Introduction to Global Supply Chain Management
Module Three:
Sales & Operations Planning In
The Age of Globalization
This project received $24.5M (100% of its total cost) from a grant awarded under TAACCCT,
as implemented by the U.S. Department of Labor’s Employment and Training Administration.
This is an equal opportunity program and auxiliary aids and services are available upon
request to individuals with disabilities.
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Class Agenda
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Sales & Operations Planning (S&OP)
defined
– Components & activities
•
•
•
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Buy-Side & Sell-Side elements of
international trade
Material Requirements Planning
Distribution Requirements Planning
Introduction to Inventory
Management
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The Essence of Supply Chain Management:
Buy-Side & Sell-Side Activities In An Outsourced World
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MANUFACTURER
DISTRIBUTION
SYSTEM
MATERIALS
MANAGEMENT
DISTRIBUTION
MANAGEMENT
Buy-Side
Sell-Side
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Sales & Operations Planning
“Sales & Operations Planning is a multi-functional business discipline that helps
companies to synchronize product supply with customer demand. Designed as an
ongoing process, S&OP uses updated forecasts to translate high-level supply chain
strategies into operational activities that include production planning, material
requirements planning, purchasing, distribution requirements planning, inventory
management, sales, order management, logistics, finance and accounting.
At its core, S&OP forces executives to constantly compare period-specific product
forecasts with actual sales activities, and then make operational adjustments that reflect
any variation between the two. Whereas the frequency and planning horizon for S&OP
will vary by industry and company, S&OP is essential to making sure that an
organization can achieve a balance between demand, inventories and profitability.”
-Dan Gardner, April 2015
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S&OP:
Constantly Aligning Strategy, Tactics & Demand
Marketing
planning
Strategic
planning
Financial
planning
Resource
planning
Production
planning
Demand
management
Master
production
scheduling
Routing
file
Detailed
capacity
planning
Shop-floor
systems
Bills of
material
Detailed
material
planning
Front end
Inventory
status
data
Time-phased
requirement
(MRP) records
Material
and capacity
plans
Engine
Vendor systems
Back end
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The S&OP Challenge:
Integrating & Synchronizing Functional Activities
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Sales forecasting
Materials Requirements Planning
– Supplier Relationship Management
•
Distribution Requirements Planning
– Customer Relationship Management
•
•
Inventory Management
Demand Management
– Available to Promise
– Order Management
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Sales & Operations Planning:
Objectives & Outcomes
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Link high-level strategy with tactical
execution
– Marketing
– Production
– Finance
•
Greater alignment between the BuySide & Sell-Side of the supply chain
– Supplier Relationship Management
– Customer Relationship Management
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Sales & Operations Planning:
Objectives & Outcomes
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Improved sales
– Existing products
– New product launches
•
•
•
•
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More accurate forecasts
End-to-end supply chain visibility
Control over landed costs & profit
margins
Reliable lead times
Enhanced inventory management
– No lost sales
– Minimal obsolete inventory
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The “Cascade Effect” of Forecasting on
Sales & Operations Planning
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S&OP:
Everything Starts with a Forecast
Marketing
planning
Strategic
planning
Financial
planning
Resource
planning
Production
planning
Demand
management
Master
production
scheduling
Routing
file
Detailed
capacity
planning
Shop-floor
systems
Bills of
material
Detailed
material
planning
Front end
Inventory
status
data
Time-phased
requirement
(MRP) records
Material
and capacity
plans
Engine
Vendor systems
Back end
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Characteristics of
The Forecasting Discipline
•
•
Virtually all supply chain (S&OP)
activities begin with a forecast
Because forecasting involves
predicting the future, they are almost
always wrong
– Predicting future sales
– Budgeting for future costs
– Planning for capital expenditure
•
Differences between forecasts and
actual results should be calculated as
soon as posible and made a part of
future planning
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Forecasting & SCM
•
•
The forecasting function is a primary
building block of S&OP, Supply
Chain Management and inventory
management
Forecasting of independent demand
permeates the entire Supply Chain
– Independent demand determines
dependent demand (Quantities of raw
materials needed to manufacture
products)
– Both independent & dependent
demand impacts inventory levels
throughout the Supply Chain
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Characteristics of
The Forecasting Discipline
•
•
•
Consuming the Forecast is the
cornerstone of Sales & Operations
Planning
Forecasts should be carried out on a
long, medium, short and immediate
basis
Performed only for “Independent
Demand” items (finished goods)
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Characteristics of
The Forecasting Discipline
•
Must consider cycles, trends,
seasonality & random variation
– Retail: Seasons, events & holidays
– Importance of the “Retail Calendar”
•
•
Forecasts are more accurate for
families or groups of products
Forecasts are more accurate for nearer
time periods
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Sales & Operations Planning:
The Integration & Synchronization of
Buy-Side Activities
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MANUFACTURER
DISTRIBUTION
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MATERIALS
MANAGEMENT
DISTRIBUTION
MANAGEMENT
Buy Side
Sell Side
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Buy-Side Activities:
Material Requirements Planning (MRP)
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MRP is a time-phased approach to
planning for the procurement of raw
materials that will go into a
production process
MRP activities are based on the
Master Production Schedule
– What products will be
manufacturered
– Quantities to be produced
– During a specific “time bucket”
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Materials Requirements Planning
•
Forecasts for finished goods
(independent demand) are what drive
the MPS and MRP
– Independent demand for finished
goods drives dependent demand for
raw materials
– The “Cascade Effect”
•
MRP for specific products is driven
by the “Bill of Material”
– A “recipe” for the raw materials that
go into making a product
•
MRP software provides productspecific information on what to order,
in what quantity and when to place a
purchase order
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Materials Requirements Planning
•
As part of the S&OP process, MPS &
MRP quantities will change based on
updated forecasts
– Adjustments made to the MPS &
MRP driven by actual demand
– Consuming the forecast
•
Two essential activities related to
MRP are:
– Gross to Net Exploding
– Lead-time Offsetting
•
MRP has a direct impact on sales,
landed costs, lead times and inventory
levels
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The Heart of the Tactical Matter:
Material Requirements Planning (Buy Side)
Material Requirements Planning (MRP)-A set of techniques that use Bill of Material data,
inventory data and the master production schedule to calculate requirements for
materials. It makes recommendations to release replenishment orders for material. Further,
because it is time-phased, it make recommendations to reschedule open orders when due
dates and need dates are not in phase. Time-phased MRP begins with the items listed on
the MPS and determines (1) the quantity of all components and materials required to
fabricate those items and (2) the date that the components and material are required.
Time-phased MRP is accomplished by exploding the bill of material, adjusting for inventory
quantities on hand or on order, and offsetting the net requirements by the appropriate lead times.
Source: APICS Dictionary
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Integrating S&OP:
MPS, MRP, Inventory Management & Logistics
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Gross–to-Net Exploding
– An exercise whereby the original
(gross) requirement for a product is
reduced by:
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Inventory on hand
Confirmed order receipts
Confirmed order releases
Planned order releases
Gross-to-Net Exploding must be
integrated with the raw materials
inventory management function
Integration is achieved through
process design and supply chain
software applications
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Integrating S&OP:
MPS, MRP, Inventory Management & Logistics
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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
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Software-Based MRP Item Table
Item: ABC
Order Qty: 1,000
Lead Time: 2 weeks
Time Bucket (week)
Gross Requirements
Scheduled Receipts
Projected Available
Net Requirements
Planned Order Receipt
Planned Order Release
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Based on the MPS, BOM and available inventories, MRP software nets, offsets,
explodes requirements and creates Planned Order Releases. As actual activity
“Consumes the Forecast,” algorithms in the software automatically
cascade updates to the MRP Product Records
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Essential Information for MRP Item Record
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Item name, description, item number
and Harmonized System number
Vendor(s)
Unit cost
Unit of measure
Stock locations
Inventory classification (ABC)
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Essential Information for MRP Item Record
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Usage
On-hand balance at each location
Amount allocated
On-order info by due date
Re-order and safety stock information
Order quantity
Lead time
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Sales & Operations Planning:
The Integration & Synchronization of
Sell-Side Activities
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MANUFACTURER
DISTRIBUTION
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MATERIALS
MANAGEMENT
DISTRIBUTION
MANAGEMENT
Buy-Side
Sell-Side
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The Heart of the Tactical Matter:
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 an
an organization’s stocking locations (satellite warehouse, regional distribution center, et al).
Distribution Requirements Planning relies upon the principles of Gross-to-Net Exploding and
Lead 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 (multiple
warehouses), the discipline uses a “Bill of Distribution” to implode time-phased requirements
from satellite warehouses up through the distribution channel to main distribution centers.
Ideally, companies and their supply chain partners employ cloud-based visibility tools to truly
integrate and synchronize all of their Sales & Operations Planning activities.
Dan Gardner, April 2015
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Software-Based DRP Product Table
Time Bucket (week)
Gross Requirements
Scheduled Receipts
Projected On-Hand (POH)
Net Requirements
Planned Order Receipt
Planned Order Release
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2
3
4
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By using a product’s Bill of Distribution, DRP software implodes requirements up
the distribution channel to create product-specific, time-phased Planned Order
Releases. When S&OP activities are truly integrated and synchronized, DRP results
will be cascaded back up the supply chain to Buy-Side functions like MPS & MRP.
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Distribution Requirements Planning
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•
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Used for independent demand
products (finished goods) within a
company’s distribution network
Calculates time-phased requirements
in specific quantities
Very similar to the logic behind MRP
– Gross to Net Exploding
– Lead-time Offsetting
•
Uses Bill of Distribution to implode
needs up the distribution channel
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Distribution Requirements Planning
•
Heavily influenced by customer
orders
– Backorders & current orders
•
•
Consumption of the forecast integral
to the process
S&OP adjustments must be made
based on variances between forecast
& actual demand
– Variances are cascaded back up the
supply chain to Buy-Side activities
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Elements of the DRP Discipline
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Time periods (known as time buckets)
Gross Requirements
Scheduled Receipts
Projected On-Hand
Planned Order Receipt
– Date & quantity of order
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Planned Order Release
– Based on BOD
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Inputs to the DRP Process
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Item forecasts by due date
Open customer orders by due date
Beginning on-hand quantity by item
Replenishment lead times by item
Safety stock by item
Order quantities by item
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Outputs of the DRP Process
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Projected On-Hand by time bucket
Net Requirements by time bucket
Exception Reporting
– Identifies those items that require
action
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Planned Orders by time buckets
System-generated action messages
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Release planned order
Lead-time violation
Expedite scheduled receipt
De-expedite a scheduled receipt
Cancel an order
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Introduction to Global
Inventory Management
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Inventory Management Defined:
•
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Inventory Management: All
activities associated with the
valuation, acquisition, shipment,
location, storage, sale, distribution,
disposition, recovery and disposal of
merchandise related to the operation
of a firm’s business
Goal is to meet the customer service
requirements of the company
– Product availability
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Global Inventory Management:
Integrating & Synchronizing the Supply Chain
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Raw materials, components, sub-assemblies, work-in-process,
finished goods, accessories, service parts, MRO
MANUFACTURER
DISTRIBUTION
SYSTEM
MATERIALS
MANAGEMENT
DISTRIBUTION
MANAGEMENT
Buy Side
Sell Side
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Different Industries & Business Models
Determine How Supply Chains Are Designed
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Retailer (brick & mortar)
E-Commerce
Wholesaler/Distributor
Manufacturer (OEM)
Tier I, II or III supplier
Agricultural importer/exporter
Marketer/Merchandiser
Different Types of Inventory & Operating Models
Also Influence How Supply Chains Are Designed
Operating Model
Types of Inventory
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Raw materials
Components/sub-assemblies
Work In Process
Finished goods
Distribution inventory
Accessories
Spare parts
MRO
Build to stock
Build to order
Assemble to Order
Engineer to Order
Just In Time
Vendor Managed Inventories
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Global Inventory Management:
Strategic & Tactical Considerations
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•
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Total dollar investment in global
inventories
Number and type of Stock Keeping
Units (SKU’s) or Part Numbers to
carry
Locations of distribution centers,
warehouses and/or satellite operations
– By region and/or country
•
Risk Management policies &
procedures
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Global Inventory Management:
Strategic & Tactical Considerations
•
•
In-house inventory management or
with a Third Party Logistics (3PL)
company
Systems integration
– Inventory management system
– Warehouse management system
– Transportation management system
•
Accounting principles
– First In/First Out
– Last In/First Out
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Global Inventory Management:
Strategic & Tactical Considerations
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Inventory accuracy Best Practices
– ABC Analysis
– Cycle Counting
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Safety stock levels
Order points
Min/Max levels
Title transfer (Buy-Side & Sell-Side)
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Regardless of the Model or Type of Inventory:
I.M.-Related Costs to Consider
• Ordering costs
– Clerical & Admin support
• Carrying costs
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Cost of capital
Opportunity cost
Lease
Payroll
Systems
Materials handling equipment
Maintenance
Supplies
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Regardless of the Model or Type of Inventory:
I.M.-Related Costs to Consider
• Transportation costs
– Ocean, air, surface
– Returns & reverse logistics
• Risk management
– Theft, pilferage & damage
– Insurance
– Security
• Stock-out costs
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Expedited transport
Back-order processing
Lost sales
Depletion of customer goodwill
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End of Module Three
Congratulations!!!