02 - Procurement and Planning - ISC

[[2 - Supply planning - SC.pdf]]

Customization and Postponement

Postponement

postponement

Postponement is the delay or defer of the final part of production process untile the latest time possible.

Postponement benefits

Service improved dramatically
Less complexity
Flexibility to fit demand
Inventory levels declined
Lower storage costs

Postponement needs

Modular design of products
Feasible to decouple primary & postponement operations
High value products
Flexible production capacity
Short & reliable lead time

Customization

customization

Customization is a production/preparation process where the output is tailored to the requirements of the customer.

example - dell computers

Dell allows you to fully customize your computer upon purchase: processor, memory, storage...

Customization benefits

Higher added value
Can charge a premium price
Method of differentiation
Builds brand strength & loyalty
Produce to order, lower inventory

Customization needs

Lean and Efficient SC process
Close integration with suppliers
Effective use of information
Flexible production capacity
High degree of automation

Demand planning

demand planning

Demand planning is the science of planning customer demand to give visibiity to business and SC.

It is important to keep in mind that the forecast will NEVER be correct.

Demand planning KPI

SSP1/SSP3

ssp

It's the ratio between the actual units sold and the forecast minus 1. It's calculated at 1 month and 3 months:
$S S P_{n} = \frac{\sum n month actual}{\sum n month forecast} - 1 [%]$

Perfect SSP = 0%

Forecast accuracy

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❗❗❗ COMPLETARE ❗❗❗
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[?] I don't understand what the symbols mean. How is this calculated?

SELL-IN VS SELL-OUT

Sell in:

From You to the client: Quantity selling to the client
What your client is selling to the consumer

What information would you prefer to have if you had to choose: The SELL-OUT
I can predict the sell-in based on the sell-out.

In an ideal world, Sell-IN=Sell-OUT.

Often we don't work with sell-OUT, because the client doesn't disclose it (at least for free).

Demand planning

Bullwhip effect

The bullwhip effect is a demand distortion that travels upstream in the supply chain from the customer to the wholesaler, manufacturer and supplier due to the variance of orders which may be larger than that of sales.

We always sell 1000u + we have 1000u of safety stocks

One day we sell 2000u.

This might induce to send 2000u+1000u to refill (the sold + the new stock).

This can reflect in any step of the supply chain since there are always safety stocks.

Diapers
It seemed they were selling more size 4 diapers than usual.

It seemed they were doing very goood. Then the supermarket stopped asking for refill.

What happened is that the white brand of the supermarket run out, so they sold more pampers. When they restocked, they stopped selling pampers.

EXAMPLE 2

Volvo. They had a lot of green cars. So they started lowering the price of the green cars. So they started to sell more green cars. As a result the factory started producing more green cars.

Bullwhip effect Causes

Main causes of Bullwhip effect:

Lack of communication/information
No forecast visibility

Other causes:

Sales manage
Operational
- MOQ (Min Order Quantity)
  - Sometimes I can't ask for exactly the amount of units I need
- Lot size
- Frequency (Lead times)
  - If I can only order once per month, I have to order enough for the whole month
Prices
- Discounts can increase demand unexpectedly

Bullwhip effect Solutions

Decision process
- Understand the problem
Physical distribution
- Decrease lead times
- Proper SS strategies
Information
- Try to share the information across the supply chain

Sales and Operation Planning

sales and operation planning (s&op)

The Sales and Operation Planning (S&OP) is a process that efficiently manages launches, demand & supply to meet the needs of customers and consumers

Characteristics:

Cross functional process - everybody is involved
Is performed in a monthly basis
Focus on building long term and sustainable success
Promote business transparency to take actions to grow
Disciplined preparation and decision making process with clear actions to the different streams