Supply Chain Analytics Insights from Case Studies

Supply Chain & Logistics Analytics – Session 1
Introduction to Business and SC Analytics

Chapter 1, 2, 3 from the Recommended Textbook
• Master of Commerce, MBA, Certified in
Production & Inventory management
(APICS), Lean Six Sigma Black Belt trained.
• 20+ yeas across domains of Supply Chain
Management mainly Logistics, Warehouse
Operations, Inventory Management,
Demand Forecasting, Sourcing,
Outsourcing and Customer Services.
Professor N P Girish
• Worked with 3M, L'Oréal and DHL in the
Visiting Faculty –
Middle East, Africa and Europe regions.
Logistics, SCM, Project,
• Teaching interests include Logistics, Quality Management,
Operations, Warehousing, Project Operations
Management, Six Sigma related topics. NMIMS Global Access
School for Continuing
Education
Course Methodology
Guided Sessions of the Concepts
Case Examples
Real life experience sharing from corporate world
Text book concepts summarized
IA will be Application Based
TEE will be mix of Theory and Application
Recommended Reading – Text Book, Course Slides
Focus on decision making and not on Tools
IA
 IA is Descriptive Questions
 Case let situation / asked to choose a situation
 Theory plus Application expected
 Concept application to case situation
 30 to 40% weightage for Theory in the DQ
 No calculation is expected
 Keep answers to the topic and application situation
 Stick to the concept being asked to be applied
 Stay within supply chain management domain in giving
answers with focus on analytics
 1 – 10 = 10 marks * 1 Question
What will we cover?
 Understanding Analytics
 AI and ML
 Analytics Types, Data Types
 Using analytics for Decision Making
What is our approach
Tools
Data Volume
Coding Language
What is our approach
 Understanding of Concepts
 Examples and Cases
 Application from decision making view point
 Strategic vs Operational application of analytics
Analytics in Business Scenario
Business Analytics
• Business analytics refers to a broad use of various quantitative
techniques
• Statistics, data mining, optimization tools, and simulation
• Supported by the query and reporting mechanism to assist
decision making
• Closed-loop framework for continuous process improvement
through monitoring and learning.
• Business analytics also helps the decision maker predict the
future business activities
• Based on the analysis of historical patterns of past business
activities.
Goal of Business Analytics
• Gaining insights into business practices and customer
behaviors:
• Business analytics is designed to transform unstructured, non-
standardized big data originated from multiple sources into meaningful
information helpful for a better business decision.
• Improving predictability:
• By deriving insights into customer behavioral patterns and market
trends, business analytics can improve the organization’s ability to
make demand forecast more accurately.
• Identifying risk:
• With growing complexity and uncertainty resulting from the
globalization of business activities, risk cannot be managed without
identifying it and then preparing for it. Business analytics can function
as an early warning system
Goal of Business Analytics
• Improving the effectiveness of communication:
• With the query and reporting mechanism of business analytics, quick
reporting procedures, user friendly report and scenario development
can be made.
• Enhancing operating efficiency:
• By aiding the decision maker in understanding the way business works,
business analytics can decrease the chances of making poor investment
decisions and misallocating the company’s resources and thus would
help improve the company’s operating efficiency.
Analytics in Business World
Dynamic Pricing
Product Recommendations
They go so deep with utilizing data that they even follow if famous musicians are
playing at the Madison Square Garden so they could adjust their rates at their nearby
hotels.
To create a better customer experience, facial recognition check-ins so their guests don’t
need to wait at the reception desk anymore, and the hotel gathers even more valuable
information.
Amazon Echos into the rooms – this allows guests to make Alexa handle everything that
was previously handled by the reception staff. Now guests can get all the information
they want, while Marriott gets the knowledge of their customer’s preferences, needs
and potential concerns.
They entered this saturated market of food delivery and, thanks to the data they
collected from being a taxi giant
They wanted to be recognized as a delivery that always brings food while it is still warm,
so they tried to model the physical world in a way that would allow them to be as
accurate as possible when predicting the time of food delivery.
To make this endeavor work, they also collected the data of how much time it usually
takes to prepare a certain meal, so they could pinpoint the exact time when the delivery
person should come and pick it up.
they are going deep with this that they even employed meteorologists to help them
predict what the weather will be like and how it will affect the delivery.
(52) AI-based future logistics by Toyota - YouTube

Drive-thru with digital menus that change based on a variety of factors – from the time
of the day, to weather, and to historical sales data. That way they can offer their clients
a cold beverage on a hot day or maybe a coffee with their breakfast menu
Starbucks is using Big Data to create a better customer experience!
Starbucks uses customer data to recommend products to their loyal customers, create
better marketing campaigns and new menus, as well as decide where they’ll open their
next store. This system is so organized that it will offer their customers products based
on the season, weather and location they are at.
They also send out personalized emails with offers to customers who haven’t visited the
store in a while, so they can re-engage them or send them discounts.
Analytics Types
• Descriptive Analytics :
• What is happening
• Real time data, past data, visualization of future to some extent
• Does not explain root cause
• Diagnostics Analytics :
• Why is it happening
• Drill down to find factors
• Predictive Analytics :
• What is likely to happen in future based on previous trends/patterns
• Algorithms to make recommendations
• Data Quality, Missing Values determine accuracy
Analytics Types
• Prescriptive Analysis :
• Best course of future action
• Eliminate or by-pass issues
• Google map to avoid traffic congestion
• Cognitive Analysis :
• Combines a number of intelligent technologies
• AI, ML algorithms
• Apply human brain-like intelligence to perform certain tasks
• Draws conclusions
• Iterative and continuous learning, adaptation
Approach to Analytics – Case discussion
Data is going to keep growing and technology options will
follow the same trajectory. Organizations shouldn’t run
from this new digital reality, but learn to embrace it by
adopting and adapting their analytics strategies to remain
competitive. By applying the power of data and analytics
techniques such as machine learning, a firm can make
smarter, faster decisions for their business and its
customers, and actively disrupt their industry
A popular example would be Target's statistician Andrew Pole using personal
identifiable information (PII) to notice women on baby registries buying
large quantities of unscented lotion a the beginning of their second
trimester. The data also showed some time in the first 20 weeks women
purchased large amounts of calcium, magnesium, and zinc.
Using all of this shopping behavior data, Pole could then assign a pregnancy
prediction score to customers based on the purchase and purchase volume
of about 25 different products in-store
This story is a quick example of how data analytics and product

segmentation is used to predict behavior.
Target Stores Case Discussion
Using big data and predictive analytics can tell a frighteningly accurate story.
It explains how Target used modeling and data analytics to identify women
as being pregnant before those same women tell their closest friends and
family members. This example displays the power of big data and how it is
used to profile customers and predict purchase behavior.
Whether you know it or not, you as a shopper are sharing highly detailed
buying patterns with retailers as you shop on a daily basis. You unknowingly
(or knowingly if you work in this field) provide this data through customer
IDs tied to personally identifiable information (PII) such as credit cards,
emails, and loyalty card numbers.
These national and global retailers are spending lots of time analyzing your
data to determine how to sell you even more. They leverage data points to
sell to you without even you knowing it.
Over time, the Target advertising team learned to find out consumers get really
freaked out if the store knows them too well, especially intimate details such as
being pregnant. The marketing department understood they needed to mix these
targeted advertisements in with others to lessen the "creep factor."
So now that same pregnant customer sees ads in their sales booklet for not only
diapers and cribs but also other foods, household items, lawn care items, and
clothes. The mix and match still allow for proper targeting but it's not as direct
and does not seem as invasive.
It's not enough to just collect this data from a variety of sources as an analyst.
Finding ways to tie databases together and spending the time to fully examine
the data to identify trends and commonalities is the key to generating these
types of insights.
Make sure your company is not only "data-heavy" but also "insight-heavy."
What is Supply Chain
• A supply chain consists of all parties involved, directly or indirectly, in
fulfilling a customer request.
• The supply chain includes
– Manufacturer
– Suppliers
– Transporters
– Warehouses
– Retailers
– Customers
• The supply chain includes all functions involved in receiving and filling a
customer request.
• These functions include
– New product development
– Marketing
– Operations
– Distribution
– Finance
– Customer service
SC Analytics
SC Analytics
SC Analytics
According to statistics, 97% of supply chain analysts believe
that big data can be extremely useful for the supply chain, but
only 17% are actually using it.
A supply chain is a great source of data, produced by

customers, the business itself, and its operations.
By analyzing and capitalizing on this data, businesses open for

themselves the door to endless possibilities and obtain a
considerable competitive advantage
AI/ML in supply Chain
https://www.youtube.com/watch?v=he5I6ByoaB4
https://www.youtube.com/watch?v=lF1CzIfRYAw
https://www.youtube.com/watch?v=VZ5jU6BNjQs
https://www.youtube.com/watch?v=IFMp-zi_nGc
• Predictive Analytics - Using machine learning models, companies
can enjoy the benefit of predictive analytics for demand
forecasting.
• Automated Quality Inspections - Machine learning enabled

techniques allow for automated analysis of defects in industrial
equipment and to check for damages via image recognition.
• Real Time Visibility / Customer Experience - Machine learning

techniques, including a combination of deep analytics, IoT and
real-time monitoring, can be used to improve supply chain
visibility substantially, thus helping businesses transform
customer experience and achieve faster delivery commitments
• Streamlining Production Planning - Machine learning models and
techniques can be used to train sophisticated algorithms on the
already available production data in a way which helps in
identification of possible areas of inefficiency and waste.
• Supply Chain Optimization - The ability of machine learning

algorithms to analyze and learn from real-time data and historic
delivery to optimise the route for their fleet of vehicles leading to
reduced driving time, cost-saving and enhanced productivity.
• Better Forecasts - IoT devices, intelligent transportation systems,

and other similar powerful technologies enable data capture and
transfer. This enables supply chain companies to have much better
insights and help them achieve accurate forecasts.
• Warehouse Management - Machine learning in supply chain
with its models, techniques and forecasting features can also
solve the problem of both under or overstocking and
improves WH management
• Advanced Last-Mile Tracking - Last-mile delivery is a critical

aspect of the entire supply chain as its efficacy can have a
direct impact on multiple verticals, including customer
experience and product quality. Last mile delivery in supply
chain constitutes 28% of all delivery costs as per a recent
survey
Fraud Prevention
• Machine learning algorithms are capable of both enhancing the

product quality and reducing the risk of fraud by automating
inspections and auditing processes followed by performing real-
time analysis of results to detect anomalies or deviation from
normal patterns.
• Machine learning tools are also capable of preventing privileged

credential abuse which is one of the primary causes of breaches
across the global supply chain.
Backup Slides
Video Links
https://www.youtube.com/watch?v=1xy6u9nqXh0
https://www.youtube.com/watch?v=3kAByQnkctM
https://www.youtube.com/watch?v=xBzgdbG1Rn0
• The problems in front of you in business will often be
relatively straightforward.
• Business issues aren’t easy or black and white.
• They’re filled with a high number of constantly moving
variables that make any sort of predictability difficult to
achieve.
• Solving these problems that are seemingly impossible to
analyze is achievable, but it takes a decidedly different
approach than what many entrepreneurs and leaders are
used to.
DON’T ANALYZE AND MODEL TO DEATH, JUST GO DO IT
• Digital means that you can do this sort of real-world, experiment-
based probing much more easily.
• Problems can be analysed with simulations and what-if scenarios
without actual infrastructure
• Helps to fast forward time
• You can reduce your ideas to really small things so that you can
move through many rapid iterations.
IN THE LONG-TERM, HUMILITY YIELDS SUCCESS
• Businesses struggle against not providing or getting concrete
answers to today’s complex problems.
• Adopt a Just Do It strategy where it makes sense
• Accept “not knowing” is ok
• Being the smartest in the room isn’t as valuable as it used to be
• Execute what works for you instead of relying on copying anyone
else
• Empowers teams to take action and trust themselves and each
other, even if they don’t know precisely how they’ll get to the
finish line.
• Analytics is not about tools
• Analytics is not having abundant data
• Analytics is right usage of tools and data to make effective
decisions
• Analytics is about Mindset to have a systematic approach to make
well informed decision in a given situation of uncertainty
• DO NOT GET PASSIONATE ABOUT DATA OR TOOLS
• DO NOT THROW COMMONSENSE OUT OF THE WINDOW
Analytics Types
Descriptive Analysis Diagnostic Predictive Prescriptive Cognitive
Quickly troubleshoot a problem Robots are able to sort, pick and
within the distribution center, Run simulations to test the impact package silicon chips, car
such as an increase in no-reads of operations decisions, such as assemblies and other parts and final
Fill rates Goal setting
or an increased percentage of reducing staffing or adding more products, based on quality
products requiring human sorting equipment. assurance standards, and reject
intervention. those that fall short in some way.
Suggest new supply chain Respond more quickly to
AGVs (autonomous guided
configurations to address a changing conditions, such as how
Planning, vehicles) can avoid or navigate
problem at a particular line or to change staffing in the
Supplier lead times scheduling and around unexpected obstacles, to
facility – say, by adding more distribution center to deal with an
forecasting deliver products where they need to
sorting equipment or increased unexpected surge in unreadable
be in a distribution center.
staffing temporarily. bar codes.
Cameras and other sensors in
Take corrective action more
sortation tunnels can determine if a
quickly. For example, if
shipping label was positioned
throughput in a particular facility
Identify non-standard products, properly but was obscured by the
is slowing down, predictive
and provide insight on how to Performance and manufacturer’s packaging.
Inventory dollars analytics can suggest or even
optimize the supply chain to risk management Organizations sometimes use
initiate responses, such as
handle them more efficiently. cognitive analytics to make
shifting volume away from a
decisions on how to repackage
tunnel that is experiencing the
products to prevent such problems
slowdown.
in the future.
Sales and operations
Fraud reduction
data
Social media
engagement and
conversion
Survey results and
other forms of user
generated content
What is Supply Chain
• A supply chain consists of all parties involved, directly or indirectly, in
fulfilling a customer request.
• The supply chain includes
– Manufacturer
– Suppliers
– Transporters
– Warehouses
– Retailers
– Customers
• The supply chain includes all functions involved in receiving and filling a
customer request.
• These functions include
– New product development
– Marketing
– Operations
– Distribution
– Finance
– Customer service
Supply Chain Objectives
Supply Chain Surplus =
Customer Value − Supply Chain Cost
Supply Chain Drivers
Competitive Advantage
Operations Strategy Issues
Value Chain
Value Chain
Where is India heading?.....
Supply Chain Analytics
SCM Trend
Agile Network and Technology
SCM Vision
Sumantra Ghosh, VP of media sales
Partha Roy, General Manager Tech Deployment
Mukesh Tadikonda, Studio Manager
Karumuri Sekhar, Studio Techn incharge
Above team sets out from Pune to Mumbai in an aston martin. They are to meet with a Japanese team for a
$10 Million TV documentary series on the Indo-Japan Industrial collaboration and opportunities.
Unusually though Sumantra’s machine of pride the aston martin fails enroute. Its almost sure they will be
delayed for the meeting as it’s a trip with tight schedule. Sekhar and Mukesh are engineering batch mates and
they share passion to re-model cars. They believe they can check out and if it’s a small glitch it can be fixed by
them. Sumantra doesn’t want his car to be handled by people who are not experts specific to that brand and
tenchology though he appreciates Mukesh and Sekhar passion. Partha is a tech minded person but his
thoughts are on the upcoming meeting as he already sees the kind of challenge in pipeline and time pressure
his team would be subjected to once this contract is signed. Sumantra is worried that any delay in getting to
meeting would mean lost opportunity. He asks Partha to look for some alternative ways to get to Mumbai on
time. Sekhar and Mukesh are more eager to try their tech skills on repairing the car. Sumantra walks into a
café nearby to phone up the dealer and to focus on his work. Partha entrusts Mukesh the task for finding a
transport and gets back to his mental preparedness work on deployment. Sekhar walks around the vehicle
eager to show is automobile mechanical skills!!!!
Will they get to Mumbai on TIME??

Supply Chain Drivers
 Goal of Supply chain = Balance Responsiveness & Efficiency
 Why = To meet Company’s Objective and competitive Strategy
 How = Through Interaction between Logistical and cross-
functional ELEMENTS
 Elements = Supply Chain Drivers
 Which are those Drivers??
 Facility
 Inventory
 Transportation
 Information
 Sourcing
 Pricing
Supply Chain Drivers - Facilities
 Physical Location
 Production Site – Manufacturing, Assembly, VAS
 Storage Site – Stored for use. RM, FG
 Decisions are
 What is the Role
 Where
 What is Capacity
 Flexibility
 Unilever Europe
 Pears Production
 Samsung India
Supply Chain Drivers - Inventory
 Raw Materials
 Work in Progress
 Finished Goods
 Meet Demand and Supply Uncertainty
 Balance responsiveness and Efficiency
 Dell RM, Modular Inventory
 Zara Undyed Fabric Inventory
 Asian Paints Base Color Inventory
 Grainger Large Inventory
Supply Chain Drivers - Transportation
 Movement of goods through the chain
 Modes of Transportation
 Routes to be Taken
 Cost, Time Consideration
 Nature of goods
 Customer Expectation
 Grainger users ground transport for 24 Hours delivery
 Apple Uses Fedex in USA
Supply Chain Drivers - Information
 “Goods move as much as Information Does”
 Data through the supply chain
 Very Important resource in modern times
 Amazon.com IT investments in 2012
 P&G and Walmart Information Exchange
Supply Chain Drivers - Sourcing
 What does firm perform
 What does it let others do – Outsourcing
 “Who ever does best gets to do it”
 Motorola production in china and airfreight costs
 Hornby Hobbies shifting production to china and back
 Samsung Shifted Production facilities to India
Supply Chain Drivers - Pricing
 What to Charge Customer
 Price influences buying behaviour
 Price is influenced by other drivers
 Price is determined by what value customers are expecting
 IKEA Modular Design
 Costco Pricing
 Uber Sharing
SC Analytics
Supply chain analytics brings together data from across different applications, infrastructure, third-party
sources and emerging technologies such as IoT to improve decision-making across the strategic, tactical and
operational processes that make up supply chain management. Supply chain analytics helps synchronize
supply chain planning and execution by improving real-time visibility into these processes and their impact
on customers and the bottom line. Increased visibility can also increase flexibility in the supply chain network
by helping decision-makers to better evaluate tradeoffs between cost and customer service.
The process of creating supply chain analytics typically starts with data scientists who understand a particular
aspect of the business, such as the factors that relate to cash flow, inventory, waste and service levels. These
experts look for potential correlations between different data elements to build a predictive model that
optimizes the output of the supply chain. They test out variations until they have a robust model.
Supply chain analytics models that reach a certain threshold of success are deployed into production by data
engineers with an eye toward scalability and performance. Data scientists, data engineers and business users
work together to refine the way these data analytics are presented and operationalized in practice. Supply
chain models are improved over time by correlating the performance of data analysis models in production
with the business value they deliver.
SC Analytics Future
The amount of data produced by the supply chain is expanding every year. The new
technologies and devices that are introduced to the various stages: production, transportation,
and selling, create a high number of data that can be transformed into valuable insights. The
great example that illustrates this tendency is IoT. According to the research, the data produced
by IoT is set to increase by almost 500% to 80 zettabytes by 2025. The IoT implications in the
supply chain are expected to play a significant role and become one of the dominating
technology for supply chain risk management software.
This data can be generated by the RFID tags and sensors in the warehouse to detect the precise
location of items and track their movement beyond it. The valuable information is like where
the goods are coming from, their expiration date, etc. Moreover, during transportation, the
data from GPS and that same RFID sensors can help to increase transit visibility of the shipped
items and to optimize routes for the potential delay prevention.
Furthermore, this data helps to obtain crucial information like temperature and humidity that
can affect items’ quality during their transportation. Combined with environmental data like
weather conditions and traffic data, this information can help significantly in managing supply
chain risks during transportation. But this is only one of the examples of how data analytics
affects supply chains – the possibilities are endless.
Thinking Shift
Analytical Thinking Approach
• Fact-finding and checking through thought experiments:
• Thought experiments involve hypothesizing “what-if” scenarios in the
imaginary world and allow us to see the outcome (what will happen) if
we select a certain decision
• Raising the correct line of reasoning for what you read,

learned, and wrote in the past:
• Unless we verify the validity of information sources (e.g., books,
published articles, digital media), we can be sold on logical fallacies and
may end up making wrong decisions.
• To obviate such mistakes, we should be aware of common logical
fallacies based on the faulty reasoning
• Eg. If product price is reduced it will lead to higher sales or lower
impression of quality?
Analytical Thinking Approach
• Building a habit of thinking without preconceived notions or biases:
• To avoid bias traps, one should bring various perspectives (viewpoints) in a
broad spectrum and figure out what we are taking for granted.
• The thought process originating from many different angles will lower the
chance of getting trapped in one flat point of view reflecting one’s bias or
partial facts
• Structural thinking:
• To make meaningful inferences and draw conclusions with structured data
step by step approach is needed:
1. Setting purposes of solving the given problems emanating from particular
events, practices, and behaviors.
2. Raising questions about the nature of the given problems.
3. Gathering data and facts associated with the observed problems.
4. Utilizing well-established concepts, theories, axioms, laws, principles, and
models to dissect data and extract meaningful information.
5. Making inferences and drawing conclusions under proper assumptions.
6. Understanding and generating implications of new problem solutions
found from inferences and conclusions
Data Analysis Tools
Analytics Challenges
• Volume of Data
• Velocity of Data. High speed of inflow and changes
• Variety
• Inconsistency and conflicting data
• More than needed
• Reliability, Trustworthiness
• Standardization
• Normalization
• Privacy Laws
• Data Security
Forecasting and Accuracy Measurement Part I
Course Methodology
Guided Sessions of the Concepts
Case Examples
Real life experience sharing from corporate world
Text book concepts summarized
IA will be Application Based
TEE will be mix of Theory and Application
Recommended Reading – Text Book, Course Slides
Focus on decision making and not on Tools
IA
 IA is Descriptive Questions
 Case let situation / asked to choose a situation
 Theory plus Application expected
 Concept application to case situation
 30 to 40% weightage for Theory in the DQ
 No calculation is expected
 Keep answers to the topic and application situation
 Stick to the concept being asked to be applied
 Stay within supply chain management domain in giving
answers with focus on analytics
 1 – 10 = 10 marks * 1 Question
What will we cover?
 Understanding Forecasting
 Analytics in Forecasting
 Forecasting Techniques
Modern day forecasting Challenges
• One of the biggest challenges for business executives today is demand volatility in
relation to demand forecasting.
• Whereas data availability continues to increase, customer purchase patterns are
becoming increasingly complex
• That makes prediction harder
• There are too many factors influencing demand, ranging from weather fluctuations
to posts by social media influencers, causing customers to frequently changing
their minds.
• things that will reshape customer intentions will mostly happen quite
unexpectedly. Traditional Forecasts are only as accurate as the data, models,
resources and people that have to interpret them.
• how can we respond to these challenges?
AI and ML a solution ??
Are AI and machine learning the future for demand forecasting?
Demand forecasting is at the heart of every retailer’s supply chain, and for good
reason: the demand forecast is central to sales, profitability and the customer
shopping experience, and it has a ripple effect throughout the supply chain.
Yet despite a wealth of established demand forecasting solutions and
methodologies, retailers struggle to produce accurate, timely demand forecasts.
According to Retail Systems Research

• 65% of retailers consistently stock out on fast-moving products
• 63% have too much inventory in slow-moving categories and products.
• The result is a major drag on retailers’ performance; according to IHL Group,
out-of-stocks account for $634 billion in lost sales worldwide each year, while
overstocks result in $472 billion in lost revenues due to markdowns.
• U.S. retail growth is up 4.2%, but 77% of retailers can’t keep up
• 53% of retail CXOs list demand management as the top area where AI can make
improvements over the next five years.
AI and ML a solution ??
• As e-commerce sales rise and shoppers choose from new fulfillment options,
retailers must consider the impact of unified commerce on demand
forecasting. Gartner analyst Tom Enright notes,
• Unified commerce retailers must take a more detailed approach to forecasting
demand. They should supplement their existing focus on forecasting consumer
demand at a product/location and time combination with a new approach to
predict how consumers will use the shopping options available to them in
making their purchases.”
• With channel convergence and the emergence of new formats, understanding
what your customer needs and forecasting for each ‘location’ is key.
• If the forecast isn’t accurate, there are adverse effects throughout the supply
chain, since the demand forecast is central to every supply chain function –
multi-echelon inventory, allocation and replenishment logistics.
• Meeting these challenges, while overcoming the additional problems we’ve
identified, requires new technologies and solutions for demand forecasting.
• 71% of retailers rank retail forecasting as “very important” to their success,
and 51% plan major new implementations or replacements that incorporate AI
and machine learning.
ML in Forecasting
ML in Forecasting
Traditional Vs ML Forecasting
Danone Case
Danone Brands in India
Danone Case
Danone implemented a machine learning system to make better
demand forecasts. The company required more accurate and secure
demand forecasts, due to the short shelf-life of its fresh products and
volatile demand.
Danone uses many promotions and media events. More than 30% of
the total volume is sold through promotional offers such as discounts
and leaflets, so the demand forecasts were somewhat ad hoc
The implemented machine learning system did not only improve

forecasts, but also improved planning between different departments
such as sales, supply chain, finance and marketing. This system
improved efficiency and inventory balance, allowing Danone to
achieve its target service levels for channel or store-level inventories
Danone Case
What value can AI add to a company? Let’s look at the numbers.
• Errors in supply chain networks can be reduced with 30 to 50% with

AI-powered demand forecasting.
• Warehousing costs decrease with around 10 to 40%.
• The loss in sales due to inventory out-of-stock situations can be
reduced up to 65% with the improved accuracy.
• In general the estimated impact of AI is between 1.2 and 2 trillion
dollars in the manufacturing and supply chain planning.
• For Danone Group, AI in demand planning ultimately led to a 30%
reduction in lost sales, a 30% reduction in product obsolescence, a
20% reduction in wrong forecasts and a 50% reduction in the
workload of demand planners
Benefits of AI in Forecasting
• Improvements in accuracy over time: Better forecasts will be
made over time as machine learning algorithms learn from
existing data.
• Higher customer satisfaction: When products are ‘out of stock’,
this will decrease customer satisfaction, whereas customer
satisfaction will increase when products are always available. This
improves customer loyalty and brand perception.
• Improved workforce planning: Demand forecasting can support
the HR department in making efficient considerations between
full-time or part-time staff mix, thus optimising HR costs and
effectiveness.
Benefits of AI in Forecasting
• Improved markdown/discount optimisation: Cash-in-stock is a
common situation for retail companies, where products remain
unsold for a longer period than expected. This often causes
higher expected inventory costs and the risk of products
becoming obsolete and losing value. In this scenario, products
are sold at lower selling prices. With demand forecasting, this
scenario can be minimised.
• Overall efficiency: With demand forecasting, teams can focus on

strategic issues instead of trying to reduce or increase inventories
and staffing levels
DATA MANAGERS WILL BROADEN THEIR FOCUS FROM STRUCTURED DATA TO UNSTRUCTURED
DATA ANALYTICS
‘RIGHT DATA’ ANALYTICS WILL SURPASS BIG DATA ANALYTICS AS A KEY TREND
DATA FABRICS WILL BE A STRATEGIC ENTERPRISE IT TREND IN 2022
MULTI-CLOUD WILL EVOLVE WITH DIFFERENT DATA STRATEGIES
SYNTHETIC DATA + UNSTRUCTURED DATA WILL BE NEEDED TO MANAGE DATA GROWTH

L’OREAL Case
L’OREAL Case
L’Oréal, a French multinational and one of the world’s largest
beauty products manufacturers, used information from various
sources to anticipate on trends, optimize sales and predict
customer demand.
The sources they used included social media, weather and

financial market indicators and data gathered at point-of-sales,
such as collection, reception and inventory. Combining these
datasets, and identifying which variable combinations affected
consumer demand.
This allowed L’Oréal to target end-customers more effectively

and respond to the challenge of demand volatility
Sales During Covid
• Current reality is not knowing what sales will be, purchase new equipment despite
uncertainty about demand for products, and make investments without knowing what
profits will be.
• Managers are always trying to make better estimates of what will happen in the future
in the face of uncertainty.
• Making good estimates is the main purpose of FORECASTING
Demand Forecasting
https://www.youtube.com/watch?v=HQ7C
I7JlXJQ
Forecasting Challenges
Data Normalization
Year Sales Quantity Year Sales Quantity
2000 28 2000 28
2001 33 2001 33
2002 37 2002 37
2003 39 2003 39
2004 40 2004 40
2005 38 2005 38
2006 41 2006 41
2007 42 2007 42
2008 47 2008 47
2009 41 2009 41
2010 92 2010 42
2011 51 2011 51
2012 50 2012 50
2013 48 2013 48
2014 54 2014 54
2015 56 2015 56
2016 61 2016 61
2017 64 2017 64
2018 66 2018 66
2019 71 2019 71
Data Normalization
Year Sales Quantity Year Sales Quantity
2000 28 2000 28
2001 33 2001 33
2002 37 2002 37
2003 39 2003 39
2004 40 2004 40
2005 38 2005 38
2006 2006 38
2007 2007 40
2008 2008 42
2009 2009 44
2010 2010 46
2011 2011 48
2012 2012 50
2013 2013 52
2014 54 2014 54
2015 56 2015 56
2016 2016 59
2017 2017 62
2018 66 2018 66
2019 71 2019 71
Man Machine Collaboration
Month 2017 2018 2019 2020
Jan 0 0 0 0
Feb 0 0 0 0
Mar 0 0 0 0
Apr 0 0 0 0
May 0 0 0 0
Jun 0 0 0 0
Jul 0 0 0 0
Aug 0 0 0 ?
Sep 0 0 0 ?
Oct 0 0 0 ?
Nov 0 0 0 ?
Dec 1 1 1 ?
Panel Discussion 1
Only customer who were buying is likely to
change technology?
Sales annually for this unit is $1Million
What will be your forecast?
Man Machine Collaboration
Month 2017 2018 2019 2020
Jan 0 0 0 0
Feb 0 0 0 0
Mar 0 0 0 0
Apr 0 0 0 0
May 0 0 0 0
Jun 0 0 0 0
Jul 0 0 0 0
Aug 0 0 0 ?
Sep 0 0 0 ?
Oct 0 0 0 ?
Nov 0 0 0 ?
Dec 1 1 1 ?
Panel Discussion 2
Customer has changed technology
There are other customers in the market
What will be your forecast?
AI Plus Human Intelligence
• However, no matter how smart the forecasting solution may be,
Human logic is still needed to evaluate the relevance of the
outcomes produced by AI solutions.
• To draw conclusions with common sense and domain expertise.
• Companies should invest in industry specialists to determine what

factors should be taken into account in predictive
algorithms/models.
• Only by combining the strengths of both human and artificial

intelligence can a company foresee and plan for a better future
Alternatives to Forecasting
• 7-eleven in Japan has been doing collaborations with suppliers of bread, so the
10,000 stores around Japan are connected through network with PPIC
(Production, Planning and Inventory Control) suppliers.
• Bread can be made in accordance with market demand so that forecasting
become more accurate.
• Managers need to encourage collaboration (derived from the Latin word "co"
and "labor", which means to work together or to work together) among the
companies that really need each other because they have one purpose,
namely to meet the needs and consumer satisfaction .
• Collaboration with the support of the sharing of information, systems planning
and development of new products together, as well as understanding the
strengths and weaknesses of each company, will be able to cope with the
bullwhip effect is the increased variability and uncertainty of the downstream
(retailers) to upstream (supplier of raw materials) .
• All of the flow of raw materials, from downstream to upstream so it can be
controlled (oversee) so be predicted well, except for natural disasters.
Backup Slides
Forecasting
• Forecasting is the art and science of predicting future events.
• Forecasting may involve taking historical data (such as past sales)

and projecting them into the future with a mathematical model.
• It may be a subjective or an intuitive prediction (e.g., “this is a great

new product and will sell 20% more than the old one”).
• It may be based on demand-driven data, such as customer plans to

purchase, and projecting them into the future.
• Or the forecast may involve a combination of these, that is, a

mathematical model adjusted by a manager’s good judgment..
Qualitative Methods
Jury of executive opinion
A forecasting technique that uses the opinion of a small group of high-level
managers to form a group estimate of demand.
Delphi method
A forecasting technique using a group process that allows experts to make
forecasts.
Sales force composite

A forecasting technique based on salespersons’ estimates of expected sales
Market survey
A forecasting method that solicits input from customers or potential
customers regarding future purchasing plans
Quantitative Methods
Naive approach
A forecasting technique that assumes that demand in the next period is equal
to demand in the most recent period.
Moving averages
A forecasting method that uses an average of the n most recent periods of
data to forecast the next period.
Exponential smoothing
A weighted-moving-average forecasting technique in which data points are
weighted by an exponential function
Trend projection
A time-series forecasting method that fits a trend line to a series of historical
data points and then projects the line into the future for forecasts
Linear-regression analysis
A straight-line mathematical model to describe the functional relationships
between independent and dependent variables
Forecasting and Accuracy Measurement Part II
What will we cover?
 Forecast Accuracy Measurements

 Forecast and Accuracy Measurement Working
 Accuracy and Forecast Selection Measure Discussion
Forecast Accuracy and Inventory
• The global retail market continues to grow larger and the influx of
consumer data increases daily.
• The rise in volume, variety, and velocity of data poses challenges with
demand forecasting and inventory planning.
• Outdated systems generate inaccurate demand forecasts.
• This results in multiple challenges for retailers. They are faced with
over-stocking and lost sales, and often have to rely on increased levels
of safety stock to avoid losing sales.
• A recent McKinsey study indicates that AI-based forecasting improves

forecasting accuracy by 10–20 percent.
• This translates to revenue increases of 2–3 percent.
• An accurate forecasting system can also help determine ideal inventory
levels and better predict the impact of sales promotions.
• It provides a single view of demand across all channels and a better
customer experience overall.
Forecast Accuracy Measures
MAD (Mean Absolute Deviation)
Mean of (Absolute Variation between FORECAST and

ACTUALS) in case of many products in a category
MAPE (Mean Absolute Percentage Error)

MAD / Sales or Forecast based on company policy
WAPA (Weighted Absolute Percentage Accuracy)

1 – MAPE
MAPE measures error and WAPA measures accuracy

MAPE and WAPA are inverse of same picture
Forecast Accuracy Case Discussion
Home Care, Stationery and Safety are the divisions with a Sales
and Marketing Head
There are Separate Division Managers for each division
S&M is happy with last month performance 52K achievement vs

48K
Home care and Safety over performed while Stationery under

performed
Supply Chain is indicating next month home care would miss

their targets
Forecast Accuracy Case Discussion
Stationery will have double hit with under performance and over
stock provisions in their P&L
Finance Controller is skeptical about mismatch in their budget,

forecast and sales
Inventory Controller wants a newer method of accuracy measure

SMA
SMA
Month Actual SME 3 SME 5
1 1104 1104 1104
2 885 885 885 SMA 3
3 976 976 976 Forecast for month 4 = Average of
4 1101 988 1101 Month 1 + Month 2 + Month 3
5 1120 987 1120
6 1276 1066 1037 SMA 5
7 1419 1166 1072 Forecast for month 6 = Average of
8 1615 1272 1178 Month 1 + Month 2 + Month 3 + Month
9 1836 1437 1306 4 + Month 5
10 1730 1623 1453
11 1686 1727 1575
We will go back in history and
12 1769 1751 1657
1727
start building up the forecasts
13 1521 1728
1708
based on Simple Moving
14 1504 1659
1642 Average 3 and 5 Months
15 1478 1598
16 1480 1501 1592
17 1726 1487 1550 When to choose which period
18 1759 1561 1542 for SMA
SES
SES
SES 0.8
Forecast for Period 2
Month Actual SES .8 SES .4
1 1104 1104 1104
0.8 * Period 1 Sales
2 885 1104 1104
+
3 976 929 1016
4 1101 967 1000
0.2 * Period 1
5 1120 1074 1041 Forecast
SES 0.4
6 1276 1111 1072
Forecast for Period 2
7 1419 1243 1154
8 1615 1384 1260
0.4 * Period 1 Sales
9 1836 1569 1402
+
10 1730 1783 1576
11 1686 1741 1637
0.6 * Period 1 Forecast
12 1769 1697 1657
13 1521 1755 1702 We will go back in history and
14 1504 1568 1629 start building up the forecasts
15 1478 1517 1579 based on SES Alpha 0.8 & 0.4
16 1480 1486 1539
17 1726 1481 1515
18 1759 1677 1600
What Alpha to Choose?
Indicative Methods
Walmart’s JDA system is currently responsible
for crunching historical sales data on a
weekly basis to come up with demand
forecasts for roughly 500 million item-by-
store combinations in the US, said Walmart
Labs‘ Distinguished Data Scientist and
Director of Data Science John Bowman. “We
forecast out a full 52-week horizon in weekly
increments, and we generate a new set of
forecasts every week, over the weekend,”
During a presentation at Nvidia’s GPU Technology Conference (GTC)
this week, the director of data science for Walmart Labs shared how
the company’s new GPU-based demand forecasting model achieved
a 1.7% increase in forecast accuracy compared to the existing
approach
How Forecasting Algorithms Work
How does Forecasting work?
Why is History Significant?
Why is Cleaning History

Important?
Indicative Methods
Forecastability Matrix
Decisions on Statistical Forecasting
• Forecastability-based segmentation of your portfolio enables you to focus on segments
where you can realise the maximum return on invested effort towards statistical
forecasting
• What is the lowest level in the hierarchy you should forecast at? What level of product
or customer gives the best balance of forecast quality vs planning processes you want
the forecast to feed into.
• What should be the time granularity of your forecasts and the proper forecast offset
(lag)? Is it necessary to generate weekly forecasts – especially when the timing of
demand is difficult to predict – or is it better to do monthly or even quarterly rolling
forecasts
• Choose statistical forecasting algorithms correctly based on the forecast profile.

Forecast plus inventory policy
Tips to Improve Statistical Forecasting
• Finding the right planning level to run your stat forecasts
• Improving data quality of time series
• Multiple back testing periods
• Choice of algorithms
• Transparency and understanding statistical forecast behaviour

Product Behaviour
Indicative Methods
Indicative Methods
Ensemble Methods
• Another way to handle non-stationery data is ensemble methods
• Ensembling uses multiple machine learning and data mining
methods to further combine their results and increase predictive
accuracy.
• The technique has nothing to do with new approaches in data
science, but it has critical meaning in terms of business decisions
related to data science initiatives.
• While building robust forecasting is expensive and time-
consuming, it doesn’t narrow down to making and validating one
or two models with further choosing of the best performer.
• In terms of time series, non-stationary components – like
different durations of cycles, low weather predictability, and
other irregular events that have an impact across multiple
industries – make things even harder.
Ensemble Methods
By averaging the forecast of many models that perform differently
in different time series situations, they achieved better
predictability than they could with a single model.
While some models work better with their specific non-stationary

data, others shine in theirs.
The average that they yield acts like an expert opinion and turns out
to be very precise.
Ensemble Methods
More Retail Limited Mini Case
More Retail Ltd. (MRL) is one of India’s top four grocery retailers,
with a revenue in the order of several billion dollars. It has a store
network of 22 hypermarkets and 624 supermarkets across India,
supported by a supply chain of 13 distribution centers, 7 fruits and
vegetables collection centers, and 6 staples processing centers.
With such a large network, it’s critical for MRL to deliver the right
product quality at the right economic value, while meeting
customer demand and keeping operational costs to a minimum.
How can analytics come handy in MRL situation?

More Retail Case Discussion
More Retail Ltd. (MRL) is one of India’s top four grocery retailers, with a revenue in
the order of several billion dollars. It has a store network of 22 hypermarkets and
624 supermarkets across India, supported by a supply chain of 13 distribution
centers, 7 fruits and vegetables collection centers, and 6 staples processing
centers.
With such a large network, it’s critical for MRL to deliver the right product quality at
the right economic value, while meeting customer demand and keeping operational
costs to a minimum. MRL collaborated with Ganit as its AI analytics partner to
forecast demand with greater accuracy and build an automated ordering system to
overcome the bottlenecks and deficiencies of manual judgment by store managers.
MRL used Amazon Forecast to increase their forecasting accuracy from 24% to
76%, leading to a reduction in wastage by up to 30% in the fresh produce category,
improving in-stock rates from 80% to 90%, and increasing gross profit by 25%.
An ML-based approach unlocked the true power of data for MRL. With Forecast,
two national models were created for different store formats, as opposed to over
1,000 traditional models that was existing.
Forecast also learns across time series. ML algorithms within Forecast enable
cross-learning between store-SKU combinations, which helps improve forecast
accuracies.
Additionally, Forecast allows to add related time series and item metadata, such as
customers who send demand signals based on the mix of items in their basket.
Forecast considers all the incoming demand information and arrives at a single
model. Unlike conventional models, where the addition of variables leads to
overfitting, Forecast enriches the model, providing accurate forecasts based on
business context. MRL gained the ability to categorize products based on factors
like shelf life, promotions, price, type of stores, affluent cluster, competitive store,
and stores throughput.
Air Travel Forecast Mini Case
Passenger traffic at the world’s airports is projected to reach 6.5
billion in 2022, down by -28.9% on 2019 levels, according to
Airports Council International (ACI) World.
The association said that despite persistent challenges, the industry

has reached “a potential turning point in the recovery of travel.
Despite slower than expected recovery and persisting financial
challenges, the easing of travel restrictions in key aviation markets
brings some renewed optimism and momentum amid the addition
of new geopolitical tensions.”
What factors can play key role in forecasting of Global Air Travel in
2022 – 2023? Keeping analytics in view, how can this situation be
forecasted?
Backup Slides
Inventory Management Concepts
Chapter 11 and 12 from the Recommended Textbook
Session 4 Topics
 Types of Inventory
 Cycle Stock
 Safety Stock
 Product Classification
Inventory in Supply Chain
Amazon Inventory Case
When Jeff Bezos opened his revolutionary business in 1995,
Amazon.com was intended to be a “virtual” retailer—no
inventory, no warehouses, no overhead—just a bunch of
computers taking orders for books and authorizing others to fill
them.
Things clearly didn’t work out that way.
Now, Amazon stocks millions of items of inventory, amid

hundreds of thousands of bins on shelves in over 150
warehouses around the world
Push Pull View of Supply Chain
Role of Inventory
 To provide a selection of goods for anticipated customer demand
and to separate the firm from fluctuations in that demand.
 Such inventories are typical in retail establishments.
 To decouple various parts of the production process. Inventory
may be necessary to decouple the production process from
suppliers.
 To take advantage of quantity discounts , because purchases in
larger quantities may reduce the cost of goods or their delivery.
 Inventory is held in anticipation of price increase
 High level of inventory means high responsiveness, better service
 High Inventory comes with higher cost
 High level of inventory also means risk of obsolescence
Is this an absolute statement?

Inventory Level
I = DT
Where,
I is Inventory
D is Demand
T is Lead time
Inventory Types
• Raw materials
• Work-in-process (WIP)
• Finished goods
• Maintenance, repair and operating supplies (MRO
goods)
• Transit inventory/Pipeline
• Safety stock / Buffer inventory
• Anticipation Inventory
• Cycle inventories / Lot-size inventories
 A total-cost optimization approach to supply chain planning ITC Limited is a multi-billion-
dollar conglomerate based in India with a diversified presence in fast-moving consumer
goods, hotels, paper and packaging, agriculture and information technology.
 The company’s packaged foods business is experiencing fast growth, with biscuits (cookies)
representing its largest single category.
 The biscuit segment experiences high demand volatility and materials cost fluctuations.
 ITC recognized that its spreadsheet-based tools did not account for its continuously changing
cost structures.
 The company needed a more powerful tool that would allow it to take a total-cost
optimization approach toward its strategic, as well as tactical, supply chain planning.
Challenges
• ITC’s spreadsheet tools did not account for its continuously changing cost structures.
Therefore, they could not see the macro effects of the supply chain decisions they were making.
• Cost optimization is complex at ITC due to frequent manufacturing changeovers required to
produce its more than 120 distinct biscuit SKUs across its network of 17 factories and the
dramatic price fluctuations in the agricultural sector that affect their materials costs.
• ITC’s spreadsheet-based planning did not allow them to make effective medium and long-
range strategic plans
AI in Inventory Management
AI-powered inventory management can provide a solution to human error by letting the
computer do the math.
Determining the right amount of stock, in the right place, at the right time at the right
costs as well as the right price.
That is what inventory management is about in business terms and could be determined
automatically by the AI application.
This is done by combining datasets, developing a Machine Learning model and

continuously training the model to achieve higher levels of accuracy over time.
The outputs of the model reflect the most optimal decisions that can be taken.
How could an AI application make the inventory

management process more efficient?
Inventory Level
Inventory Level
Supply Rate
Buffers the Demand Rate

from Supply Rate
Inventory Level
Demand Rate
Safety Stock and Inventory Level
Bloomingdale’s ordering safety stock

means higher lot size possibly, higher
cycle inventory, higher total inventory,
more space, most costs
Cycle Stock
Cycle inventory exists because producing or purchasing in large
lots allows the supply chain to exploit economies of scale
 This leads to lower cost

 There are fixed costs associated with ordering and
transportation
 Quantity discounts in product pricing, short-term discounts or
promotions encourages different stages of a supply chain to
exploit economies of scale and order in large lots.
Planning Safety Stock
Safety Stock buffers variation in demand and Supply
Questions to be answered while planning safety stock

 What is the appropriate level of product availability?
 How much safety inventory is needed for the desired
level of product availability?
 What actions can be taken to improve product
availability while reducing safety inventory?
Components of Safety Stock Formula
Safety stock is outcome of 4 aspects plus Service level

 Demand
 Demand Variation (Standard Deviation)
 Lead Time
 Lead Time Variation (Standard Deviation)
 Desired Service level (we will see that in next topic)

Safety Stock Formula
Safety Stock and Service Level
Service level increase towards 100% leads to disproportionate increase in safety stock
Inventory Related Costs
Holding Cost
• Cost of Capital
• Obsolescence / Spoilage
• Handling Cost
• Occupancy Cost (Basic storage cost)
• Miscellaneous.. Insurance, Damages, Security overheads….
Ordering Cost
• Buyer Time Cost
• Transport Cost
• Receiving Cost
• Other costs… Insurance, Taxes, damages in transit…
Safety Stock > Service > Cost
 To be a preferred supplier requires higher service level

 Higher service level means higher Safety stock
 Higher Safety stock means higher cost
 Service level Vs Cost is to be decided upon
? Are there alternatives to Inventory
Safety Stock and Cost Trade Off
Inventory Case Discussion
More Retail is the pioneer in omni-channel Food & Grocery Retail in India and is pursuing
its mission to be Indian consumers’ most preferred choice for food and grocery needs.
More has 22 hyper markets and 624 super markets across India, supported by a network of
13 distribution centres, 7 fruits and vegetables collection centres and 6 staples processing
centres.
“More is the market leader in the ‘Fresh’ category in food and grocery in India. To run a
viable business, More needs to simultaneously manage in-stock availability of fresh
produce, while minimizing wastage. To balance these competing priorities, More partnered
with AWS and Ganit, a data science consulting company, to build and deploy a demand
forecasting and automated ordering system built around Amazon Forecast. We needed to
build a very granular forecast at store-item-day level, therefore we prioritized the
development effort based on ABC-XYZ framework.
Inventory Case Discussion
The store-item combinations were plotted on a 3x3 matrix: ABC axis of sales saliency (A –
high, B-Medium, C-low) and XYZ axis of forecastability (X-easier to forecast, Z-difficult to
forecast) based on historical pattern. As expected, forecast accuracy of items in ABC-XY
buckets was much superior to the Z bucket. However, for combinations in the Z bucket,
Amazon DeepAR+ significantly outperformed traditional methods like exponential
smoothing yielding an incremental 10% forecast accuracy. This was possible because of
Amazon Forecast’s ability to learn other SKUs (XY) patterns and apply to highly volatile
items in the Z bucket.
Using Amazon Forecast, we have been able to increase our forecasting accuracy from 27%
to 76% reducing wastage by 20% for the fresh produce category. Amazon Forecast provides
a distribution of forecasts which helped us optimize our under and over forecasting costs
leading to stock-outs at 3% and improved gross margins. This makes it easier for our store
managers to place more accurate purchases orders by looking at the daily forecasts. We
are now expanding the model to other categories, iterating with additional related
datasets, and adding newer data to Amazon Forecast to continuously improve the model
accuracy.”
Product Classification
Cross Mapping of Products
Inventory and Planning Decisions
Inventory Strategy Approach with Analytics
How much, where, and in what form should inventory for a product be held in the supply
chain?
How can I evaluate the impact of network strategy and variability on inventory?
How can I explore trade-offs between service level objectives and inventory holding costs?
Where should I set push vs. pull boundaries (also known as decoupling points) in my
supply chain (that is, make-to-stock vs. make-to-order)?
What inventory should I hold in order to maximize fill rates under a top-down budgetary
constraint for inventory investment?
What is role of classification in inventory decisions?

Inventory Strategy Approach with
Analytics
Inputs Outputs
Statistical distributions Optimal inventory profiles
Transit time Time-phased safety stocks by
Production time product and location
Lead Time Policy guidance by location
History or future orders Expected inventory levels by period
Demand Forecast Demand profile by facility and
Forecast accuracy customers
Starting inventory by location Simulation runs to show inventory
Current stocking and service policies levels over time
Facility capabilities
AI system approach
Coca Cola Case Discussion
Coca Cola uses artificial intelligence for the inventory management of their
cabinet coolers in retail outlets.
The AI tool has been trained to recognize, identify and count the different Coca
Cola products in the coolers.
The tool could combine this data with information received from demand
forecasting and automatically calculate an order to restock.
Consequently, the retailer is offered a delivery choice. Additional information is

also given on predicted demand for a cooler, with the aim of providing additional
service and increasing Coca Cola’s sales
Several key benefits for the use of AI in inventory management are:
Saving time and money: by automating inventory management with AI, it is

possible to save manual labour and thus money.
Increasing scalability: automated inventory management allows companies to

respond quickly to the changing customer demand and scale stock up or down.
Reducing manual work: because of automated processes, manual work is

reduced, resulting in a decreased risk of human error.
24/7 access to data: always insights into the data of the inventory gives practical
benefits to get a competitive advantage.
Several key benefits for the use of AI in inventory management are:
Prevent overstock and understock: automated inventory management ensures

the storage space is effectively used and knows what products to restock at the
right time.
Easy integration with current systems: most companies already make use of ERP
and CRM systems, which integrate easily with an AI application in inventory
management
With an efficient AI solution in the inventory management there can be

significant added value for the organization. Several case studies shows that
inventory levels and holding costs could be reduced with 20-50%. Furthermore, a
decrease of 15-30% in shipping costs can be achieved through improved real-time
insight into stock levels and inventory in general. Moreover, companies note that
service levels and On-Time-In-Full deliveries improve by 10-20% with an AI
application.
• To implement an AI application, it is important to know that much of the required data
is already in the company’s hands.
• The data is often not used or used incompletely by organisations.
• To train an AI application, different types of data suffice. Historical sales data, data on
current supply and demand in the market and delivery times from different suppliers
are all types of data that can be used.
• To ensure that the AI solution works fully automated, the software has to be trained
and needs to learn from itself.
• To automate, the inventory management process the system needs time and a lot of
data.
• This requires knowledge on data science and analytics, datasets have to be extracted
and combined with each other.
• Therefore, the AI solution is not just about importing data into the system, it also
requires human work.
• The final decisions are made by the employees of the organisation, which requires
insight and knowledge about the AI solution
Inventory/Forecast Case Discussion
Meesho is India's largest marketplace for longtail/unbranded products and our vision is to
enable 100 million small businesses in India to succeed online. The Meesho marketplace
provides micro, small and medium businesses, and individual entrepreneurs access to
millions of customers, selection from over 100+ categories, pan-India logistics, payment
services, and customer support capabilities to efficiently run their businesses on the
Meesho ecosystem.
“At Meesho, we have a lot of products with short life spans and it is important for us to
react to key metrics associated with product performance and manage our inventory
optimally. By using Amazon Forecast, we were able to predict the demand forecasting of
products at weekly/daily with an increase in forecasting accuracy of 20% in comparison to
our existing solution. Amazon Forecast provides easy to use APIs that helped us to easily
build an automated system in half the time it would have taken for an in-house model. We
have achieved promising results so far with Amazon Forecast on our current inventory and
we plan to continue leveraging it to improve forecasting accuracy on our ever increasing
assortment of products.”
Demand Solutions in 3M
• Multi Division, Multi SKU set up
• Varied customer segments
• Healthcare, Industrial, Safety, Consumer, Automotive
• Diverse Markets – Mature Customers, Smaller customes
• High level of new product introduction and new market penetration
• Marketing and sales depended on each other for market inputs
• Last minute promotions, price offs to counter competition move
• Distributors data sharing was not regular, not standard formats
• Demand solutions implemented by Supply Chain
• Forecasting and inventory management tool
• Required sales and marketing to plug in data
• S&M depended on distributor input
• New generation sales team wanted more automation with distributor plugging in data
directly into the system
Cycle Stock Calculation
Calculate the following?
• A store orders 80 printers from the manufacturer each time he places an

order. The lot or batch size in this case is 80 printers.
• Daily sales is 4 printers
• Cycle Inventory = 80/2 = 40 (where Q = 80 = Lot size)

• AFT = 40/4 = 10 (Where CI = 40 and Demand = 4)
GMROI Model
GMROI Model
GMROILS Model
AI in Service Industry
With the help of artificial intelligence and big data the Swiss logistics giant, Kuehne +
Nagel, improved their shipment planning and inventory management. Their AI solution
enabled the company to find the best option for container shipping, including alternative
routing options to adhere to transportation timeframes and reliability. A side-effect of
implementation improved service levels of the company, because of better insights on
shipment and inventory
Analytics in Inventory Management MOQ, EOQ,
Inventory Optimization
Session 4 Topics
 Minimum Order Quantity

 Economic Order Quantity
 Stock Optimization
Cross Mapping of Products
Inventory Strategy Approach with Analytics
How much, where, and in what form should inventory for a product be held in the supply
chain?
How can I evaluate the impact of network strategy and variability on inventory?
How can I explore trade-offs between service level objectives and inventory holding costs?
Where should I set push vs. pull boundaries (also known as decoupling points) in my
supply chain (that is, make-to-stock vs. make-to-order)?
What inventory should I hold in order to maximize fill rates under a top-down budgetary
constraint for inventory investment?
Total Cost
Different stages exploit economies of scale to lower total cost.
The costs considered include material cost, fixed ordering cost,
and holding cost.
Any stage of the supply chain exploits economies of scale in its

replenishment decisions in the following three typical situations:
1. A fixed cost is incurred each time an order is placed or
produced.
2. The supplier offers price discounts based on the quantity
purchased per lot.
3. The supplier offers short-term price discounts or holds trade
promotions.
Inventory Related Costs
Holding Cost
• Cost of Capital
• Handling Cost
Ordering Cost
• Buyer Time Cost
• Transport Cost
• Receiving Cost
Economic Order Quantity (EOQ)
What will happen to EOQ if any of

the components value change?
EOQ for Multiple Products
• In current business world there is high chances of multi
product shipments
• That makes the EOQ calculation complex
• Consolidation from multi suppliers
• Milk Run across suppliers for more frequent supplies
Aggregating replenishment across products, retailers, or suppliers

in a single order allows for a reduction in lot size for individual
products
Because fixed ordering and transportation costs are now spread
across multiple products, retailers, or suppliers.
EOQ Case Discussion
Product Month Demand Volume Per Unit Order Cost Carrying Cost Lead Time Unit Cost
Fast Cut Compound 5000 0.005 $150 Per CBM $1 Per CBM Per Day 55 Days 12
Abrasive Discs 25000 0.00025 $150 Per CBM $1 Per CBM Per Day 75 Days 0.05
Ear Plugs 100000 0.00035 $150 Per CBM $1 Per CBM Per Day 35 Days 0.3
8210 Masks 320000 0.0002 $150 Per CBM $1 Per CBM Per Day 90 Days 1
Origin UK
Destination India
Lot Size
Costs influenced by Lot Size are
1. Price
2. Holding Cost
3. Ordering Cost
Price : Order below 500 Units is $10, Above 500 is $9 (Cost)

Holding Cost : Cost of carrying a unit of inventory. It can a % of
Cost
Ordering Cost : Fixed ordering cost per lot eg. Set up, Transport
etc. $/Lot
A manager must make the trade-off that minimizes total cost

when making lot-sizing decisions.
Cycle Inventory and Commodities
For commodity products for which price is set by the market,
manufacturers with large fixed costs per lot can use lot size–based
quantity discounts to maximize total supply chain profits. Lot size–
based discounts, however, increase cycle inventory in the supply
chain.
Where Quantity Discounts are high

Eg. Commodities…
What is the approach?
Bloomingdale’s and Gucci
• Bloomingdale’s, a high-end department store sells purses purchased from Gucci,

an Italian manufacturer.
• Given the high transportation cost from Italy, Bloomingdale’s orders in lots of 600
purses.
• Demand for purses at Bloomingdale’s averages 100 a week. Gucci takes three
weeks to deliver the purses to Bloomingdale’s in response to an order.
• If there is no demand uncertainty and exactly 100 purses are sold each week, the
store manager at Bloomingdale’s can place an order when the store has exactly
300 purses remaining.
MOQ
MOQ Case Discussion
L’Oreal Elvive brand has shampoos, conditioners, masks, gels are
imported from UK to UAE
Conditioners are 200ml 1200 per pallet
Shampoos 250 ml 920 per pallet
Shampoos 400ml 540 per pallet
Masks 150 ml, 1500 per pallet
Container can hold 20 or 40 pallets but due to

Damage complaints only 20 pallets
Per 40 foot container is shipped
When sourcing moved from UK to Italy

to accommodate English/Arabic pack
MOQ changed
MOQ Case Discussion
UK was producing only English pack and ME demand was a small
portion of their demand hence MOQ was 1 pallet quantity
Italian factory wanted MOQ on certain variants to production lot

level which is about 20000 units for 250 ML Shampoo, 20000 for
400 ML shampoo, 15000 for conditioners and masks per variant
6 variants of 250 ml shampoo

7 variants for 400 ml shampoo
5 variants of conditioner
2 variants of masks
MOQ Case Discussion
What is the implication of MOQ
How can it be handled
Alternative ways to handle the MOQ situation

Leveraging EOQ / Cost Optimization
 Multiple Supply and Multiple Delivery point combination

 Supplier sends full truck load to DC
 Unloaded, but not put away on shelf
 Cross docking operations
 Dispatch to receiving points (retail stores)
 Advance Shipment Notice facilitates this operation, enables advance planning
 RFID technology also reduces cost, facilitates speed and accuracy
Inventory Strategy Approach with
Analytics
Companies often generalize and apply a days-of-sales target across all products. This one-
size-fits-all approach has the benefit of being simple to administer. However, it may result
in significantly over investing in some stock and not enough in others. Getting the mix
right is critical for providing the targeted level of customer service at the lowest cost.
There are numerous formulas for safety stock based on lead time, variability and service
level target. These approaches fail to consider the interdependencies across nodes in the
supply chain. The closer to the final customer, typically the more intermittent and variable
the demand signals become. As we look into the upstream supply chain, pooling demand
signals results in smoother demand that is easier to forecast. The trade-off between
inventory form and function is optimized and the right policy to stock each node is
determined. This solution must include a holistic consideration of in-transit, cycle stock,
WIP, quality holds, and safety stock.
Backup Slides
Lot Size
1. Price
2. Holding Cost
3. Ordering Cost

Cost
etc. $/Lot

Trade off and Lot Sizing Decisions
• The primary role of cycle inventory is to allow different stages
in a supply chain to purchase product in lot sizes that minimize
the sum of the material, ordering, and holding costs.
• If a manager considers the holding cost alone, he or she will

reduce the lot size and cycle inventory.
• Economies of scale in purchasing and ordering motivate a

manager to increase the lot size and cycle inventory.

MOQ and Total Inventory
• A store orders 80 printers from the manufacturer each time they place an
• It takes an average of 20 days before the store sells the entire lot
• The computer store holds an inventory of printers because it purchases a lot
size larger than the store’s daily sales.
Analytics in Inventory Management MOQ, EOQ,
Inventory Optimization Part II
Session 6 Topics
 Minimum Order Quantity

 Economic Order Quantity
 Stock Optimization
 Safety Stock
 Product Classification
 Application of above concepts to used cases and data

analysis with excel
Week 2 Application of Concepts
Discussions to keep below points in landscape. Cases and
examples can be reflected upon with these aspects as guide
points
 Supply Chain Surplus

 Drivers
 Responsiveness vs Efficiency (Service vs Cost)
 Trade Off
 Total Cost of Ownership
 Types of Analytics
AI in Service Industry
With the help of artificial intelligence and big data the Swiss logistics giant, Kuehne +
Nagel, improved their shipment planning and inventory management. Their AI solution
enabled the company to find the best option for container shipping, including alternative
routing options to adhere to transportation timeframes and reliability. A side-effect of
implementation improved service levels of the company, because of better insights on
shipment and inventory
Inventory/Forecast Case Discussion
Meesho is India's largest marketplace for longtail/unbranded products and our vision is to
enable 100 million small businesses in India to succeed online. The Meesho marketplace
provides micro, small and medium businesses, and individual entrepreneurs access to
millions of customers, selection from over 100+ categories, pan-India logistics, payment
services, and customer support capabilities to efficiently run their businesses on the
Meesho ecosystem.
“At Meesho, we have a lot of products with short life spans and it is important for us to
react to key metrics associated with product performance and manage our inventory
optimally. By using Amazon Forecast, we were able to predict the demand forecasting of
products at weekly/daily with an increase in forecasting accuracy of 20% in comparison to
our existing solution. Amazon Forecast provides easy to use APIs that helped us to easily
build an automated system in half the time it would have taken for an in-house model. We
have achieved promising results so far with Amazon Forecast on our current inventory and
we plan to continue leveraging it to improve forecasting accuracy on our ever increasing
assortment of products.”
Demand Solutions in 3M
• Multi Division, Multi SKU set up
• Varied customer segments
• Healthcare, Industrial, Safety, Consumer, Automotive
• Diverse Markets – Mature Customers, Smaller customes
• High level of new product introduction and new market penetration
• Marketing and sales depended on each other for market inputs
• Last minute promotions, price offs to counter competition move
• Distributors data sharing was not regular, not standard formats
• Demand solutions implemented by Supply Chain
• Forecasting and inventory management tool
• Required sales and marketing to plug in data
• S&M depended on distributor input
• New generation sales team wanted more automation with distributor plugging in data
directly into the system
GMROI Model
GMROI Model
Comifar Case Study
Exploding size and complexity leads to a moment of truth
With 21 distribution centres and three hubs over the whole of Italy, Comifar
Distribuzione distributes 20K orders per day from over 150K SKUs of
prescription drugs, over-the-counter medications, nutritional supplements,
and much more. With 19% of the market, they are the biggest pharmaceutical
distributor in the country.
For years, Comifar depended on a purchasing planning system developed and

customised over the past two decades. But, in those same twenty years, the
company has grown larger and more complex through growth and
acquisitions, and their planning system was under increasing stress.
The system’s shortcomings led to unnecessarily high stock levels, an increasing

need for the destruction of expired material, and a resulting loss of revenue. A
robust, mature S&OP process was deemed the way forward.
Comifar Case Study
Finding a road map and taking the first steps
• The project began with an assessment – getting to know the people,

the corporate culture and coming to grips with the type and depth
of difficulties involved.
• This evaluation led to a list of recommendations presented to the
board of directors.
• With the board’s input and their recommended timetable, the
resulting steps were prioritised and channelled into a long-term road
map.
• The highest priorities were forecasting, purchase planning, stock
optimisation, and reduced potential for lost sales.
• Next on the list were a revision of the logistics KPIs to ensure the
tracking of proper metrics, the improvement of gross margins, and
the consolidation of Comifar’s ongoing market leadership position.
Comifar Case Study
Delivering the correct stock level to the ideal location

• Comifar’s demand planning process now delivers timely
statistical forecasts utilising an algorithm best suited to the
historical profile.
• It presents AI entries that allow, for example, to identify lost
sales due to the lack of stock from suppliers, gain market share
back as the product becomes available, and reduce out-of-
stock codes by reallocating pharmacy orders based on time of
day.
• To facilitate the ongoing use of AI/ML, Comifar decided to
work with data at a high level of granularity to achieve highly
accurate plans using the billions of records available.
Comifar Case Study
• The distribution planning process defines an ideal level of
safety stock to maintain a high level of customer service.
• It determines the ideal supply economic lots and provides a
medium-term plan for logistics and warehousing so each will
be ready to accommodate and deliver the required safety
stock.
• Planned purchase orders (PO) help maintain stock levels.

• Last-minute POs are also issued to make beneficial speculative
purchases and satisfy stockouts from the previous day.
• In addition, by using dynamic deployment, Comifar helps
reallocate goods among the 21 distribution centres by
identifying potential savings while maintaining stock and
service levels.
Comifar Case Study
It was six months after implementing the S&OP process before

the team had fully integrated all 1300 suppliers into the system.
Shortly after that, Comifar began to see improvements in service

levels, product flows, and the quality and quantity of stock.
An impact on the gross margin followed – as much €1,3MM per

year.
Improvements beyond economic returns are evident.

Comifar Case Study
Comifar now has a more structured planning process, and their
planners have acquired new skills and experience, which is
reflected in their measured performance.
• Forecast accuracy increased 14%

• 53% reduction in lost sales
• 37% cut in intra-warehouse orders.
• 18% stock reduction observed.
• Lines per order are down 21%
• Non-assortment stock is down by nearly half at -47%.
The most profound benefit of all of these improvements is a

marked increase in supply chain visibility, making it easier to
follow the development of the market and allowing Comifar to
consolidate their leadership in the industry.
Total Cost
Different stages exploit economies of scale to lower total cost.
The costs considered include material cost, fixed ordering cost,
and holding cost.
Any stage of the supply chain exploits economies of scale in its

replenishment decisions in the following three typical situations:
1. A fixed cost is incurred each time an order is placed or
produced.
2. The supplier offers price discounts based on the quantity
purchased per lot.
3. The supplier offers short-term price discounts or holds trade
promotions.
Practical Cost of Cycle Stock
Holding Cost
• Cost of Capital
• Handling Cost
Ordering Cost
• Buyer Time Cost
• Transport Cost
• Receiving Cost
EOQ for Multiple Products
• In current business world there is high chances of multi
product shipments
• That makes the EOQ calculation complex
• Consolidation from multi suppliers
• Milk Run across suppliers for more frequent supplies
Aggregating replenishment across products, retailers, or suppliers

in a single order allows for a reduction in lot size for individual
products
Because fixed ordering and transportation costs are now spread
across multiple products, retailers, or suppliers.
Lot Size
1. Price
2. Holding Cost
3. Ordering Cost

Cost
etc. $/Lot

MOQ
MOQ and Total Inventory
• A store orders 80 printers from the manufacturer each time they place an
• It takes an average of 20 days before the store sells the entire lot
• The computer store holds an inventory of printers because it purchases a lot
size larger than the store’s daily sales.
Inventory Optimization Case Study
Food and beverage products have a short shelf life, there’s a big upside to getting inventory levels
just right. So when our client, a Fortune 500 food manufacturer, noticed that their days of on-hand
inventory for some SKUs was encroaching upon the shelf life of those products, they knew
inventory levels were too high, and they needed to improve their inventory planning process.
Specifically, regional executives wanted to understand how to calculate reasonable inventory

targets, identify the impact of certain structural and operational parameters on achieving those
inventory levels, and implement and sequence the necessary changes. They also wanted a
framework to support this inventory decision-making process on an ongoing basis.
Crunching the numbers

The first step in the project was to collect, assess, and validate the company’s current inventory
performance. This baseline assessment uncovered key areas where service levels were falling
short due to a variety of operational inefficiencies as well as inventory overstocks and sell-outs.
Chainalytics then leveraged its proven inventory planning methodologies and product
segmentation framework to identify optimal inventory levels across the different product
segments and channels.
Getting hypothetical
To help the company fully understand what was driving its recommended inventory
targets, Chainalytics developed a custom tool with “what if” capabilities which allows
users to change inputs like demand, lead time, and service levels (i.e., fill rates) to see
the potential impact on cost, and working capital.
The what-if tool has an MS Excel front-end and uses the R programming language for
data processing and computation. This combination of open source and commercially
available tools provides a familiar user experience for the planner and is easy to
maintain internally by the company’s IT department. Working with the manufacturer’s
planning team, Chainalytics supported an initial showcase/pilot of the tool to later roll-
out to the rest of the planning group.
Problem solved
This inventory target setting engagement delivered many benefits for the
manufacturer, including:
Product Segmentation: The client company is now able to set custom break-points for
velocity and understand variabilities as well as segment based on unit standard costs.
With full visibility into how SKU demand behaves based on velocity, variability and cost,
the manufacturer can set its desired case fill rate setting in each individual product
segment.
Inventory Target Setting: The most important output of the tool developed by
Chainalytics is the calculation of Target Stock. Intelligence into ideal levels of inventory
to meet demand is broken down into “cycle stock” — which is the required level to
fulfill demand—and a “safety stock”—which buffers against volatility in demand or
supply. Together, these numbers ensure the manufacturer will be able to satisfy
demand without running out of stock or carrying excess inventory.
Problem solved
What-if Reporting: Chainalytics’ solution gives the manufacturer the ability to compare
scenarios by location, segments, SKUs, etc. and to create waterfall/bridge reporting for
sensitivities.
The company can now easily calculate how to achieve desired output by making
changes to multiple inputs. Variances in that output can easily be explained by
identifying which inputs were altered.
Ongoing Analysis: The tool delivered by Chainalytics can be used at regular intervals to
account for changes in the future. This allows the company to recalculate inventory
targets several times throughout the year based on the planning cycles to keep its
operations optimised for changes to real-world scenarios as they occur.
Working with hundreds of distributors across India and China to deliver products to
retailers requires accurate and reliable insights into the drivers of inventory. Our client
is now equipped to plan inventory for efficient distribution without waste.
Indicative Methods
Forecastability Matrix
Analytics in Sourcing, Transportation, Warehousing
Session 7 Topics
 Sourcing
 Warehousing
 Transportation
 Analytics in Sourcing, WH and Transportation, M & S
Strategic Sourcing
Good procurement procedures help organizations get goods and services they
need
Great procurement procedures aim for the lowest cost possible.
Procurement focuses on the immediate rewards instead of what's good for
the business over the long term.
Strategic sourcing is the next evolution of procurement.

Focuses on cost of materials, builds strong long-term supplier relations and
avoid disruption to the supply chain in the future.
Sourcing evolves with the changing needs of the company.
The key to strategic sourcing lies within current procurement data that can
unlock even more benefits for your business.
Strategic Sourcing Analytics
1. Start with a big picture analysis. Look at all purchasing data, then break it
down into different departments and locations. Analyze different spending
categories, as well as patterns in buying. The more granular the data, the
more information you have to analyze.
2. Create a strategic procurement plan based on the business' needs. Create

forecasts using historic data about what you’ve purchased, when, and for
which locations will help guide the strategic planning. For instance, if you’ve
negotiated a discount on certain printer cartridges but they’re not being
used, you can direct your efforts elsewhere.
3. Analyze the supplier market. What suppliers can provide your business with
the Maintenance, Repair and Operations (MRO) products needed to keep
buildings running and in repair? Develop portfolios about potential suppliers,
including their strengths and weaknesses.
Strategic Sourcing Analytics
4. Define your supplier criteria. Know what the business needs from suppliers
so it's easier to determine who can meet the criteria and who can't.
Determine what qualities are most important in your suppliers and engage
them accordingly.
5. Negotiate with a list of select suppliers. Reach out to a carefully chosen list
and start the negotiation process for products under contract.
6. Incorporate the new suppliers into your procurement program. Make it easy
for contractors and employees to order from the new suppliers. This helps
eliminate maverick spending and increased costs.
7. Track the performance of all suppliers. Make sure suppliers are adhering to
terms and conditions and providing the optimum level of service. Continually
analyze their performance, as well. If they aren’t up to par, investigate
potential new suppliers who may be better suited to serve the business.
Strategic Sourcing Metrics
1. SPEND ANALYTICS - This one is crucial. Procurement teams
need to know how much is being spent, when, and where.
Without the data, procurement is often hit or miss.
2. PRODUCT QUALITY - How long are products likely to last?

While some suppliers may offer lower prices, if the quality of
their product isn't good, a business will end up spending much
more on it in the long run.
The quality impacts the total cost of ownership, and this is an
important metric in strategic sourcing. Data on product quality
and longevity is vital.
Strategic Sourcing Metrics
3. PROCUREMENT AVERAGE CYCLE TIME - How long is it taking
for products to get to the business from the time an order is
placed? Track supply rates and on-time delivery statistics,
especially when evaluating whether to re-up on contracts.
4. SUPPLIER RELIABILITY - Are deliveries timely? Was the right

quantity delivered? Did the right items go to the correct location?
If the answer to any of these questions is regularly a “no,” you’ll
need to enforce terms and conditions and possibly look
elsewhere in the future.
Sourcing Trend
Stanley Black & Decker is on the move from China.
The industrial tools and household hardware maker
permanently closed its factory in Shenzhen in
November after 25 years of operation. Growing
competition and rising labour and land costs were
cited as reasons for the closure.
Sony closed its smartphone plant in Beijing in 2019

and moved production to a factory near Bangkok,
Thailand. However, the Japanese tech company was at
pains to stress that the move was prompted by
disappointing sales and rising costs in China rather
than the US-China trade conflict.
Sourcing Trend
In 2019, Nintendo moved some production of its
Switch console from China to Vietnam but, like Sony,
the Japanese video games company said the move
has nothing to do with the US-China trade war and
was more about diversifying its manufacturing
options and avoiding putting all its eggs in one basket.
HP was also planning to relocate 30% of its notebook

production away from China. The reasoning behind
both moves was to avoid the punishing US tariffs on
tech products produced in the People's Republic for
the US market.
Warehousing Challenges
Warehousing Data Analytics
Tools or Methods Utility
Optimisation Data analytics reveals insights into the effectiveness, form and
productivity of the system and can be used for the purposes
of maintenance, operations and asset management decisions.
Visualisations Visualized data insights are tailored to specific roles and focus
areas to assist decision-making at all levels.
Alarms Real-time data logs detect abnormalities and alert system

operators.
Predictive Data is sourced from the equipment and read in real time
maintenance through sensors and devices and processed for the purposes
of predictive maintenance.
Analytics in Transportation
Analytics in Transportation
• Understand and navigate an increasingly complex logistics landscape, filled
with greater carrier choice than ever before.
• Maintain a strong customer focus and ensure that goods arrive with
customers on time – wherever they are.
• Master new data types and harness data from third-party carriers to
optimise routes and build smarter transportation strategies.
• Cut costs and improve efficiency in any way possible to protect profit
margins – without sacrificing delivery speed..
Total Cost of Ownership Model
Total Cost of Ownership
Total Cost of Ownership
What will be TCO for

source change from UK
to ITALY
UK to UAE
ITALY to UAE
Should Cost Modelling
Trade off Concept
Trade off Concept
Trade Off
• Benetton requires retailers to commit to about 65 percent of their orders about seven
months before the start of the sales season.
• Benetton subcontracts production of this portion without uncertainty to low-cost
sources that have long lead times of several months.
• For the other 35 percent, Benetton allows retailers to place orders much closer to or
even after the start of the selling season.
• All uncertainty is concentrated in this portion of the order. Benetton produces this
portion of the order in a plant it owns that is very flexible.
• Production at the Benetton plant is more expensive than production at the
subcontractor’s. VOLUME BASED TAILORED SOURCING
• Levi’s gets standard Jeans from efficient source

• Custom Jeans from responsive source
• Zara gets basic T-shirts from efficient plants in Asia
• Fashionable unpredictable demand items from
Europe
PRODUCT BASED TAILORED SOURCING
Trade off Concept
JIT / TPS
Supplier Partnership and Lean
ITC Case Discussion
ITC Limited is one of the largest consumer packaged goods businesses in the country. It competes
head-on with Unilever, P&G and PMI across the CPG, personal-care and tobacco sub-sectors.
ITC has a highly-integrated supply chain with ~100 factories (MF) and 60 major FG warehouses
(WH) around India. Packaged product meant for retail flows from factories to large regional
warehouses, that hold roughly 2-4 weeks of stock. These warehouses serve two functions,
inventory storage and order fulfillment to wholesale distributors (WD). Each warehouse touches
between 80-120 WDs. Like other warehouses in India, ITC’s warehouses run a largely manual, paper
based operation. And while it could have been more operationally efficient for ITC to operate fewer
warehouses, and assign more WDs to each, the indirect taxation structure in India (until before
2017) makes it expensive for them to do so.
The company’s CPG business is among the fastest growing in India. The company is constantly
adding new product categories and expanding existing product lines. These developments put a
huge operational and financial strain on the organization’s logistics.
ITC Case Discussion
Rising real-estate costs: Manual-picking and paper-accounting based warehouses means products are
stored in short-stacks (6ft) at ground level. Unlike warehouses in Europe which are 80-160ft tall, ITC’s
facilities are 10ft tall. Thus, floor space productivity is low.
Low product margins: ITC sells perishables that with low gross margins. Thus, warehousing and
logistics have tight cost bounds.
Large SKU assortment: With over 3000 SKUs, a long tail and regional/seasonal variants the SKU
assortment multiply the operational complexity of warehouse operations.
Poor inventory management: Warehouses store/fulfill orders based on paper based accounting
systems, often leading to pilferage, delays and errors.
Lack of skilled productive labor and escalating labor costs: Minimum wage is growing fast and skilled
labor is hard to find.
Lack of consolidation: With 60 warehouses around India, ITC’s customer base is fragmented, order
SKU/volume variation is high and downstream logistics is sub-optimal.
ITC’s direct costs are near/better than the industry benchmarks given the high levels of automation in
its manufacturing facilities and general focus on process excellence/optimization. Logistics –
warehousing and transportation – constitute the largest indirect cost. Management realizes it is
imperative to revolutionize warehousing if they had to keep ITC competitive going forward.
ITC Case Discussion
Phase 1
Warehouse management system (WMS): Implemented a WMS that tracks

inventory at SKU levels and generates order picking waves based on Customer-
Orders.
WMS integration with ERP systems (WH, MF, WD): WMS system speaks with a
fully integrated ERP system to pull master data, track inventory in transit and
identify inventory levels downstream.
Systematizing order flow: Setup an auto-replenishment system to pull

inventory downstream, especially for fast moving SKUs, when inventory levels
fall below a threshold.
ITC Case Discussion
Phase 2
Migration to 40ft racked warehouses: Migration from traditional ground level warehouses
to 6-8 level (3ft tall window) pallet storage rack warehouses. Effective inventory stored
per unit area grows 4x.
Basic automation with pallet trucks: Pallet trucks (PT) to convey pallets around the
warehouse, and Height-reach trucks (HRT) to place/pick pallets in to rack-storage
locations.
WMS driven, hand-held terminal (HHT), Barcode assisted operations: WMS generated
optimum storage tasks (instructions to PTs & HRTs to move pallets between locations),
optimum case-picking routes for manual order picking, HHTs for pick validation/integrity.
Enabler: In 2017, the hallmark GST-bill goes into effect altering the indirect taxation
structure [5][6]. Organizations can now fully offset tax paid on cross-border sales against
tax liabilities in manufacturing region. ITC can now consolidate warehouses to improve
efficiency. Thus, the CEO has set up a task force to establish phase 3.
ITC Case Discussion
Phase 3
Consolidation – mega warehouses cum factories: ITC has formulated a NPV-positive automation
model and plan to build mega warehouses, co-hosted with factories, in a phased manner to meet
2025’s logistics requirements.
80-100ft tall highly automated warehouse schema: Each warehouse is expected to store and fulfill
about 8-10x the current product volume handled by a large warehouse.
Migrate to a more advanced WMS cum Equipment Control System (ECS): The organization is investing
in a plethora of IT Hardware and advanced WMS/ECS software [9] to instruct automated storage
systems, conveyors, sorters, palletizers and other equipment.
Pilot new technologies and operational efficiency projects at “Phase 2” warehouses

While ITC is making strides on the automation front I’d recommend the organization to build flexibility
into the warehousing system and continue to drive operational improvements. A few ideas are
Dynamic ABC-classification and storage reorganizations

Truck load optimization
Case-load/Tote-load storage systems to augment pallet-load systems
Space planning/flexibility for refrigerated storage setups
ITC Case Discussion
ITC Ltd is working on the “leanest possible" distribution model to supply products directly from its
manufacturing units to retail outlets across the country, aiming to ultimately reduce lead time to
just one day, a senior executive said.
“Our long-term goal is to reach the retail points directly from the manufacturing facility, so that we
are able to improve our competitiveness in the market. However, this will take time, given the
existing complexities and challenges that are inherent in the transportation norms and regulations
today.
ITC has one of the most extensive distribution networks in India. Its products are available at 4.3
million of the estimated eight million retail stores in India. Of this, about 2 million are under ITC’s
direct distribution network. ITC will replicate the new factory-to-retail point distribution in phases,
and eventually bring all the 2 million retail points under the new structure.
Traditionally, ITC, like all packaged goods companies in India, stocks products at its distribution
centres. Products first go to its exclusive wholesale dealers, then distributors and direct retailers. In
some areas, mostly in rural India, the big retailers supply products to smaller retail outlets. The
entire process takes anything from one week to three weeks, depending on the distance between
the retail outlet and the factory.
ITC Case Discussion
ITC plans to remove as many stocking points as possible as part of its new model. At each stocking
point, products get degraded due to handling. The company will require less working capital if it
eliminates some stocking points. “This will ensure better profitability and we’ll get closer to the
consumers," Sumant said.
“Our ultimate goal is to ensure a supply chain that is as close to the market as possible with
minimum stocking points. This will ensure greater freshness of products, greater responsiveness
and lower costs.“
According to a McKinsey and Co. report on the future of retail supply chains, companies can reduce
costs by about 20% at the distribution centre level, while optimal deployment of inventory can
reduce working capital by about 10%.
An analyst described ITC’s approach as “unique in India".
“This is the right move, but it may not be easy for any FMCG company to replicate the factory-to-
retail points direct supply given the scale and nature of Indian retailing. Every FMCG company is
trying to come as close as possible to its consumers," said Abneesh Roy, associate director
(institutional equities research), Edelweiss Securities Ltd.
ITC Case Discussion
The new model will help the company get more data about consumers and, in the long run, that
and not cost could be the biggest benefit for ITC, Roy explained.
Indeed, the new model will help the company respond better to market demand, Sumant admitted.
The new distribution model is part of ITC’s plan to reach ₹ 1 trillion in revenue from its cigarettes
and packaged goods business by 2030. The company has also lined up investment of ₹ 25,000 crore
in 65 projects, including 25 factories for packaged goods, covering an area of 28 million square feet,
according to its annual report.
It added that the focus is on building flexibility and agility across the supply chain to ensure delivery
of volume and variety in a timely and cost-effective manner.
ITC is also in the process of automating all its 62 warehouses and its 1,550 wholesale dealers. “The
distribution network includes over 1,550 wholesale dealers and a force of 25,000-plus sales people
who are IT-enabled and empowered with hand-held devices, which ensure that every member of
the sales team has access to real-time actionable information on business imperatives and
performance. The supply chain mechanism is determined by analytics based on real-time feeds and
insights for over 1,000 stock keeping units (SKUs). This enables informed decision-making and helps
determine inputs, while ensuring an efficient distribution based on store-level demand," said
Sumant.
Distribution Network
Term End Exam
 2 DQ model 15 Marks each.
 Caselet Based or Option to choose your own situation
 Sub Questions with marks breakdown
 Theory plus Application
 Be guided by marks split
 Be objective based on the marks split
 Apply in sufficient level of depth
 Answer specifically, separately, based on situation
 Add examples where needed absolutely needed, but focus on
situation context
Focus Topics
 AI, ML application in Supply Chain
 Types of Analytics, Data Sources and Application of Analytics
to gain competitive advantage
 Analytics in forecasting, Accuracy Measure, choice of models
 Product Classification, EOQ, MOQ, (Forecastability, Volume)
 Safety Stock, Service, Cost related analytics
 Analytics in Drivers, cost, responsiveness
 Analytics in determining Trade off between cost,
responsiveness
 Network Optimization Models – COG, Factor Rating, Cost
Volume
Session 8 Topics
 Distribution Network Design Models

 Distribution Network, Drivers, Performance Measures
 Distribution Network Trade Off
 Lead Time Reduction
 Network Optimization Cases
Distribution Network Design Options
Decisions related to Designing Network
1. Will product be delivered to the customer location or picked up
from a prearranged site?
2. Will product flow through an intermediary (or intermediate
location)?
Possible Network Design Options based on two questions
1. Manufacturer storage with direct shipping
2. Manufacturer storage with direct shipping and in-transit merge
3. Distributor storage with carrier delivery
4. Distributor storage with last-mile delivery
5. Manufacturer/distributor storage with customer pickup
6. Retail storage with customer pickup
1. Manufacturer storage with direct
shipping
 Fast Moving Items Inventory

 Slow Moving Items Drop shipment
2. Manufacturer storage with direct
shipping and in-transit merge
 Dell PC Plus Sony Monitor

 Merge at a Carrier Warehouse
 Delivery to Customer
3. Distributor storage with carrier
delivery
 Major Brands store with distributor

or retailer
 Carrier Makes the delivery
 Possibly they have some packaging
or assembling capability at carrier
4. Distributor storage with last-mile
delivery
 Also called as with Milkrun

 Delivery Network by retailer
5. Manufacturer/distributor storage with
customer pickup
 Walmart “Site to Store” where customer picks up after ordering online

 WW Grainger, customers can pick up from a nominated location
 7Eleven Cross docking at their location.. Space utilization
6. Retail storage with customer pickup
 Traditional model
 Pick onsite
 Order Online and pick up
 Order on phone and pick up
Factors Influencing Distribution
Network Design
Dimensions to Evaluate Network Design
 Meeting Customer Needs
 Cost of Meeting Customer Needs
Measures impacted by Network Design

 Response Time – Time taken to meet customer needs
 Product Variety – Is network able to handle variety of products
 Product Availability – Ready Availability, Responsiveness
 Customer Experience – Overall experience, Solution orientation
 Time to Market – Speed to market, New products, Life Cycle
 Order Visibility – Information about status, end to end visibility
 Returnability – Online has more returns, is a USP
Network Design and Drivers
 Barnes & Noble same day delivery

 Lots of stores
 Amazon takes more than a day
 Limited Locations
 Variety is high with Amazon
 Variety is low with B&N
 Variety is a Trade off for Response
time
Network Design and Drivers
A Fast, Scalable Distribution Strategy for Leading Fashion Retailer in India
When a large fashion retailer in India decided to pursue an aggressive growth plan,
executives knew success would depend heavily upon big changes to its supply chain
distribution strategy. The company’s existing stores were located primarily in tier one
cities. Their plan was to grow by a factor of seven, adding thousands of stores in tier
two and three cities over the next three years – while simultaneously increasing service
levels and maintaining profitability.
With six national distribution centers (NDCs) carrying the entire portfolio of products,
the organization was carrying both excess and incorrect inventory. This forced the
fashion retailer to frequently initiate costly transfers between stores and NDCs to
correct stock-outs and satisfy customer demand. The already-stressed NDC network
would not have been able to cater to its growth plans. Further, the current network
was capable of supplying just 75 percent of demand within 48 hours – a metric they
sought to improve significantly.
In the fashion retail business, quick turnover of products is vital to keep shoppers
returning to retail locations, making efficient distribution paramount to continued
success. Supply chain network required was not only satisfy this demand, but would
also be scalable to serve a new B2B operation intended to distribute apparel to
independently-owned, smaller footprint stores.
Two-tier distribution, cross-docking, backhauling and milk runs to the rescue
Supply chain network design team analyzed this complex set of needs and designed an
optimized distribution network that includes a combination of consolidation centers
which acquire products directly from suppliers and store fulfillment centers.
The new design allows the organization to optimize transport times by giving store
fulfillment centers the option to either ship directly to stores or through any of its
cross-docks.
Vast network of cross-docks was a key design feature because it allows the company’s
fleet to fulfill products using milk runs.
Instead of waiting for different trucks to replenish specific SKUs, a single truck can be
loaded with several different items at different cross-docks and deliver a large variety
of SKUs directly to each location in a single trip.
Coupled with optimized shipment sizes and frequencies, this model both shortens the
time necessary to fulfill demand and reduces inventory.
It is also easily scalable to transport items to the e-commerce customers.

The supply chain solution gives the fashion retailer the capability to reach 98.4
percent of its customers within 48 hours. Although the company was willing to
absorb increased costs to accomplish its growth goal, the new distribution
network would actually reduce its supply chain cost by 10%. This cost savings
is achieved through optimizing fleet mix and size, warehouse size and staffing
levels, and increased backhaul opportunities.
This new supply chain network model also gives the fashion retailer the
necessary scalability to keep its stores serviced appropriately across multiple
formats. The fulfillment speeds and supply chain cost reductions are expected
to give each location the ability to operate at their target margins while
growing the business through a quickly growing B2B network of retail
customers.
DHL Pharma Network Expansion
DHL Supply Chain, the Americas leader in contract logistics and part of
Deutsche Post DHL Group, is expanding its pharmaceutical and medical device
distribution network by 40 percent this year with an investment of $150
million. With the ultimate goal of bringing critical healthcare products closer
to trade partners and patients, DHL Supply Chain plans for nine new sites by
the end of 2019. The investment includes costs to invest in new buildings and
technology, as well as the fit-out and start-up of new or expanded operations.
The expansion brings the total number of sites dedicated to compliant

pharmaceutical and medical device distribution to 30. The business is
expanding with new market investments in Indianapolis, Ind., and Raleigh,
N.C.; multiple new facilities in key campus markets such as Memphis, Tenn.,
and South Central, Pa., and new sites in California and Virginia.
DHL Pharma Network Expansion
"This expansion allows DHL Supply Chain to continue to deepen the connections
between our customers and the patients they serve," said Scott Cubbler, President
of Life Sciences & Healthcare at DHL Supply Chain. "This most recent expansion also
helps us leverage differentiated routes to market, driving even greater efficiency
and productivity across the supply chain for our customers. With this expansion,
DHL Supply Chain will have a total of 30 sites designed to support pharmaceutical,
biotech, and medical device companies."
These sites, strategically located within the United States, are fully licensed with
temperature controlled space that supports pharmaceutical storage requirements.
The sites also allow for packaging and managed transportation for integrated
solutions.
As the leading logistics provider for the life sciences and healthcare industry, DHL
provides forward-thinking, intelligent healthcare logistics through a holistic range of
patient-centric solutions. From clinical trials to point of care, and every step in
between, DHL's more than 9,000 specialists leverage the power of digitalization to
connect the entire value chain - pharmaceutical, medical device, clinical trial and
research organizations; wholesalers and distributors; hospitals and healthcare
providers.
Yasso Supply Chain Optimization
Founded by two childhood friends turned competitive athletes, Yasso believes
consumers should never have to sacrifice taste for nutrition or settle for the
high-calorie choices found in traditional premium brands.
Looking to provide a superior alternative, partners Amanda and Drew

developed their product, created buzz through good old-fashioned footwork,
and launched a delicious variety of flavors in 2011. Experiencing sustained
growth and a burst of fulfillment requests, they wanted to improve their
ability to respond to the increasing demand for their product and the supply
challenges facing their market.
Planning production in a highly seasonal demand environment as a small

player relying on third-party manufacturers is challenging in and of itself. The
previous year, product recalls affecting the entire ice cream industry created
co-manufacturing capacity shortages, making it difficult for Yasso to maintain
the fulfillment pipeline.
As a result, case fill metrics were low and conversations with key accounts were
focused more on service issues than on promoting the brand and introducing new
products. Further complicating the situation, Yasso’s supply chain manager found
their existing planning process and tools failed to provide adequate visibility into
the current low inventory situations or a timeline as to when the company could
recover from it.
After a thorough assessment, fair few issues were identified. For starters, Yasso’s
on-hand inventory system accuracy was suspect, with confidence only in the
numbers at the beginning of the month after a cycle count. Second, the existing
tool’s projections of future inventory projections were based on two flawed
assumptions — that all orders would be filled and that product supply after the
first frozen month was not limited. Finally, the information coming from co-
packers about the status of production was largely incomplete, resulting in
occasional surprises when trucks would arrive at Yasso’s warehouse.
To address these issues, Yasso had to improve the planning process through
better data and a more realistic view of supplier’s capabilities and limitations.
Yasso took a “boots on the ground” approach to visit each co-manufacturer to
better understand their resources, equipment, constraints, and concerns.
Building trust and developing win-win relationships was key to improving

information sharing that is necessary to support a good planning process.
Yasso’s home-grown planning spreadsheet was replaced with the Planscape
Production Planning (P3) application to improve visibility into the current
supply chain situation and to create realistic capacity-constrained plans going
forward. The tool also allowed the running of “what-if” test scenarios to
understand the impact of potential changes in demand and supplier
capabilities.
With the new planning process in place, Yasso has experienced significant
benefits. By utilizing accurate supplier data along with the Planscape
technology, Yasso has realized significant customer service improvements,
moving from worst to first in their current case fill percentage of 99.3%.
Lead Time Reduction
• Historical Data Analysis to determine Lead Time

• Apply Little’s Law (WIP / Daily Demand)
• Value Stream Mapping
• Kaizen, 5 Why, SMED
Lead Time Reduction
Packaging and Handling Case Study
When it comes to an organization’s packaging strategy, methods stretch

beyond determining what material selection and applied designs will best
protect the product.
Also of concern is the creation of standard procedures as to how items should
be processed and handled throughout the supply chain.
Occasionally, shifts in marketplace requirements occur quickly, and many
organizations lack the necessary resources to respond to these changes
independently.
Such was the case with a home decor specialty retailer who adopted
Packaging Optimization to create inbound packaging design standards and
guidelines and adjustments in operational procedures to increase productivity
and mitigate product damages before landing in the stores.
In addition, the project was intended to educate global vendors of “delivered
quality” requirements to significantly reduce secondary processing labor costs.
The retailer had experienced 3-years of rapid growth, which resulted in the
relocation of their distribution centers to accommodate higher volume levels.
As a result, the operations team relied upon an automated conveyor system
designed to expedite sorting for outbound distribution and product categories.
However, their functional requirements to move throughout the system were
not well defined. This resulted in a high rate of required manual sorting
impacting secondary labor costs.
To better understand the problem, the root cause of cost increases was looked
in. Upon assessing the current state of systems and processes, the team
realized a large part of the problem stemmed from a weak vendor compliance
program, with minimal emphasis on packaging and item categorization. To
alleviate the issue, the team worked closely with the retailer’s internal
stakeholders to identify and define categories that required classification as
“non-conveyable” for their distribution centers. These products required
additional handling due to size, fragility, or packaging material types.
To streamline inbound operations and decrease deficiencies requiring secondary
handling, company created standards, identified non-compliant products and
packaging, and then trained frontline staff to handle products that fit this non-
conveyable category. This, in turn, allowed the organization to emphasize holding
suppliers accountable for following the new packaging standards. Specific departments
were given appendixes for their products that allowed them to identify strength
requirements, utilize testing guidelines, and reallocate conveyable vs. non-conveyable
inbound items to the appropriate receiving area at the distribution center.
The new packaging guidelines outlined minimum strength requirements, product

protection factors, preliminary testing methods, and process outlines to ensure
suppliers understand what is needed to minimize damage while significantly increasing
distributional efficiency. Upon packaging design guidelines and vendor compliance
implementation, the organization could see secondary labor costs reduced by over 15%
due to the standards developed. Through a successful packaging optimization, the
retailer has increased value across its supply chain and improved efficiencies in its day-
to-day operations while lowering overall supply chain costs.
Network Design and Cost Savings
Acquisition is one of the greatest challenges for supply chain. Best strategies
for integrating the acquired firm’s largest overlapping business unit into its
existing supply chain infrastructure, as well as a go-forward network strategy
for integrating the remaining businesses.
Sleeves USA began the engagement by developing a supply chain network

model that combined both businesses’ networks and customers into a single
integrated network model.
Team factored in not only key costs (inbound and outbound transportation,
manufacturing, warehouse fixed and variable costs, inventory carrying costs,
etc.) but key constraints like demand and supply, facility capacity or
expandability, and lead times to customers to address:
Best use of current network: Team looked at potential savings by distributing

the combined firms’ similar products lines from the shared sites, determined
which facilities should support which markets/customers with which products,
and identified distribution center (DC) consolidation opportunities.
Truckload consolidation: To gain operational and business benefits and

efficiencies, the team explored load consolidation across combined product
lines – particularly for customers that were common to both prior firms –
looking for opportunities where a single larger shipment could replace
multiple smaller deliveries. Along with more strategic transportation planning,
Chainalytics advised, the client could incorporate more truckload freight vs.
costly LTL freight.
North American finishing optimization: Given long raw material shipping lead
times from China and India, the client needed to settle on the best mix of U.S.
and Asian locations to hold raw materials and produce finished goods,
including the best placement of the acquired firm’s products within its DC
locations–and in what volumes, and determine the optimal manufacturing,
distribution and 3PL distribution footprint.
The “bought-in” strategy was confirmed as the lowest cost sourcing approach,
with no cost-based financial benefit to increasing the total amount of product
postponed in North America beyond the client meeting service requirements.
Sub-assembly is to be sourced from India as the current lowest-cost Asia
source, while finishing in China or North America had higher costs.
Planning transformation: To ensure it could reconfigure its network when and
where it is needed in the future, company implemented more efficient
inventory planning and deployment processes, including integrated demand
and supply planning (IDSP).
Results
Fact-based analysis provided multiple alternative network strategy scenarios.

These scenarios helped the company weigh its options and select a
comprehensive, integrated supply chain network strategy that optimized cost
while considering service, manufacturing, and DC capacity and relevant risk
factors, such as demand growth and currency fluctuations, across the
combined operations.
The analysis showed that the company would benefit from:
Retaining a port-centric network
Optimizing locations, volumes, freight consolidation, and finishing between

two North American locations
Shifting distribution volumes to areas for better accessibility to customers,

trucking lanes, rates, and labor
Company achieved its goals of reducing costs, improving service, and driving
growth and increased profitability for the newly acquired business through a
series of immediate, near, and longer-term network optimization initiatives.
As a result, and with its optimized supply chain network, the combined entity
is on track to realize a total savings opportunity of 6.1% of the total cost based
on projected sales volume growth targets over the coming three years,
including:
2.8% in near-term cost savings from optimizing the acquired company’s

existing network, including consolidating freight from the less-than-truckload
(LTL) mode to truckload (TL)
3.3% of total cost by prioritizing where to source and store finished products,
driven by increasing Asia production and allocating more distribution volume
to North American DCs with optimal port access
It was decided to consolidate North American finishing locations, with the

understanding that there are even more savings associated with increasing
global manufacturing capacity.
Network and Route Optimization Part I
Study Notes, Cases, Excel Solver Exercises
Term End Exam
situation context
Focus Topics
 AI, ML application in Supply Chain
 Types of Analytics, Data Sources and Application of Analytics
to gain competitive advantage
 Analytics in forecasting, Accuracy Measure, choice of models
 Product Classification, EOQ, MOQ, (Forecastability, Volume)
 Safety Stock, Service, Cost related analytics
 Analytics in Drivers, cost, responsiveness
 Analytics in determining Trade off between cost,
responsiveness
 Network Optimization Models – COG, Factor Rating, Cost
Volume
Session 9 Topics
 Location Decisions
 Factor Rating
 Cost Volume
 Centre of Gravity
Importance of Location
When FedEx opened its Asian hub in Guangzhou, China, it set the stage
for “round-the-world” flights linking its Paris and Memphis package
hubs to Asia.
When Mercedes-Benz announced its plans to build its first major

overseas plant in Vance, Alabama, it completed a year of competition
among 170 sites in 30 states and two countries.
When Hard Rock Cafe opened in Moscow, it ended 3 years of advance

preparation of a Russian food-supply chain. The strategic impact, cost,
and international aspect of these decisions indicate how significant
location decisions are.
The objective of location strategy is to maximize the benefit of location to the
firm.
Location Options are

1. Expand Existing Ones
2. Maintain Existing and open new facilities
3. Close Existing ones and open new facilities
The location decision often depends on the type of business.

• Industrial location decisions, the strategy is usually minimizing costs
• Retail and professional service organizations, the strategy focuses on
maximizing revenue.
• Warehouse location strategy, however, may be driven by a combination of
cost and speed of delivery.
Location Decision Case Situations
Cost pressure lead to sourcing out of Far East for UK market
West Europe/American factories were closed
Overtime cost dimensions changed
• Labour rate advantage diminished
• Transportation became costlier
• Exchange rate fluctuation was not always favourable
• Inventory obsolescence issues
• Carbon Footprint
• Quality issues
• Intellectual Property related issues
Location Decision Case Situations
Manufactures model trains and cars
Long established business
Moved production to china from UK in 2002
UK manufacturing was shut
Changing Dimensions
• Competition
• Customers not willing to wait for lead time
• Production cost advantage was diminishing
2013 Shifted new range toys production to UK from China

Location Evaluation Methods
• Factor-rating method
• Locational cost–volume analysis
• Center-of-gravity method
• Load-Distance Model
• Facility Allocation
Factors Affecting Location Decisions
A three-tier model for assessing the competitiveness of a location
Transport Network Optimization
Third-party logistics provider operating their own hubs, distribution centers,

and a fleet of 350 trucks across India. They run an interleaved transportation
network where a truck is loaded and starts from the origin hub, stops at
branches on the way to drop/pick up shipments, and reaches the destination
hub for unloading. During the truck’s return journey back to the origin hub,
the roles of the origin and destination hubs reverse.
Specifically, executives wanted to understand the following:
Is the current fleet size optimal?

Is the distribution of trucks across different hubs optimal?
Are we using suitable capacity trucks on routes?
How many trucks should we add to handle growth over the next five years?
Data review of the current network of hubs, branches, and routes.
Actual shipment data for one month used to build the baseline model.
They operated multiple transportation assets – private fleet, dedicated fleet, and for-
hire trucks and also used numerous truck types – from vans to larger capacity
vehicles.
The former is used for local delivery and larger capacity vehicles for long-haul routes.
Truck utilization was enhanced from the existing 65% to 88%, an improvement of
35%, and reduced the unit cost per unit weight shipped, which is an important
metric.
One initial observation was that the truck volume utilization on most routes was low
and there were instances of routes where higher capacity trucks were used, but a
lower capacity truck on those routes would have been more efficient. They also had
a higher proportion of trucks at the main hub, while the number of loads originating
from the main hub was not exceptionally high. There was an opportunity to
reposition some of the trucks from the main hub to other hub locations.
Blue Yonder Transportation Modeler software used to build the model.
The different components modeled include the hubs and branch network and fleet
details such as truck types, capacity, business rules, and input costs.
3PL stipulated some business constraints while building the model. They did not
want the ratio of dedicated fleet to private fleet to exceed 15%. A vehicle allocated
to a hub should always return to the hub. The hub and branches on an existing route
would remain the same and shipments destined to a specific branch would be part
of an existing route. The routes serviced by for-hire trucks had to be serviced by for-
hire trucks and could not shift to fleet.
Three key unconstrained scenarios with different weight tonnages were developed –
current, growth projection for the next two years, and growth projection for the next
five years.
All scenarios focused on the optimal selection of trucks of different capacities on
routes and optimal allocation of trucks to hubs.
The product shipped tended to “cube out.” Hence the cubic volume was the critical
measure to optimize. The modeling recommended improved truck cubic utilization.
Truck utilization was enhanced from the existing 65% to 88%, an improvement of
35%. The model recommended the optimal equipment usage on routes while
ensuring allocation of larger-size trucks as the weight tonnage increased. This
specific optimization reduced the unit cost per unit weight shipped, which is an
important metric. The truck profile showed a decrease in the required number of 10-
ton trucks and an increase in 16-ton trucks with increased weight tonnage.
For future road map of their business, 3PL could chart the future roadmap that
included investing in higher capacity 16-ton trucks, reallocation of trucks across
hubs, and retiring trucks near end of life. The benefits realized included improving
truck utilization by selecting the right weight capacity truck on each route, thereby
lowering the unit cost per unit weight
Location Evaluation Methods
• Factor-rating method is location method that instills
objectivity into the process of identifying hard-to-evaluate
costs.
• Locational cost–volume analysis is a method for making an
economic comparison of location alternatives.
• Center-of-gravity method is a mathematical technique used
for finding the best location for a single distribution point that
services several stores or areas.
• Transportation model is a technique for solving a class of
linear programming problems.
Factor Rating Method
• There are many factors, both qualitative and quantitative, to consider in
choosing a location. Some of these factors are more important than
others, hence weights can make the decision process more objective.
• The factor-rating method is popular because a wide variety of factors,
from education to recreation to labor skills, can be objectively included.
1. Develop a list of relevant factors called key success factors
2. Assign a weight to each factor to reflect its relative importance in the
company’s objectives.
3. Develop a scale for each factor (for example, 1 to 10 or 1 to 100
points).
4. Have management score each location for each factor, using the
scale in Step 3.
5. Multiply the score by the weights for each factor and total the score
for each location.
6. Make a recommendation based on the maximum point score,
considering the results of other quantitative approaches as well.
Factor Rating Method Example
Locational Cost-Volume Analysis
• Locational cost–volume analysis is a technique for making an economic
comparison of location alternatives.
• By identifying fixed and variable costs and graphing them for each
location, we can determine which one provides the lowest cost. Locational
cost–volume analysis can be done mathematically or graphically.
• The graphic approach has the advantage of providing the range of volume
over which each location is preferable.
• The three steps to locational cost–volume analysis are as follows:
1. Determine the fixed and variable cost for each location.
2. Plot the costs for each location, with costs on the vertical axis of the
graph and annual volume on the horizontal axis.
3. Select the location that has the lowest total cost for the expected
production volume.
Locational Cost-Volume Analysis
Centre of Gravity Method
• The center-of-gravity method is a mathematical technique used for
finding the location of a distribution center that will minimize
distribution costs.
• The method takes into account the location of markets, the volume
of goods shipped to those markets, and shipping costs in finding the
best location for a distribution center.
• The first step in the center-of-gravity method is to place the
locations on a coordinate system.
• The center-of-gravity method assumes that cost is directly
proportional to both distance and volume shipped.
• The ideal location is that which minimizes the weighted distance
between sources and destinations, where the distance is weighted
by the number of containers shipped.
Centre of Gravity Method
Location Decision Case Study
Saudi Arabia gets shipment from Jebel Ali

Jebel Ali gets shipment from Europe, USA,
Far East Countries..
Jebel Ali to Dammam = 900 Kms
Jebel Ali to Riyadh = 900 Kms
Jebel Ali to Jeddah = 2000 Kms
Location Decision Case Study
North Africa Countries Served

from Germany, France
Tangier is a FTZ in Morocco
500 pallet spaces needed
Objective to serves North Africa
countries
Distribution Network Case Study
The strategic business challenge
As one of the most rapidly changing industries, retail is in an era of

significant transformation. Storied and successful retailers discover
their business models challenged like never before, with many of
the top players suffering significant losses as they struggle to adapt.
Include a generation raised on the internet and social media not
conforming to retail buying habits of prior generations, combined
with a pace of change faster than most analysts predicted, and the
scramble to keep up proves even more difficult.
In the context of this challenging environment, a leading retailer
recently undertook the daunting task of transforming its business.
They required a clear-eyed look at how the business had evolved
over the decades, where the market stood, emerging trends, and
where current and future gaps existed.
The organization realized they would lose its competitive foothold

without transforming its supply chain. Its very survival depended
upon creating a distribution network that was responsive to shifting
customer demographics and buying patterns (particularly e-
commerce) and supporting rapidly growing strategic partnerships.
Designing a responsive and efficient supply chain was a key
component of the transformation the company undertook.
The supply chain design challenge
Prior to the analysis, the organization’s complex retail and e-commerce supply
chain network had over 1,000 stores spanning 49 states and Puerto Rico, and it
needed a significant network redesign in order to effectively compete in the
evolving retail environment.
The company distributed products through several area logistics hubs (ALHs) and
11 store management facilities (SMFs). The question was, “Does this distribution
model fit the emerging retail distribution requirements?”
The distribution network had a number of characteristics which defined their

operational landscape:
Some distribution centers were constructed several decades earlier and sat on
prime real estate, yet lacked adequate throughput capacity or, in some cases, the
sufficient volume to justify the DC size.
Some DCs had inadequate capabilities for picking, packing and shipping to meet
evolving store requirements and required large capital investments to reach
required threshold capabilities.
Store replenishment schedule was set to bi-weekly, regardless of size.

Some stores lacked “back-room” storage and required off-site warehouses.
The ALHs processed imports as well as domestic shipments from vendor

warehouses.
ALHs shipped to both the smaller store management facilities (SMFs) and to
some stores after cross-docking inbound products.
Supply chain design analysis
The retailer took large-scale supply chain design. Analyzed over 200 scenarios
and sensitivity tests to model the best approaches for meeting store service
requirements, realizing savings, and determining the best consolidation
opportunities.
The supply chain design effort evaluated:
Supplier-to-store inbound costs

The cost of transferring product from ALHs to SMFs
All fixed costs for maintaining ALHs and SMFs (including real estate, utilities,
management, and insurance)
Costs for processing, handling, shipping, receiving, and picking and packing
products
Last mile delivery costs required by the client’s private fleet to ship product from
SMFs to stores (based on the store routing guide during both peak and non-peak
season schedules)
E-commerce storage capacity demands and related costs
The ongoing “composite team”
Evaluation of strategic models were done to determine the most effective model.
The team evaluated several strategic models, with each offering operational
advantages and disadvantages, and narrowed it down to a model that would
position the organization to compete more effectively within the retail industry.
The team identified five outdated or geographically irrelevant facilities, as well as

an opportunity for additional cost savings and performance improvements. To
improve speed of delivery and reduce costs, the company shifted the main U.S.
port of entry for foreign suppliers to an updated distribution center on the West
Coast. This DC assumed a pivotal role in handling outbound West Coast deliveries
for increased efficiency and savings over time.
The supply chain design initiative proved so successful that the client asked
Chainalytics to provide managed analytics services to dynamically update its
supply chain models with data and to design new models for emerging product
lines which promote a “store within a store” presence at many of its retail
locations.
Additional analytics were performed to determine the most effective
reconfiguration of a distribution of a specialty product line of balance lower
transportation costs against the increased inventory in the pipeline. Over 30
scenarios were evaluated to assist in identifying the most effective mode for
distribution.
Chainalytics’ managed analytics services enables the client to proactively and

continuously model and manage its supply chain as well as utilize industrial
strength analytics to help make key supply chain decisions.
The organization recognizes the enormous challenges of effectively competing in

retail in the 21st century and has made strategic moves such as incorporating
cosmetics, coffee shops, salons, optical centers, portrait studios, and major
appliances in its stores and online. But a well-run business must also possess an
underlying distribution infrastructure that continually meets market demands.
The client’s strategic moves ensure a high caliber distribution network defined by
investment-grade analytics.
Network and Route Optimization Part II
Study Notes, Cases, Excel Solver Exercises
Term End Exam
situation context
Focus Topics
 Types of Analytics and Application of Analytics to gain competitive
advantage
 Models and Application of analytics – Product Classification, EOQ,
MOQ, (Forecastability, Volume)
 Analytics in Drivers, cost, responsivenessn
 Analytics in determining Trade off between cost, responsiveness
 Network Design and analytics related to that
 COG, LV, FRM
Session 10 Topics
 Load Distance Model

 Facility Allocation
 Route Allocation
 Service Location Strategy
When FedEx opened its Asian hub in Guangzhou, China, it set the stage
for “round-the-world” flights linking its Paris and Memphis package
hubs to Asia.
When Mercedes-Benz announced its plans to build its first major

overseas plant in Vance, Alabama, it completed a year of competition
among 170 sites in 30 states and two countries.
When Hard Rock Cafe opened in Moscow, it ended 3 years of advance

preparation of a Russian food-supply chain. The strategic impact, cost,
and international aspect of these decisions indicate how significant
location decisions are.
Load-Distance Model
Load-Distance Model
• Example: Based on an initial survey of possible sites for the
proposed facility, the manufacturer identified four candidates.
The figure has the location coordinates of the four candidates
(numbered 1 to 4).
• What is the best location for the proposed new facility?
Existing Supply Points Candidates for proposed facility

xi yi Wi Xj Yj
A 125 550 200 1 300 500
B 350 400 450 2 200 500
C 450 125 175 3 500 350
D 700 300 150 4 400 200
Facility Allocation
• Tactical Decision to balance service and cost
• Activate existing facilities
• Allocate existing facilities
• Supplier Location
• Customer Location
• Capacity Constraints
• Other specific considerations
Supply Chain Optimization Case Study
Morton Salt, one of America’s most iconic brands, has been fulfilling the world’s salt
needs since 1848, currently operating with more than 20 multi-purpose manufacturing
facilities across the U.S., Canada, and Caribbean. And, now more than ever, the
company is using technology, innovation and data-driven insights to ensure they’re
continuously improving on their strategy and processes to efficiently optimize their
supply chain.
Traditionally recognized by the iconic Morton Salt Girl, the average consumer may not
be aware that Morton Salt produces two broad sets of products relying upon
customized distribution channels. The first, referred to as “bulk” product, is primarily
used for bulk de-icing salts that keep roads safe in the winter as well as bulk production
for industrial customers. The bulk network consists of extraction mines, solar plants
and storage stockpiles located across North America. The second set consists of
“packaged” products (i.e., food, package ice melt, water softening salt and pool salt)
and moves through a network consisting of mines, plants, co-packers, and distribution
centers (DC). The average daily consumer of Morton Salt’s products typically purchases
from this package product category.
In the years, Morton Salt leadership realized the organization’s supply chain
network existed as a patch-work of too many distribution centers, utilizing
approximately 40 DCs in 2011. By late 2013, the manufacturer had successfully
reduced this number to 26 DCs. Morton Salt’s leadership team felt there was
an opportunity for further rationalization, but that a project of this scope
would require greater analytics to support additional decisions involving
overall network design.
Morton Salt desired a three-phased, three goal engagement to be achieved

throughout the network design project.
The first phase involved building a baseline model to grow confidence with the
model and partnership.
Once the baseline model was established, the second phase required the
design team to optimize the current network to deliver some immediate
returns on the project.
Finally, the third phase requested the team to create a blueprint for the
optimized future supply chain network.
After baseline setting the model was further taken through the creation of an
“optimized baseline.”
This involved changing the production quantities at the plant sites,
maintaining the product portfolio at each production plant and optimizing
distribution to customers.
Further, the optimized baseline called for the closure of two of the network’s
smaller warehouses.
These steps allowed for the optimization of customer assignments to plants
and warehouses in conjunction with warehouse-to-plant assignments.
With the model demonstrating realized savings that were in line with the pre-
established expectations, Morton Salt executed the optimized baseline in
2014.
Upon establishment of the new network, the company embraced a proactive
approach and worked to develop an “optimized future network.”
Advancing the design model, the team identified five warehouses to close or
exit due to geographic irrelevance while pinpointing three new warehouse
locations that would better serve Morton Salt’s client base.
The future state network also incorporated three plant closures into the
analysis.
Morton Salt implemented the initial changes to their supply chain network in
2015.
Through ongoing collaboration and continuous evaluation, the company was
well on its way of realizing the long-term benefits of consistent supply chain
network design.
Service Location Strategy
• Focus in industrial-sector location analysis is on minimizing cost
• Focus in the service sector is on maximizing revenue.
• Manufacturing firms find that costs tend to vary substantially among locations
• Service firms find that location often has more impact on revenue than cost.
• Therefore, the location focus for service firms should be on determining the
volume of customers and revenue.
• There are eight major determinants of volume and revenue for the service firm:
1. Purchasing power of the customer-drawing area
2. Service and image compatibility with demographics of the customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitors’ locations
6. Physical qualities of facilities and neighboring businesses
7. Operating policies of the firm
8. Quality of management
Clustering
Clustering The location of competing companies near each other,
often because of a critical mass of information, talent, venture
capital, or natural resources.
Location Strategy Goods Vs Service

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Supply Chain & Logistics Analytics – Session 1

Introduction to Business and SC Analytics

(52) AI-based future logistics by Toyota - YouTube

Starbucks is using Big Data to create a better customer experience!

This story is a quick example of how data analytics and product

A supply chain is a great source of data, produced by

By analyzing and capitalizing on this data, businesses open for

• Automated Quality Inspections - Machine learning enabled

• Real Time Visibility / Customer Experience - Machine learning

• Supply Chain Optimization - The ability of machine learning

• Better Forecasts - IoT devices, intelligent transportation systems,

• Advanced Last-Mile Tracking - Last-mile delivery is a critical

• Machine learning algorithms are capable of both enhancing the

• Machine learning tools are also capable of preventing privileged

Will they get to Mumbai on TIME??

• Raising the correct line of reasoning for what you read,

According to Retail Systems Research

The implemented machine learning system did not only improve

• Errors in supply chain networks can be reduced with 30 to 50% with

• Overall efficiency: With demand forecasting, teams can focus on

DATA FABRICS WILL BE A STRATEGIC ENTERPRISE IT TREND IN 2022

MULTI-CLOUD WILL EVOLVE WITH DIFFERENT DATA STRATEGIES

SYNTHETIC DATA + UNSTRUCTURED DATA WILL BE NEEDED TO MANAGE DATA GROWTH

The sources they used included social media, weather and

This allowed L’Oréal to target end-customers more effectively

• To draw conclusions with common sense and domain expertise.

• Companies should invest in industry specialists to determine what

• Only by combining the strengths of both human and artificial

• Forecasting may involve taking historical data (such as past sales)

• It may be a subjective or an intuitive prediction (e.g., “this is a great

• It may be based on demand-driven data, such as customer plans to

• Or the forecast may involve a combination of these, that is, a

Sales force composite

 Forecast Accuracy Measurements

• A recent McKinsey study indicates that AI-based forecasting improves

Mean of (Absolute Variation between FORECAST and

MAPE (Mean Absolute Percentage Error)

WAPA (Weighted Absolute Percentage Accuracy)

MAPE measures error and WAPA measures accuracy

There are Separate Division Managers for each division

S&M is happy with last month performance 52K achievement vs

Home care and Safety over performed while Stationery under

Supply Chain is indicating next month home care would miss

Finance Controller is skeptical about mismatch in their budget,

Inventory Controller wants a newer method of accuracy measure

Why is History Significant?

Why is Cleaning History

• Choose statistical forecasting algorithms correctly based on the forecast profile.

• Improving data quality of time series

• Multiple back testing periods

• Transparency and understanding statistical forecast behaviour

While some models work better with their specific non-stationary

How can analytics come handy in MRL situation?

The association said that despite persistent challenges, the industry

Things clearly didn’t work out that way.

Now, Amazon stocks millions of items of inventory, amid

Is this an absolute statement?

This is done by combining datasets, developing a Machine Learning model and

How could an AI application make the inventory

Buffers the Demand Rate

Bloomingdale’s ordering safety stock

 This leads to lower cost