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

Supply Chain Planning

Dinesh GargIndian Institute of Science

Bangalore-India

September 27, 2003

Foundations of Global Supply Chain Management

Outline of the Talk

What is Supply Chain Planning

Supply Chain Planning Process

Supply Chain Planning Decisions

Software Tools

GSCM at Digital Equipment Corporation

Conclusions

What is Supply Chain Planning ?

Supply Chain is a set of activities (e.g. purchasing,manufacturing, logistics, distribution, marketing) that perform the function of delivering value to end customer

Traditionally, all the business units along a supply chain have their own objectives and these are often conflicting

There is no single plan to carry out supply chain activities

What is Supply Chain Planning ?

There is need for a mechanism through which the execution of various business activities along a supply chain can be planned in an integrated fashion.

The supply chain planning is an effort to achieve the primary goal of “producing and distributing the merchandise at the right quantity, to the right locations, and at the right time with minimum systemwide cost” in the presence of conflicting goals of various business units

Dynamics of Material Flow

Supplier Plant Warehouse Logistics Retailer

Dynamics of Order Flow

Supplier Plant Warehouse Logistics Retailer

Supply Chain Planning Processes

Demand PlanningMaterial Requirement PlanningDemand Forecasting

Supplier Plant Warehouse Logistics Retailer

ProductionPlan

ComponentRequirement

Order Management

Supply Chain Planning Decisions

OPERATIONAL

TACTICAL

STRATEGIC

Procurement DistributionManufacturing Logistics

Supply Chain Planning Decisions

• Supplier Selection•Allocation of Suppliers to the Plants

•Location, Number, Capacity of Plants •What Products to Produce•Which Plants to Produce them

•Location, Number, Size of Warehouses

• Mode of Shipment

• Port Selection

• Procurement Policy

•Warehouse Allocation• Inventory Decisions• Manufacturing Policy

• Customer Allocation• Distribution Policy

• Vehicle Routing

• Fleet Size

• Production Schedule•Scheduling on Machines• Workload Balancing

• Finished Goods Inventory

• Vehicle Routing

Software Packages

i2 Six: A comprehensive solution suite for spend/production/ revenue/ logistics/ fulfillment optimization

Solution suites for network design & optimization/ manufacturing planning & scheduling/ global logisticsmanagement/ service & parts management

JD EDWARD: The advanced planning software to synchronize demand & planning/ network Optimization/ production & distribution planning

Software Packages

ARIBA Spend Management: It helps companies driving down enterprise wide spend

mySAP SCM: A complete supply chain planning solution

iBann: A complete solution suite from demand collaboration to order management

Results

Companies that

utilized best-in-

class SCM solutions

have

Reduced inventory levels by 10-15%

Reduced markdown & scrap by 10-15%

Improved delivery reliability by 95-95%

Used resources10-20% more efficiently

Reduced transportation cost by 10-15%

Reduced cycle time by 10-20%

Reduced outages to 0-5%

Global Supply Chain Model (GSCM) @

Digital Equipment Corporation

GSCM at Digital Equipment Corp.

HISTORY

1957: Founded by Ken Olsen

1961: Started Construction of first computer PDP-1

1978: Took Over the majority of minicomputer market

1980: Second Largest Computer company in the world

1990: DEC suddenly found its sales faltering

1998: DEC was sold to Compaq

2002: Compaq was taken over by HP

2003: Digital Global Soft is a well respected IT service company in India. Earlier it was 51% subsidiary of DEC

GSCM at Digital Equipment Corp.

DEC in Late 80s and Early 90s:

1987:

DEC successfully supported a full range of products for over 20 years with 33 plants in 13 countries including 30 distribution and repair centers

1989-1990:A mismatch among capacity, infrastructure, and demands of new markets

1988 - 1993:

Digital reengineered the business processes throughout manufacturing and logistics.

Corporate Logistics and Manufacturing initiated the development of GSCM for simultaneously balancing the conflicting attributes of manufacturing and logistics

GSCM at Digital Equipment Corp.

Number, location and capacity of plants

What product to build at which plant

Significance & location of tax heavens

Number, location and capacity of DCs

Which DC should serve which customer

Number and location of repair centers

Optimal design of spare parts

Manufacturing

Logistics

Spare Parts

Decision Variables for GSCM

GSCM at Digital Equipment Corp.

Which supplier to keep

Which product to buy in a nation

Which supplier should supply each plant

Location & availability of cheap labor

Length of material pipeline in time

Export regulations, duty rates

Supplier Selection

Miscellaneous

GSCM at Digital Equipment Corp.

GSCM minimizes a weighted sum of total cost and activity days

1. Production Costs

2. Inventory Costs

3. Material Handling Costs

4. Taxes

5. Facility/Production Line Fixed Costs

6. Transportation Costs

7. Duty Costs

Objective Function for GSCM

Total cost includes

GSCM at Digital Equipment Corp.

Customer demand is met for each product, in each period, in each customer region

Limits on number of facilities making each product

Limit on number of facilities using each manufacturing style

Fixed charges for products made by each facility

Fixed charges for facilities making any product

Fixed charges for manufacturing style used by each facility

Limited production capacity, inventory storage, and shipping volume

Constraints for GSCM

GSCM at Digital Equipment Corp.

Solution Approach

Users are invited to advise and assist the solver by specifying with each constraint just how much it would cost to violate the constraint

Elastic penalties help solver decide which constraints are hard and which are soft

The solver uses branch and bound enumeration

The problem of realistic size and detail, the GSCM features constitute a formidable class of large, difficult optimization problem

GSCM at Digital Equipment Corp.

A reduction of $167 million in annual manufacturing cost

A reduction of $200 million in annual logistics cost

Number of plants was to be reduced from 33 to 12

Five times more computers were manufactured

Impact of GSCM on DEC (1990-1994)

Arntzen, Brown, Harrison, and Trafton “ Global Supply Chain Management at Digital Equipment Corporation”, Interfaces,1995, pp. 69-93

Conclusions

Supply Chain Planning: A critical factor in the success and profitability of a company

Short Product Life Cycle: Improper planning can take the company out of business

Bad News: Planning is an hard problem to formulate as well as solve

Good News: Plethora of Commercially available software for supply chain planning

Thank You

Over to Dr. Mathirajan ….