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Supply Chain Design Complements

Supply Chain Design Complements    Current ERP and Supply Chain Management (SCM) vendors are not likely to provide Supply Chain Des... thumbnail 1 summary

Supply Chain Design Complements  

Current ERP and Supply Chain Management (SCM) vendors are not likely to provide Supply Chain Design functionality. It is common wisdom that the leaders of one wave of innovation often miss the next. SCM systems have gotten broader rather than deeper, following the path of MRP-MRP II-ERP. Just as SCM improved on ERP materials planning, Supply Chain Design improves on SCM’s ability to optimize service levels, inventories, and costs. One recent addition to SCM is event management (SCEM), or alerts that allow faster reaction to change. Corey Billington, Hewlett-Packard’s VP Supply Chain Services, says, “If you require SCEM, your supply chain is breaking too frequently. A well-designed supply chain should deal with your environment’s normal variation.”

that have a limited scope: i.e., network design, demand forecasting, production planning, or warehouse management.

• Supply Chain Design provides a financial comparison of various options for inventory strategy and policy as well as supply, outsourcing, make-to-order, capacity and lead-times.

Supply Chain Design and SCM have different objectives, and the “engines” or algorithms for design are fundamentally different than those used in APS optimization. However, Supply Chain Design is complementary to SCM, and can make current systems more effective: Supply Chain Design outputs are what current Supply Chain Management (SCM) systems use as inputs or constants.

• The design problem must account for uncertainties in both demand and supply, while APS is tasked with creating a plan for personnel to follow. Uncertainty means plans and forecasts are always wrong, and Supply Chain Design should prevent that reality from becoming a major customer service problem. 

• Supply Chain design evaluates the impact of interactions between plans and disciplines. It optimizes for total cost vs. service level across departments, operational units, and even legal entities. Most SCM consists of separate modules

Multi-Discipline View
Supply Chain Design must, by nature, span supply, production and distribution. It also delivers useful insights for sales, procurement, finance, and executives. In many ways, it enables companies to realize the concept Think global. Act local.

• Supply chain staff can make better decisions with visibility to more interactions.

• Sales and marketing can commit to customer service levels.

• Procurement can address supply uncertainty and the cost of early or late receipts.

• Operations can see the cost impact of WIP, cycle times, and capacity constraints. 

• Inventory managers gain insights into safety stock policy and its effectiveness.

• Logistics staff can analyze the impact of freight modes and distribution center efficiency on inventory.

• Financial analysts can better understand and predict cost of goods sold (COGS). The breadth of factors considered in Supply Chain Design allows it to calculate inventory costs by cause. (Figure 4.) With the service level target set, the design strives for lowest costs. Anyone can quickly understand where costs lie and what inventory issues might jeopardize their capability to deliver to the service targets.

Supply Chain Design enables companies to Think Global. Act Local.
  • Safety Stock Cost to cover
  • Demand Uncertainty
  • Safety Stock Cost to cover
  • Stage-Time Uncertainty
  • In-Process Stock Cost
  • Early Arrival Stock Cost
  • Batch Cycle Stock Cost

Supply Chain Design develops inventory level recommendations based on issues across the enterprise: sales and demand forecasting, operations time, WIP Requirements and batching, procurement issues around early parts arrival and purchase quantities. All of these are viewed by cost, not just quantities. Supply Chain Design provides mutual ground for a range of individuals and departments to take part in the process and improve their performance. Changing the Basis of Competition with Supply Chain Design 8

Two Levels of Design Decisions
Design may sound like something that happens only occasionally, but as with product design, Supply Chain Design can be part of weekly and monthly business processes to review the best response to changes in supply, demand, or competition. 
Most companies use Supply Chain Design for strategic purposes first, as in the HP example above, and later move into tactical uses.

Strategic: Supply Chain Design adds insight to the annual and quarterly decisions company executives must make. Its financial impact views help make decisions on sourcing and outsourcing; analyze capacity investments and lead-time reductions; set inventory strategy; and understand tradeoffs between make-to forecast and make-to-order business models with varied postponement configurations. Tactical: On a quarterly or monthly basis, most companies need to review their inventory policies. Supply Chain Design can optimize safety stock locations and safety stock levels based on the projected demand and mix for a given period – and the service levels desired. It can also show the cost impact of changing service levels for various customers, geographies, or product families. 
An increasingly respected type of tactical Supply Chain process is frequent Sales and Operations Planning (S&OP). This is where supply planning, sales, operations, demand planning, management, and finance come  together to agree on a plan for the period. As demand, supply, and logistics change, Supply Chain Design can contribute major missing input to the process: optimized and costed inventory plans for various service levels and delivery times to the customer. In short, Supply Chain Design provides various groups and levels in an organization the ability to make sound decisions – based on customer service and financial impact. It also creates a Supply Chain Design knowledge base, storing the history of decisions and the tradeoffs behind them. The addition of Supply Chain Design to an enterprise can improve strategic and tactical business processes.

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