Introduction to Global Supply Chain Management Module Four: Product Sales, Distribution & Customer Relationship Management

Class Agenda Distribution defined The Distribution function June 18 Distribution defined The Distribution function S&OP integration & synchronization Distribution Requirements Planning Key elements of Customer Relationship Management (CRM) Strategic & operational considerations

Product Sales & Distribution: Sell-Side Activities In a Global Model MANUFACTURER DISTRIBUTION SYSTEM C T O M MATERIALS MANAGEMENT Buy-Side Sell-Side

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

The “Cascade Effect” of Distribution on Sales & Operations Planning

Demand Management Forecasting Order Processing Delivery Promising (Available To Promise, ATP) Interface between the marketplace and S&OP

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 an an organization’s stocking locations (satellite warehouse, regional distribution center, et al). Distribution Requirements Planning relies upon the principles of Gross-to-Net Exploding and Lead 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 (multiple warehouses), the discipline uses a “Bill of Distribution” to implode time-phased requirements from satellite warehouses up through the distribution channel to main distribution centers. Ideally, companies and their supply chain partners employ cloud-based visibility tools to truly integrate and synchronize their Sales & Operations Planning activities. Dan Gardner, April 2015

Distribution Requirements Planning: 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

Distribution Requirements Planning: 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

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

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)

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

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

The Order Point System Order Point = DDLT + SS DDLT = Demand During Lead Time SS = Safety Stock (Safety Stock is carried to safeguard against supply chain variance(s)… Forecast, demand, lead time, etc.)

Sales Order Process Flowchart: Build-to-Stock B2B Model Begin Buyer’s system generates a multi-product purchase order Back order Goods available? Yes No End Wait to complete order Seller acknowledges receipt of P.O. Seller’s system “pick-list” Warehouse picks & packs the order Order complete? Generate documents & ship goods No

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

End of Module Four Congratulations!!!