optimal operating strategies for a segmented supply chain · promotional activities such as ads in...

Author : Bernadette OrendeAdvisor: Dr. Sergio Alex Caballero

Optimal Operating Strategies for a Segmented Supply Chain

MIT SCM Research FESTMay 22, 2018

1

Contents

MOTIVATION

METHODOLOGY

RESULTS

CONCLUSION

2

Project Background & Scope• Company:

a multi-national manufacturer and distributor of a range of fast moving consumer goods

• Order fulfillment:Based on demand signal from customers which is broken down into 4 unique replenishment streams

Motivation Methodology Results Conclusion

Supplier Manufacturer Distribution Center Retailer Customer

3

Replenishment Streams

Motivation Methodology Results ConclusionVo

lum

e

Periods

Base Demand

Volu

me

Promotions

Volu

me

Initiatives

Volu

me

IBA

v Daily movement of product characterized by stable demand signal

v Planned promotional activities such as ads in retail stores

v Unplanned demand spikes that occur with very little notice

v Driven primarily by customer launch plans

v New SKUs brought to market for the first time

Periods Periods Periods

4

% Shipment Volume by Streams


Base Demand73%

Promo17%

IBA5%

Initiatives5%

5

SKU Behavior


0

200

400

600

800

1000

1200

1400

1600

1/1/16 2/1/16 3/1/16 4/1/16 5/1/16 6/1/16

Ship

men

ts

Base Demand

Initiative-Phase In

Promo

Note: Replenishment streams are not a property of the SKU

6

Research Questions

Is there a benefit to differentiating the supply chain by the four identified replenishment streams or some hybrid?

What are the optimal supply chain operating strategies for demand, sourcing, and distribution that minimize cost, increase cash, and

maximize service and sales?


7

Data

• 10,000 rows of shipment data over a span of 19 months

• 7 brands of a product family filtered to 3 pertinent brands

• 835 distinct SKUs

• Geolocation mapping of company’s manufacturing plants and mixing centers


8

Data Analysis• Segmentation

• Coefficient of Variation

• Time Series Analysis and Forecasting

• Mean Absolute Percent Error (MAPE)

• Distribution Network Mapping

• Case Fill Rate


9

Demand Strategy


10

Demand Strategy


Hypothesis:

Pool Streams Decreased Variability

Higher Forecast Accuracy

Reduction of Safety Stock

Lower Average Inventory

11

Demand Strategy


31.6%

32.3%

32%

33%

71%

74%

168%

BASE, IBA, PROMO

BASE DEMAND

BASE, PROMO

BASE, IBA

IBA, PROMO

PROMO

IBA

Coefficient of Variation by StreamvCoefficient of Variation used to measure variability

vNew Initiatives stream was not included as production plan is dependent on customer launch plans

12

Demand Strategy


0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81

Ship

men

t Vol

ume

Periods (Weeks)

Shipments by Stream and Week

Base Demand Promo IBAInitiatives Linear (Base Demand) Linear (Promo)Linear (IBA) Linear (Initiatives)

Ship

men

t Vol

ume

Stream MAPE CoVIBA 256% 168%

Promo 33% 74%Base Demand 9% 32.3%

Base Demand, IBA, Promo 9% 31.6%

13

Demand Strategy


Strong positive correlation?

Do Not Pool Pool

Yes No

IBA New InitiativesPromotionsBase

DemandBase,

Promo, IBA Initiatives

Lean Strategy

Agile Strategy

Customer Product Launch

Plan

Lean Strategy

Customer Product Launch

Plan14

Demand Strategy


Base Demand

LEAN STRATEGY

Promotions IBA

AGILE STRATEGY AGILE STRATEGY

Base, Promo, IBA

LEAN STRATEGYPooling Benefits

o Stable demand

o Eliminate non-value adding activities

o Collaborative Planning, Forecasting & Replenishment (CPFR)

o Collaborative Planning, Forecasting & Replenishment

o Improved forecast accuracy

o Lower safety stock leading to lower average inventory

o Streamline Operations 15

Distribution Strategy


16



4 Distinct Strategies:

v Direct Shipment

v Warehousing

v Cross Docking

v Transshipment

17



Case Fill Rate (CFR):

v Measure of Customer Service level and the satisfaction of customers

v Amount shipped over amount ordered

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15CF

RCustomer Rank

CFR for Top 15 Customers

18



Customer Rank

Miss

ed C

FR %

19



Lean

Base Demand

Agile “Leagile”

New Initiatives Promo & IBAo Focused on

elimination of waste and non value adding activities

o Flexibility o Lean & Agile hybrid that employs postponement

20



Base Demand

vTop 15 customers drive ~80% of base demand

vThe top customer is responsible for ~32% of base demand shipments

vStrategically store inventory for the base demand stream in mixing centers that regularly services those particular customers

OPTIMIZE FOR LEAN

21



New Initiativesv95% of volume driven by the top 12 customers with

customer #1 responsible for 74% of the shipments

v2 options for customer #1:- Directly ship products to customer contingent on

transportation costs and shipment volume - Direct shipment from plant to mixing center and

cross docked for shipment to customer

v Remaining 26% of shipments are fragmented between customers. Pursue option 2 above

OPTIMIZE FOR AGILITY22



Promotions and IBA

vPromotions and IBA together only make up 22% of total shipments

vPool both under a “leagile” strategy that employs postponement

vGeneric form of products should be held at mixing centers and customized accordingly when order is received

23

Sourcing Strategy


24

SKU Behavior


0

200

400

600

800

1000

1200

1400

1600

1/1/16 2/1/16 3/1/16 4/1/16 5/1/16 6/1/16

Ship

men

ts

Base Demand

Initiative-Phase In

Promo

Note: Replenishment streams are not a property of the SKU

25

SKU Segmentation


A Items:80% of Volume12% of SKUs

B Items15% of Volume17% of SKUs

C Items5% of Volume71% of SKUs

26

Sourcing Strategy


B & C SKUsA SKUs

27

Sourcing Strategy


% of SKUs

A SKUs B & C SKUs

LEAN

AGILE

28

Sourcing Strategy


ALL SKUS

"A" SKUs (12% of SKUs, 80% of Volume)

"B" SKUs (17% of SKUs, 15% of Volume)

"C" SKUs (71% of SKUs, 5% of Volume)

Optimize for Lean- Long term Strategic

Contract- Low Cost Sources

Optimize for Agility- Source Closer to

Market29

Takeaways

• “One size does not fit all” when it comes to operational strategies.

• Strategies should be curated for a company according to a company’s data, resources and capabilities.


30

optimal operating strategies for a segmented supply chain · promotional activities such as ads in...

Documents