Software Applications in Supply Chain Management Project Management and Implementation Implications Guest Lecture - February 26, 2002 Dominic Noce

2/26/20022 Formerly - Supply Chain Management Consultant PricewaterhouseCoopers Manager, Production Planning Traffic Manager Pet Incorporated (acquired by Pillsbury which was then recently acquired by General Mills) My Background

2/26/20023 Agenda 4 Supply Chain Performance Improvement Project 4 Network Design / Optimization - typical project issues 4 Supply Chain Planning System Implementation

2/26/20024 Supply Chain Performance Improvement Project 4 Client: Fortune 200 Global Consumer Products Company (personal care products) 4 The client’s problem - Low Inventory Turnover

2/26/20025 Supply Chain Performance Improvement Project Existing Client Issues 4 Long lead times - Manufacturing in few locations; 8 to 12 weeks delivery 4 Lack of supply chain management expertise 4 Explosive growth in some markets (Eastern Europe) 4 Lack of communications; data visibility; technology 4 Global ERP implementation would not impact the International Group for five years -- need improvements now

2/26/20026 Supply Chain Performance Improvement Project Diagnostic - Mexico and South Africa 4 Findings: ITR improvement to 6 turns was achievable in the near term 4 Improvement required a series of initiatives Performance Measures Training Supply Demand Planning Process Network Design Inventory Management Methodology ITR 6 3 Current Performance

2/26/20027 Supply Chain Performance Improvement Project Project results and realities 4 Most of the improvements implemented 4 Significant turnover improvement during the engagement 4 Delivered a plan and business case to achieve the rest –$100 Million inventory reduction –60% Customer service improvement –Shorter lead times / improved flexibility 4 REALITY –International Group Leadership change (lost original sponsor) –Interim technology / process recommendation not approved –Project ended / International would wait for ERP to achieve additional improvements –Subsequent corporate restructuring eliminated International Group

2/26/20028 Supply Chain Network Design and Optimization What to watch out for Key project activities

2/26/20029 Supply Chain Network Design and Optimization What to watch out for What’s wrong with this picture? - Consumer Packaged Goods Demand

2/26/ Supply Chain Network Design and Optimization What to watch out for You tell the model to select the best 6 distribution centers. What happened? Customer Incumbent Network Potential New Distribution Ctrs.

2/26/ Supply Chain Network Design and Optimization What to watch out for Should we reduce the number of distribution centers. What are the benefits? Customer Distribution Ctrs.

2/26/ Supply Chain Network Design and Optimization What to watch out for What generally happens when we eliminate distribution centers? Customer Distribution Ctrs. Transportation expense rises Handling costs - depends Manufacturing costs - depends Inventory - decreases Inventory carrying cost - decreases Why?

2/26/ Supply Chain Network Design and Optimization What to watch out for Network optimization tools don’t handle inventory very well. Therefore, inventory is usually handled outside of the model. As you reduce the number of distribution centers, the networks total required safety stock decreases. Aggregation of demand reduces variability. Total Inventory # of Distribution Centers Rule of Thumb - Square Root Law Inventory Reduction result from network change

2/26/ Supply Chain Planning System Implementation 4 Client: Global 100 Consumer Products Company (food and personal care products) North American Food Group - i2 Demand Planner / i2 Supply Planner 4 The client’s problem - Long, expensive and UNSUCCESSFUL system implementation –Demand Planner - in place but not being used –Supply Planner - implementation halted

2/26/ Supply Chain Planning System Implementation Existing Client Issues 4 Poor forecast accuracy 4 System results not reasonable, therefore, ignored 4 Users were trained to navigate through the software, not how to forecast or manage the results 4 Client did not want to proceed with Supply Planner until demand planning issues were resolved

2/26/ Supply Chain Planning System Implementation Action Plan Key project activities

2/26/ Supply Chain Planning System Implementation Results Users trained on daily process and interpretation of outputs

2/26/ Supply Chain Planning System Implementation Results Improved forecasting algorithm - utilizes causal factors related to sales promotions (the largest driver of lift) Before Changes After Changes

2/26/ Supply Chain Planning System Implementation Results Improved forecasting process

2/26/ Supply Chain Planning System Implementation Results Documented new process design and business requirements Activity: Generate Statistical Forecast Timing: Weekly Who: Demand Planning What: Execute Demand Planner system. Review and resolve exceptions. To Whom: Sales, Marketing, Finance, Supply Planning Inputs Demand history Sales events VMI data Marketing intelligence Outputs Statistical base forecast Promotional lift forecast Controls Forecast error Mechanisms i2 Demand Planner Data Warehouse

2/26/ Supply Chain Planning System Implementation Final result 4 Project stopped / sponsor wanted Manugistics 4 Corporate stopped all projects to select global Supply Chain solution (leaning toward SAP APO) 4 Major acquisition of another food company which had just implemented Manugistics Demand and Supply 4 Latest update –Still working out the politics –Our client planning supply with spreadsheets (that we developed) –DP is the better forecasting tool –Manugistics is entrenched within the acquired company

2/26/ Software Applications in Supply Chain Management Project Management and Implementation Implications Questions