Supply Chain Network Optimization_Final

8/12/2019 Supply Chain Network Optimization_Final

1/51

This report is solely for internal use. No part of it may be circulated, quoted, or reproduced

for distribution outside the organization without prior written approval from ITC Infotech2014 ITC INFOTECH 1

Supply Chain Network

Optimization

April, 2014


2/51


3/51

Suppliers Production Plant Centralized DCsRegional

WarehousesWholesale

Dealers

Availability

Flexibility

Responsiveness (ordercycle time)

2014 ITC INFOTECH 3

Supply Chain Cost Structure and the existence of conflicting

objectives (Internal challenges)

Raw Materialbasic cost

Taxes/ Duties

Freight Cost Capacityaddition &realignment cost

Conversion Fixed costConversion Variable cost Facility Fixed cost

Opening/Closing costCapacity expansion & realignmentcost

Inbound/Outbound transportationcost

Taxes & DutiesHandling & Inventory cost

Outbound transportation cost (Primary &Secondary)

Handling cost

Inventory cost Facility fixed cost Facility expansion cost Opening/Closing cost Taxes & Duties

Conflicting Objectives

SALES /

CUSTOMER SERVICE

Stable volume

Large quantities

High delivery lead time

SOURCING

Long runs

Stable volume

High buffer inventory

(RM/FG)

MANUFACTURING

Warehousing

Less inventory

Smooth flow

Less SKUs

Transportation

Full Truck Load

LOGISTICS

Function wise optimization exercise will give suboptimal result as compared to end to end optimization exercise.


4/51

Analyzing various trade-offs that exists in

the supply chain from Cost-to-companyperspective and making policy decisions

basis that:

Expansion into new geographic

markets

New product introductions

Changes in Fiscal Cost structure (tax,duties etc.)

Shift in Volume or Price levels

New competitive market entrants

Capacity constraints

New technologies Mergers and acquisitions

2014 ITC INFOTECH 4

Supply Chain Networks often move away from optimality

over time because of external and internal factors

Periodic assessments should be carried out to align Supply Chain Network with Supply Chain Strategy

considering changing factors

Inventory costs

Facility costs

Transportation costs

Operating costs

Asset costs

Customer satisfaction

Sales growth

Levels of service

Increased market share

Improved response time


5/51


6/51

2014 ITC INFOTECH 6

Key supply chain levers for improving value through network

design

EnhanceShareholderValue

IncreasedFre

eCashFlow/ROCE

Improve futureprospects

Increase Revenue

Increase WorkingCapital Efficiency

Increase FixedAssets Efficiency

Reduce Cost

SC Performance AttributesValue Levers Key Supply Chain Levers

Reliability

Supply ChainCosts

Working capitalproductivity

Fixed assetproductivity

Lower SupplyChain Risks

Responsiveness

Flexibility

Resource acquisition/divestment:Opening/closing of Factories,

Warehouse, acquiring technology etc

Structural decisions: Supply chaindesign & defining roles of facilities

Operational Efficiency: Efficientexecution and control

Operating Policies: Making policydecisions based on cost to company

1

2

3

4


7/512014 ITC INFOTECH 7

Key decisions that needs to be addressed

Strategic

Tactica

l

AssetOptimization

Cost/ ServiceOptimization

FlowOptimization

OperationalEfficiency

LongTerm

MediumTerm

ShortTerm

What are our priorities in supply chain design? How can we accommodate our growth with our current

network? How many and where should the facilities be?

Whether to open/ close plants, distribution centers?

What is my actual cost-to-serve each product to eachcustomer?

In what areas could we reduce costs and improve service if we

improved our network design? Should we realign our network given recent shifts in demand,

production, or cost factors?

How should we flow each product through the network?

Where and when should we produce each product?

From whom should we source?

Where and how should we stock product to meet service level?

Which route and mode to select?

How to perform last mile deliverymilk run etc.? How much to produce and stock at each location?

How to manage exceptions?



Supply Chain Network Design:

Our transformation approach

Long Term PlanningCorporate Strategy

Business Plan

Investment Window

Agile supply chain framework

Facility, process & product

related investment decisions

Decisions involve high level of cost involvement, high lead times to realize benefits and return on investment involves a bigger horizon

Majorly involves Resource acquisition/divestments and supply chain structural decisions

Lot of What-if scenario testing basis demand size and shape, cost inflation and deflation, fiscal policy etc

Constraints involved in decision making are policy constraints which constrains structural definitions. Doesnt involve day to day

operational constraints and variability

Medium Term PlanningDefined supply chain framework

(Time based Facility/Product and

process framework)

Firm business plan (Medium Term)

Cost benefit decisions

Structural decisions & Operating

policy in medium term

Decisions based on strategic message (supply chain framework) from Long term planning

Focus change from investment to cost benefit decisions

Set of assumptions are less compared to long term planning. Business conditions and possible changes are more firmly known

What if analysis done on possible changes which are more firm, e.g Forecasting data and variations in it.

Short term PlanningDefined supply chain framework,

structural decisions & operating

policy

Real time inputs

Decisions which are cost efficient

Decisions which help in day to

day operations

Takes the message from long term and medium term planning. Facility, process and product wise supply chain model is firm. Minor

exceptions are handled in this planning exercise

Frequency of such type of planning is high and time for execution is small. At such small lead times structural decisions can't be made

as supply chain will not be able to align so quicklyWhat if analysis are done using simulations so as to see fill rate, out of stock, line utilization etc to finalize the best operating decisions



Network OptimizationTypical Supply Chain Optimization

Needs

Strategy

Modeling

Inventory

Modeling

Transportation

Modeling Network Analysis

FacilityOpening/Closing

Asset Rationalization

Network Re-alignment

CapacityAugmentation

Network Structure

Safety StockOptimization

Cycle StockOptimization

Pre-build inventory

Inventory vs. Servicetradeoff

Postponementstrategy

Mode Selection

Shipment sizing and

scheduling

Load Optimization

Route Planning

What-if analysis

Demand Variability

Supply Variability

Production Variability

Lead Time Variability


10/51

N t k D i A h D i P i i l 2



Network Design Approach - Design Principle 2:

Responsive NeedsPeriodic vs. Continuous

Periodic

time

Effort

Cost

actual

optimal

LostOpportunit

y

Continuous

time

Effort

Cost

actual

optimal

Alignment PerspectiveHow Dynamic? How Responsive?

Longterm

Medium term

Shortterm

Longterm

Medium term

Shortterm



Network Design Approach :

Convergence on key decision parameters

Parameters Short term Medium Term Long term

Horizon 1-3 months 1-24 months 1-5 Years

Frequency Monthly Quarterly

Semi

annually/Yearly

Planning Bucket Weekly/Monthly Monthly Quarterly/Yearly

Product ClusteringNot needed/Slightly

higher levelNeeded Needed

Geography

Clustering

Not needed/Slightly

higher levelNeeded Needed


13/51

Supply Chain Network Optimization

Our Approach & Methodology

132014 ITC INFOTECH


14/51

ProjectSpecification

& Scoping

Information

Gathering

Baseline

Development

Scenario

Visioning

Scenario

Analysis

Recommenda

tions

2014 ITC INFOTECH 14

Our Methodology has been tried and tested over multiple

engagements

Define

business

objectives and

scope

Understand

customers

supply chain

Gather

customer

requirements

Develop

modeling

strategy

Detail

information

requirements

Develop

templates for

data gatheringCollect data

required

Assess data

available & its

hygiene

Develop time

estimates

Develop

model & create

database

formats

Detail

assumptionsmade

Run &

analyze

baseline model

Compare

results with

the actual cost

incurred

Define the

degree of error

for different

cost heads

(Tolerance

level).

Review

baseline

assumptions &

result with

business

Makenecessary

changes if

needed

Perform

sensitivity

analysis

Develop

various what if

scenarios

Model the

different what

if scenarios

and analyze

results

Performcross

alternative

sensitivity

analysis

Detail

recommendati

ons from

different

scenarios

Using

scenario

results, focus

on top 1-2

scenarios

Determinethe best

alternative

along with

business

approval

Develop the

implementatio

n roadmap

1 2 3 4 5 6

Th Vi i i S i F k t th b li f



The Visioning Scenario Framework sets the baseline for

optimization models to be created and run

UncertaintyIncreaseswith

DegreeofSp

eculation

Market Strategies

Company initiatives focused on influencing customers and/or suppliers to improve their impact on company performance.

Examples of customer market strategies would include new channels of distribution, sales & promotional activity focused on

specific segments/products, and/or elimination of unprofitable customers. Examples of supplier market strategies would be

consolidation of suppliers for increased pricing leverage, identifying new global sources of supply, etc.

Operating

Strategies

Company initiatives to implement new models for manufacturing and distribution to improve company performance.

Examples would include eliminating existing facilities, expansion of new/existing facilities, outsourced manufacturing,

focused factories, etc.

Business

Conditions

The assumptions market and operating assumptions regarding demand, costs, capacities, etc. to be modeled when

optimizing and testing different strategies.

Scenarios A set of strategies and business conditions to be tested, optimized, and sensitized through a series of optimization runs.

Sensitivity

A range of uncertainty around a specific business condition or data element. Increased uncertainty requires increased

number of runs to insure confidence/robustness.

Optimization RunA single optimized instance of the model based on a specific set of data elements that represent a combination of

strategies, business conditions, and their sensitivities.

Planning Horizon:

Strategy 1 Strategy 2 Strategy n Strategy 1 Strategy 2 Strategy n

Strategy

Combo 1

Strategy

Combo 2

Strategy

Combo n

Business Conditions: Data Elements:

Demand +/- 5%

Transportation +/- 2%

Variable Manufacturing +/- 1%

Inventory Carrying + 0 - 5 %

Raw Material Costs

Transportation - 5-6%

Manufacturing Labor + 4% per year

Demand + 2% per year

Raw Material Costs -8%

Design Data New Locations n/a

0 - 12 months

New Market Strategies New Operating Strategies Strategy Combinations

Strategies:

Optimize

Current

Network

Current Conditions

Known Changes in

Conditions

Forecasted Changes

Uncertainty Increases with Time

Year 2, 3,

KeyVisioningD

efinitions



Illustrative TimelinesNO (Network Optimization) only

Strategy Modelling

Network Structure Optimization

Product Planning

Operations Planning

Inventory Planning (only cycle stock & pre-build decisions)

Transportation Modeling (only mode selection)

Solutions Offerings

The timeline mentioned below is for a project done in leading CPG major in India.

Scenarios : Baselining + 5 Scenarios (Short term, medium term & long term scenarios ). Multi period modelling

Number of SKUs: 80, Factories: 17, DC: 5, Warehouses: 50+


17/51



Model type

Parameters Simple model Detailed Model Large Scale Model

Product Complexity < 50 Products 50-300 products 300+ products, effortneeded for productclustering

Site Complexity < 20 sites 20-500 sites 500+ sites, effort needed forgeographical clustering

Demand Points


19/51

Where have we done this before?

A few case Studies

192014 ITC INFOTECH


20/51

A leading Joss Sticks and Safety Matches manufacturer in IndiaNetwork Optimization

Client

Client is leading josssticks & safety matchesproduct manufacturerin India.

Client managesmarketing, sales anddistribution of theproducts across Indiaand production is

governed by thecontractmanufacturers whoplan for raw materialprocurement based onclients demand andsupply plan.

Challenges

High Volatility of demand of Joss Sticks due to the nature and typical use of the product in

India leading to frequent changes in production scheduling and fulfillment planning High impact of change on contract manufacturer framework because of planning and

scheduling changes leading to sub-optimal network utilization

Less efficiency and adaptability of the supply chain network due to inherent constraints

Benefits

Production mix with 85% firm and 15% flexible based on market exceptions

~90% firm distribution network and ~10% flexible network with two supply options to answer changing market dynamics

Increase of direct delivery to regional warehouses from 29% to 50%

Reduction in outbound transportation cost by 25%

Overall cost saving of ~2.5% and increase in inventory turns from ~6 to ~10

More visibility on costs (to negotiate contracts with contract manufacturer, logistics providers etc.) and space requirement (atmanufacturing premises for raw material and finished goods).

Solution

Decide a supply chain framework with end to end network cost visibility

Optimized network considering all cost elements and constraint

supply, production and logistics costs

inherent value chain constraints, credit rules and complex tax structure in India

Solution also incorporated complexities related to

supplier capacity constraints, procurement contracts,

multi BOM scenario, production activity wise capacity constraints

product mix constraints, inventory policies


21/51

A leading Agriculture Product business in IndiaSourcing/ Dispatch and Warehouse Space Optimization

Client

Client is leading

Agricultural Productsexporter and focuseson export & domestictrading of products likeSoya meal, Wheat,Shrimps and Prawns,Fruit Purees/Concentrates, IQF/Frozen Fruits, OrganicFruit Products, Coffeeetc.

One of the majoractivities of the clientincluded procurementof wheat and supplyingit to largest wheatflour" company in India.

Challenges

Multiple marketplaces of procurement spread across India and Delivery to multiple factories

Increasing sourcing locations, warehouses, wheat varieties and dispatch to factories 3 months (in a year) availability window of major varieties of wheat leading to 75%

procurement in 100 days from highly dynamic markets with price varying daily

Complex tax structure in India and different local taxes & rents at different states

Frequent government intervention on wheat pricing leading to complexity.

Benefits

Best sourcing network to serve the demand based on the prices and availability at different marketplaces leading to 2-3% reductionin total cost

Suggested the best mode of transportation (rail/ road) among different options available for various flour mills.

Best warehousing locations for the stocks before dispatch considering both existing infrastructure and leasing options

Dispatch Plan based on weekly stock and monthly demand leading to 7-8% reduction in outbound costs

Before starting of the buying season, based on price forecast, suggested locations and space requirements, thus providing adefined warehouse booking framework.

Solution

Suggest deciding the best network to serve the demand based on the prevailing prices in the

market

Optimized network considering end to end costs elements involved in the supply chain

basic costs, labor charges, different taxes

bagging charges, warehousing charges, inward and outward freights

Consider the substitutability options among various varieties

Select best mode of transport (Rail or Road) for various supply locations

Suggest optimized warehousing locations.


22/51

A leading FMCG company in IndiaNetwork optimization

Client

Client is one of theleading FMCGcompany in India andis growing at a very fastpace YoY. The growthof the business can beattributed by the factthat the overall saleshas increased by threetimes in last 5 years andnow it is >1 billion USDbusiness in India only.

Background and Challenges

Mature integrated planning system - demand planning, supply planning, production planningand MRP.

SAP integrating the production locations and various echelons present till service to market

Introducing many new product variants in a highly dynamic and competitive market

Low margin and high challenges like high responsiveness and improved fill rate

Network needs to be flexible and adaptive to absorb cost implications as well as supportive tofast growth of business in long run.

Benefits

Capacity expansion and new facility opening decisions in next 5 years in time phased manner

Network optimization and giving a solution for increasing direct serve to market

Suggesting utilization of centralized Hubs based on product categories and demand variation

Inventory reduction by 15% across the supply chain

Recommended short term optimization potential by 1.03% and long term optimization potential by 2.4%.

Solution

Decide a network considering end to end cost and real time constraints of the value chain

Exhaustive roadmap for strategic initiatives for next 5 years based the long term plan

Plan for the capacity enhancement/ addition in next one year and related tactical networkdecisions

Detail out the monthly planning and RCCP activities from which production and networkinputs were given to SAP APO for cost effective and efficient supply planning execution.

Costs incorporated - sourcing, taxes, conversion and transportation cost

Constraints - serviceability, truck load, product mix loading, capacity and complex tax laws Include variant and sub variant level product change-overs.


23/51

A leading consumer product company in IndiaNetwork optimization

Client

Client is leadingcompany in notebooksin India.

Client managesmarketing, sales anddistribution of the

products across Indiaand production isgoverned by thecontractmanufacturers whoplan for raw materialprocurement based onclients demand andsupply plan.

Background and Challenges

Highly seasonal business (~3.5 times sales in peak month vs the average monthly sales) where 5

months of season (Feb-Jun) contributes to 60% of the annual sales. This seasonality putsmultiple pressures on the supply chain (Manufacturing capacity vs. Inventory build-up,execution capacity, Warehouse space etc.)

Highly Fragmented demand of the current portfolio is ~700 SKUs.

Regional preference on size, binding & Rulings for Notebooks, Each Pen model means 6 SKUs(3 colour variants of pen & refil ls each)

Forecast Accuracy: Apart from end user preference, the demand is largely influenced byexternal factors like school curricula, recommendations by individual schools

Multiple Supply Chains: Range of SKUs being sold needs a category specific view of supplychain.

Benefits

Production strategyLean season vs. peak season and accordingly gear up strategy

Pre build strategy and space allocation in a time phase manner

Increase in inventory turns from 2.5 to 4.05 and reduction in overall supply chain cost by 2.1%

Movement by parcel reduced from 40% to 30%.

Solution

Finalized framework related to production, stocking, space at centralized warehouses, prebuild inventory strategy and transportation mode finalization.

Demand segmentation for vast product portfolio was done before optimization and decisionswere supported based on various segments of demand.

Strategies were devised for various product categories regarding direct serve to market vs.hub and spoke model and accordingly pre build strategy at centralized warehouses and hubs

Reduce the Parcel mode of transportation which was proving to be a costly option forservicing to the customers.


24/51

How to Reduce Costs through Supply Chain

Network Optimization -

http://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimization

Value creation through Supply Chain Network

Optimization to address dynamic Supply Chainhttp://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5

Looking AheadThe Big Opportunity for NetworkDesign - GST Introduction in India -

http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6


Our Thought Leadership Publications
http://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=6http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.itcinfotech.com/Business-Consulting/Business-Consulting-Download.aspx?pk=5http://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimizationhttp://www.industryweek.com/planning-amp-forecasting/how-reduce-costs-through-supply-chain-network-optimization


25/51


How we can help ESPB


26/51

2013 ITC Infotech 26

Customer Value Chain and Challenges

RM 1Board

RM 2Papers

ContractManufacturers

Raw Material & PackagingMaterial Supplier

Contract Manufacturer Centralized Hubs Warehouse Service ProviderDemandRegion

Hub

WSP

Distributor

Traditional Retail

Rural

Modern TradeChallenges

Seasonality: This seasonality puts multiple pressures on the supply chain(Manufacturing capacity vs. Inventory build-up, execution

capacity, Warehouse space etc)

Highly fragmented demand: Product portfolio is huge . Complexity adds on with regional preferences of size, bindings, rulings etc.

1. Notebooks usually sell in sets, a small contribution odd ruling can be critical for the major selling ruling variant(Ex: Maths ruled vs.

Single Ruled could sell in 1: 6 ratio in certain markets). Hence such odd rulings are to be retained

2. Each Pen model means multiple SKUs

Forecast Accuracy: Apart from end user preference, the demand is largely influenced by external factors like Syllabus,

recommendations by individual schools, and hence relatively difficult to predict.

Multiple Supply Chain: Different products with wide range of sale value, product life & supply chain length.

Other RMs


27/51


Types of PlanningFrom ESPB context

Strategic Planning

Tactical Planning

OperationalPlanning

Decisions having high lead time and cost involved:Supplier or manufacturer capacity expansion

New facility opening/closingWarehouse space decisionsNew product category introductionSupply Chain design basis Pre & Post GST

Takes input from Strategic Planning decisions andpurpose is to design cost effective supply chain:

Addition of new facilities and accordingly highlevel networkProduction & Procurement frameworkProduction strategy & Pre build strategyDirect service vs. Hub & Spoke model

Works on more realistic input and thrives forsustenance of cost effectiveness:Material requirement planning & sourcingnetworkConverterSKU wise production planningFinished goods network till WSPsMode of transport between source anddestinationDegree of K1/K2/K3 servicingVehicle route optimization at WDs

Supply Chain Design tool

Optimization tool

Planning tool like SAP APObut many inputs required

from Optimization tool


28/51


29/51


30/51


How it can help in operations planning?

Monthly Production Planning:How much/where and what product to

produce?

Sequence in which to produce

Converter space requirement decisions

From SAP:Demand Plan

Firm production plan

Stock on Hand at Hubs & WSPs

Capacity constraints

From Tactical Planning:Opening & Closing requirements

Sourcing/Transportation/Stocking

policies

Capability enhancement inputs

Cost Sheet:Sourcing cost (Basic + Freight + Tax)

Conversion cost

Transportation costChangeover cost

Tax & Duties

Other Master Sheets:Sourcing constraints

Capacity related constraints

Truck load and product mix

constraints

Other soft/hard constraints

The illustrative figure above gives a clear idea that Network design tool will provide an opportunity to do

most of the planning activities basis end to end cost involved in the supply chain and also tries to find out

optimal point for operating in a limited space created by multiple constraints set


31/51


Approach


32/51


Timeline


33/51


Commercials


34/51


LLamasoft Supply Chain Guru


35/51

Sample Customers

35

Automotive / Industrial Manufacturing Consumer Goods Defense

Hi-Tech / Electronics Food Beverage

Life Sciences Grocery Logistics

Apparel Manufacturing Petroleum

Public Health Retail Chemical
http://www.cocacola.co.jp/http://www.syngenta.com/en/index.aspxhttp://carestreamhealth.com/http://www.pinnaclefoodscorp.com/index.htmlhttp://unilever.com/default.asphttp://www.chrysler.com/en/http://www.rockwellautomation.com/http://en.wikipedia.org/wiki/Image:JohnsonandJohnsonLogo.gifhttp://www.slb.com/index.asp?http://www.conocophillips.com/http://www.meadwestvaco.com/index.htmhttp://www.pepsico.com/http://www.generalmills.com/corporate/index.aspxhttp://www.transcom.mil/http://www.northropgrumman.com/index.html


36/51

Supply Chain Visibility

Interactive Dashboards

Analyze current cost-to-serve Highlight a geographic region

Explore a business segment

Rich Visuals of supply chain Flow of products

Risk profile & locations

Demand segmentation

Drill Down Reports & Metrics

% sourced from specific region

Product profitability & cost structure

Service levels & coverage

362014 ITC INFOTECH


37/51

id


38/51

Rapid Response

Use the supply chain models toevaluate contingency plans

Balance production & sourcingagainst changes in demand

Prioritize demand duringsupply short-falls

Restructure when costassumptions fail

How should I respond to an

unforeseen event?

382014 ITC INFOTECH

S l Ch i G K S i Li


39/51

Supply Chain GuruKey Service Lines

Supply ChainGuru

Network

Optimization

Inventory

Optimization

Transportation

Guru

Simulation

Safety Stock placement

Cycle stock optimization

Pre-build inventory

Service vs. inventory trade

offsPostponement strategies

Replenishment

frequencies

Strategy modelling

Network optimization

Operations Planning

Product planningPre build strategy

Mode selection

Vehicle routing

Shipment sizing &

schedulingAsset utilization

Load building

Demand variability

impacts

Supplier delays, quality

analysisRisk analysis

M i d T h l bl


40/51

Managing data Technology enablers

MS Excel Import/Export

Input pipes

Auto aggregation/disaggregation of product data

Automated model building & Integration

Data connector utility

Easy integration with ERPs (Certified partner with SAP and direct integration with SAP ERP data)

Access from Supply chain guru UI

Select, filter, extract modelling data


41/51

Competition Comparison

Network

Optimization

Greenfield

Analysis

Inventory

Optimization

Strategic

Sourcing

Cost-to-

Serve

Vehicle

Routing

Program

MultipleScenarios

w/in a

Model Simulation Reporting Mapping

SAP

Compatible

Phone

Support

Dedicated

Devlopment

Staff

LLamasoft

Supply Chain Guru + + + + + + + + + + + + +

Transportation Guru + + x x + + + + + + + + +

CAST

Aurora + + x x + x x x + + x ? ?

CINO x x + + + x x x + + x ? ?

Optimiza Inventory Optimizer x x + x x x x x + x x ? ?

IBM

ILOG--Logic Net Plus XE + x x + + x x x + + x x x

ILOG Transportation Analyst x x x x x + x x + + x x x

ILOG Inventory and Product Flow Analyst x x + x + x x x + x x x x

Infor

SCM Network Design + + + + + x x x + + x ? ?

Infor 10 Supply Chain Planning x x x x x x x x + x x ? ?

JDA

i2-Strategist + + x + + x x x + + x + xi2-Transportation Modeler x x x x x + x x + + x + x

Oracle

SNO + x x + + x x x + + x ? ?

Inventory Optimization x x + x x x x x + x x ? ?

Comparison between Excel Solver & dedicated tools


42/51

Excel Solver Supply Chain Guru

Spreadsheet based Add-in, LP/MIPformulation to be converted into datamatrices

Full fledged software tool, Input data to beentered in tables, intuitive to use

Size limit of up-to 200 variables No problem size Limit

Solves LP using Simplex and MILP using B&Bmethod

Uses Fico Xpress solver, that has highlyoptimized version of the simplex and branch

and bound algorithms

Each scenario/what-if analysis to be doneseparately

Multiple scenarios within a model

Generic approach to solve LP/MILP, smoothNLP and meta-heuristic (basic genetic

algorithm) based problems

Specializes in problem based approach:Network Optimization, Inventory Optimization

(using MILP) and Vehicle Routing (usingHeuristics)

Basic Monte - carlo simulation can be done Separate Simulation tool available fordetailed analysis

As model size increases it becomes complexto use this tool

Relatively easy to model large problems

Other spreadsheet based solvers such asExcel premium, open solver and Whats Best

(Lindo) also suffer from same drawbacks

Special constraints and business rules can beeasily incorporated into the model as

compared to in excel solver

Comparison between Excel Solver & dedicated tools


43/51

Thank You



44/51


Annexure-1

Network design gains importance because of changes happening in internal and external environment. Fiscalpolicy change is one of the important factor which some times compel companies to look away fromoperational efficiency. The illustrative case study explains how network design exercise helps in making decisionsrelated to strategic supply chain design in Pre/Post GST scenario. Here it has also been explained how it will helpin deciding the future course of actions and strategy to be adopted by the company (in long term & shortterm). Further it also explains the operational benefits that will come along in due course of time after networkdesign exercise.

GST introduction will be one of the strong compelling factor for companies to revisit their supply chain network inIndia. We expect the changes in the dynamics to be so big that the roles of many of the existing facilities(sourcing/manufacturing/distribution) may come into question. The optimum network Post GST can suggestrealignment/closing/opening of facilities. Such type of transitions is seen to have long lead times (3 months to 3-4years depending on type of industry and type of transition).Companies must revisit their network for a horizonof next 2 to 5 years so as to be proactive enough to answer the changes happening in the big tickets like GST.

Fiscal Changes often drive the need for Supply Chain


45/51

g pp y

Network Design

Many things changes with fiscal policy. So forhaving competitive advantage companies

have to keep on revisiting this exercise so as toknow the changing roles of different facilitiesand changes in network


In some countries including India, fiscal cost have been key factor in determining the supply chain network. In some

cases it becomes so important that manufacturing locations and distribution network are designed to take advantage

of fiscal benefits.

Manufacturing Units

Distributor

Retailer

Tax structurechanges

Tax exemptions &denial changes

Role of differentfacility changes

Market benefitschanges

Supply chain mixchanges

Test case

India GST Introduction


46/51

Impact on Purchase of Goods (Pre & Post GST)

** GST rates are not yet finalized but it is expected to be between 16%20%Source: ICAI(2010)


Test case Impact of GST


47/51


Factory

Warehouse (WSP)

Market (WD)

Vendors

Excise rate 10%, VAT 12.5%, CST 2%, GST 16%

Some sort of manufacturing at Vendor, Manufacturing location and Warehouses

Stock movements from manufacturing location to warehouses is treated as a stock transfer (ownership doesnt change)

From warehouses to WDs (wholesale dealer) ownership changes

Vendor is in Karnataka state, Manufacturing unit in Karnataka state, WD (wholesale dealer in Tamil Nadu state)

There are two warehouses-one in Karnataka & one in Tamil Nadu

Value wise margins for different echelons are kept same

Assumptions

Test caseImpact of GST


48/51

B fit P & P t GST (N t k D i i )


49/51


BenefitsPre & Post GST (Network Design exercise)

Quick summary of analysis on one of CPG major in India:Number of warehouses has reduced to 36 from current 45. Many existing warehouses closed and new warehousesopened.Days of Inventory reduced by 20%Primary freight cost reduced & secondary freight cost increased slightly

Positives Negatives

Bigger consolidation of demand at warehouses Route planning becomes a challenge as warehouse have to deal with

dealers in a bigger geography

Reduced variation in demand at warehouses Secondary freight cost will increase

Improved inventory management Truck load utilization will reduce in secondary distribution

Improved demand planning In lower lead times the service level will experience a little impact.

Reduced production complexity (less changeovers)

Reduction in number of echelons in supply chain

Increase in truck load utilization (especially in primary freighting)

Reduced cost for improving service level

Benefits Future Strategy


50/51


BenefitsFuture Strategy

Supply Chain Costs

Serviceability

Post GST

Pre GST

Zone of Flexibility (Cost vs. Serviceability)

Possible strategies:

Invest more to get better serviceability

Develop efficient supply chain to get cost benefits

Pricing strategy

Zone of flexibility provides businesses opportunities

to reconfigure their supply chain as per their strategic

requirements

It is important for business to regularly take Network

design exercise to know their zone of flexibility

Benefits Future Course of action


51/51

BenefitsFuture Course of action

Contract renegotiation

Inter vs. Intra statesourcing options

Process redesign

Price renegotiation

Reliability & Qualityconsideration

Capacity expansion/closing

Capability realignment

Flexible manufacturing

Manufacturing processredesign

Role finalization

Improve forecastingprocess

Improve inventorymanagement

Trade off betweencustomer serviceability andcost associated

Improve Pricing &Promotion Strategy

Increase responsiveness byreducing number ofechelons

Warehouseopening/closing

Shared roles of warehousewith mfg unit

Maximum utilization ofmulti modal & multi-tier

Sourcing Manufacturing

DistributionOther Areas

Supply Chain Network Optimization_Final

Documents