we show that our method gives probability estimates that are closer to the
true probabilities than the original, unaltered LR outputs. Recent developments in logistics have
led to the use of third-party-logistics firms in different industries. However, outsourcing the
logistics operation to a 3PL requires close monitoring of the logistic system performance, and
also of the service level effectively delivered to customers. Issues related to the concept,
definition and design of a quantitative system to measure such performance are discussed in this
paper, and the experience of building a performance evaluation system is also described. The
system was designed from the point of view of a 4PL firm contracted by a chemical company in
Brazil to contract and monitor the work of a 3PL. The authors have developed a method to
calibrate an S-curve used to evaluate the performance indicators. In the application case, the
design of a set of indicators to evaluate the services of this 4PL firm in the Chemical industry in
Brazil is described. The calibration method was applied to help the evaluation process by the
4PL firm in practice, and showed a great potential for application in the whole segment of
logistics operators and companies.

Models of Forecasting:

An approach to forecasting that is based on intuitive or judgmental evaluation. It is used

generally when data are scarce, not available, or no longer relevant. Common types of qualitative
techniques include: personal insight, sales force estimates, panel consensus, market research,
visionary forecasting, and the Delphi method. Examples include developing long-range
projections and new product introduction.

Quantitative forecasting technique

An approach to forecasting where historical demand data is used to project future demand.
Extrinsic and intrinsic techniques are typically used.

p. Graphical forecasting methods

The use of visual information to predict sales patterns typically involves plotting information in a
graphical form. It is relatively easy to convert a spreadsheet into a graph that conveys the
information visually. Trends and patterns of data are easier to spot, and extrapolation of previous
demand can be used to predict future demands.

Trend forecasting models

Methods for forecasting sales data when a definite upward or downward pattern exists. Models
include double exponential smoothing, regression, and triple smoothing. Not many can look into
the crystal ball and predict the future. But if one wants to manufacture right and sell all the
products, the key is to forecast accurately. Thanks to global competition, demand is no longer
certain for any business. Gone are the days of certainty, long product life cycles and loyal
consumers. The overall environment today is dynamic. In such a situation, firms increasingly
realise that understanding demand, planning demand and linking supply with demand pays. At
the same time, if the supply chain forecast is wrong, the ramifications will be felt throughout the
entire process.

This is why forecasting has assumed a significant importance, and more and more managers look
to forecasting to reduce costs. Despite significant developments in the area of supply chain
forecasting as well as IT, most organisations do a poor job of incorporating demand uncertainty
into their production planning processes. Most often this is blamed on forecasting without
realising the importance of selecting the appropriate forecasting technique. Managers need to
identify first the firm-level variables, which cause variability in the supply chain.

Capacity Planning in Supply Chain:

Multi-plant facilities across the globe engage in capacity planning to tighten the links in their
end-to-end supply chain. What lesson can small businesses learn from these manufacturing
monoliths? Capacity planning assists companies in determining the production required to meet
ever-changing demands for their products. The result: outperforming competitors.

In this era, companies can now manipulate large amounts of data to model, analyze, and optimize
their operations. The level of manipulation varies from large-scale network optimization all the
way to SKU-level inventory and transportation analysis. Advantages don't stop here. Outlined
below are several other ways capacity planning optimizes a company’s supply chain.

Advantage of Scale

Too many companies fall into the trap of focusing solely on production or inventory costs. Such
a myopic view prevents them from understanding the “hidden” costs in the entire end-to-end
supply chain. These factors include transportation costs between plants, storage of inventory
within each plant, and taxes. With capacity planning software, top performing multi-plant
facilities identify the tradeoffs of varying cost elements to make optimized decisions across
entire supply chains.

Adaptability

Considering capacity planning in relevance to your supply chain becomes especially applicable
for facilities that share materials or that work on projects with other plants. Understanding the
production “footprint” (the plant that manufactures each product and in what quantities) helps
strategic decision manufacturers optimize their supply chain. In line with the business cycle,
demand for products shifts over time to new regions or in different quantities. The production
footprint needs to adapt to remain profitable and in sync.

Make vs. Buy

Production and manufacturing companies put a significant amount of thought and strategy into
deciding how to make and distribute their projects. A key component of supply chain
optimization is whether or not at any point a company will need to outsource production.
Knowing your capacity enables you to see when outsourcing can help your productivity and
profitability. Companies remain competitive when their supply chain capabilities are directly in
line with their enterprise strategy. Modern capacity planning methods and supply chain software
make it possible for manufacturers to remain in a strong market position.

Models for Order Management:

Order Management Models allude to the process of shipping goods or items to your trading
partner. Here are some of the most prevalent:

Direct to Store (DTS) – In the case of a Direct to Store OMM, orders are accepted for shipment
to the trading partners’ stores or retail locations

Direct to Distribution Center (DTDC) – In the case of a Direct to DC OMM, orders are accepted
for shipment directly to the trading partners’ distribution centers or warehouses

Direct to Consumer (DTC) – In a case of a Direct to Consumer OMM, orders are accepted for
shipment directly to the trading partners’ customers

Cross-Dock – For a Cross-Dock OMM, orders are accepted for shipment to the trading partners’
distribution centers, however have specific labeling

What is Necessary With Each OMM?

Direct to Store and Direct to Distribution Center OMMs have perhaps the clearest requirements –
orders typically list one shipping address.

With Direct to Consumer shipments, there may be a large amount of requirements for
transporting – custom packing slips and other documents, custom labeling and a large quantity of
unique data flows both inbound and outbound. There is also typically a need to support multiple
delivery and shipping methods – there are oftentimes multiple options. Consumer shipments are
many times because of website order sales but could also be walk-in special orders.

With Cross-Dock shipments, the ordinary requirements concern consolidation of shipments (in
other words, Advanced Shipping Notices – ASNs). The shipments are typically consolidated by
purchase order and by distribution center but could be more or less complicated. In addition, it’s
possible to face needing to use cross-dock labels on the shipping cartons. In this situation, a
cross-dock label includes the warehouse specifications as well as the “mark-for” store
information. By including these details, the trading partner is able to easily and intelligently split
the shipment by store and combine it with shipments going to each store from other suppliers.

What are Other Notable OMMs?

Blanket/Release Orders – Blanket/Release orders typically tend to resemble direct-to-store or

direct-to-distribution center orders. In this situation, a blanket order is received showing the
trading partners’ commitment to buy over a given period, usually a year. The blanket order is
most useful as a forecast of demand, rather than a specific reflection of demand. Each release
order, however, functions as a stand-alone order for shipment to a store or warehouse. The
impact to you, the customer, is usually one of

information exchange. There are numerous situations where the blanket and release numbers
must be present on documents with information about the shipment and then sent back on other
EDI documents.

So Why Does This Matter?

You may be wondering why it matters about what OMMs you engage in with your trading
partners. “Wouldn’t that be my EDI software provider’s duty to figure out?” The undeniable
response is “No!” Your EDI provider needs to be 100% aware of the details of your business
scenarios in the EDI spectrum. This information is used to make sure your EDI flow is being
tested with all necessary scenarios with your company’s internal team. If incomplete information
is provided during testing and implementation, you risk incompletely testing your solution and
enduring many unpleasant surprises after moving to production. A little preparation and research
up-front goes a long way.

Inventory Management:
Inventory management systems track goods through the entire supply chain or the portion of it a
business operates in. That covers everything from production to retail, warehousing to shipping,
and all the movements of stock and parts between.

Practically, it means a business can see all the small moving parts of its operations, allowing it to
make better decisions and investments. Different inventory managers focus on different parts of
the supply chain—though small businesses are usually more interested in the ordering and sales
end of the chain.

Because of their wide variation in scope, inventory management systems also vary widely in
cost. Software Advice’s FrontRunners report for inventory management gives you an idea of
what that price/features mix looks like.

Inventory management software features

Let’s start at the beginning and work our way toward the point of sale.

Again, the software you choose to manage your inventory could offer any, or all, of these
features, depending on your needs and budget. Each industry has its unique requirements, but all
inventory management systems will likely include:

 Barcoding
 Reporting tools
 Inventory forecasting
 Inventory alerts
 Accounting tools or tie-ins

Manufacturing inventory management

The manufacturing process revolves around work orders and bills of materials. Inventory
management at this point in the process is all about tying work orders and bills to your existing
materials. That means you’ll find:

 Materials tracking
  Inventory levels for parts and finish products
 Automatic reordering
 Integrations with ERP or maintenance software

By tracking the work you’re doing and the materials required to produce that work, you, well,
make money. It’s close to impossible to run a profitable manufacturing business without some
sort of inventory management system in place.

The only real question is how much of the process you want to track. Do you need to automate
reordering, tie into a warehouse management system, or track uptime for your machinery? Those
are all possible extensions within the manufacturing inventory management system.

Warehouse inventory management

Managing a warehouse is a different beast and requires different system features. Warehouses
are most interested in where an item is. Of course, having the right number on hand is important,
but the real value in inventory management in a warehouse setting is being able to find
something quickly.

You’ll commonly see features including:

 Advanced barcode systems supporting QR and other standards

 Multiple location support
 Shelf and bin tracking systems
 Order picking support

From there, you can order more inventory and pick your existing inventory for customer orders.

One of the major benefits of software-based warehouse management is that it frees you from the
confines of your human mind.

Here’s what I mean by that:

You think the letter paper and legal paper should be next to each other in the warehouse
because—well, obviously they should be. You want paper, so you head to aisle Z4. Voila! Paper.
What you don’t realize is that letter paper is often ordered at the same time as staples. Letter
paper is almost never ordered at the same time as legal paper.

In reality, you should be stocking the legal paper over in Z6, and staples and letter paper together
in Z4.

This makes it harder to conceptualize the warehouse, but it makes picking stock easier and faster.
Warehouse inventory management software can help you uncover those types of issues.

You can also set restocking levels so you’re never caught without a popular item. Actually, it’s
more likely that a good system will keep you from being caught without an unpopular item—the
one you don’t notice is out or low until a huge order comes in, and it’s too late.

Procurement and Sourcing:

Procurement is the full process of sourcing and then using suppliers to gather all the materials
you need for your products, services, and indirect costs. It involves placing orders with each
supplier, receiving the goods, and paying for them. Procurement is an end-to-end process that
covers everything from planning purchases to negotiating pricing, making the purchases, to
handling inventory control and storage.

Procurement is the process of placing purchase orders with each of the suppliers, getting order
confirmation, following up with suppliers until materials are delivered, and then ensuring the
materials are paid for. Procurement starts overall supply chain because once the materials you
need for manufacturing are in place, you can begin making the products you sell to others.

Without a solid procurement strategy in place, there’s always a chance that operations will have
to halt. If you can’t get access to the materials you need to make a product, then you must stop
production until a suitable alternative is developed.
What is Sourcing?

Sourcing is the stage that comes before any purchases are made and can be considered a
subsection of the procurement department. Before you can procure materials from your
suppliers, you must first find and vet those suppliers. When you have an effective strategic
sourcing process in place, you’ll find reliable, affordable, and quality suppliers to supply the
goods you need. Good work here makes the procurement process more streamlined and efficient.

Sourcing is about finding the balance between the quality of raw materials and the affordability.
The less you can spend on materials, the more profit your business can earn. But, if you are too
cheap and buy shoddy materials, your resulting product is of lesser quality. It is important to
retain standards of quality because your customers want quality, too!

Sourcing is a balancing act. It is the process of requesting quotes for new products, obtaining
vendor information and uploading into your procurement software, determining the lead time,
pricing, minimum order quantities, and so on. Generally, this is done one time for each supplier,
with the exception of updating pricing information. However, because it’s important to have a
backup supplier or two in case one is not able to meet your needs for any reason, sourcing
departments are always busy. With global sourcing you may find a more expensive supplier may
be more reliable and able to deal with larger volumes than your preferred cheaper alternative. Or
you may need to identify alternative suppliers due to supply chain risks.

Before sourcing can begin, you must assess your purchasing needs, map out a plan, conduct
market research, and identify potential suppliers. After all this is completed, you’ll then evaluate
the suppliers, and then choose the most suitable supplier for the need. Then, the process repeats
for all other purchasing needs, until suppliers are in place for everything you must buy.

Models of Sales Operations:

Sales operations has been around since the 1970s, when Xerox first established a sales ops
group. Since then the function has taken on increased importance, especially in the era of
extended buying cycles and sophisticated sales technologies.
Once mainly number crunchers, sales ops professionals are now charged with handling an array
of behind-the-scenes activities and tasks. Its mandate: free the sales team to focus on selling and
equip them to sell as efficiently as possible. Perhaps Michael Gerard, formerly VP of IDC's Sales
Advisory Practice, said it best: "Sales ops started as a team whose role was to put out fires
wherever they erupted. In time, it's become more strategic and proactive, with sales ops looking
for ways to avoid problems before they arise."

Let’s delve into just what sales operations is and does, and what makes a sales operations team
successful.

What is Sales Operations?

The definition of sales operations varies by organization, depending on what this group is tasked
with doing. That said, at a high level, Sirius Decision describes sales operations as “a force
multiplier” and “the critical link between the development and the execution of the sales strategy
and go-to-market strategy.” In most cases, this boils down to helping increase the productivity or
effectiveness of the sales team by reducing friction in the sales process.

Think of it this way: Your sales professionals are like a team of thoroughbred racehorses. They
might be incredibly powerful and experienced, but without the guidance of a jockey (aka sales
ops pro), they won’t move as efficiently to the finish line.

Some confuse sales enablement and sales ops but they are separate functions. Sales ops evaluates
options and makes decisions, while sales enablement puts those decisions into play. Some also
split the responsibilities along the buyer’s journey, with sales enablement involved earlier and
sales ops handling more of the later-stage aspects (negotiations and compensation for example).

In their roles, sales ops can handle a range of tactical and strategic responsibilities, including:

 Compensation/incentive plans
 Territory structuring and alignment
 Sales and revenue strategy
 Lead management
  Process optimization
 Sales technology and methodology evaluation
 Pricing and contract support
 Hiring and training
 Data modeling, analytics, and reporting

Sales Operations Team Structure

The reporting hierarchy of a sales operations team will depend on the company size and overall
structure. That said, standard sales operations positions include the following:

Sales operations representative: This entry-level sales operations role is often assigned tasks like
generating reports and managing the sales tech stack.

Sales ops analyst: In this more experienced, data-driven position, the person is commonly
charged with modeling, analyzing, and reporting on data to sales executives and cross-functional
peers.

Sales operations manager: With responsibility for the sales ops team, the manager needs a solid
knowledge of sales methodologies, sales behavior, sales processes, and data modeling and
analytics.

VP or director of sales operations: This person will manage the sales ops team and work closely
with the company’s senior leaders to ensure strategic alignment.

Because sales ops handles both tactical and strategic activities, it’s helpful for team members to
be adept technically, strong operationally, collaborative in nature, and skilled at project
management. While certain aspects of the job require very structured approaches, other areas
benefit from creative, out-of-the-box thinking.

Bottom line: the team needs a balance of skills, including the ability to see the big picture around
strategy and also get into nitty-gritty process details. In fact, diversity is crucial for efficient sales
operations. To that end, it’s wise for sales leaders to build teams comprising a wide range of
specialties, interests, and backgrounds.
Sales Operations Challenges

A variety of internal and external factors can cause challenges. While sales ops challenges vary
by organization, the following are more common:

Unclear charter. Unless everyone in the organization understands the role and responsibility of
sales operations, confusion, overlapping efforts, and wasted cycles rule the day – leaving sales
operations, sales enablement, and marketing to wonder who is responsible for what.

Balancing the tactical and strategic. It’s no small feat managing the range of responsibilities
typically assigned to sales ops, while also managing a team with a diverse set of skills, all while
the buyer’s journey befriends complexity.

Problematic sales process. If the company hasn’t already adopted a clearly structured sales
process, it’s challenging for sales operations to optimize it.

Undefined reporting structure. In many companies, existing employees move into the role of
sales operations manager or director. As a new role in the corporate structure, the sales ops
manager or director does not always have the authority to enact strategies or decisions without
the involvement of someone like the VP of Sales.

Advanced Planning and Scheduling Models:

A few of the main concepts within APS include the following:

 Concurrent Planning - While softwares of the past conducted planning through breaking
processes into various steps and then performed separately, APS combines these
functions to perform collectively. This allows the operation to run much more efficiently
and generate feasible plans that production can follow with ease.
 Constraint Management - APS frameworks locate bottlenecks within the supply chain
and attempt to model the throughput in the software with restrictions of the bottleneck.
With modern day APS software, not only do the tools locate the bottlenecks, but they
also enact a plan and are able to handle multiple bottlenecks in the supply chain.
  Global Optimization - Taking your operation to a global scale is challenging enough, and
without having an advantageous software fit to do so, it is virtually impossible. Advanced
planning and scheduling seeks to drive coordination between multiple plants and
optimize demand within the supply chain. This aids global production through effective
communication among the facilities and ensuring that production is able to keep up with
a varying demand.
 Collaboration - In correlation with global optimization, having a collaborative system is
extremely important within the facility. The collaboration component of the software
ensures for effective communication and for multi-departments to be able to function
collaboratively instead of individually, ultimately pursuing an overall goal.

These key concepts within advanced planning and scheduling software can easily take your
manufacturing operation to the next level and aid your facility tremendously through increased
production efficiency.

PlanetTogether’s Advanced Planning and Scheduling Software

ERP and MRP systems are simply not enough for operations with specific goals and intentions.
This is where PlanetTogether’s advanced planning and scheduling software (APS) can play a
role. APS is able to quickly be integrated with ERP and MRP systems and offer thorough insight
within your operation. Some of the features within the software include the following:

 Gantt Drag and Drop

 What-If Scenarios
 Finite Capacity Scheduling Software

Models for Supplier Relationships:

Supplier relationship management (SRM), in simplest terms, refers to interacting with and
managing third-party vendors that provide goods, materials, and services to your organization. It
sounds easy enough—you choose suppliers that are cost-efficient and easy to work with to
maximize the value of the relationship.
Of course, like most modern business practices, it’s become much more complicated than that.
Supplier management has gone through a major transition over the last few years because of
growth in technology and the global scale of the economy. You have so many supplier choices
that it’s hard to choose the best fit, but using emerging strategies to streamline your supplier
management system can help a lot.

And we’ll discuss that, but to give a more rounded understanding of SRM, let’s go to the start.

Early Supplier Relationship Management Solutions

The concept of SRM was first introduced in 1983 by McKinsey consultant Peter Kraljic in a
Harvard Business Review article titled “Purchasing Must Become Supply Management.”

“Instead of simply monitoring current developments, management must learn to make things
happen to its own advantage. This calls for nothing less than a total change of perspective: from
purchasing (an operating function) to supply management (a strategic one),” Kraljic wrote.

This is essential to understanding of SRM. Relationships need to be strategic, they need to be

growth-focused. That’s something that spend managers and senior staffers should never forget,
whether they’re buying physical materials or software.

Later, in 1998, in study titled “An empirical investigation of supplier development: Reactive and
strategic processes,” researcher Daniel R. Krause highlighted two approaches to the supplier
management process:
1. Reactive Approach – Where companies start managing the supplier relationships only
when unpleasant situations with suppliers occur, and try to figure out how to improve the
performance of unreliable suppliers. This approach consumes quite a lot time and
resources, which could have been better spent on more important business processes.
2. Strategic approach – Where supplier relationship management starts even before an
agreement with supplier is signed, in order to ensure the competitive advantage of the
 company in the long run. This is a forward-focused approach, which can lead to a
successful relationship even in the early stages.

The strategic approach to supplier relationship management has always been key to successful
businesses that rely on third-party suppliers, regardless of industry. For example, by making
long-term relationships with its suppliers an integral part of its supply chain strategy, Apple,
developed a well-deserved reputation as a global leader in supply chain management, and
ensured that it could deliver seamlessly in vast quantities when launching new products.

In this blog post, we are going to take a closer look at strategies that will help you improve
relationships with suppliers and streamline your SRM workflow.

The Importance of Your Supplier Management System

First, let’s take a look what types of suppliers a business can work with:

1. Wholesalers & Distributors -Wholesalers purchase large quantities of goods in bulk and
then resell them in lower quantities for a higher unit price. They generally offer the
lowest prices because they are selling in large quantities, and are reluctant to work with
smaller orders.
2. Manufacturers & Vendors – These are suppliers who can handle the goods of several
different companies. The prices might be higher than those of wholesalers, but they
handle small orders from a wide range of manufacturers over a relatively short time
period.
3. Import Sources – Domestic importers can work like domestic wholesalers and sell
foreign goods to businesses.

There of course are more types of suppliers, but for the purposes of this post, it’s best to keep it
simple. But no matter what types of suppliers your company is working with, they are all going
to be important.

Suppliers can actually have a huge impact on a company’s processes. Suppliers play a central
role in driving revenue, and that should never be ignored. Being able to work with reliable, high-
quality suppliers can help a business grow at scale. Unreliable suppliers can create bottlenecks in
your workflow, and have a greater negative impact on clients and consumers than you probably
realize.

Now, let’s move onto some SRM strategies and solutions.

Supplier Management Solutions and Strategies for Better Relationships

Having long-lasting, trusted relationships with dedicated suppliers should be a primary goal of
any business that strives to succeed in the market, so let’s find out which strategies can help
achieve this.

1. Your suppliers are not just vendors

They are your partners, and this partnership should be based not only on financial transactions,
but also on mutual trust and loyalty. Make your suppliers feel like they are a part of your
business. Inform them about your processes, such as releases of new products and promotions,
and listen to their concerns.

2. Technology makes supplier relationship management simple

Invest in supplier management software to keep track of information about your suppliers in one
place. You can even go further and install advanced purchase order management software, which
you can use to create, process, and track purchase orders with your suppliers. Some software
solutions, like PurchaseControl integrate these supplier management solutions functions into the
same platform.

3. Realize that timely payments are crucial

If you don’t want to lose your suppliers, step one is making sure to pay them on time. This way,
you will prove that you are a reliable customer and that you’re easy to work with. If for any
reason you cannot make the payment on a date agreed, then inform the supplier as soon as
possible with the date on which they can expect the payment. Suppliers like timely payments just
like you like timely action on their side. It really is that simple. If you’re having other issues, like
controlling spend, software solutions like AP automation can help you easily match payments
with invoices and reduce errors.

4. Relationships should be strong and deep

Make sure to maintain strong and regular communication with each of your suppliers. Keep them
regularly informed and up to date, on your strategy and plans so that they know where they fit in
and how they can help, plan for and benefit from those plans. Make them your partner. If you
appreciate their work, let them know. If something’s not working for you, let them know.
A stronger, deeper relationship with clear and frequent communication allows this
communication to become more organic.

5. Price is what you pay, value is what you get

Nothing is better for growing your profits than getting a quality service or materials for the right
price. If you have the financial flexibility use it. You can buy in bulk and get better pricing but
you will have more stock on your balance sheet, or you can arrange to pay a vendor earlier in
order to get a bigger discount. Sometimes its better to pay a little more because the supplier is
giving you a better service which pays for itself because you need to provide less time to manage
them, or because they can be trusted to deliver directly to your customer.

As noted in the previous section, relationships are important, but you shouldn’t stick with a
supplier just because you like them. Choose the most efficient services for your business, and
realize that efficiency is a product of value not just the cost.

6. Detailed agreements make supplier relationships easier

If you are buying from a vendor on a regular basis, Supplier Relationship Agreements are a must.
Write down everything that both parties expect from your partnership such as Item or Service
Description, Price, Delivery Terms, Payment Terms, Communications, and so on, and then have
both parties sign it.

This can be a simple or complicated document depending on your business requirements. A

well-documented Supplier Relationship Agreement will reduce the possibility of confusion or
disputes. It’s often a good idea to create a flowchart or deck to explain the process to your team,
so everyone knows their duties and can recognize if something goes wrong in the workflow.

7. Evaluate the risks

Always evaluate the risks of dealing with a supplier, especially if you have a complex supply
chain. Ask for references, examples of their previous work, years in business, areas of expertise,
how they deal with a crisis, what they did the last time they had to deal with a crisis, and so on.
Are they competitively priced? Do they have the right experience? Do they have the capacity to
deal with your orders? Are they financially stable? These are just some of the questions you
should be asking. Maybe the supplier you select is not the cheapest but guarantees 100% on-time
delivery with a money back offering; you can live with that because a chain is only as strong as
its weakest link, and if your vendor lets you down you whole supply chain may be at risk, which
can affect your ability to deliver to your customers.

In business, things go wrong, by evaluating your vendors risk profile in tandem with a good
Supplier Relationship Agreement, you can mitigate the risks and be ready to deal with any
emergencies in partnership with your vendors, which can help minimize interruptions to your
business.

8. A dedicated SRM process is a worthy investment

According to 2017 Global SRM Research Report by State of Flux, people and their soft skills are
the core of SRM, so whether you need a whole department to manage vendor relationships, a
dedicated Supplier Relationship Manager, or even if it’s only a part of someone’s role, having
people in your organization who are responsible for the SRM process is essential.

Create a documented process that will help guide your team through the management and
administration of suppliers. In a large organization this can include Flowcharts, SOPs, Policy
Documents and agreements, or simply a 2 to 4 page document that covers all of the points of
agreement for you and the vendor. Make sure that all the steps are followed and that documents
are signed off when completed.
The report also states that 37% of supplier relationship specialists have a higher level of
engagement from suppliers when they engage with them in this way, and this creates a stronger
bond with the vendor, where both parties have a vested interest in maximizing the outcomes, and
in turn helping to grow your business and reduce unnecessary business interruptions that can be a
major time-suck for other business drivers.

9. Not all suppliers are made equal, think global – act local

As the world becomes ever more connected, we increasingly find ourselves dealing with vendors
that are further afield, either across the country or across the globe. Every city, state or country
has different rules, laws and terminology. For example Vendor is more commonly used in the
USA while Supplier is the more frequently use term in Britain, in Brazil and many south
American countries, every document must be stamped physically on receipt.

If some of your vendors are located in another country, then you and/or your SRM specialists
should consider cultural differences when communicating with those suppliers. Attitude toward
work always varies from culture to culture, so be aware of this and make sure that you are ok
with this. You should also consider differences in currency, VAT rates, and other financial
differences. Finally, take into account the time zone differences, i.e. know about the time slots in
which the supplier is available for communication.

10. Most importantly – Get everyone onboard

Having a Supplier Relationship Management Process is important but getting everyone in your
organization on board is critical.

A report by American Express and AT Kearney estimated that $533 Billion a year is spent
outside of proper procurement channels, this is called maverick spending, and it means that the
procurement is not happening according to the agreements made with vendors, which results in
additional costs. Specifically it stated that while 95% of firms surveyed had preferred supplier
lists, only 50% of them had procurement systems in place.

Collaboration Models:
This oft used adage is shaping the collaborative supply chain management: “The enemy of my
enemy is my friend.” This saying has made its way into movies and lives of millions through
social media and the Internet. This implies that working with other people who are typically
thought of as competitors can actually be more beneficial than attempting to try to do something
alone.

Ironically in the supply chain, this saying remains true. As a result, the supply chain has become
increasingly collaborative, and supply chain entities are taking note of how collaboration
between once-perceived enemies and competitors can actually help build trust with consumers,
maintain compliance with authoritative entities, ensure transparency across the organization, be
applied and implemented through different software, and further drive customer-centric focus.
Let’s take a closer look at how collaborative supply chain management is continuing to become a
key factor in efficiency through three totems.

Totem 1: Customers Demand New Business Models From Collaborative Supply Chain
Management

Today’s consumers are starkly different from the consumers of the past. Today’s consumers
want a customized product without any rationale for delays or expense. Modern consumers are
and always will be the driving forces behind the supply chain. Since a typical supply chain entity
may view competition as a bad thing, consumers tend to take an opposite approach. Consumers
know competition helps to keep businesses on their toes, such as reducing costs and improving
the quality of a product.

Consequently, businesses that operate with a business model that was designed for the
consumers of the past are more likely to fail in modern supply chain processes. Since the driving
force behind competition has changed, the viewpoint on competition must also change, explains
Alexis Rotenberg of JDA.

For example, a supplier who works more closely with a manufacturer can be attuned to how the
needs of the manufacturer will change through the analysis of point of sale data that is shared
from the manufacturer to the supplier. Now, this example does not apply to what must supply
chain entities think of as competitors. However, if competitors do not share information, such as
the current going rates for one of the big three LTL carriers, the basic rule set of competition
fails. In addition, supply chain entities need to define three further subcategories of collaborative
supply chain management business models, which include defining a relationship between
suppliers and other partners in the supply chain, creating collaborative business models that can
be applied to large-scale production, and defining the current capabilities and limitations for each
party in a given collaborative model.

For competition to stay active, Company A needs to know what Company B is doing. As a
result, new business models need to be created that are going to strengthen collaboration and
improve efficiency, which results in savings for the end users, specifically customers.

In fact, Deloitte University Press put together an amazing infographic on the evolution from
linear supply chain management to collaborative supply chain management, stating:

Having helped transform the operating and performance models of most major enterprises over
the last few decades, many supply chains are now playing an even more central strategic role.
They are helping lead their businesses into the dynamic, hyper-connected, and collaborative
world of ecosystems. In doing so, many are now creating and leading more complex systems
perhaps better characterized as value webs. The word “chain” has a powerful metaphoric logic
that captures well a series of discrete links by which goods are bought, have value added to
them, and are sold to the next value-adder—up until an end buyer consumes them. This remains
of critical importance. However, increasingly, value is being created not only within firms, but in
the rich interactions between them. Linear sequences of procurement are increasingly
supplemented by more iterative and innovation-oriented collaborations.
To be sure, in a world of value webs, the essential goals of traditional supply chain management
do not go away. But they are often augmented by new imperatives—like learning, agility, and
renewal. Collaboration is an addition to, not a replacement of, traditionally more closed,
contractual arrangements. Clear commitments to meet rigorously monitored standards and
service-level agreements will remain critical. But to claim the benefits of an increasingly fluid
and interdependent value web, leaders should surround their contracts with trust; build on
transactions and one-time deals to cultivate long-term relationships and mutual learning;
combine the power of control with the potential of co-creation; make sure that defined, fixed
standards do not create barriers to valuable innovation and co-evolution; and not only leverage
leading practices, but also aim to create “next practices.”

Totem 2: Trust, Compliance, and Transparency Are Crucial.

The modern supply chain faces pressures from all over the globe. The topics of sustainability are
not just ideals, but government-mandated requirements in some areas. For the oil and gas
industries, compliance includes extensive reports, maintenance of facilities to ensure the safety
of employees and consumers, tons of testing, and extensive research, reports an Achilles’
blog post regarding collaborative supply chain management in oil and gas. Now, this does not
even take into account how supply chain entities in the oil and gas industry, such as drillers,
refineries, and shipping gas across the country, must work together to ensure the cost of a barrel
of oil does not exceed X, which translates into the cost that the consumer pays.

Therefore, the whole process begins again by focusing on the consumer and how a supply chain
entity is able to maintain trust with the consumer, which reflects in this case through maintaining
transparency of where oil comes from, where its refined, how it’s better, and why their price is
currently competitive with other collaborative supply chain management entities in the oil and
gas industry.

Unfortunately, the need for transparency, trust, and compliance measures leads to another focus
on collaboration, better, more reliable, and collaborative software.

Totem 3: Increasing Collaboration Through Collaboration Effective Software Development and

Deployment.

Obviously, competitors are in business to stay ahead of the curve and continue production. Yet,
sharing trade secrets and key processes with other suppliers seems counterproductive. However,
this is where third-party logistics providers have come into play. Since third party logistics
providers focus on improving collaborative supply chain management between competitors, they
have an inherent, vested interest in ensuring the privacy, cost-effectiveness, and efficiency of the
entire operation are held to the highest standards. As a result, the increasing volume of products
being moved and created in the modern supply chain has given rise to an era of huge data
collection, analysis, and applications.

As a result, many of these third party logistic providers, as well as supply chain entities within
and outside of the respective provider, are continuously looking toward software and technology
as a solution for increasing and improving collaboration without sacrificing competitive
advantage. Essentially, software collaboration allows for an aggregation of data that would be
impractical and potentially threatening each company if attempted outside of a secure
environment. Therefore, collaborative supply chain management relies heavily on the evolution
of this software, explains Bridget McCrea of Logistics Management.

The demand for collaborative supply chain management is growing from foreign lands to
domestic production. Supply chain entities need to understand how these three totems of
collaboration are continuing to place collaboration at the heart of maintaining efficient supply
chain management processes and extending today’s capabilities to meet the demands of
tomorrow.