1. Introduction to Global Supply Chain Management Module Five: Product Sales, Distribution & Customer Relationship Management 1

2. 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 2

3. Product Sales & Distribution: Sell-Side Activities In a Global Model SUPPLIERSSUPPLIERS MANUFACTURER DISTRIBUTION SYSTEM CUSTOMERSCUSTOMERS MATERIALS MANAGEMENT Buy-Side DISTRIBUTION MANAGEMENT Sell-Side 3

4. 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. 4 Dan Gardner, April 2015

5. The “Cascade Effect” of Distribution on Sales & Operations Planning 5

6. The Sales & Distribution Function & Distribution Requirements Planning 6

7. 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 7

8. 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. 8 Dan Gardner, April 2015

9. 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 9

10. 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 10

11. 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 11

12. 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) 12

13. DRP & Inventory Management: Determining Order Points & Order Quantities Item: ABC Order Qty: 1,000 Lead Time: 2 weeks 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. 13

14. 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 14

15. The EOQ Formula: Where Ordering & Carrying Costs Are Equal A = Annual usage S = Cost per order i = Carrying cost (%) c = Cost per unit √ 2AS ic EOQ = 15

16. 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 16

17. 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.) 17

18. Product-Specific Order Point Example 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.) Demand = 200 units/week Lead time = 3 weeks Safety Stock = 300 units (200 x 3) + 300 = Order Point of 900 Units 18

19. 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 19

20. 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) 20

21. Sales Order Process Flowchart: Build-to-Stock B2B Model 21 No 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 generates a “pick-list” Warehouse picks & packs the order Order complete? Yes Generate documents & ship goods No

22. 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”

23. 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

24. Document Example: Purchase Order

25. Document Example: Commercial Invoice

26. Document Example: Ocean Bill of Lading

27. Product Sales, Distribution & CRM: Strategic Considerations & Key Performance Indicators 27

28. 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 28

29. 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 29

30. 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 30

31. 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 31

32. 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 32

33. The International Sales Function: Contractual Clauses 33 Product specifications Merchandise description Quality, grade, size & condition Quantities & weights Price Currency of sale Payment terms

34. The International Sales Function: Contractual Clauses 34 Product warranties & returns Substitution Incoterms ® 2010 rule Mode of transport Lead-time Last ship date

35. The International Sales Function: Contractual Clauses 35 Order cancellation date Charge backs Documentation requirements Dispute resolution Applicable law Severability

36. 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) 36

37. 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 37

38. 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 38

39. 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 39

40. 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 40

41. End of Module Five Congratulations!!!