What’s the Right Supply Chain for Your Product?

Leveraging different channel and distribution strategies based on your product profiles
Kate Vitasek Managing Partner Supply Chain Visions www.scvisions.com

upply hain Visions

Agenda
The Supply Demand Mis-Match Challenge Solving the Mis-Match
SKU Stratification: Volume Variability Profiling Selecting the Right Supply Chain Solution

Case Studies
upply hain Visions

The “Bullwhip” Effect
Traditional supply chains amplify instability of demand at each stage

WIP

WIP

Primary Secondary Suppliers Manufacturing Manufacturing

Regional Distributor Warehouse

Retailer Customer

upply hain Visions

The Product Life Cycle Further Exacerbates the Problem Illustration of a Typical Product Life Cycle Mass produce and distribute Units per period Core Products Launch Replenishment Mode Ongoing Fulfillment to support demand (med volume) EOL Support aftermarket (low volume) Build awareness upply hain Visions Beta’s / New Products Launch Date End of Life .

A Typical “Launch” Related Product Makes It Even Worse 16000 SKU260100 (Demand Life Cycle) 14000 Launch (1-30 d) Hibernation Period (31-45 d) Post-Launch (46-90 d) 12000 10000 8000 units 6000 Maturity (91-180 d) End-of-Life (181+ d) 4000 2000 0 1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145 153 161 169 177 185 193 201 209 217 225 233 241 249 257 265 upply hain Visions day 273 .

The Supply Demand Alignment Challenge Different SKUs have different attributes and needs: How can we capture the profile of what is really happening? upply hain Visions .

558 Cum.%Units 22% 80% 95% 100% % Units 22% 58% 15% 5% % SKUs .004% 7% 18% 75% .Traditional approaches to product profiling have advocated an ABC volume profile Cum % Volume 100 90 80 70 60 50 40 30 20 10 0 0 B SKUs C SKUs A SKUs 25 50 75 100 125 150 200 300 400 450 500 550 # of SKUS Example SKU Stratification upply hain Visions Top 7% of SKUs account for 80% of units sold !!! SKUs 1-2 3-44 45 .142 143 .

Later approaches advocate profiling based on “innovation” as a proxy for variability…. What is the Right Supply Chain For Your Product? hain Visions Harvard Business Review. Efficient Responsive upply Source: Marshall L. Functional Products Long Low Low Low Innovative Products Short High High High Life cycle # SKUs Stockout Rate Forecast Error Supply Chain Type…. Fisher. March-April 1997 ..

flexibility postponement buffer inventory upply Source: Marshall L. March-April 1997 .….and “matching” the product against either a responsive or an efficient supply chain. Functional Products Efficient Supply Chain Innovative Products Techniques high mfg utilization Low cost options Responsive Supply Chain Techniques speed. What is the Right Supply Chain For Your Product? hain Visions Harvard Business Review. Fisher.

Agenda The Supply Demand Mis-Match Challenge Solving the Mis-Match SKU Stratification: Volume Variability Profiling Selecting the Right Manufacturing/Distribution Solution Case Studies upply hain Visions .

0 0 100 200 500 1000 2000 3000 10000 upply hain Visions Variability Average Weekly Volume . Volume Variability Profile (Standard Deviation) 8.0 5.0 1.0 2.0 0.0 6.0 4.0 7.Looking at BOTH volume AND variability at the SKU level is better…….0 3.

0 7.0 4.0 1.0 5.0 2.0 3.0 0.0 0 100 200 500 1000 2000 3000 10000 “A”s “B”s “C”s “D”s (Launch/Promo) upply hain Visions .0 6.Volume – Variability SKU Stratification takes into consider risk associated with the SKU as well as efficiencies associated with volume 8.

g. promotions) upply hain Visions .SKU Stratification Logic A SKUs Medium to high volume SKUs Stable order rate/low variability = easy to plan Longer term lifecycle means little risk of obsolescence B SKUs Medium volume SKUs Order rate low or high variability = harder to plan Longer term lifecycle means little risk of obsolescence C SKUs All low volume SKUs regardless of lifecycle Order rate/high variability = hard to plan Short to medium term lifecycle SKUs have higher risk of obsolescent D / Launch SKUs Any volume SKU with very short (e.g. primarily launch) lifecycles Any high volume SKU with high variability (e.

Agenda The Supply Demand Mis-Match Challenge Solving the Mis-Match SKU Stratification: Volume Variability Profiling Selecting the Right Supply Chain Solution Case Studies upply hain Visions .

What are the Right Building Blocks for Your Supply Chain? Transportation Distribution Planning upply hain Visions Manufacturing .

Different Functions Have Different Techniques that Can Be Leveraged Planning/ Forecasting Statistical Historical Market Assumption Manufacturing Build to Forecast Assembly Line Automated Distribution Fulfill from Stock inventory via plan Inventory via Kanban/JIT Transportation Rail Ocean TL LTL Parcel Transportation Build to Order Cellular Mfg Lean Mfg Make to Order Cross Dock Direct to Store (by pass DC) Distribution Planning Manufacturing upply hain Visions .

Example: Tide Laundry Detergent Planning/ Forecasting Statistical Historical Market Assumption Manufacturing Build to Forecast Assembly Line Automated Distribution Fulfill from Stock Push inventory via plan Pull Inventory via Kanban / JIT Transportation Rail Ocean TL LTL Parcel Air Transportation Build to Order Cellular Mfg Lean Mfg Make to Order Cross Dock Direct to Store (by pass DC) Distribution Planning Manufacturing upply hain Visions .

Example: Spiderman Video Game Planning/ Forecasting Statistical Historical Market Assumption Manufacturing Build to Forecast Assembly Line Automated Distribution Fulfill from Stock Push inventory via plan Pull Inventory via Kanban / JIT Transportation Rail Ocean TL LTL Parcel Transportation Build to Order Cellular Mfg Lean Mfg Make to Order Cross Dock Direct to Store (by pass DC) Distribution Planning Manufacturing upply hain Visions .

fulfill from stock via plan. most companies fall into the trap of having only 1 or 2 options for their product Most companies pick the simplest of options – build to stock manufacturing. and planning using simple Excel spreadsheet planning 74% of all companies use a Build to Stock Manufacturing Model 1 70% of all companies use simple Excel spreadsheets for planning/forecasting 2 upply hain Visions 1) 2) PRTM Benchmarking study Karl Manrodt. Georgia Southern University study .The Single Block Syndrome While there are many different supply chain building blocks that can be leveraged.

take the Spiderman Video Game….However. which has goes through all 4 Volume/Variability SKU Classifcations 16000 SKU260100 (Dem and Life Cycle) D SKU – High Volume Launch 14000 12000 10000 A SKU – Predictable Low Risk Fulfillment units 8000 6000 4000 B SKU – Higher Risk / Lower Volume Fulfillment C SKU – 91 100 109 118 127 136 145 154 163 172 181 190 199 208 217 226 235End-of-Life 244 253 262 271 day 2000 0 upply hain Visions 1 10 19 28 37 46 55 64 73 82 .

on demand Manufacturing techniques may be available for low volume SKUs.…and can leverage 4 distinct supply chain models based on its life cycle / SKU Class Profile Possible Manufacturing Strategies Build to Forecast for Launch Build Volumes Build to Forecast Components on Hand Possible Distribution Strategies Ship End of Line Drop Ship/ Direct to Store Fill from FG Stock .Direct to Store for OOS’s Fill from FG Stock Compensate for Mfg Lead Time Non Stocking SKU Drop Ship / Direct to Store D A B C upply hain Visions Build to Order Components on Hand Make to Order On Demand Manufacturing* * For some products such as in the High Tech Industry for CDs and Print commodities.Through Retailer DC for instock replenishment . .

Agenda The Supply Demand Mis-Match Challenge Solving the Mis-Match SKU Stratification: Volume Variability Profiling Selecting the Right Supply Chain Solution Case Studies upply hain Visions .

Case Study upply hain Visions .

) BU managed items upply hain Visions .400 active items that can be ordered and shipped via Direct or Retail Channel 7 years of TurboTax products 2 years of QuickBooks products 2 years of Quicken products Only 650 items are currently being forecasted Only 473 items are being closely managed and reported to the BU on a weekly basis Forecast Inaccuracy Fragmented Information Systems So what happen to the 6.Intuit Pain Points Over 7. etc.000+ active items that are neither forecasted for nor reported on??? Earlier product editions Low value spares (manuals. replacement CDs.

% Class Vol.789 5.256. Class Class Class Class ALL A B C D 9 20 35 104 168 5% 12% 21% 62% 100% 1.SKU Stratification Breakdown for One Product Line SKU Class # of SKUs % of SKUs Class Vol.491.589 58.822 8.724.421 18% 69% 12% 1% 100% 20 SKUs (12%) account for 87% of Intuit’s volume upply hain Visions .221 981.

Intuit’s inability to respond to real-time changes in market demand created an average of 14 days backlog recovery time Opportunity existed to reduce the excess and obsolescence costs by 50% while shortening the backlog recovery time to less than 5 days Intuit Operations Objective: Align Supply and Demand to mitigate the risks of the bullwhip effect and reduce OOS cycle time upply hain Visions .Impact to Intuit The a 100% Build-to-Stock inventory management approach for all SKUs across all product families creates large amounts of excess and obsolescence costs for FY02.

upply hain Visions .Intuit’s Approach: Use an Early Warning Trigger “ARMS” Bolt On to ERP What is it? Automatic Replenishment Management System (Access Database Bolt-on) A DYNAMIC action-based tool that automatically calculates supply vs demand and creates a “signal” to buyers when stock gets to levels lower than desired safety stock This system scans about 6500 every morning Benefits Helps reduce or eliminate the impact of stockouts as the planner can trigger a PO to build product immediately rather than wait for the weekly build plan process.

ARMS: How does it work? ARMS monitors daily inventory positions for SKUs Whenever inventory position reaches the Reorder Point (ROP). upply hain Visions . ARMS will automatically generate an order signal in the amount of reaching the maximum reorder quantity (ROQ) to the supplier the same day pending Buyer Planner’s final approval. Inventory level restored above the ROP when products are received from the supplier.

Cycle Times Before SKU Stratification and ARMS Inventory at Distribution In Stock Out of Stock at Dist but Comp on Hand at Mfg Out of Stock at Dist and Mfg FG on Hand Inventory at Build Plan Cycle Manufacturer Time Build to Forecast Build to Forecast Build to Forecast Mfg Cycle Time Dist Cycle Time Total Cycle Time 7 Days 7 Days 7 Days 5 Days 5 Days 14 Days 2 Days 2 Days 2 Days 14 Days 14 Days 23 Days FG on Hand FG on Hand Intuit’s Cycle Time Recovery for Out of Stock Intuit’s Cycle Time Recovery for Out of Stock items ranged from 14-23 days items ranged from 14-23 days upply hain Visions .

Maintain FG Stock but Optimize Planning and OOS Cycle Time Inventory at Distribution Inventory at Manufacturer Build to Forecast Build to Forecast Build to Kanban Build to Order Intuit’s Interpretation: Build Plan Cycle Time Mfg Cycle Time Dist Cycle Time OOS Cycle Time A B C D FG on Hand FG on Hand FG on Hand FG on Hand until launch exhausted 7 Days (0 days for OOS) 7 Days (0 days for OOS) 0 Days 0 Days 2 Days 5 Days 5 Days 14 Days 2 Days 2 Days 2 Days 2 Days 4 Days 7 Days 7 Days 16 Days upply hain Visions ARMS Eliminated planning efforts on Cs and Ds simplifying planning Improved OOS responsiveness from 11-23 Days to 4-16 days .

Case Study upply hain Visions .

Modus Approach Use Volume Variability to segment SKUs Developed a bolt-on ERP tool to dynamically trigger shop floor builds Used a mixed model manufacturing and distribution strategy based on SKU profile A SKUs B SKUs C SKUs upply hain Visions Manufacturing Strategy Build to Stock Build to Order Make to Order Distribution Strategy Ship from Stock Ship as Built Ship as Built .

historical demand data and product characteristics.Modus’ Bolt On Tool: The Inventory Rules Generator Planner Historical Demand From ERP Best view demand Plan from S&OP Meetings • Modus’ Inventory Rules BOMs from ERP Lead-time from ERP and batch constraints from ERP Modus’s Inventory Rules Generator Client specific parameters • Service levels • EOL dates • Targets for Critical Part • • Inventory Targets & Lot Sizes • Dynamic Shop Floor Signals upply hain Visions • Generator (IRG) software tool designed to generate inventory targets and batch sizes based upon the forward demand plan. batch size constraints.g. Lead-time. Inventory targets and batch sizes are calculated for FG and component parts All links to ERP are automated . e. value etc.

5% fill rate achieved Stock target reviewed and changed as data changes • • • Time Demand Stock PC OEM Target Shop Orders Stock Average upply hain Visions .SKU Level Drill Down (A PC OEM High Volume Modem Kit SKU) Modus’ calculated Target inventory 350 300 250 Quantity 200 150 100 50 0 0 0 0 0 0 0 0 0 0 0 0 0 7/ 0 7/ 0 7/ 0 7/ 0 7/ 0 8/ 0 8/ 0 8/ 0 8/ 0 9/ 0 9/ 0 9/ 0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 03 10 17 24 31 07 14 21 28 11 04 18 25 /0 9/ 0 0 Analysis for Part 166358-002 (Modem Kit) • High volume part • (blue) PC OEM target (purple) based on “weeks on hand” rule based on history Modus’ IRG recommended stock (green) much lower than PC OEM target 98.

Example Results – PC OEM SKUs Business Scope 700 active top level FG SKUs 150 to 200 ECO change’s per month 2000+ component part numbers Fill Rate % 100% 98% 96% 94% 92% 90% Order Cycle Time 45 40 35 Avg hour 30 25 20 15 10 5 May Reduced By 80% Nov Feb Mar Feb Feb April Sept July June On Hand Inventory Jun Y 1 r Jun Y 2 r Value 1600000 1400000 1200000 1000000 800000 600000 400000 200000 April Jun Aug Feb Jan July Mar Nov Jan May Increased to 99% Reduced By 70% upply hain Visions Fill Rate % Mar Sept Oct Dec 0 Mar Jan Aug Dec Jan Oct 0 .

Overall Impact of Efforts After 1 Year 70 60 50 40 30 20 10 0 W orking Fill Rate % O rder Inventory # W hse Capital Cycletim e Turns Locations upply hain Visions %Im provem ent .