cilt mfa inventory management - elsalvadorcompite.gob.sv · • concept and techniques were develop...

Philip Teo

MFA Course - Inventory Management

Inventory Management

2

Session 1SCM Building Block - Integral ViewEvolution of Inventory ManagementFundamentals of Inventory Management

oInventory DefinitionoFunctions of InventoriesoCost in InventoryoInventories Classification by Value

Inventory in the pipeline - the necessary eviloTime is money, Time based Competition, Pressure to growoShortening Product Life CycleoVarious concepts and approaches to better manage Inventory:

Kanban (JIT), Lean Enterprise, BTF/BTO/CTOoIntegral Inventory Management


3

Global Freight ManagementMultimodal/all supply chain components/customs clearance

Transportation & DistributionFCL, LCL, FTL, LTL Consolidation

Source Make DeliverSuppliers Customers

Inboundto

Manufacturing

Order toFulfilment

Freight &TransportationOptimization

Sales &Distribution

E2E Visibility and Control System

International Supply Chain Management

ActivityBuildingBlocks

Key: 3PLService

SCM Building Blocks

Integrated Supply Chain

Reverse Logistics


4

Evolution of Inventory Management

• Traditional inventory strategies reactively focus on inventory

reduction as the primary and often the only performance measure.

• Characteristics:

– Goals are stated in terms of % of inventory reduction per

annum.

– Goal and objectives are based on annual schedules, if not

met, drastic actions are taken to achieve it.

– Obsolete inventory is left in store rather than allowing a scrap

charge to reduce profits.

– Material cannot be found when the system indicates it is

available.

- Fundamentals of Inventory Management


5

•Definition of Inventories :Although inventories are classified in many ways for ease of discussion ithas value or asset or cash in material form from financial aspect.On the other hand, operational view will define inventories as rawmaterials, wip, finished goods which is of value.

Functions of Inventories:Generally it can be classified into 5 basic functions -1. Fluctuation (Demand and Supply)2. Anticipation (Building Ahead)3. Lot Size (Min Economical Run)4. Transportation Inventories5. Hedge (or Speculative) Inventories



6

Costs in Inventory:

The costs that affected by specific decision must be determined whendeciding how much inventory to carry and frequency of replenishment.Cost associated involved:1. Ordering costs - Processing Request, Suppliers feedback, Approval and

confirmation requires Time, Resources and Admin Cost.2. Inventory Carrying Cost - These costs include expenses incurred by the

company which includea) Obsolescence - non-salable or lose it freshnessb) Deterioration - Shelf Life, Properties loss or Yield Lossc) Insurance and Securityd) Storage and Handlinge) Price Erosion and Revaluationf) Capital or Cost of Money

3. Out-Of-Stock Costs - Sales Opportunity Loss, Penalty, Expediting andCompany Image Impact

4. Capacity Utilization Loss



7

•Inventory Control through 80/20 Rule:Inventories Classification by Value - ABC ClassificationA item - High Value usually make up 15 to 20% of the items but 70 to80% of the valueB item - Medium Value, usually make up 30 to 40% of the items but 15 to20% of the valueC item - Bulk of the items, usually 60 to 70% of the items but 5 to 10%of the valueUsing this guideline, to establish Inventory Control Policy together withFinance to balance the risk of Inventory Carrying Cost



8

•Inventory in the Pipeline - Across Supply Chain

•Various concepts and approaches to better manage Pipeline Inventory:As assembly times generally are short, flexible and assembly schedulingmore straight forward with lesser dependent variables.While Inventory pipeline is relatively longer, more diversity, less flexibleand more dependent variables.

•Challenges in Inventory Management Across the Supply Chain:1. Time Compression - Money, Competition, Growth2. Product Life Cycle shortening3. Market Volatility

• Concept and techniques were develop to help Inventory Management:1. FIFO (FEFO - Medical Business) or LIFO1. Just In Time (JIT) or Kanban2. Build to Stock (or Forecast)3. Build to Order4. Configure to Order5. Design for Supply Chain and Logistics

- Inventory in the pipeline


9

•Concept and techniques were develop to help Inventory Management:1. FIFO (FEFO - Medical Business) or LIFO1. Just In Time (JIT) or Kanban2. Build to Stock (or Forecast)3. Build to Order4. Configure to Order5. Design for Supply Chain and Logistics

•Integral Inventory Management

•Integral Inventory Management Model



10

Inventory in the Pipeline - Across Supply ChainMaterialSources

InboundLogistics

Warehouse

Re

ceiv

ing

Raw Materials

InventoriesIn process

Manufacturing

Sh

ipp

ing

OutboundLogistics Customers

Sale &Marketing

DistributionCenter

LocalDepot

RepairCenter

After-Sales Services



11

Lead Time/Inventory in typical Supply Channel

DistributionCenter

Far East Suppliers Production plan in Europe

Customer

6weeks

2weeks

1weeks

2weeks

3days



12

Time is Money

• Long lead time means more inventory locked up in the pipeline,

therefore higher inventory holding cost.

• Long lead time means slower response to customer requirements.

• Long lead time means less responsive to shock and changing

competitive market place.

• If Competition is able to react faster, loss opportunities over an

extended time will result in Customer Impact and Future Sales



13

Time based competition

• In the industry, buyers tend to source from suppliers with the shortestlead times (who can meet their quality spec).

• In consumer market, customers make their choice from amongst thebrands available at the time.

• Today, a major determinant of choice of supplier or brand is the “cost oftime” (cost to wait for delivery or seek for alternative).

• Case: In 1994, Compaq estimated that it had lost $500m to $1bn in saledue to stock-out on its laptop and desktop computers.



14

The pressures to the growth of time-sensitivemarkets

1. Shortening Product Life Cycle2. Customers’ drive for reduced Liabilities and Inventories3. Volatile markets making reliance on forecast alone is dangerous4. Competition Locally, Region and Global Level5. Technologies and Features6. Marketing and Promotion



15

Shortening Life Cycle

• Case: Life cycle of Word Processing tools

– Mechanical typewriter = 30 years

– Electro-mechanical typewriter = 10 years

– Electronic typewriter = 4 years

– Word processors (computer sw) = < 1 year.

Time

Market

Late comer ObsolescentStock

Sa

les

•Less time to market profit•Higher risk of obsolescence



16

Product Life Cycle – Inventory Management

Product Phase Inventory Integration Strategy

Design and

Development Setup and stock new materials

Launch and

Refinement

Develop and implement:

- Management Policies

- Planning Methodologies

- Control Techniques

Market Penetration

and Acceptance

Improve supplier relationship

Improve customer relationship

Improve supply chain pipeline

Market Stabilization

and Saturation

Reduce days supply

Reduce cycle time

Stabilize material flows

Phase-Out and

Balance -Out

Reduce risk of excess inventory

Reduce risk of obsolate inventory

Complete lifetime build of service parts



17

Volatile markets

• Production by nature needs to cater for suppliers (1st, 2nd, 3rd tier)

lead time, its own process lead time and transportation lead time.

• The long lead time in manufacturing will require sales forecasts to

guide planning.

• Sale forecasts are inevitably wrong (they are guesses). Demand

volatility is tending to increase. As lead time lengthen, the

accuracy of forecasts declines.

• With more errors in forecasts, inventories balloon and the need for

safety stocks at all levels increases.• Error in forecasts will also drive for more unscheduled jobs, more

expedited supply, over crowding scheduled jobs.• The need for longer lead time grows even greater and the planning

cycle expends even more.• The only way out is to shorten the lead time in every expect of

supply chain.



18

FIFO, LIFO

• FIFO (First in, first out)– Perishable items such as milk and eggs are restocked from

the back, so that the old items are pushed to the front and arethe first selected by shoppers.

– Most convenience stores have walk-in coolers behind theircold displays, so that they can stock from the rear.

• LIFO (Last in, first out)– the last items stocked will be the first items sold.– This would be a typical stocking method for items that have no

'sell-by' date associated with them, or at least one that is in thedistant future, such as canned good.

– Sequencing used for operation needs e.g Military



19

Just in Time (JIT)

• No activity should take place in a system until there is a need for it.• “Pull’ concept where demand at the end of the pipeline pulls

products towards the market and behind those products the flow ofcomponents is also determined by that same demand.

• A reorder point (ROP) is determined based upon the expectedlength of the replenishment lead time.

• The amount to be ordered may be based upon the economic orderquantity (EOQ), which balances the cost of holding inventoryagainst the cost of placing replenishment orders.



20

JIT - EOQ

• The EOQ has inherited problem to carry more inventory that isactually required per day over the entire order cycle.

• The unproductive inventory has compounded by the safety stockto cushion the variation in demand and replenishment lead time.

Order

Placed

Order

arrives

Lead Time Safety

Stock

Reorder

quantity

Reorder point

Stock

Level

Time



21

JIT - Kanban

• Card system to signal to the upstream supply point that a certainquantity of material could be released.

• By reducing the Kanban quantity, bottlenecks will be surface.Management will then focus to remove bottlenecks by the mostcost-effective means.

• The Kanban quantity will be further reduce until next bottleneck isrevealed.

• Kanban philosophy essentially seeks to achieve a balanced supplychain with minimal inventory at every stage.



22

Type of Manufacturing

Build to Stock/Forecast

(BTS/BTF)

Build to Order(BTO)

Configure toOrder(CTO)

ContinuousProcess

Line/Repetitive

Batch

Job Shop

Project



23

Design For … approaches : What’s about ?

There are many Design For … approaches, used across the industry

Design ForManufacturing

Design ForLogistics

Design ForQuality

Design ForTestability

Design For … approaches used in Industry

Business must focus Design For Value Creation initiative will focus first on :- Design For Supply Chain- Design For Assembly- Design To Costs

Design ForAssembly

Design ToCosts

Design ForSupply Chain

Product Design For Value Creation primary focus

Design ForAssembly

Design ToCosts

Design ForSupply Chain



24

Design For Supply Chain : a structured, preventive approach

Business&

Strategy

MarketingStrategy

ProductArchitecture

Product ArchitectureDefinition

Logisticrealization

Supply logisticsinbound

SupplyBase

Factorylogistics

Production

Distribution logisticsoutbound

DistributionTrade

Product RangeDefinition

1

Consumer

2

FinancialModeling

7

3Supply

realization

4

Productionrealization

5

DistributionRealization

6

Demand Fulfillment Process

Range Creation Process



25

Integral Inventory Management

• Today, Inventory management must be integrate with all functions.

Pigeonhole inventory management will only lead to death spiral

syndrome.

• The vision/strategy for inventory management must be the corporate

vision/strategy restated in inventory terms.



26

Integral Inventory Management Model

Areas of

IntegrationCompany Vision Operating Area Functional Application

Inventory

Performance

Inventory

Methodology

Materials Right QuantityJIT

(Just in Time)

Order Quantity and

Safety StockInventory Turns Order Quantity

Information Right Time

CIM

(Computer

Integrated

Manufacturing)

Forecasting and

SchedulingCustomer Service Safety Stock

Product Right Material

CE

(Concurrent

Engineering)

MPS and MRP

PlanningStorage Utilization Forecasting

ProcessRight Sequence

and Orientation

Short Cycle

ManufacturingProcess Planning

Dock-to-Dock

Cycle TimeOrder Review

QualityRight Quality and

AccuracyTQM Quality and Accuracy

Inventory

AccuracyCycle Counting

Organization

Right Knowledge,

Skill and

Measures

IO

(Integral

Organization)

Education and

Training

Facilities and

Equipment

Right Capacities

and Throughput

IF

(Integral Facility)

Layout, Storage and

Handling

Systems and

TechnologyRight Tools

IS

(Integral

Systems)

Decision, Support,

Material Identification

and Tracking

Operational

Infrastructure



27

END OF SESSION 1


28

Session 2

•Building a world class supply chain - it is a network not an isolated event•Challenges and Market Pressure•Globalization and Supply Chain Alignment

•SCM Primary Activities - Inventory Transformation• Inbound to Manufacturing (I2M)• Outbound to Fulfillment (O2F)

•Key Building Block - World Class Supply Chain•Designing an Efficient Supply Chain Solution•Delivering Operational Excellence•Enabling the Supply Chain with IT•Establishing a Support Structure


29

- Building a World-Class Supply Chain

Supply chains are now more global and complex with flawless executioncrucial to gaining a competitive advantage.

What is involved…

Emerging complex globalsupply chains with

Networks involving many moreplayers

Lower manufacturing costs andhigher transport costs

Requirements for informationsharing and visibility to remainefficient

Increasingly dynamic, volatileand unpredictable marketconditions requiring

Alignment of processes andnot just functions

Flexibility, lower inventorylevels and shorter lead-times

Excellent execution key tosuccess

Suppliers

Manufacturers

Distributors

Retailers Consumers

demandinternalsupply demandinternalsupplyserviceprovider

serviceprovider

serviceproviderdemandinternalsupply demandinternalsupply

I2M & Mfg Execution

Order Fulfilments

OEM/ ODM/ EMS/ Suppliers Demand Changes

Purchasing

Transportation & Last Mile Delivery

Industrial Sites Demand Planning

Region & Biz Demand Planning & S&OP

Warehousing, RDC, LDC

Inve

nto

ryT

ransfo

rma

tion


30

Global Freight ManagementMultimodal/all supply chain components/customs clearance

Transportation & DistributionFCL, LCL, FTL, LTL Consolidation

Source Make DeliverSuppliers Customers

Inboundto

Manufacturing

Order toFulfilment

Freight &TransportationOptimization

Sales &Distribution


International Supply Chain Management

ActivityBuildingBlocks

Key: 3PLService

SCM Primary Activities

Integrated Supply Chain

Reverse Logistics


31

Inbound to Manufacturing (I2M)

• What is I2M about?

– From Demand Planning Rationalization into Production Rationalization

– ERP Planning, Long and Short Term Positioning with Supply Base

– Purchase Order Execution and Call-Off

– Plan and Execution of an end to end supply chain from Suppliers to

Manufacturing for Conversion

– Focused on delivering value to our customers by:-

• Support the Business Dynamic within budget

• Balancing and Re-Balancing the Inventory

• Excess and Obsolescence Management

• EOL Phase Out

• NPI Phase In

• Materials Lead Time Profiling and Management

• Execution and Monitoring


32

MFG/ ODM/ OEM Sites

Inhouse Mfg Centers

ODM/ OEM

Local Partners

Call offIncoming ReceiptsNo. of vehiclesArrival timesLoad sizes

Outgoing ShipmentsNo. of vehiclesDeparture timesLoad composition/size

TasksChecking, Put-away,Picking, ReplenishmentLoad assembly, MFG

Suppliers (Raw Materials/EMS) CustomersMfg – Industrials Sites,

ODM/OEM

EMS Suppliers

Tier 1& down stream Tiers EMS

Tier 2 & 3 Suppliers

Key Commodities

Strategic Commodities

Semi-conductors

Mechnical

Passive, etc

Growth

More and More Deployment Optimization

Mfg Landscaping

Cost

Inventory & Pricing erosion

Excess and Obsolete Management

Quality & Returns

Service

Long TAT Demand Changes

Shortages Alert Timeliness

SCM Planning & Purchasing CycleCompression

Visibility Beyond Tier1

Simulation Capabilities

Inventory & Flex Positioning

impact

- Inbound to Manufacturing (I2M)



33

Outbound to Fulfillment (O2F)

• What is O2F about?

– From Sales Order within Firm Zone Rationalization into dispatch and

shipment realization

– Outbound E2E monitoring till Title Change Hand

– Regulatory Compliance


• Customer Destination Management

– Indirect/ Direct Fulfillment

• Sales Order Management

• Shipment Capacity Management

• POD at each milestone to final destination

• Integrate Customers Requirement and Customer Compliance

• Execution and Monitoring


34

- Outbound to Fulfillments (O2F)

Inventory – Trade/Network

Cost of holding inventory

Quantity to be held VsNorm Stock

Reverse Inventory

Slow Moving Stock

Centralizing vs.decentralizing stocks

Stock & productionsourcing

Bill of materials VsLanded Cost

Logistics/ Warehousing

How many 3PL

Location/ Network

Size

Cost Model

Direct Delivery

Capabilities

Freight/ Transportation

Carrier tariff selection

Custom Brokerage

Custom Clearance TAT

Bunker & Container Yard

Use and selection of road, rail,air and sea links

FCL, LCL, FTL, LTLconsolidation

Supply Chain Parameters & Constraints

DC/ LDC CustomersInter-HubTransport

CustomerTransport

MFG/ODM Main HubFreight/

Transport

impact

Growth

More pressure to Direct shipment(Mfg/ODM)

Mfg Landscaping

Customer Globalization & Pressure

Cost

Inventory & Pricing erosion

Less Touches Less Cost

Non-Quality

Distribution Cost

Total Supply Chain Cost

Service

E2E Visibility

Timely POD & GIT

Integration of 3PL system

Need Visibility Across the Network



35

- Direct Fulfillment Demands

•Delivers the Right Systems•On-Time•Lowest possible cost


36

International Supply Chain

• What is International Supply Chain about?

– Plan and Execution of an end to end supply chain from Origin to End

Destination

– Bringing together Mfg & Network capabilities in:-

• origin management, freight management, destination management and

visibility and supply chain control


• reduced inbound logistics costs

• reduced product costs

• reduced costs in the destination distribution network

• POD at each milestone to final destination

• and a more customer responsive supply chain


37

Non OriginSupplierSources

DestinationDeconsolidatio

ncenters

Facto

ries/S

tore

s

OffshoreConsolidation

centers Sea

Destination

DC

Netw

ork

OriginManagement

Pre-negotiatedFreight Lanes Destination Management

Movement of Inventory and specific Services upstream to lower cost centers

Extended Span of Control, Increased channel volumes, more frequent supply

Supplier/Factories

Sea/Air

Road

Air

Shared UserVariable cost

Shared UserVariable cost



38


Plan and Execution of an end to end supplychain from Origin to End Destination

Bringing together Mfg & Network capabilitiesin:-

origin management, freight management,destination management and visibility andsupply chain control

Focused on delivering value to ourcustomers by:-

reduced logistics costs

reduced costs in the destination distributionnetwork

POD at each milestone to final destination

More customer responsive supply chain


- International Supply Chain

impact


Lack of Signal Point of Contact/Visibility

Interfacing many IT system and datasynchronizing is challenging

Lack of POD and Time eventescalation of

each milestone

Are we optimizing and utilizing fully thebest tariff

Are we optimizing and utilizing thenegotiated Routing and Lane

Provide feedback Design for Logisticsfor Container Utilization, ULD, andTrucking optimization


39

The Key Building Blocks

• Designing an Efficient Supply Chain Solution

• Delivering Operational Excellence

• Enabling the Supply Chain with IT

• Establishing a Support Structure

Building a World-Class Supply Chain

There are 4 important elements to establishing a world-class supply chain.In

ve

nto

ryC

arry

ing

&T

urn

sC

us

tom

er

&S

erv

ice

s


40

Designing an Efficient Supply Chain Solution


A robust supply chain model considers the strategic, tactical andoperational aspects of its design.

Tagson Cube? Yes

ASNTags?

Travels fro mShip ping Officeto receiving door

Prepares the dockExamines the trailerChoo ses the staging bay

ShippingManifest

Doo r #

InboundOrderReport

Stag ing bay #Seal#

Trailerempty?WMS

Goes into thet railer

Lift s th e cub es

Goes to thestaging b ay

Coun ts thecubesCompares with BOLPunches SKUs ref. into gun

Tags

Stages th e cub eswith sp ace inbetween

YesPrints

Goes into t railer

Lifts the cubes

Stages the cubes

Yes Yes

No:18%

WMS

RF

Inbound Billof Lading

Closes thedoorLevels do wn th edock

Goes to the Shipping Office

Awai ts next task

GMI / EXEL Par tnership - Dalla s CSF Relocation - 6/9/97

NoNo No

No: 29% Yes: 53%

Trailerempty ?

Trailerempty?

Counts thecubesCompares wi th BOL

Goes to thes taging bay

Go es to th es taging bay

Stages the cubes

Inbound Billo f Lad ing

Manual

FlowchartX-1

Tagson Cube? Yes

ASNTags?

Travels fro mShip ping Officeto receiving door

Prepares the dockExamines the trailerChoo ses the staging bay

ShippingManifest

Doo r #

InboundOrderReport

Stag ing bay #Seal#

Trailerempty?WMS

Goes into thet railer

Lift s th e cub es

Goes to thestaging b ay

Coun ts thecubesCompares with BOLPunches SKUs ref. into gun

Tags

Stages th e cub eswith sp ace inbetween

YesPrints

Goes into t railer

Lifts the cubes

Stages the cubes

Yes Yes

No:18%

WMS

RF

Inbound Billof Lading

Closes thedoorLevels do wn th edock

Goes to the Shipping Office

Awai ts next task

GMI / EXEL Par tnership - Dalla s CSF Relocation - 6/9/97

NoNo No

No: 29% Yes: 53%

Trailerempty ?

Trailerempty?

Counts thecubesCompares wi th BOL

Goes to thes taging bay

Go es to th es taging bay

Stages the cubes

Inbound Billo f Lad ing

Manual

FlowchartX-1

Strategic Tactical

Operational

Network Design

Transport Modelling

Simulating Operations

Re-Engineering Operations

Inventory Modelling

Resource Modelling

Inventory Optimisation

7 8 9 10 11 12 13 14 15 16 17 180

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Av

eO

ps

inU

se

Pe

rH

ou

r

Time (Hrs)

Shift Usage HistoryAll Shift Types

Ops SpareOps In Use

Facility Design

Network Analysis& Design

InfrastructureOptimization

Cost-to-MarketAnalysis

MarginAnalysis

Transport Design& Optimization

DistributionNetworksDesign

RouteRationalization

DistributionResourcePlanning

Facility Design &Simulation

New Build Design andTesting

Evaluation of ExistingOps

Defining &Quantifying Ops CostDrivers

Scenario Analysis

Inventory Analysis &Optimization

Enhancing InventoryAvailability or StockOuts

ReducingObsolescence orWrite-Offs

Improving InventoryTurns

Eliminating WarehouseOperatingInefficiencies


41



Optimizing Components of Supply Chain Infrastructure

Warehousing

How many?

Location

Size

Hierarchy and Type

Operation

Product groups

Inventory

Cost of holding inventory

Quantity to be held

Centralizing vs.decentralizing stocks

Stock & productionsourcing

Bill of materials

Transportation

Own vehicle fleetoperations, profile & mix

Carrier tariff selection

Use and selection of rail,air and sea links

PC-Based software package for strategic supply chain modelling

Heuristic or Mixed Integer Programming Optimisation (MIPO) Modelling


SatelliteDepot

CustomersInter-Depot

Transport

CustomerTransport

Suppliers

Main DepotSupplierTranspor

t


42



Warehouse Design, Operational Assessment and Inventory Modeling withinNetwork Constraints

Warehouse Infrastructure

racking type & layout

loading/unloading & marshallingfacilities

‘Hands-on’ PC-based application that facilitates warehouse design and decision-making

Incoming ReceiptsNo. of vehiclesArrival timesLoad sizes

Outgoing ShipmentsNo. of vehiclesDeparture timesLoad composition/size

TasksChecking, Put-away,Picking, ReplenishmentLoad assembly

Suppliers

CustomersWarehouse

ResourcesMHE, people, shiftpatterns, team sizes& responsibilities

Product Flows

in & out

internal warehouse tasks

full pallet vs. picking

Organisation of Resources

numbers

shift patterns

teams & responsibilities

Costs

infrastructure

labor

material handling equipment

Productivity

task rates

utilization

Service

dispatch timeliness

throughput capabilities

impact


43


Operational Excellence comprises the 3 critical areas of EffectiveOperations, Project Management and Performance Management.

ProjectManagement

PerformanceManagement

Delivering Operational Excellence

To ensure that operations globally deliver industry leadingstandards through the right behaviors and processes

To communicate and execute achosen strategy with accurate,timely and relevant info

Effective Operations

To ensure that theimplementation and on-goingoperational activities occur in afocused, coordinated andintegrated manner


44

As Was State

Email

•Call Off Schedule•MRP/Forecast•Payment Advice•Invoice Reject/Discrepancies

Fax

• PO• Invoices

Data Entry/Excel

• Invoices ManualEntry

• PO Manual Entry•Call Off Schedule• MRP/Forecast

Phone

• ASN•InvoiceDiscrepancies

- Enabling the Supply Chain with IT


45

Using Electronic Interface B2B Suppliers Collaboration

MFG

・・・

Suppliers

Purchase Order

Call off Daily Requirements

Suppliers Call Off Delivery Schedule

ASN Shipment

Materials Receipt

Materials Requirement Forecast

Payment Advice

Invoice Accept/Reject

Invoices



46

Regional Plants& Offices

3rd Party Logistics

Tier 1 Supplier

VMI - SLC

OthersAccessories

Tier 2 Supplier

OEM

ODM & ProductDesign

Integratedplatform

Scalable

Efficient B2Bconnectivity

Private, Secureyet OpenStandards

Real-time

Process-basedtransactions

Procurement Int’l

Trade Engine

ScalableBusiness Processes


B2B Hub


47

FUTURE

Mfg Call Off Daily Requirements 3A8

ee--SupplyChainSupplyChainat Dellat Dell

DirectDirectSupplierSupplier

4

1

8

2

3

6

5

7

ASN Shipment 3B2

Material Receipt 4B2

Supplier Call Off Delivery Schedule 3A8

Invoice 3C3

Invoice accept / reject 3C4

Material Requirement Forecast 4A4

Confirm Payment 3C69

Measured Process Improvements & ROIMeasured Process Improvements & ROI

Blanket Purchase order3A4

Manual – DO

Manual – H’copy/FTP

Manual – Excel/Email





Manual – Fax/Email


CURRENT

3 2

30 min 2 min

33%

93%

3 2

30 min 2 min

33%

93%

2 1

2 hr 2 min

50%

98%

3 1

30 min 2 min

66%

93%

2 wks 0.5 day 96%

Current Future % Imp

3 2

15 min 2 min

33%

86%

30 min 2 min 93%

5 2 60%

10 min 2 min 80%

2 1 50%

3 1

15 min 2 min

66%

86%

Real Time visibility of long term demand

EOL write off reduction of 60%

Daily view of demand and ability to adjust in realtime :visibility of Material flow through logistics

chain

Inventory reduction of between 25 – 40%

50% improvement in process steps and 80%reduction in time

Electronic transmission and receipt of invoice andpayment notification

Invoice Process and Payment steps reduced by 55%and 90% time saving



48

The Spider Web of SCM Activities and Operations

Think of each point whereline intersects as a majoractivities within SCM

CustomsClearance

Global DC

Country DC

Regional DC

InternationalFreightTransportation

EMSSuppliers

CarriersandShipment

DomesticDelivery

DomesticDelivery

ODM/ OEMSuppliers

S&OPForecast

DirectDelivery

MaterialsShortages

Expedited/ExpressDelivery

Order Mgmt

FulfillmentMgmt

InventoryMgmt

Reports

DemandChanges

Local Transport

Market DynamicVisibilitySystems

NPI

ECN

- SCM in Motion


49

Case Studies

Inventory Deferment Model to support I2MVendor Managed Inventory (VMI)Suppliers Park

Inventory Optimization Model to support FulfillmentCentral Hub Vs Country HubRegional Hub

A shrinking world – global transportationoHow transportation has reduced the need for large inventory stockpile.oRapid flow materials & inventory managementoDirect-ship versus hub-ship


50

Execution ModelExecution Model

MFGMFG

PlantPlantSuppliersSuppliers

VMIVMI

HubHub

-- 3PL3PL

6. Invoicing6. Invoicing

1. PO Information1. PO Information--weeklyweekly

2. Delivery2. Delivery

3. Pull Signal3. Pull Signal

4. Delivery4. Delivery

5. Inventory &5. Inventory &

ConsumptionConsumption

Report on WebReport on Web

Materials Ownership changed fromMaterials Ownership changed from

Supplier to CustomerSupplier to Customer

After receiving & PODAfter receiving & POD

Inventory VisibilityInventory Visibility

-Vendor Managed Inventory (VMI)


51

VMI Hub in XiamenVMI Hub in Xiamen

XiamenXiamenAirportAirport

DELLDELLPlantPlant

VMI HUBVMI HUB

XiamenXiamenFTZFTZ

XiamenXiamenSeaportsSeaports

Right Opposite of Dell XiamenRight Opposite of Dell Xiamen

Northern Edge of Xiamen IslandNorthern Edge of Xiamen Island

HubHub--toto--XM Free Trade Zone: 10XM Free Trade Zone: 10 –– 15 mins15 mins

HubHub--toto--XM Export Processing Zone: 20XM Export Processing Zone: 20 -- 30 mins30 mins

HubHub--toto--XM Seaport: 10XM Seaport: 10 –– 15 mins15 mins

HubHub--toto--XM Airport: 5XM Airport: 5 –– 10 mins10 mins

HubHub--toto--CityCity--Center: 10Center: 10 –– 15 mins15 mins



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- Supplier Park (JIT/VMI/Tax Deferment)

Factory

BGKI

S&C

Current no. of park members : 16Current no. of park members : 16

Xing Wang Supplier Park Overview


53

From solutions design To complete supplier parkmanagement

Xing Wang Supplier Park, Beijing

- Supplier Park (JIT/VMI/Tax Deferment)


54

- Total Integrated SCM

MFGOverseas/LocalSuppliers

LineReplenishm

ent

HUBreplenishments

Call off

GIT, DOS visible through one unified system

VMI/POI

MRPMaterial Demand Forecast

Selfbilling and payment

Park MemberSub-A

ssem

blyLine

Replenishment

BNMT

Export/Domestic

Fin

ish

ed

Go

od

s

CSMS : Customs support Free Flow of Matls (7x24)

Custom Foreign Currency Control Tax Bureau

ERP

Finished Goods

FinishedG

oods

Planning Bureau

Call off

XW Industrial Park

Xing Wang Model


55

- VMI HUB Benefits

• Visibility tools enable

all supply chain

participants to view

inventory disposition

• Supply chain

participants exchange

forecast requirements

in real time

Delayed ownership of

inventory – supplier

owns inventory until

used by manufacturer

Reduced inventory as

supplier owned

inventory constrained

between min/max

positions

Reduced inventory

levels at point of

production

Reduced inventory

carrying costs – value &

time

Expensive factory space

used more productively

Information used to

replace inventory

Inventory Turns

More Information Reduced supply chaininvestment and costs

Less inventory+ =

The Value of I2M for Manufacturers


56

Vendor Managed Inventory (VMI)

• The customer shares information with suppliers:– Actual usage or sale of product– On hand inventory– Upper and lower limits of stock– Seasonal demand pattern– Additional marketing activity, eg promotions

• On the basis of these information, the suppliers takes responsibility forreplenishment of the customer’s inventory.

VMI - Benefits• Customer:

– Reduce of inventory level– Reduce the risk of stock out– Better cash flow (cash balance on payment terms and delay invoice)

• Supplier:– Direct access to demand information (EDI)– Better plan and schedule production and distribution > improve

capacity utilization– Requirement for safety stock is reduced



57

Factory

Consumption locations areremote from Production

Hub Inventory =Customer’s Forecast

Model Attributes

IssuesHigh Model mix changesHigh Forecast unreliabilityHigh Inventory levelsHigh Aging InventoryHigh Re-transportation costHigh non-value work

Customer Hub

Customer Hub

Customer Hub

Customer Hub

Customer Hub

Need moreRed now!!!!

Current Replenishment Model - One to Many Hubs Model

Replenishment time is long(transport time + productionlead time) Forecast cannot beaccurately predicted & re-supplyis unreliable.

Model Attributes

Model AttributesWhen there’s a shortage in one hubit triggers an urgent order in theproduction queue even tho’ there’splenty of that item in the system.When there’s excess in one hub, theyare not used at other hubs.

-Inventory Optimization Model to support Fulfillment


58

O2F using Central Warehouse

Factory

Customer Hub

Replenishment time =Production L/T

Plant Warehouse

Customer Hubs

Replenishment time =Transportation time

Customer Hub Customer Hub 3rd Party Kitting

Customer

High inventory at Plantwarehouse = safety stock

for all customer hubs

Plant Warehouse

Customer Hubs

Visibility into warehouseLess inventory @ HUBS

Replace inventorywith information

Good

Plant Warehouse



59

Benefits using Central Warehouse

Factory

Customer Hub

The right inventory arelocated at the right place

and at the right time

Customer

SupplyIncrease reliability of supply

Low variability of demandWarehouse=supply pointHub=consumption points

Customer Hub Customer Hub 3rd Party Kitting

Customer

Increased inventory atwarehouse but overallinventory are reduced

significantly

Inventory

ProductionOperate to a much moreaccurate demand, withsignificantly reducedreplenishment time

Good

Plant Warehouse



60

Supply Chain Costs

1. The effective way to manage product service level is to take into accountthe relationship between volume and profit margin.

Volu

me

by

SK

ULow

Hig

h

Low Profit Margin High

(A)Seek CostReduction

(B)Provide highAvailability

(C)Review forDeletion

(D)CentralizedInventory

(A) Seek cost reduction. These product havehigh volume and frequent demand. Needto reduce logistics cost to enhance profits.

(B) Provide high availability. We should offerthe highest service level. Keep inventoryas close to the customer as possible.

(C) Review for Deletion. Product should beregularly appraised for deletion. They donot contribute to profit and are slowmovers.

(D) Centralized Inventory. Products are highlyprofitable but sell at slow rate. Should bekept at central location, as far back up thesupply chain, to reduce total inventoryinvestment.



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Fulfill-to-Demand: Summary

1. Establish supplier owned plant warehouse

2. Create centralized planning system / Blanket PO

3. Set inventory target at each Customer Hub by product according to

a replenishment time (transportation time)

4. Set inventory target at Plant warehouse to safety stock +

replenishment time (production lead time)

5. Monitor safety stock targets in plant warehouse according to

consumption zones

6. Move to “Order-Daily – Replenish Periodically”



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- Transportation in Supply Chain

Transport Modeling & Route Optimization

Fleet Management

Identify resources

Integrated fleet control

Optimized fleetmix/location

Integrated fleet tracking

Backhaul and reverselogistics

Scheduling dedicated orexternal haulers

Modelling & Strategy

Strategic logistics modeling

Design of sales territories

Optimizing fleet mix &location

Scheduling & Planning

Vehicle routing &scheduling

Dynamic daily planning

Fixed route scheduling

Single and multi-depotscheduling

Central planning with multiuser access

PC-Based software package for strategic and tactical supply chain management



63

END OF SESSION 2

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