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2014 ITC INFOTECH 1
Supply Chain Network
Optimization
April, 2014
Supply Chain Network Optimization
Needs & Our Viewpoint
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2014 ITC INFOTECH
Suppliers Production Plant Centralized DCs
Regional
Warehouses
Wholesale
Dealers
 Availability
 Flexibility
 Responsiveness (order
cycle time)
2014 ITC INFOTECH 3
Supply Chain Cost Structure and the existence of conflicting
objectives (Internal challenges)
 Raw Material
basic cost
 Taxes/ Duties
 Freight Cost
 Capacity
addition &
realignment cost
 Conversion Fixed cost
 Conversion Variable cost
 Facility Fixed cost
 Opening/Closing cost
 Capacity expansion & realignment
cost
 Inbound/Outbound transportation
cost
 Taxes & Duties
 Handling & Inventory cost
 Outbound transportation cost (Primary &
Secondary)
 Handling cost
 Inventory cost
 Facility fixed cost
 Facility expansion cost
 Opening/Closing cost
 Taxes & Duties
Conflicting Objectives
SALES /
CUSTOMER SERVICE
 Stable volume
 Large quantities
 High delivery lead time
SOURCING
 Long runs
 Stable volume
 High buffer inventory
(RM/FG)
MANUFACTURING
 Warehousing
– Less inventory
– Smooth flow
– Less SKUs
 Transportation
– Full Truck Load
LOGISTICS
Function wise optimization exercise will give suboptimal result as compared to end to end optimization exercise.
Analyzing various trade-offs that exists in
the supply chain from Cost-to-company
perspective and making policy decisions
basis that:
 Expansion into new geographic
markets
 New product introductions
 Changes in Fiscal Cost structure (tax,
duties etc.)
 Shift in Volume or Price levels
 New competitive market entrants
 Capacity constraints
 New technologies
 Mergers and acquisitions
2014 ITC INFOTECH 4
Supply Chain Networks often move away from optimality
over time because of external and internal factors
Periodic assessments should be carried out to align Supply Chain Network with Supply Chain Strategy
considering changing factors
Inventory costs
Facility costs
Transportation costs
Operating costs
Asset costs
Customer satisfaction
Sales growth
Levels of service
Increased market share
Improved response time
Strategy is manifested through the
configuration of the supply chain network
and the material/information flows
through that network
 An effective network strategy optimizes
supply chain network considering real
time constraints and options present
 The effective supply chain organization
is best designed around the globally
(Supplier’s supplier to Customer’s
Customer) optimized network
configuration
2014 ITC INFOTECH 5
Strategic Network Design: Supply Chain Strategy Defined
Network Design is a process to determine the unique network configuration for the supply chain that offers
the lowest total cost/ maximum total profit considering operational and financial risk while achieving targeted
Service Levels
Number of Warehouses
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$
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Transportation Costs
• Inbound
• Outbound

Inventory Costs

Facility Costs

Total Costs
Network Cost Drivers
Range of
Indifference
Optimal
2014 ITC INFOTECH 6
Key supply chain levers for improving value through network
design
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Improve future
prospects
Increase Revenue
Increase Working
Capital Efficiency
Increase Fixed
Assets Efficiency
Reduce Cost
SC Performance Attributes Value Levers Key Supply Chain Levers
Reliability
Supply Chain
Costs
Working capital
productivity
Fixed asset
productivity
Lower Supply
Chain Risks
Responsiveness
Flexibility
Resource acquisition/divestment:
Opening/closing of Factories,
Warehouse, acquiring technology etc
Structural decisions: Supply chain
design & defining roles of facilities
Operational Efficiency: Efficient
execution and control
Operating Policies: Making policy
decisions based on cost to company
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2014 ITC INFOTECH 7
Key decisions that needs to be addressed
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Asset
Optimization
Cost/ Service
Optimization
Flow
Optimization
Operational
Efficiency
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• What are our priorities in supply chain design?
• How can we accommodate our growth with our current
network?
• How many and where should the facilities be?
• Whether to open/ close plants, distribution centers?
• What is my actual cost-to-serve each product to each
customer?
• In what areas could we reduce costs and improve service if we
improved our network design?
• Should we realign our network given recent shifts in demand,
production, or cost factors?
• How should we flow each product through the network?
• Where and when should we produce each product?
• From whom should we source?
• Where and how should we stock product to meet service level?
• Which route and mode to select?
• How to perform last mile delivery – milk run etc.?
• How much to produce and stock at each location?
• How to manage exceptions?
2014 ITC INFOTECH 8
Supply Chain Network Design:
Our transformation approach
Long Term Planning
• Corporate Strategy
• Business Plan
• Investment Window
• Agile supply chain framework
• Facility, process & product
related investment decisions
• Decisions involve high level of cost involvement, high lead times to realize benefits and return on investment involves a bigger horizon
• Majorly involves Resource acquisition/divestments and supply chain structural decisions
• Lot of What-if scenario testing basis demand size and shape, cost inflation and deflation, fiscal policy etc
• Constraints involved in decision making are policy constraints which constrains structural definitions. Doesn’t involve day to day
operational constraints and variability
Medium Term Planning
• Defined supply chain framework
(Time based Facility/Product and
process framework)
• Firm business plan (Medium Term)
• Cost benefit decisions
• Structural decisions & Operating
policy in medium term
• Decisions based on strategic message (supply chain framework) from Long term planning
• Focus change from investment to cost benefit decisions
• Set of assumptions are less compared to long term planning. Business conditions and possible changes are more firmly known
• What if analysis done on possible changes which are more firm, e.g Forecasting data and variations in it.
Short term Planning
• Defined supply chain framework,
structural decisions & operating
policy
• Real time inputs
• Decisions which are cost efficient
• Decisions which help in day to
day operations
• Takes the message from long term and medium term planning. Facility, process and product wise supply chain model is firm. Minor
exceptions are handled in this planning exercise
• Frequency of such type of planning is high and time for execution is small. At such small lead times structural decisions can't be made
as supply chain will not be able to align so quickly
• What if analysis are done using simulations so as to see fill rate, out of stock, line utilization etc to finalize the best operating decisions
2014 ITC INFOTECH 9
Network Optimization – Typical Supply Chain Optimization
Needs
Strategy
Modeling
Inventory
Modeling
Transportation
Modeling
Network Analysis
Facility
Opening/Closing
Asset Rationalization
Network Re-
alignment
Capacity
Augmentation
Network Structure
Safety Stock
Optimization
Cycle Stock
Optimization
Pre-build inventory
Inventory vs. Service
tradeoff
Postponement
strategy
Mode Selection
Shipment sizing and
scheduling
Load Optimization
Route Planning
What-if analysis
Demand Variability
Supply Variability
Production Variability
Lead Time Variability
2014 ITC INFOTECH 10
Network Design Approach - Design Principle 1:
A Two stage approach may help create better optimality
Optimization & Sensitivity Analysis Simulation within Optimized Zone
Initial stage of exercise – when lot of options are
present
Works basis given assumptions and average
figures and aggregated product and
geography (assumptions very close to real data
and lead to decision making)
Tells what can be the way to improve supply
chain model

What if scenarios – Major changes in network
Next stage after optimization – when optimized
zone is very well defined and further play within
that zone is to get close to real supply chain
scenario

Works on more accurate figures and operational
details are involved
Tells in a detailed way what improvements are
realized by changing different parameters

What if scenarios – Small changes (taking few
parameter changes at a time)
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Zone of Indifference
Scenario 1….n
Zone of Indifference
1 1
2014 ITC INFOTECH 11
Network Design Approach - Design Principle 2:
Responsive Needs – Periodic vs. Continuous
Periodic
time
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actual
optim
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Lost
Opportunit
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Continuous
time
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actual
optim
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Alignment Perspective – How Dynamic? How Responsive?
Long
term
Mediu
m term
Short
term
Long
term
Mediu
m term
Short
term
2014 ITC INFOTECH 12
Network Design Approach :
Convergence on key decision parameters
Parameters Short term Medium Term Long term
Horizon 1-3 months 1-24 months 1-5 Years
Frequency Monthly Quarterly
Semi
annually/Yearly
Planning Bucket Weekly/Monthly Monthly Quarterly/Yearly
Product Clustering
Not needed/Slightly
higher level
Needed Needed
Geography
Clustering
Not needed/Slightly
higher level
Needed Needed
Supply Chain Network Optimization
Our Approach & Methodology
13
2014 ITC INFOTECH
Project
Specification
& Scoping
Information
Gathering
Baseline
Development
Scenario
Visioning
Scenario
Analysis
Recommenda
tions
2014 ITC INFOTECH 14
Our Methodology has been tried and tested over multiple
engagements
Define
business
objectives and
scope
Understand
customer’s
supply chain
Gather
customer
requirements
Develop
modeling
strategy

Detail
information
requirements
Develop
templates for
data gathering
Collect data
required
Assess data
available & it’s
hygiene
Develop time
estimates











Develop
model & create
database
formats
Detail
assumptions
made
Run &
analyze
baseline model
Compare
results with
the actual cost
incurred
Define the
degree of error
for different
cost heads
(Tolerance
level).
Review
baseline
assumptions &
result with
business
Make
necessary
changes if
needed
Perform
sensitivity
analysis
Develop
various what if
scenarios















Model the
different what
if scenarios
and analyze
results
Perform
cross
alternative
sensitivity
analysis
Detail
recommendati
ons from
different
scenarios






Using
scenario
results, focus
on top 1-2
scenarios
Determine
the best
alternative
along with
business
approval
Develop the
implementatio
n roadmap













1 2 3 4 5 6
2014 ITC INFOTECH 15
The Visioning Scenario Framework sets the baseline for
optimization models to be created and run
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Market Strategies
Company initiatives focused on influencing customers and/or suppliers to improve their impact on company performance.
Examples of customer market strategies would include new channels of distribution, sales & promotional activity focused on
specific segments/products, and/or elimination of unprofitable customers. Examples of supplier market strategies would be
consolidation of suppliers for increased pricing leverage, identifying new global sources of supply, etc.
Operating
Strategies
Company initiatives to implement new models for manufacturing and distribution to improve company performance.
Examples would include eliminating existing facilities, expansion of new/existing facilities, outsourced manufacturing,
focused factories, etc.
Business
Conditions
The assumptions market and operating assumptions regarding demand, costs, capacities, etc. to be modeled when
optimizing and testing different strategies.
Scenarios A set of strategies and business conditions to be tested, optimized, and sensitized through a series of optimization runs.
Sensitivity
A range of uncertainty around a specific business condition or data element. Increased uncertainty requires increased
number of runs to insure confidence/robustness.
Optimization Run
A single optimized instance of the model based on a specific set of data elements that represent a combination of
strategies, business conditions, and their sensitivities.
Planning Horizon:
Strategy 1 Strategy 2 Strategy n Strategy 1 Strategy 2 Strategy n
Strategy
Combo 1
Strategy
Combo 2
Strategy
Combo n
Business Conditions: Data Elements:
Demand +/- 5%
Transportation +/- 2%
Variable Manufacturing +/- 1%
Inventory Carrying + 0 - 5 %
Raw Material Costs
Transportation - 5-6%
Manufacturing Labor + 4% per year
Demand + 2% per year
Raw Material Costs -8%
Design Data New Locations n/a
0 - 12 months
New Market Strategies New Operating Strategies Strategy Combinations
Strategies:
Optimize
Current
Network
Current Conditions
Known Changes in
Conditions
Forecasted Changes
Uncertainty Increases with Time
Year 2, 3, …
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2014 ITC INFOTECH 16
Illustrative Timelines – NO (Network Optimization) only
Strategy Modelling
Network Structure Optimization
Product Planning
Operations Planning
Inventory Planning (only cycle stock & pre-build decisions)
Transportation Modeling (only mode selection)
Solutions Offerings
The timeline mentioned below is for a project done in leading CPG major in India.
• Scenarios : Baselining + 5 Scenarios (Short term, medium term & long term scenarios ). Multi period modelling
• Number of SKUs: 80, Factories: 17, DC: 5, Warehouses: 50+
Phase 1
Phase 2
2014 ITC INFOTECH 17
Illustrative Timeline (Network Optimization & Inventory
Optimization/Vehicle Route Planning)
2014 ITC INFOTECH 18
Model type
Parameters Simple model Detailed Model Large Scale Model
Product Complexity < 50 Products 50-300 products 300+ products, effort
needed for product
clustering
Site Complexity < 20 sites 20-500 sites 500+ sites, effort needed for
geographical clustering
Demand Points <10k demand points 10k-50k demand points 50k+ demand points
Others Single period, some
alternatives in sourcing &
transportation
Multi period, multiple
alternatives to sourcing &
transportation
Multi period model, many
variations and alternatives in
sourcing, transportation and
demand
Project Scope Simple Model Detailed Model Large Scale Model
Network Optimization 4-6 weeks 3-4 months 5-6 months
Inventory Optimization 4-6 weeks 2-3 months 4-5 months
Network + Inventory
Optimization/Vehicle
Route Planning
8-10 weeks 6 months 8-10 months
Where have we done this before?
A few case Studies
19
2014 ITC INFOTECH
A leading Joss Sticks and Safety Matches manufacturer in India
Network Optimization
Client
• Client is leading joss
sticks & safety matches
product manufacturer
in India.
• Client manages
marketing, sales and
distribution of the
products across India
and production is
governed by the
contract
manufacturers who
plan for raw material
procurement based on
client’s demand and
supply plan.
Challenges
• High Volatility of demand of Joss Sticks due to the nature and typical use of the product in
India leading to frequent changes in production scheduling and fulfillment planning
• High impact of change on contract manufacturer framework because of planning and
scheduling changes leading to sub-optimal network utilization
• Less efficiency and adaptability of the supply chain network due to inherent constraints
Benefits
• Production mix with 85% firm and 15% flexible based on market exceptions
• ~90% firm distribution network and ~10% flexible network with two supply options to answer changing market dynamics
• Increase of direct delivery to regional warehouses from 29% to 50%
• Reduction in outbound transportation cost by 25%
• Overall cost saving of ~2.5% and increase in inventory turns from ~6 to ~10
• More visibility on costs (to negotiate contracts with contract manufacturer, logistics providers etc.) and space requirement (at
manufacturing premises for raw material and finished goods).
Solution
• Decide a supply chain framework with end to end network cost visibility
• Optimized network considering all cost elements and constraint
 supply, production and logistics costs
 inherent value chain constraints, credit rules and complex tax structure in India
• Solution also incorporated complexities related to
 supplier capacity constraints, procurement contracts,
 multi BOM scenario, production activity wise capacity constraints
 product mix constraints, inventory policies
A leading Agriculture Product business in India
Sourcing/ Dispatch and Warehouse Space Optimization
Client
• Client is leading
Agricultural Products
exporter and focuses
on export & domestic
trading of products like
Soya meal, Wheat,
Shrimps and Prawns,
Fruit Purees/
Concentrates, IQF/
Frozen Fruits, Organic
Fruit Products, Coffee
etc.
• One of the major
activities of the client
included procurement
of wheat and supplying
it to largest “wheat
flour" company in India.
Challenges
• Multiple marketplaces of procurement spread across India and Delivery to multiple factories –
Increasing sourcing locations, warehouses, wheat varieties and ‘dispatch to’ factories
• 3 months (in a year) availability window of major varieties of wheat leading to 75%
procurement in 100 days from highly dynamic markets with price varying daily
• Complex tax structure in India and different local taxes & rents at different states
• Frequent government intervention on wheat pricing leading to complexity.
Benefits
• Best sourcing network to serve the demand based on the prices and availability at different marketplaces leading to 2-3% reduction
in total cost
• Suggested the best mode of transportation (rail/ road) among different options available for various flour mills.
• Best warehousing locations for the stocks before dispatch considering both existing infrastructure and leasing options
• Dispatch Plan based on weekly stock and monthly demand leading to 7-8% reduction in outbound costs
• Before starting of the buying season, based on price forecast, suggested locations and space requirements, thus providing a
defined warehouse booking framework.
Solution
• Suggest deciding the best network to serve the demand based on the prevailing prices in the
market
• Optimized network considering end to end costs elements involved in the supply chain
• basic costs, labor charges, different taxes
• bagging charges, warehousing charges, inward and outward freights
• Consider the substitutability options among various varieties
• Select best mode of transport (Rail or Road) for various supply locations
• Suggest optimized warehousing locations.
A leading FMCG company in India
Network optimization
Client
• Client is one of the
leading FMCG
company in India and
is growing at a very fast
pace YoY. The growth
of the business can be
attributed by the fact
that the overall sales
has increased by three
times in last 5 years and
now it is >1 billion USD
business in India only.
Background and Challenges
• Mature integrated planning system - demand planning, supply planning, production planning
and MRP.
• SAP integrating the production locations and various echelons present till service to market
• Introducing many new product variants in a highly dynamic and competitive market
• Low margin and high challenges like high responsiveness and improved fill rate
• Network needs to be flexible and adaptive to absorb cost implications as well as supportive to
fast growth of business in long run.
Benefits
• Capacity expansion and new facility opening decisions in next 5 years in time phased manner
• Network optimization and giving a solution for increasing direct serve to market
• Suggesting utilization of centralized Hubs based on product categories and demand variation
• Inventory reduction by 15% across the supply chain
• Recommended short term optimization potential by 1.03% and long term optimization potential by 2.4%.
Solution
• Decide a network considering end to end cost and real time constraints of the value chain
• Exhaustive roadmap for strategic initiatives for next 5 years based the long term plan
• Plan for the capacity enhancement/ addition in next one year and related tactical network
decisions
• Detail out the monthly planning and RCCP activities from which production and network
inputs were given to SAP APO for cost effective and efficient supply planning execution.
• Costs incorporated - sourcing, taxes, conversion and transportation cost
• Constraints - serviceability, truck load, product mix loading, capacity and complex tax laws
• Include variant and sub variant level product change-overs.
A leading consumer product company in India
Network optimization
Client
• Client is leading
company in notebooks
in India.
• Client manages
marketing, sales and
distribution of the
products across India
and production is
governed by the
contract
manufacturers who
plan for raw material
procurement based on
client’s demand and
supply plan.
Background and Challenges
• Highly seasonal business (~3.5 times sales in peak month vs the average monthly sales) where 5
months of season (Feb-Jun) contributes to 60% of the annual sales. This seasonality puts
multiple pressures on the supply chain (Manufacturing capacity vs. Inventory build-up,
execution capacity, Warehouse space etc.)
• Highly Fragmented demand of the current portfolio is ~700 SKUs.
 Regional preference on size, binding & Rulings for Notebooks,
 Each Pen model means 6 SKUs(3 colour variants of pen & refills each)
• Forecast Accuracy: Apart from end user preference, the demand is largely influenced by
external factors like school curricula, recommendations by individual schools
• Multiple Supply Chains: Range of SKUs being sold needs a category specific view of supply
chain.
Benefits
• Production strategy – Lean season vs. peak season and accordingly gear up strategy
• Pre build strategy and space allocation in a time phase manner
• Increase in inventory turns from 2.5 to 4.05 and reduction in overall supply chain cost by 2.1%
• Movement by parcel reduced from 40% to 30%.
Solution
• Finalized framework related to production, stocking, space at centralized warehouses, pre
build inventory strategy and transportation mode finalization.
• Demand segmentation for vast product portfolio was done before optimization and decisions
were supported based on various segments of demand.
• Strategies were devised for various product categories regarding direct serve to market vs.
hub and spoke model and accordingly pre build strategy at centralized warehouses and hubs
• Reduce the Parcel mode of transportation which was proving to be a costly option for
servicing to the customers.
• How to Reduce Costs through Supply Chain
Network Optimization -
http://www.industryweek.com/planning-amp-
forecasting/how-reduce-costs-through-supply-
chain-network-optimization

• Value creation through Supply Chain Network
Optimization to address dynamic Supply Chain –
http://www.itcinfotech.com/Business-
Consulting/Business-Consulting-
Download.aspx?pk=5

• Looking Ahead – The Big Opportunity for Network
Design - GST Introduction in India -
http://www.itcinfotech.com/Business-
Consulting/Business-Consulting-
Download.aspx?pk=6

2014 ITC INFOTECH 24
Our Thought Leadership Publications
2014 ITC INFOTECH 25
How we can help ESPB…
©2013 ITC Infotech 26
Customer Value Chain and Challenges
RM 1 – Board
RM 2 – Papers
Contract
Manufacturers
Raw Material & Packaging
Material Supplier
Contract Manufacturer Centralized Hubs Warehouse Service Provider
Demand
Region
Hub
WSP
Distributor
Traditional Retail
Rural
Modern Trade Challenges
• Seasonality: This seasonality puts multiple pressures on the supply chain(Manufacturing capacity vs. Inventory build-up, execution
capacity, Warehouse space etc)
• Highly fragmented demand: Product portfolio is huge . Complexity adds on with regional preferences of size, bindings, rulings etc.
1. Notebooks usually sell in sets, a small contribution odd ruling can be critical for the major selling ruling variant(Ex: Maths ruled vs.
Single Ruled could sell in 1: 6 ratio in certain markets). Hence such odd rulings are to be retained
2. Each Pen model means multiple SKUs
• Forecast Accuracy: Apart from end user preference, the demand is largely influenced by external factors like Syllabus,
recommendations by individual schools, and hence relatively difficult to predict.
• Multiple Supply Chain: Different products with wide range of sale value, product life & supply chain length.
Other RMs
2014 ITC INFOTECH 27
Types of Planning – From ESPB context
Strategic Planning
Tactical Planning
Operational
Planning
Decisions having high lead time and cost involved:
• Supplier or manufacturer capacity expansion
• New facility opening/closing
• Warehouse space decisions
• New product category introduction
• Supply Chain design basis Pre & Post GST
Takes input from Strategic Planning decisions and
purpose is to design cost effective supply chain:
• Addition of new facilities and accordingly high
level network
• Production & Procurement framework
• Production strategy & Pre build strategy
• Direct service vs. Hub & Spoke model
Works on more realistic input and thrives for
sustenance of cost effectiveness:
• Material requirement planning & sourcing
network
• Converter – SKU wise production planning
• Finished goods network till WSPs
• Mode of transport between source and
destination
• Degree of K1/K2/K3 servicing
• Vehicle route optimization at WDs
Supply Chain Design tool
Optimization tool
Planning tool like SAP APO
but many inputs required
from Optimization tool
2014 ITC INFOTECH 28
Why Network Design tool required? Why not only SAP
APO..
• SAP APO and Network Design tool operate in entirely different realms. SAP APO is meant to be an
execution tool, Network design tool is meant to be a design tool for supply chain.
• The window for end to end cost and real time constraints based optimization is very limited in SAP
APO and generally promotes localised optimization. Design related and cost to serve based
optimization is not an answer from SAP APO.
• SAP APO is not suitable to perform what-if scenarios - e.g
• The structure of the network must remain fixed, and APO simply optimizes quantities on a fixed
network. Network Design tool is built to conduct ‘what-if’ analysis. It is easy to open/close
facilities, change product flow paths and test the impact on outcomes
• One cannot test the impact of different inventory policy, transportation & sourcing policies types
to determine the appropriate policy. One sets the policy type and SAP executes it on a daily basis
• SAP APO works on set of rules which are input as a master rule sets. In Network design tool the best
fit rules and basis that what is supply chain design is outcome
• Modeling horizon of SAP APO are short (from few months to a year). Network design tools allows
strategic exercise for much longer timeframes (for next 5-10 years).
Bottom-line: to make decisions about supply chain design, one would use Network Design tool, to execute on a daily
basis once the decisions are made, one would rely on SAP APO. This is how SAP itself sees the relationship between
the products!
2014 ITC INFOTECH 29
Parameter Sub-Parameters SAP SC Guru
Strategic
2-3 year strategic network planning X 
Consolidation of warehouses X 
Consolidation of sourcing locations X 
What-if scenario analysis X 
- Risk of closing a plant X 
- Decide location of a new plant/ warehouse X 
- Green field network revisit analysis X 
- Adding a new hub(Consolidation center) X 
- Space required in new DC/ old DC with increased demand X 
- Risk mitigation by adding location partial 
Tactical
6-18 months plan  
Supply/ Capacity/Product Mix/Transportation/Stocking Space and many other
constraints & cost
Very localized 
Inventory Pre-build and accordingly production strategy
Assumptions
based

What –if analysis Very localized 
- Adding/ removing lanes Partial 
- Direct shipment vs. trans-shipment Partial 
Optimization based on RM/PM Sourcing cost, production cost, transportation cost Sub optimal 
Tax implication on total supply chain cost
Not feasible for
Indian scenario

Why Network Design tool required? Why not only SAP
APO..
2014 ITC INFOTECH 30
How it can help in operations planning?
Monthly Production Planning:
• How much/where and what product to
produce?
• Sequence in which to produce
• Converter space requirement decisions
From SAP:
• Demand Plan
• Firm production plan
• Stock on Hand at Hubs & WSPs
• Capacity constraints
From Tactical Planning:
• Opening & Closing requirements
• Sourcing/Transportation/Stocking
policies
• Capability enhancement inputs
Cost Sheet:
• Sourcing cost (Basic + Freight + Tax)
• Conversion cost
• Transportation cost
• Changeover cost
• Tax & Duties
Other Master Sheets:
• Sourcing constraints
• Capacity related constraints
• Truck load and product mix
constraints
• Other soft/hard constraints
The illustrative figure above gives a clear idea that Network design tool will provide an opportunity to do
most of the planning activities basis end to end cost involved in the supply chain and also tries to find out
optimal point for operating in a limited space created by multiple constraints set
2014 ITC INFOTECH 31
Approach
2014 ITC INFOTECH 32
Timeline
2014 ITC INFOTECH 33
Commercials
2014 ITC INFOTECH 34
LLamasoft – Supply Chain Guru
Sample Customers
35
Automotive / Industrial Manufacturing Consumer Goods Defense
Hi-Tech / Electronics Food Beverage
Life Sciences Grocery Logistics
Apparel Manufacturing Petroleum
Public Health Retail Chemical
Supply Chain Visibility
Interactive Dashboards
 Analyze current cost-to-serve
 Highlight a geographic region
 Explore a business segment


Rich Visuals of supply chain
 Flow of products
 Risk profile & locations
 Demand segmentation
Drill Down Reports & Metrics
 % sourced from specific region
 Product profitability & cost structure
 Service levels & coverage
36 2014 ITC INFOTECH
Scenario Analysis
OPTIMIZE SUPPLIER CONFIGURATION
 Single source vs. multi source
 Low cost vs. local
 High risk vs. low risk
EVALUATE ALTERNATIVE STRATEGIES
 Transportation mode selection
 Production footprint
 Inventory stocking locations and levels
SIMULATE & PERFORM WHAT-IF ANALYSIS
 Fluctuations in lead-times
 Supply Disruptions
 Demand increases or decreases
 Fuel-cost spikes

What if we try THIS? What if THIS happens?
37 2014 ITC INFOTECH
Rapid Response
 Use the supply chain models to
evaluate contingency plans
 Balance production & sourcing
against changes in demand
 Prioritize demand during
supply short-falls
 Restructure when cost
assumptions fail

How should I respond to an
unforeseen event?
38 2014 ITC INFOTECH
Supply Chain Guru – Key Service Lines
Supply Chain
Guru
Network
Optimization
Inventory
Optimization
Transportation
Guru
Simulation
Safety Stock placement
Cycle stock optimization
Pre-build inventory
Service vs. inventory trade
offs
Postponement strategies
Replenishment
frequencies
Strategy modelling
Network optimization
Operations Planning
Product planning
Pre build strategy
Mode selection
Vehicle routing
Shipment sizing &
scheduling
Asset utilization
Load building
Demand variability
impacts
Supplier delays, quality
analysis
Risk analysis
Managing data – Technology enablers
• MS Excel Import/Export
• Input pipes
• Auto aggregation/disaggregation of product data
• Automated model building & Integration
• Data connector utility
• Easy integration with ERPs (Certified partner with SAP and direct integration with SAP ERP data)
• Access from Supply chain guru UI
• Select, filter, extract modelling data
Competition Comparison

Network
Optimization
Greenfield
Analysis
Inventory
Optimization
Strategic
Sourcing
Cost-to-
Serve
Vehicle
Routing
Program
Multiple
Scenarios
w/in a
Model Simulation Reporting Mapping
SAP
Compatible
Phone
Support
Dedicated
Devlopment
Staff
LLamasoft
Supply Chain Guru + + + + + + + + + + + + +
Transportation Guru + + x x + + + + + + + + +
CAST
Aurora + + x x + x x x + + x ? ?
CINO x x + + + x x x + + x ? ?
Optimiza Inventory Optimizer x x + x x x x x + x x ? ?
IBM
ILOG--Logic Net Plus XE + x x + + x x x + + x x x
ILOG Transportation Analyst x x x x x + x x + + x x x
ILOG Inventory and Product Flow Analyst x x + x + x x x + x x x x

Infor
SCM Network Design + + + + + x x x + + x ? ?
Infor 10 Supply Chain Planning x x x x x x x x + x x ? ?
JDA
i2-Strategist + + x + + x x x + + x + x
i2-Transportation Modeler x x x x x + x x + + x + x
Oracle
SNO + x x + + x x x + + x ? ?
Inventory Optimization x x + x x x x x + x x ? ?
Excel Solver Supply Chain Guru
Spreadsheet based Add-in, LP/MIP
formulation to be converted into data
matrices
Full fledged software tool, Input data to be
entered in tables, intuitive to use
Size limit of up-to 200 variables No problem size Limit
Solves LP using Simplex and MILP using B&B
method
Uses Fico Xpress solver, that has highly
optimized version of the simplex and branch
and bound algorithms
Each scenario/what-if analysis to be done
separately
Multiple scenario’s within a model
Generic approach to solve LP/MILP, smooth
NLP and meta-heuristic (basic genetic
algorithm) based problems
Specializes in problem based approach:
Network Optimization, Inventory Optimization
(using MILP) and Vehicle Routing (using
Heuristics)
Basic Monte - carlo simulation can be done Separate Simulation tool available for
detailed analysis
As model size increases it becomes complex
to use this tool
Relatively easy to model large problems
Other spreadsheet based solvers such as
Excel premium, open solver and What’s Best
(Lindo) also suffer from same drawbacks
Special constraints and business rules can be
easily incorporated into the model as
compared to in excel solver
Comparison between Excel Solver & dedicated tools
Thank You
2014 ITC INFOTECH 43
©2013 ITC Infotech
44
Annexure-1
Network design gains importance because of changes happening in internal and external environment. Fiscal
policy change is one of the important factor which some times compel companies to look away from
operational efficiency. The illustrative case study explains how network design exercise helps in making decisions
related to strategic supply chain design in Pre/Post GST scenario. Here it has also been explained how it will help
in deciding the future course of actions and strategy to be adopted by the company (in long term & short
term). Further it also explains the operational benefits that will come along in due course of time after network
design exercise.

GST introduction will be one of the strong compelling factor for companies to revisit their supply chain network in
India. We expect the changes in the dynamics to be so big that the roles of many of the existing facilities
(sourcing/manufacturing/distribution) may come into question. The optimum network Post GST can suggest
realignment/closing/opening of facilities. Such type of transitions is seen to have long lead times (3 months to 3-4
years – depending on type of industry and type of transition).Companies must revisit their network for a horizon
of next 2 to 5 years so as to be proactive enough to answer the changes happening in the big tickets like GST.
Fiscal Changes often drive the need for Supply Chain
Network Design
Many things changes with fiscal policy. So for
having competitive advantage companies
have to keep on revisiting this exercise so as to
know the changing roles of different facilities
and changes in network
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45
In some countries including India, fiscal cost have been key factor in determining the supply chain network. In some
cases it becomes so important that manufacturing locations and distribution network are designed to take advantage
of fiscal benefits.
Manufacturing Units
Distributor
Retailer
Tax structure
changes
Tax exemptions &
denial changes
Role of different
facility changes
Market benefits
changes
Supply chain mix
changes
Test case – India GST Introduction
Impact on Purchase of Goods (Pre & Post GST)
** GST rates are not yet finalized but it is expected to be between 16% – 20%
Source: ICAI(2010)
©2013 ITC Infotech
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©2013 ITC Infotech
47
Factory
Warehouse (WSP)
Market (WD)
Vendors
•Excise rate 10%, VAT 12.5%, CST 2%, GST 16%
•Some sort of manufacturing at Vendor, Manufacturing location and Warehouses
•Stock movements from manufacturing location to warehouses is treated as a stock transfer (ownership doesn’t change)
•From warehouses to WDs (wholesale dealer) ownership changes
•Vendor is in Karnataka state, Manufacturing unit in Karnataka state, WD (wholesale dealer in Tamil Nadu state)
•There are two warehouses-one in Karnataka & one in Tamil Nadu
•Value wise margins for different echelons are kept same
Assumptions
Test case – Impact of GST
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Test case –
Impact on Purchase of Goods (Pre & Post GST)
Scenarios:
•Scenario 1-Pre GST & Interstate sale happens during ownership change
•Scenario 2-Pre GST & Interstate stock transfer and then sales happening
•Scenario 3-Post GST & Interstate sale happens during ownership change
•Scenario 4-Post GST & Interstate stock transfer and then sales happening
•Warehouse only at Karnataka
•Warehouse only at Tamil Nadu
•Warehouses in both states (one each in Tamil Nadu and Karnataka)
Possible Scenarios
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Benefits – Pre & Post GST (Network Design exercise)
Quick summary of analysis on one of CPG major in India:
•Number of warehouses has reduced to 36 from current 45. Many existing warehouses closed and new warehouses
opened.
•Days of Inventory reduced by 20%
•Primary freight cost reduced & secondary freight cost increased slightly
Positives Negatives
Bigger consolidation of demand at warehouses Route planning becomes a challenge as warehouse have to deal with
dealers in a bigger geography
Reduced variation in demand at warehouses Secondary freight cost will increase
Improved inventory management Truck load utilization will reduce in secondary distribution
Improved demand planning In lower lead times the service level will experience a little impact.
Reduced production complexity (less changeovers)
Reduction in number of echelons in supply chain
Increase in truck load utilization (especially in primary freighting)
Reduced cost for improving service level
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Benefits – Future Strategy
Supply Chain Costs
S
e
r
v
i
c
e
a
b
i
l
i
t
y

Post GST
Pre GST
Zone of Flexibility (Cost vs. Serviceability)
Possible strategies:
• Invest more to get better serviceability
• Develop efficient supply chain to get cost benefits
• Pricing strategy
Zone of flexibility provides businesses opportunities
to reconfigure their supply chain as per their strategic
requirements
It is important for business to regularly take Network
design exercise to know their zone of flexibility
©2013 ITC Infotech
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Benefits – Future Course of action


Contract renegotiation
Inter vs. Intra state
sourcing options
Process redesign
Price renegotiation
Reliability & Quality
consideration



Capacity expansion/closing
Capability realignment
Flexible manufacturing
Manufacturing process
redesign
Role finalization



Improve forecasting
process
Improve inventory
management
Trade off between
customer serviceability and
cost associated
Improve Pricing &
Promotion Strategy




Increase responsiveness by
reducing number of
echelons
Warehouse
opening/closing
Shared roles of warehouse
with mfg unit
Maximum utilization of
multi modal & multi-tier



Sourcing Manufacturing
Distribution
Other Areas