Supply Chain Planning (SCP): Advanced Planning Solution Alternatives for a Demand-Driven World

February 22, 2006

Kenny Ecton

Agenda
Defining the Demand-Driven Supply Network Demand Management (DM) Strategic Network Optimization (SNO) Production and Distribution Planning (PDP) Sales and Operations Planning (S&OP) Production Scheduling (PS) Other Considerations Questions

Demand-Driven Supply Network

Altering Supply Chain Planning and Execution functions to be linked directly to fluctuating real-time demand Multiple Definitions of Demand
Operational Demand - Days Tactical Demand - Weeks Strategic Demand Months

Some Goals of a DDSN

Depict Demand as accurately as possible Balancing Demand and Supply often becomes complex in a multi-location, multi-stage supply chain Visibility of Demand and Supply Data across supply chain for Rapid Reaction Lean/JIT/DFT commonly a sub-component waste and/or lead-time reduction that can merely shift inventory risk if only implemented locally

Portraying Demand
Forecasting vs. Reacting Demand Management: more than simply generating a forecast
Strategic: Trends, Seasonality Tactical: Promotions, Events Operational: Reacting
Consolidation or Integration of DDSN Data Passing Customer Sales to Suppliers

Challenges of a DDSN
Ideally Pure Lean/JIT/DFT across the extended supply chain Reality (for most)
Outsourcing can extend lead times, reduce visibility, increase complexity Capital/Cost Restrictions can limit capacity expansion Fluctuating demand and product mix may cause floating bottlenecks and highly complex sequencing logic

DDSN Visibility
Connectivity = Visibility? Multi-tier DDSN Visibility is a business process, not just a supply chain process Synchronizing relationships:
Service-Level Agreements Intellectual property compliance Contract management Risk mitigation

Decision-making vs. Decision-support

Can Supply Chain Planning Tools enable Lean within a DDSN?

Supporting Lean:
Takt Time, Balancing and Re-balancing multiple products, multiple machines, multiple locations Pure Pull Lot Sizes, Replenishment Sizes and Timing, Safety Stocks, Strategic Buffer Sizes Production Leveling (heijunka) calculating and recalculating, rapidly

A simple, visual execution system requires proper planning Dynamic, time-phased plans add value

Lean or Not Complexity in Planning is Increasing for many

Customer demand for shorter cycle times and specialized packaging/delivery requirements Mass customization of products Product line and stock keeping unit (SKU) proliferation Globalization of operations - including sourcing, production, sales and marketing Greater outsourcing of manufacturing operations Increased use of third party logistics (3PL) providers Implementation of co-managed inventory programs with both suppliers and customers, such as vendor managed inventory (VMI) and continuous replenishment programs (CRP) Company mergers, acquisitions, and consolidations

Supply Chain Planning (SCP): A Variety of Roles in a DDSN

Strategic Horizon
Planning for Demand Trends and Seasonality Holistic Inventory and Production Planning Evaluate Supply Network to Support Demand Calculating Takt Time, Capacities Required Planning for Anticipated Demand Fluctuations Balancing/Matching Demand and Supply Production Leveling, Set Kanban Levels Holistic Production, Distribution, and Procurement Planning Visibility for Reacting Holistic Visibility for Reacting to Demand Data Integration/Consolidation for Rapid Reaction Flexible/Adjustable Plans (ERP options) Scheduling/Sequencing for local optimization

Tactical Horizon

Operational Horizon

SCP Modules to Support a DDSN

Strategic Horizon
Demand Management (DM) Strategic Network Optimization (SNO) Sales and Operations Planning (S&OP)

Tactical Horizon
Demand Management (DM) Strategic Network Optimization (SNO) Production and Distribution Planning (PDP) Sales and Operations Planning (S&OP)

Operational Horizon
Production and Distribution Planning (PDP) Production Scheduling (PS)

Decisions that are executed to support a DDSN

Demand Management (1-2 years in weekly or monthly buckets)
Bucketed Forecast by Location Monthly S&OP

Executive-Approved Plans
Strategic Network Optimization (1-2 years in monthly buckets) buckets) or weekly
Sourcing Guidelines Inventory Build Targets

Production & Distribution Planning

(2-3 months in daily/weekly buckets)

Daily Tactical Plans respect S&OP objectives

Plant Net Requirements

Deployment Plans

Production Scheduling
(1 week to 3 months in events)

Detailed schedules ensure Vehicle Loading (1 week to 3 months in daily buckets) (1 week to 3 months in events) S&OP plans get executed

JDE Supply Chain Planning - Modules

Supply Chain Planning

Supply Management

Strategic Network Optimization & Service Strategic Network Optimization Manufacturing Logistics & Order Sales
Management Management Management

Sales and Operations Planning Sales and Operations Planning Demand Forecasting Demand Forecasting Analytics Adv.ForecastFinancial ManagementDemand Consensus Adv.Forecast Modeling Modeling Demand Consensus
Asset Management Tools and Technology

Workforce Management Portal

Production and Distribution Planning Production and Distribution Planning Order Promising Order Promising

Production Scheduling Production Scheduling

Demand Management
Demand Forecasting (DF) Demand Consensus (DC) Advanced Forecast Modeling (AFM)

Demand Forecasting (DF)

Business Problem: Predict future demand based upon historical data Value Proposition: Increase forecast accuracy to improve accuracy of financial and supply chain planning Differentiators: Adaptive Model Selection, Fast on-line queries and tight Demand Consensus integration Technology: UNIX (SUN, AIX, HP-UX), Windows, AS/400 (PASE), Zero RDBMS (Embedded OODB)

Statistical Forecasting
Demand Forecasting (DF) Module Predicts future demand based on historical demand, seasonality and long or short term sales trends Utilizes expert selection based on several more sophisticated criteria; can use different forecast model for each demand point (item, customer, warehouse) Automatically identifies sales history outliers and repairs / adjusts data prior to forecasting Inventory target planning (safety stocks)
Causal

Seasonality Special Events

New product introduction by copying sales history from existing items or item templates What-if simulations & scenarios

Analysis Cyclical Patterns

Trend & Level Outlier Detection

Demand Consensus (DC)

Business Problem: Create final enterprise forecast from the various stakeholders Value Proposition: Increase forecast accuracy to improve accuracy of financial and supply chain planning Differentiators: Web-based Multi-user forecast reconciliation with weightings on stakeholder historical accuracy Technology: UNIX (SUN, AIX, HP-UX), Windows, AS/400 (PASE), Zero RDBMS (Embedded OODB)

Forecast Collaboration
Demand Consensus (DC) Module Web-based application for collaborative sales forecasting Comparison reports highlights exceptions between various forecasts Integration to e-mail enhances intercompany & customer collaboration Hierarchical roll-up and push down forecast adjustments Upload and download capability to and from Microsoft Excel Reconciliation logic applies weighting factors based on historical accuracy to calculate a single enterprise forecast
Item Channel (e.g. group, item) Trade Channel Geography Channel (e.g. country, region, customer) (e.g. retail, wholesale)

Forecast Collaboration - example

Item Category Market Totals Demand Planning within your company

Item Class Customer

Item / SKU Customer Ship-To

Extended Enterprise : Collaboration at Customers

Demand Management: Range Forecasting

Collaborate with customers, channel partners and sales force on different scenarios: such as optimistic, likely and pessimistic

Create flex fences to indicate greater forecast uncertainly at later points in time

Strategic Network Optimization

SNO

Strategic Network Optimization (SNO)

Business Problems: Optimizing supply chain networks to support a DDSN, rationalizing business combinations, handling crisis situations, planning tactical sourcing, pre-builds or capacity allocations. Product Description: Graphical tool that models the entire DDSN and all associated costs and constraints (seasonal, variable, and fixed) illustrating the cost and revenue implications of any decision affecting the supply chain such as long-term demand, sourcing, production, distribution, inventory, acquisitions, and asset utilization. Value Proposition: Balance long-term demand with the supply and capacity to meet it Evaluate existing supply sources Evaluate outsourcing opportunities Rationalize opening or closing of plants, distribution centers, transportation modes, manufacturing lines, or any asset Integrate new businesses (consolidation or divestiture) smoothly Evaluate new markets before investment Improve budget and contingency planning Strengths/Differentiators: Easy-to-use visualization and modeling Detailed manufacturing representation Flexible, multi-period optimization Linear programming to find optimal solution while

considering costs and constraints

MIP & Heuristic solution quality for unique business processes such as batch sizes, minimum run lengths Fast solve time Sophisticated capital asset management techniques and multi-currency evaluation Rated highest in functionality by industry analysts

SNO Solver
Finds the lowest overall cost (or maximum profit) of a model by using:

Linear Programming (LP) to find the optimal solution while considering costs and constraints. and Heuristics to find a feasible solution if a LP solve does not suit certain business processes (e.g. batch sizes, minimum run lengths, production leveling, etc.).

Optimization of Costs & Constraints

C/$
C/$

C/$

C/$

C/$

C/$
C/$

C/$

Manufacturer C/$ C/$ C/$ C/$ Transportation

C/$

$ $ $
Customer

C/$

Manufacturer Distributor

Supplier Costs ($) Real & Penalty Variable & Fixed Supply costs Storage / Inventory costs Transportation costs Manufacturing costs Opportunity costs Fixed costs (startup, shutdown, operating costs)

Capacity Constraints (C)

Manufacturing constraints Material handling constraints Transportation constraints Target Service levels Supply constraints Storage / Inventory constraints

Strategic Planning Decisions

Capacity Planning vs. Outside Supply Planning Driven by sales forecast - plan for long term capacity requirements Make vs. Buy decisions: analyze supplier availability & costs vs. utilizing own manufacturing capacity to know when & who to utilize Supply Chain Network Design Rationalize the re-location, expansion & removal of production capacity Rationalize distribution center / warehouse location and capacity Analyze focused factory production strategies Integration of new business supply chains from mergers & acquisitions What-if Scenario Management Evaluate scenarios against various market conditions Contingency planning and what-if analysis

Production and Distribution Planning

PDP

Production & Distribution Planning (PDP)

Business Problem: Create Manufacturing Net Requirements (MPS) and Deployment plans (DRP) Value Proposition: Real-time global visibility into supply chain problems and feasible & cost optimal use of resources (materials, manufacturing, transportation and storage) Differentiators: LP and Heuristic solution quality & solve time, real-time messaging & alerts, context-sensitive drilldown Technology: UNIX (SUN, AIX, HP-UX), Windows, AS/400 (PASE), RDBMS optional and memory-resident

PDP The DDSN Challenge

Complexity in achieving holistic supply chain visibility to enable rapid reacting and balancing of fluctuating Demand and Supply
Beginning Stocks Planned Production Dependant Demand

Confirmed Shipments
Demand - Forecast, Orders

to uch m ow ce?? H du pro

Transportation - Costs, Constraints

Multi-Sourcing - products, transport mode

Manufacturing -Costs, Constraints Storage -Costs, Constraints

to uch m How ?? ship

Policies -Substitutions

Policies -Safety, Build

PDP Supporting the DDSN

Feasible & cost/profit optimal use of enterprise resources (materials, manufacturing, transportation and storage) to meet fluctuating demand
Simultaneously plans MPS, MRP, DRP and CRP while holistically considering: Time-phased Manufacturing capacities and costs Material availability at all locations Time-phased Transportation capacities and costs by transport mode Storage capacities and costs by location by storage type Inventory policies including safety stock (days cover, statistical), build and maximums Finished Goods substitution policies Demand priorities and preferences

PDP Technical Differentiators

Solution quality & solve time Reasonable solve times allow reasonable timeframes for processing Handling Complexity: Quality of solution gives users better planning information

Context-sensitive drilldown
Drill downs take you to the source of the problem for the particular item, location and period Allow users to focus on exceptions and navigate to pertinent information vs. searching

Costs and Constraints for PDP

#*

#
#*
Customer

#*
Vendor

#*
#
Plant/DC

*
Distribution center

Customer Plant

#
Customer

Costs # Storage cost Manufacturing cost Transportation cost Opportunity cost Spoilage/obsolescence cost

Constraints * Storage constraints Manufacturing constraints Material handling constraints Transportation constraints

What PDP Users want to know

#*

#
#*
Customer

#*
Vendor

#*
#
Plant/DC

*
Distribution center

Customer Plant

#
Customer

1. 2. 3. 4. 5. 6. 7. 8. 9.

Am I going to run out of Inventory? Given my manufacturing capacity and costs, how much product can I make? Which machines should I use? What Kanban levels are required? What location should I make product at? Is it cheaper to ship product from another location? When should I ship raw materials and products? How much material and product should I ship? How much excess inventory can I remove?

What Suppliers want to know

#*

#
#*
Customer

#*
Vendor

#*
#
Plant/DC

*
Distribution center

Customer Plant

#
Customer

1. 2. 3. 4.

What material is required at the plant? When does the plant need materials? How much material is required? When might the plant run low on material (VMI)?

What Customers want to know

#*

#
#*
Customer

#*
Vendor

#*
#
Plant/DC

*
Distribution center

Customer Plant

#
Customer

1. 2. 3. 4.

VMI for Customers When will products arrive? What amounts should be replenished? How much product is required to meet demand? When should replenishments be shipped?

PDP Integrates Closely with JDE ERP

ERP Sales Orders: Material Requirements:

ERP / DF / DS Sales Forecast:

PDP Module:

Planned Shipments:

ERP Inventory (FGS, Materials):

Production / Purchase Orders:

Requirements Planning (JDE E1 View)

Sales and Operations Planning

S&OP

Sales & Operations Planning (S&OP)

Business Problem: Allow senior stakeholders to decide which Demand & Supply Plan is ideal Value Proposition: Ensure the demand & supply plans meet fiscal & business goals and align the business to them Differentiators: Multi demand & supply plan comparison and direct S&OP business process support

Sales & Operations Planning (S&OP)

A module developed to support the Sales and Operations Planning process Integrates and compares various demand, supply, production, capacity, and financial plans Metric reporting, exception management and net change reports Managed by hierarchies & data attributes Imported from ERP category codes Allows customized screen pivoting
New Product Planning

Contributors to the SOP module

Integrated Reconciliation of Business Plans Senior Management Business Review
Dick Ling Leading Manufacturing Consultant APICS Lifetime Achievement Award Goldratt Group Founded by Eli Goldratt Author of the The Goal and creator of Theory of Constraints

Demand Planning Supply Planning Financial Planning

Traditional Approaches to Sales & Operations Planning

Financial Planning Production Planning New Product Planning Sales Planning Market Forecasting Measurement & Reporting

Manual processes, multiple data sources

Multiple, non-integrated systems

No connection between plans Misalignment between metrics and objectives Unreliable forecasts and production plans

S&OP pains: decisions are misaligned, slow, inaccurate

Fragmented, siloed Financial planning Production Planning Planning New Product Planning Sales Planning Market Forecasting Measurement & Reporting

Lack of Collaboration Manual processes, multiple data sources Manual processes

Multiple plans and forecasts Multiple, non-integrated systems Lack of metrics

An event, not a Lack of process decision No connection between plans support & Misalignment between metrics and objectives automation Unreliable forecasts and production plans

An on-going repeatable business process managed through e-mail, custom reports, Excel and ERP queries NOT integrated.

Production Scheduling
(PS)

Planning versus Scheduling

PDP and SNO produce good planning solutions, they do not produce quality finite schedules PS produces finite schedules, but rarely produces a cost optimal master plan within the context of multiple facilities

Production Scheduling (PS)

Business Problem: Detailed production scheduling to drive shop floor and material planning Value Proposition: Increased margins through feasible and cost optimal use of machines, crew, materials in meeting demand Differentiators: Robust and intuitive representation of all manufacturing constraints, selfconfiguring Solver to reduce implementation and ongoing maintenance effort Technology: Windows, Zero RDBMS (memory-resident)

Production Scheduling Current Functionality

Event-based bucketless Demand and/or Work Order driven Multi-Scenario with KPIs Intuitive graphical model Machine, Tool, Crew and Material constrained Dynamic capacity constraints Resource calendars Automatic floating bottleneck detection Alternate routings, operation and resources Operation Effective Dates Complete Routing Precedence relationships Graphical Pegging Resource dependent rates Resource dependent lot-sizes Dynamic safety stock levels Co-products and by-products Sequence dependent changeover cost and time Optimized run sequence Optimized run lot-size Demand Priorities Alternate Suppliers Alerts with suspected cause Advanced analytical views (Gantt charts, line & bar graphs) TOC Buffer Planning

Other Considerations for Supply Chain Planning

Suite Flexibility means lots of choices and lots of considerations

There is significant overlap between the products, so one of the most critical decisions is determining what product(s) to implement and what those products will do. To consider: Single User vs. Multi User
Those managing the plan vs. those who need to know the plan

Bucketed vs. Event driven Scalability Model what makes sense

SCP/ERP Integration for a DDSN

Representing Fluctuating Demand
Demand Management POS If driving Purchasing Requirements in JDE . . .

Altering existing plan data in ERP:

Purchase Orders/Supplier Schedules Transfer Orders Work Orders Sales Orders

MRP Options
It is conceivable that SNO, PDP or PS can all generate MRP statements In some cases, the most practical solution is for MRP (or portions) to be carried out by the ERP solution

Supply Chain Planning Integration

JDE E1 / World ERP sends files to SCP module(s)
Sales Orders History Item Master and Units of Measure Order Data (purchase, transfer, work, sales orders) Inventory Balances (FGS, WIP, Raw) Category Codes Customer & Branch Plant Master Routings, Work centers, Rates and Bill of Materials Other
SCP Data Model(s)

The SCP module(s) processes & returns results

Production Orders (planned / scheduled) Purchase Orders (planned) Transfer Orders (planned) Sales / Consensus Forecast
JDE E1 / World ERP Database

JDE E1 / World ERP receives inbound files

Processes order messages into the F3411 table (3/G3413) View forecast in the F3460 table (8/G3421)

Oracle Advanced Planning Solution

Supply Chain Intelligence

SCI
Network Design* SNO

Sales and Operations Planning

Demand Planning Inventory Optimization

DP

IO ASCP

Supply Chain and Manufacturing Planning Global Order Promising Production Scheduling* Transportation Planning SC Exception Management

GOP

PS TP CP
Collaborative Planning

CP

From short-term to long-term

* Stand-alone available today;
integrated with other 1H06

Questions
Kenny_Ecton@cssus.com 859-351-5870