Introduction to Global Supply Chain Management Module Five: Product Sales, Distribution Customer Relationship Management 1.

Introduction to Global Supply Chain ManagementModule Five:

Product Sales, Distribution &Customer Relationship Management

1

Class Agenda

• Distribution defined• The Distribution function

– S&OP integration & synchronization• Distribution Requirements Planning• The integration of DRP with other

S&OP functions• Key elements of Customer

Relationship Management (CRM)– Strategic & operational

considerations• CRM & Key Performance Indicators

2

3

Product Sales & Distribution:Sell-Side Activities In a Global Model

SUPPLIERS

MANUFACTURER DISTRIBUTIONSYSTEM

CUSTOMERSMATERIALS

MANAGEMENTBuy-Side

DISTRIBUTIONMANAGEMENT

Sell-Side

4

Different Operating Models & Inventory TypesInfluence Distribution Strategies

Operating Model

• Raw materials• Components/sub-assemblies• Work In Process• Finished goods• Distribution inventory• Accessories• Spare parts• MRO

Types of Inventory

• Build to stock• Build to order• Assemble to Order• Engineer to Order• Just In Time• Vendor Managed Inventories

5

International Sales Network AlsoInfluence Distribution Strategies

• Intercompany• Distributors• Wholesalers• Retailers• Manufacturers• E-commerce

– Business-to-Business (B2B)– Business-to-Consumer (B2C)

6

Distribution Defined

Distribution involves all activities associated with the movement of finished goods and service parts from locations in a warehouse network to the end customer. Closely linked to other supply

chain areas such as forecasting, warehousing, inventory management, order management and logistics, distribution is a client-facing function that drives overall Sales & Operations Planning

processes. Integral to the distribution discipline is the ongoing execution of Distribution Requirements Planning and in particular, gross-to-net exploding and lead-time offsetting.

Dan Gardner, April 2015

7

The “Cascade Effect” of Distribution on Sales & Operations Planning

8

The Sales & Distribution Function &Distribution Requirements Planning

Resourceplanning

Masterproductionscheduling

Demandmanagement

Productionplanning

Front end

Detailedmaterialplanning

Routingfile

Material and capacity

plans

Time-phasedrequirement

(MRP) records

Engine

Back endVendor systemsShop-floorsystems

Bills ofmaterial

In-ventorystatusdata

Detailedcapacityplanning

Marketingplanning

Financialplanning

Strategicplanning

9

Demand Management

• Forecasting• Order Processing• Delivery Promising (Available To

Promise, ATP)• Interface between the marketplace

and S&OP• The “Cascade Effect” resonates all

the way back up the supply chain with sales updates

10

Distribution Requirements Planning (Sell-Side)

Distribution Requirements Planning (DRP)-Intended for use with finished goods, DRP encompasses the activities associated with identifying the replenishment requirements of (warehouse) locations throughout a company’s logistics network. DRP uses the same logic as MRP in that it is a time-phased approach to determining inventory needs for each of anan organization’s stocking locations (satellite warehouse, regional distribution center, et al).

Distribution Requirements Planning relies upon the principles of Gross-to-Net Exploding andLead Time Off-Setting to synchronize product quantities and delivery times with actual demand.Because DRP is often used by companies with multi-level distribution networks (multiplewarehouses), the discipline uses a “Bill of Distribution” to implode time-phased requirementsfrom satellite warehouses up through the distribution channel to main distribution centers.

Ideally, companies and their supply chain partners employ cloud-based visibility tools to trulyintegrate and synchronize their Sales & Operations Planning activities.

Dan Gardner, April 2015

11

Distribution Requirements Planning:Gross-to-Net Exploding

• Gross–to-Net Exploding– An exercise whereby the original

(gross) requirement for a product is reduced by:

• Inventory on hand• Confirmed order receipts• Confirmed order releases• Planned order releases

• Gross-to-Net Exploding must be integrated with the inventory management function

• Integration is achieved through process design and supply chain software applications

12

Distribution Requirements Planning:Lead Time Off-Setting

• Lead time off-setting– Orders are placed for products on a

date that “off-sets” cumulative lead times with the desired date of receipt

• P.O. preparation/acceptance• Production time• Transportation lead time• Customs clearance• Domestics distribution

• Lead time off-setting must be integrated with the logistics function

• Integration is achieved through process design and supply chain software applications

13

Integrating DRP with Inventory Management:Order Quantities & Order Points

• In addition to gross-to-net exploding and lead time off-setting, distribution professionals must also determine order quantities and order points for replenishing finished goods in the distribution network

– These activities help to integrate and synchronize DRP with Inventory Management

• Economic Order Quantity (EOQ) calculates the optimum replenishment amount by balancing the total cost of an order with that product’s carrying cost

14

Integrating DRP with Inventory Management:Order Quantities & Order Points

• An integrating activity between DRP and inventory management, an “Order Point” is reached when a product’s on-hand quantity reaches a pre-determined level

• When inventory is depleted down to that pre-determined level, a replenishment order is generated by the system (based on EOQ in the form of a Planned Order Release)

15

DRP & Inventory Management: Determining Order Points & Order Quantities

Item: ABCOrder Qty: 1,000Lead Time: 2 weeks

Time Bucket (week) 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected Available Net RequirementsPlanned Order ReceiptPlanned Order Release

Product-specific order quantities and order points support gross-to-net exploding and lead-time offsetting by providing the quantity of a product that needs to be ordered

and at what point it should be ordered. Order quantities and order points can be determined using a variety of tools such as the Economic Order Quantity

formula or the Order Point System.

16

Economic Order Quantity

• EOQ is a formula that is used to determine a replenishment order quantity for a product that balances the total cost of an order with that product’s carrying cost

• Variables in the formula are:– Annual usage in units – Unit cost– Annual carrying cost– Ordering cost per order

17

The EOQ Formula:Where Ordering & Carrying Costs Are Equal

A = Annual usageS = Cost per orderi = Carrying cost (%)c = Cost per unit

√ 2AS icEOQ =

18

The Order Point System

• When the quantity of an item falls to a pre-determined level (order point), a replenishment order must be placed

• The quantity to be ordered is often based on EOQ concepts

• The key factor about the O.P. methodology is that it considers product demand during lead time (DDLT)

• O.P. also considers Safety Stock (SS) in its calculation

19

The Order Point System

Order Point = DDLT + SS

DDLT = Demand During Lead TimeSS = Safety Stock (Safety Stock is carried tosafeguard against supply chain variance(s)…

Forecast, demand, lead time, etc.)

20

Product-Specific Order Point Example

Order Point = DDLT + SS

DDLT = Demand During Lead TimeSS = Safety Stock (Safety Stock is carried tosafeguard against supply chain variance(s)…Forecast, demand, lead time, etc.)

Demand = 200 units/weekLead time = 3 weeksSafety Stock = 300 units

(200 x 3) + 300 = Order Point of 900 Units

21

Order Point & The DRP Item Table

Item: ABCSafety Stock: 300Lead Time: 3 weeksOrder quantity: 1,000

Time Bucket (week) 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected Available Net RequirementsPlanned Order ReceiptPlanned Order Release

22

Integrating The Sales & Distribution Functions

• Gross-To-Net Exploding, Lead Time-Offsetting, Order Quantities and Order Point calculations enable the positioning of goods, “In the right place, at the right time, and in the right quantities”

• Inventory Management is the function that makes sure these “3R’s” actually happen

• As sales are generated, the Order Management function takes over

• Sales order information must resonate back up the supply chain, continuously updating DRP calculations

23

Software-Based DRP Product Tables:Enabling Inventory Mngt. & Order Processing

Time Bucket (week) 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected On-Hand (POH) Net RequirementsPlanned Order ReceiptPlanned Order Release

DRP software calculations generate product-specific “Projected On-Hand” figures by time period, that in turn enable other distribution activities like product

replenishment, order promising, order processing, logistics lead-time commitments and inventory management. As sales orders are processed, details are shared back up the supply chain, thus allowing DRP to be continuously recalculated. Ideally, all of

this is done through the use of integrated software packages called “ERP Systems” (Enterprise Resource Planning).

24

The Order Management Process

• Gross-to-Net exploding, lead time off-setting, order quantities and Order Point Systems put a company in the position to handle sales orders

• As sales orders are received the firm must enact its Order Management process

• Steps in the process may include:– Order receipt & acknowledgement– Credit check on customer– Available to Promise/Allocation– Pick & pack– Documentation & shipping

25

The Order Management Process

• In today’s multi-national, Internet-based business environment, companies can receive sales orders in a variety of ways

– Phone call– Faxed spread sheet– Purchase order written and sent via

email– Orders managed via Google Dox– System-generated P.O. sent

electronically (email attachment)– Cloud-based application (B2B)– Cloud-based application (B2C)

26

Sales Order Process Flowchart:Build-to-Stock B2B Model

No

Begin

Buyer’s system generates a

multi-product purchase order

Back orderGoods

available?

Yes

No

End

Wait to complete order

Seller acknowledgesreceipt of P.O.

Seller’s systemgenerates a

“pick-list”

Warehousepicks & packs

the order

Ordercomplete?

Yes

Generate documents& ship goods

No

<Deployment Flowchart: Order Management Process

Accounting Production &Shipping

AccountsReceivable DaysOrder

Management

Receivecustomer

order

ProcessCustomer

Order

CreditDenied

ApproveCredit?

NotifyCustomer

Productionplanningreceives

order

GoodsProduced &

ShippedCustomer

invoiced andfunds

collected

9 days

10 days

45 days

60 Days

Order Processing for Build-to-Order Model:Deployment Flowchart

Order Management &The “Documentation Trail”

• In addition to the actual merchandise, documentation plays a key role in the Sales & Distribution process

– Sales contract– B2B purchase orders– On-line B2C orders– Commercial invoice– Packing list– Bill of lading– Insurance certificate– Certificate of origin

• Proper documentation drives supply chain efficiencies and has a material impact on the “Customer Experience”

The “Documentation Trail” & The Customer Experience

• Remember, all documents have to adhere to “The 3C’s of Documentation”

– Complete, Consistent & Correct• The smallest of paperwork errors can

stop a supply chain in its tracks– And ruin your relationship with a

customer• The 3C’s of Documentation principle

applies to hard copies and digital copies

Document Example:Purchase Order

Document Example:Commercial Invoice

Document Example:Ocean Bill of Lading

33

Product Sales, Distribution & CRM:Strategic Considerations & Key Performance Indicators

34

Product Distribution & CRM:Strategic Selling Considerations

• Country demographics• Macro-economic profile

(region/country)• Industry-specific eco-system

– Customers and your customer’s customers

• Competition• Banking system• Landed costs (by product)

– Transportation & Customs duties• Free Trade Agreements

35

Product Distribution & CRM:Strategic Selling Considerations

• Preferential Duty Programs• Sales price analysis

– Estimated gross profit & margin• Logistics infrastructure• Lead-times• Customs regulations• Other Government Agencies Regs• Supply chain risk profile

36

The Sales Function:Key Considerations For Customer Vetting

• Business model– Wholesaler, Retailer, Manufacturer

• Ownership structure• Corporate culture• Authority to operate• Restricted party screening• Number of employees

37

The Sales Function:Key Considerations For Customer Vetting

• Financial stability– Credit history

• Product portfolio• Product knowledge• In-country location(s)• Respect for patents, trademarks &

intellectual property

38

The Sales Function:Key Considerations For Customer Vetting

• Supply chain software & visibility tools

• Knowledge of global trade– Shipping, documentation &

compliance• Human rights & environmental

compliance• Use of Standard Operating

Procedures• Key Performance Indicators

The International Sales Function:Contractual Clauses

39

• Product specifications• Merchandise description• Quality, grade, size & condition• Quantities & weights• Price• Currency of sale• Payment terms

The International Sales Function:Contractual Clauses

40

• Product warranties & returns• Substitution• Incoterms® 2010 rule• Mode of transport• Lead-time• Last ship date

The International Sales Function:Contractual Clauses

41

• Order cancellation date• Charge backs• Documentation requirements• Dispute resolution• Applicable law• Severability

42

KPI’s for Measuring Sales,Distribution and CRM

• New customers gained• Existing customers lost• Total sales revenue by customer• Gross profit & gross margin• Total transportation spend by

customer• Number of purchase orders received• Items sold by customer SKU’s or part

numbers)

43

KPI’s for Measuring Sales,Distribution and CRM

• Dollar value by SKU or part number– Gross profit & gross margin

• Order fill rate • Over/under quantities• Incorrect merchandise• Defective merchandise• Damaged merchandise

44

KPI’s for Measuring Sales,Distribution and CRM

• Number/value of insurance claims• Instances of late shipments• Instances of early shipments• Number of cancelled orders• Products on backorder• Dollar value of backorders

45

KPI’s for Measuring Sales,Distribution and CRM

• Shipments with missing documents• Incorrect prices on invoice• Errors on commercial documentation• Missed sailings/flights• Number of expedited shipments• Air freight expense for expedited

shipments

46

KPI’s for Measuring Sales,Distribution and CRM

• Number of charge-backs• Reason for charge-backs• Dollar value of charge-backs• Accounts Receivable by customer• Bad debt by customer

End of Module Five

Congratulations!!!