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Mathematical Programming-Based Sales

and Operations Planning at Vestel


Electronics
Z. Caner Taşkın, Semra Ağralı, A. Tamer Ünal, Vahdet
Baleda, Filiz Gökten-Yılmaz
Interfaces Vol. 45, No. 4, July – August 2015, pp. 325 –
340
Published online in Articles in Advance April 30, 2015
Publisher: Institute for Operations Research and the Management
Sciences (INFORMS)

Metin Durakoğlu 2013712372


Rıdvan Enver Advan 2013712321
Purpose & Introduction

Vestel’s Business Model – S&OP


Process at Vestel

Planning Materials (PMs)


and Core Problem Definition

Implementation of the
Mathematical Model

Benefits to Vestel

Conclusion
2
Introduction
• Purpose: Investigation of the sales and operations
planning (S&OP) process at Vestel Electronics

Demand volatility is high S&OP


process
Long lead times for procurement is critical
Manufacturing

Household
appliances

Defense
industries
Introduction

Cathode ray tubes Liquid-crystal displays Light-emitting diode


(CRT) (LCD) (LED)

Recently, three-dimensional (3D) and smart TVs have become


prevalent and 4K ultra-high-definition (UHD) TVs have appeared in
the market.

The LCD-LED TV market is a buyer’s market in which a product’s


marketability is sensitive to its price. Furthermore, customer
loyalty is limited and demand volatility is high.
Vestel: Business Model
• Make-to-order environment & mass
customization: Allows a customer to change
order quantity, due date or product specification
before manufacturing the product.
• Aim of Vestel’s competitive strategy:
Maximization of flexibility and responsiveness to
customers.
• On the other hand, this flexibility increases the
difficulty of managing the supply chain.
• Vestel accept orders with short due dates.
Vestel: Business Model
• About procurement: Vestel purchase 90% of
its input materials from Far Eastern countries.
• Average order-satisfaction lead time: 30 days
• Average materials procurement lead time: 90
day
Physical attributes Various software
(size, color) options

Electronic options (display frequency,


Electronic components
USB-HDMI support, 3D support,
(main card, power card,
smart-TV capability) Cosmetic properties (front speaker type, remote
and back cabin) control type)
S&OP Process at Vestel
S&OP: Determining inventory-optimization and demand-satisfaction performance
(keep demand and supply in balance)
Increase demand-satisfaction flexibility

Sustain competitive advantage of Vestel

Customer orders, sales forecasts, market preferences and trends are important inputs
of S&OP.
S&OP Process at Vestel
• S&OP process increases coordination between production
and sales activities.
• It also facilitates the company’s coordination between
procurement and sales activities by allowing the company
to investigate the effect of procurement problems on sales
targets.
Challenges In Vestel About S&OP
• How to plan for products that do
not yet exist.
• How to identify and resolve
inconsistencies between various
targets and constraints.
• How to identify the least-costly,
most-profitable operational plan.
• How to put consensus plan into
action (relationship between ERP-
MRP systems and capacity planning
processes).
Planning Materials (PMs)
To provide a basis for the S&OP process, Vestel defines:
• High-level products = planning materials (PMs)
• Virtual products that capture basic attributes (size,
display type, power card type)
• Have long procurement lead times (main card, cables,
speakers)
• Each existing product => single PM
• but PM => several corresponding products
Core Problem Definition

• Various people prepare inputs for the S&OP process; possibly resulting
in inconsistencies in the input data
• Forecasted sales would be inconsistent with the manufacturing
capacity and realized sales.
• Planners manually made PM assignments on spreadsheets and
adjusted them biweekly with respect to realized customer orders,
causing the MRP to overestimate material requirements
Implementation of the Mathematical Model
• Beginning December 2010
• Study goal: Developing a decision support system (DSS)
• Primary system requirements:
 Rapidly generate high-quality plans
 Determine inconsistencies
 Increase operational efficiency and reduce costs
 Work with Vestel’s ERP software
 Perform scenario analyses on forecasts
 Align with realized customer orders
 Facilitate the analysis of differences between
forecasts and customer orders
Implementation of the Mathematical
Model
• Phase I: Design the optimization model
• Phase II: Develop a DSS based on the
optimization model (in Release 3 of ICRON
advanced planning and scheduling system)
• Phase III: Expand the usage of the DSS within
Vestel to enable stakeholders of the S&OP
process to benefit directly from the system
Implementation of the Mathematical
Model (Phase I)
Implementation of the Mathematical
Model (Phase II)
• Data accuracy tests (data consistency in ERP)
• Model accuracy tests (in extreme scenarios
like no demand, very high demand, no
materials-procurement capability)
• Parallel usage tests (in parallel with their
manual planning process and eventually high-
quality plans from DSS)
Implementation of the Mathematical
Model (Phase III)
• Web-based reports
were designed.
• Large number of users
in various departments
accessed the current
plan.
• Current plan (from
ICRON) was compared
with saved plans and
realized customer
orders.
• Operational system
since November 2011
Benefits to Vestel (Tangible Gains)
• Decrease in planning time (2
days to analyze inconsistencies
and PM assignments manually,
30 minutes with DSS)
• Increase in efficiency of the
S&OP process (Participants can
investigate ad-hoc scenarios)
• Improvement in planning
accuracy (online integration
with the ERP, alignment with
customer orders and supply
state, optimal solution to sales
and marketing) The execution module in the DSS
automatically revises PM assignments
• Decrease in inventory level every day to ensure that the two curves
overlap daily.
Benefits to Vestel (Intangible Gains)
• No nervousness because of inconsistency
between MRP results and procurement plan
• Increase in data visibility and correctness
(valid information that guide sales efforts)
• Providing a basis for further studies
(performing capable-to-promise «CTP»
process in order to provide promised delivery
dates)
Conclusion
• Vestel’s S&OP process is critical for its
operational efficiency.
• The DSS has replaced the manual planning
process.
• Since 2011, DSS was used in Vestel.
• The DSS has enabled the development of
systems for related processes to improve
Vestel’s competitiveness.