introduction to global supply chain management module five: product sales, distribution customer...
DESCRIPTION
Product Sales & Distribution: Sell-Side Activities In a Global Model SUPPLIERSSUPPLIERS MANUFACTURER DISTRIBUTION SYSTEM CUSTOMERSCUSTOMERS MATERIALS MANAGEMENT Buy-Side DISTRIBUTION MANAGEMENT Sell-Side 3TRANSCRIPT
Introduction to Global Supply Chain ManagementModule Five:
Product Sales, Distribution &Customer Relationship Management
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Class Agenda
• Distribution defined• The Distribution function
– S&OP integration & synchronization• Distribution Requirements Planning• The integration of DRP with other
S&OP functions• Key elements of Customer
Relationship Management (CRM)– Strategic & operational
considerations• CRM & Key Performance Indicators
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Product Sales & Distribution:Sell-Side Activities In a Global Model
SUPPLIERS
MANUFACTURER DISTRIBUTIONSYSTEM
CUSTOMERSMATERIALS
MANAGEMENTBuy-Side
DISTRIBUTIONMANAGEMENT
Sell-Side
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Different Operating Models & Inventory TypesInfluence Distribution Strategies
Operating Model
• Raw materials• Components/sub-assemblies• Work In Process• Finished goods• Distribution inventory• Accessories• Spare parts• MRO
Types of Inventory
• Build to stock• Build to order• Assemble to Order• Engineer to Order• Just In Time• Vendor Managed Inventories
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International Sales Network AlsoInfluence Distribution Strategies
• Intercompany• Distributors• Wholesalers• Retailers• Manufacturers• E-commerce
– Business-to-Business (B2B)– Business-to-Consumer (B2C)
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Distribution Defined
Distribution involves all activities associated with the movement of finished goods and service parts from locations in a warehouse network to the end customer. Closely linked to other supply
chain areas such as forecasting, warehousing, inventory management, order management and logistics, distribution is a client-facing function that drives overall Sales & Operations Planning
processes. Integral to the distribution discipline is the ongoing execution of Distribution Requirements Planning and in particular, gross-to-net exploding and lead-time offsetting.
Dan Gardner, April 2015
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The “Cascade Effect” of Distribution on Sales & Operations Planning
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The Sales & Distribution Function &Distribution Requirements Planning
Resourceplanning
Masterproductionscheduling
Demandmanagement
Productionplanning
Front end
Detailedmaterialplanning
Routingfile
Material and capacity
plans
Time-phasedrequirement
(MRP) records
Engine
Back endVendor systemsShop-floorsystems
Bills ofmaterial
In-ventorystatusdata
Detailedcapacityplanning
Marketingplanning
Financialplanning
Strategicplanning
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Demand Management
• Forecasting• Order Processing• Delivery Promising (Available To
Promise, ATP)• Interface between the marketplace
and S&OP• The “Cascade Effect” resonates all
the way back up the supply chain with sales updates
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Distribution Requirements Planning (Sell-Side)
Distribution Requirements Planning (DRP)-Intended for use with finished goods, DRP encompasses the activities associated with identifying the replenishment requirements of (warehouse) locations throughout a company’s logistics network. DRP uses the same logic as MRP in that it is a time-phased approach to determining inventory needs for each of anan organization’s stocking locations (satellite warehouse, regional distribution center, et al).
Distribution Requirements Planning relies upon the principles of Gross-to-Net Exploding andLead Time Off-Setting to synchronize product quantities and delivery times with actual demand.Because DRP is often used by companies with multi-level distribution networks (multiplewarehouses), the discipline uses a “Bill of Distribution” to implode time-phased requirementsfrom satellite warehouses up through the distribution channel to main distribution centers.
Ideally, companies and their supply chain partners employ cloud-based visibility tools to trulyintegrate and synchronize their Sales & Operations Planning activities.
Dan Gardner, April 2015
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Distribution Requirements Planning:Gross-to-Net Exploding
• Gross–to-Net Exploding– An exercise whereby the original
(gross) requirement for a product is reduced by:
• Inventory on hand• Confirmed order receipts• Confirmed order releases• Planned order releases
• Gross-to-Net Exploding must be integrated with the inventory management function
• Integration is achieved through process design and supply chain software applications
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Distribution Requirements Planning:Lead Time Off-Setting
• Lead time off-setting– Orders are placed for products on a
date that “off-sets” cumulative lead times with the desired date of receipt
• P.O. preparation/acceptance• Production time• Transportation lead time• Customs clearance• Domestics distribution
• Lead time off-setting must be integrated with the logistics function
• Integration is achieved through process design and supply chain software applications
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Integrating DRP with Inventory Management:Order Quantities & Order Points
• In addition to gross-to-net exploding and lead time off-setting, distribution professionals must also determine order quantities and order points for replenishing finished goods in the distribution network
– These activities help to integrate and synchronize DRP with Inventory Management
• Economic Order Quantity (EOQ) calculates the optimum replenishment amount by balancing the total cost of an order with that product’s carrying cost
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Integrating DRP with Inventory Management:Order Quantities & Order Points
• An integrating activity between DRP and inventory management, an “Order Point” is reached when a product’s on-hand quantity reaches a pre-determined level
• When inventory is depleted down to that pre-determined level, a replenishment order is generated by the system (based on EOQ in the form of a Planned Order Release)
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DRP & Inventory Management: Determining Order Points & Order Quantities
Item: ABCOrder Qty: 1,000Lead Time: 2 weeks
Time Bucket (week) 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected Available Net RequirementsPlanned Order ReceiptPlanned Order Release
Product-specific order quantities and order points support gross-to-net exploding and lead-time offsetting by providing the quantity of a product that needs to be ordered
and at what point it should be ordered. Order quantities and order points can be determined using a variety of tools such as the Economic Order Quantity
formula or the Order Point System.
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Economic Order Quantity
• EOQ is a formula that is used to determine a replenishment order quantity for a product that balances the total cost of an order with that product’s carrying cost
• Variables in the formula are:– Annual usage in units – Unit cost– Annual carrying cost– Ordering cost per order
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The EOQ Formula:Where Ordering & Carrying Costs Are Equal
A = Annual usageS = Cost per orderi = Carrying cost (%)c = Cost per unit
√ 2AS icEOQ =
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The Order Point System
• When the quantity of an item falls to a pre-determined level (order point), a replenishment order must be placed
• The quantity to be ordered is often based on EOQ concepts
• The key factor about the O.P. methodology is that it considers product demand during lead time (DDLT)
• O.P. also considers Safety Stock (SS) in its calculation
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The Order Point System
Order Point = DDLT + SS
DDLT = Demand During Lead TimeSS = Safety Stock (Safety Stock is carried tosafeguard against supply chain variance(s)…
Forecast, demand, lead time, etc.)
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Product-Specific Order Point Example
Order Point = DDLT + SS
DDLT = Demand During Lead TimeSS = Safety Stock (Safety Stock is carried tosafeguard against supply chain variance(s)…Forecast, demand, lead time, etc.)
Demand = 200 units/weekLead time = 3 weeksSafety Stock = 300 units
(200 x 3) + 300 = Order Point of 900 Units
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Order Point & The DRP Item Table
Item: ABCSafety Stock: 300Lead Time: 3 weeksOrder quantity: 1,000
Time Bucket (week) 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected Available Net RequirementsPlanned Order ReceiptPlanned Order Release
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Integrating The Sales & Distribution Functions
• Gross-To-Net Exploding, Lead Time-Offsetting, Order Quantities and Order Point calculations enable the positioning of goods, “In the right place, at the right time, and in the right quantities”
• Inventory Management is the function that makes sure these “3R’s” actually happen
• As sales are generated, the Order Management function takes over
• Sales order information must resonate back up the supply chain, continuously updating DRP calculations
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Software-Based DRP Product Tables:Enabling Inventory Mngt. & Order Processing
Time Bucket (week) 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected On-Hand (POH) Net RequirementsPlanned Order ReceiptPlanned Order Release
DRP software calculations generate product-specific “Projected On-Hand” figures by time period, that in turn enable other distribution activities like product
replenishment, order promising, order processing, logistics lead-time commitments and inventory management. As sales orders are processed, details are shared back up the supply chain, thus allowing DRP to be continuously recalculated. Ideally, all of
this is done through the use of integrated software packages called “ERP Systems” (Enterprise Resource Planning).
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The Order Management Process
• Gross-to-Net exploding, lead time off-setting, order quantities and Order Point Systems put a company in the position to handle sales orders
• As sales orders are received the firm must enact its Order Management process
• Steps in the process may include:– Order receipt & acknowledgement– Credit check on customer– Available to Promise/Allocation– Pick & pack– Documentation & shipping
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The Order Management Process
• In today’s multi-national, Internet-based business environment, companies can receive sales orders in a variety of ways
– Phone call– Faxed spread sheet– Purchase order written and sent via
email– Orders managed via Google Dox– System-generated P.O. sent
electronically (email attachment)– Cloud-based application (B2B)– Cloud-based application (B2C)
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Sales Order Process Flowchart:Build-to-Stock B2B Model
No
Begin
Buyer’s system generates a
multi-product purchase order
Back orderGoods
available?
Yes
No
End
Wait to complete order
Seller acknowledgesreceipt of P.O.
Seller’s systemgenerates a
“pick-list”
Warehousepicks & packs
the order
Ordercomplete?
Yes
Generate documents& ship goods
No
<Deployment Flowchart: Order Management Process
Accounting Production &Shipping
AccountsReceivable DaysOrder
Management
Receivecustomer
order
ProcessCustomer
Order
CreditDenied
ApproveCredit?
NotifyCustomer
Productionplanningreceives
order
GoodsProduced &
ShippedCustomer
invoiced andfunds
collected
9 days
10 days
45 days
60 Days
Order Processing for Build-to-Order Model:Deployment Flowchart
Order Management &The “Documentation Trail”
• In addition to the actual merchandise, documentation plays a key role in the Sales & Distribution process
– Sales contract– B2B purchase orders– On-line B2C orders– Commercial invoice– Packing list– Bill of lading– Insurance certificate– Certificate of origin
• Proper documentation drives supply chain efficiencies and has a material impact on the “Customer Experience”
The “Documentation Trail” & The Customer Experience
• Remember, all documents have to adhere to “The 3C’s of Documentation”
– Complete, Consistent & Correct• The smallest of paperwork errors can
stop a supply chain in its tracks– And ruin your relationship with a
customer• The 3C’s of Documentation principle
applies to hard copies and digital copies
Document Example:Purchase Order
Document Example:Commercial Invoice
Document Example:Ocean Bill of Lading
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Product Sales, Distribution & CRM:Strategic Considerations & Key Performance Indicators
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Product Distribution & CRM:Strategic Selling Considerations
• Country demographics• Macro-economic profile
(region/country)• Industry-specific eco-system
– Customers and your customer’s customers
• Competition• Banking system• Landed costs (by product)
– Transportation & Customs duties• Free Trade Agreements
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Product Distribution & CRM:Strategic Selling Considerations
• Preferential Duty Programs• Sales price analysis
– Estimated gross profit & margin• Logistics infrastructure• Lead-times• Customs regulations• Other Government Agencies Regs• Supply chain risk profile
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The Sales Function:Key Considerations For Customer Vetting
• Business model– Wholesaler, Retailer, Manufacturer
• Ownership structure• Corporate culture• Authority to operate• Restricted party screening• Number of employees
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The Sales Function:Key Considerations For Customer Vetting
• Financial stability– Credit history
• Product portfolio• Product knowledge• In-country location(s)• Respect for patents, trademarks &
intellectual property
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The Sales Function:Key Considerations For Customer Vetting
• Supply chain software & visibility tools
• Knowledge of global trade– Shipping, documentation &
compliance• Human rights & environmental
compliance• Use of Standard Operating
Procedures• Key Performance Indicators
The International Sales Function:Contractual Clauses
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• Product specifications• Merchandise description• Quality, grade, size & condition• Quantities & weights• Price• Currency of sale• Payment terms
The International Sales Function:Contractual Clauses
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• Product warranties & returns• Substitution• Incoterms® 2010 rule• Mode of transport• Lead-time• Last ship date
The International Sales Function:Contractual Clauses
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• Order cancellation date• Charge backs• Documentation requirements• Dispute resolution• Applicable law• Severability
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KPI’s for Measuring Sales,Distribution and CRM
• New customers gained• Existing customers lost• Total sales revenue by customer• Gross profit & gross margin• Total transportation spend by
customer• Number of purchase orders received• Items sold by customer SKU’s or part
numbers)
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KPI’s for Measuring Sales,Distribution and CRM
• Dollar value by SKU or part number– Gross profit & gross margin
• Order fill rate • Over/under quantities• Incorrect merchandise• Defective merchandise• Damaged merchandise
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KPI’s for Measuring Sales,Distribution and CRM
• Number/value of insurance claims• Instances of late shipments• Instances of early shipments• Number of cancelled orders• Products on backorder• Dollar value of backorders
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KPI’s for Measuring Sales,Distribution and CRM
• Shipments with missing documents• Incorrect prices on invoice• Errors on commercial documentation• Missed sailings/flights• Number of expedited shipments• Air freight expense for expedited
shipments
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KPI’s for Measuring Sales,Distribution and CRM
• Number of charge-backs• Reason for charge-backs• Dollar value of charge-backs• Accounts Receivable by customer• Bad debt by customer
End of Module Five
Congratulations!!!