1. Supply Chain Planning Dinesh Garg Indian Institute of Science Bangalore-India September 27, 2003 Foundations of Global Supply Chain Management

2. Outline of the Talk  What is Supply Chain Planning  Supply Chain Planning Process  Supply Chain Planning Decisions  Software Tools  GSCM at Digital Equipment Corporation  Conclusions

3. What is Supply Chain Planning ? Supply Chain is a set of activities (e.g. purchasing, manufacturing, logistics, distribution, marketing) that perform the function of delivering value to end customer Traditionally, all the business units along a supply chain have their own objectives and these are often conflicting There is no single plan to carry out supply chain activities

4. What is Supply Chain Planning ? There is need for a mechanism through which the execution of various business activities along a supply chain can be planned in an integrated fashion. The supply chain planning is an effort to achieve the primary goal of “producing and distributing the merchandise at the right quantity, to the right locations, and at the right time with minimum system wide cost” in the presence of conflicting goals of various business units

5. Dynamics of Material Flow Supplier PlantWarehouseLogisticsRetailer

6. Dynamics of Order Flow Supplier PlantWarehouseLogisticsRetailer

7. Supply Chain Planning Processes Demand PlanningMaterial Requirement Planning Demand Forecasting SupplierPlantWarehouseLogistics Retailer Production Plan Component Requirement Order Management

8. Supply Chain Planning Decisions OPERATIONAL TACTICAL STRATEGIC ProcurementDistributionManufacturingLogistics

9. Supply Chain Planning Decisions Supplier Selection Allocation of Suppliers to the Plants Location, Number, Capacity of Plants What Products to Produce Which Plants to Produce them Location, Number, Size of Warehouses Mode of Shipment Port Selection Procurement Policy Warehouse Allocation Inventory Decisions Manufacturing Policy Customer Allocation Distribution Policy Vehicle Routing Fleet Size Production Schedule Scheduling on Machines Workload Balancing Finished Goods Inventory Vehicle Routing

10. Software Packages i2 Six: A comprehensive solution suite for spend/ production/ revenue/ logistics/ fulfillment optimization Solution suites for network design & optimization/ manufacturing planning & scheduling/ global logistics management/ service & parts management JD EDWARD: The advanced planning software to synchronize demand & planning/ network Optimization/ production & distribution planning

11. Software Packages ARIBA Spend Management: It helps companies driving down enterprise wide spend mySAP SCM: A complete supply chain planning solution iBann: A complete solution suite from demand collaboration to order management

12. Results Companies that utilized best-in-class SCM solutions have  Reduced inventory levels by 10-15%  Reduced markdown & scrap by 10-15%  Improved delivery reliability by 95-95%  Used resources10-20% more efficiently  Reduced transportation cost by 10-15%  Reduced cycle time by 10-20%  Reduced outages to 0-5%

13. Global Supply Chain Model (GSCM) @ Digital Equipment Corporation

14. GSCM at Digital Equipment Corp.  HISTORY 1957: Founded by Ken Olsen 1961: Started Construction of first computer PDP-1 1978: Took Over the majority of minicomputer market 1980: Second Largest Computer company in the world 1990: DEC suddenly found its sales faltering 1998: DEC was sold to Compaq 2002: Compaq was taken over by HP 2003: Digital Global Soft is a well respected IT service company in India. Earlier it was 51% subsidiary of DEC

15. GSCM at Digital Equipment Corp.  DEC in Late 80s and Early 90s: 1987: DEC successfully supported a full range of products for over 20 years with 33 plants in 13 countries including 30 distribution and repair centers 1989-1990: A mismatch among capacity, infrastructure, and demands of new markets 1988 - 1993:  Digital reengineered the business processes throughout manufacturing and logistics.  Corporate Logistics and Manufacturing initiated the development of GSCM for simultaneously balancing the conflicting attributes of manufacturing and logistics

16. GSCM at Digital Equipment Corp.  Number, location and capacity of plants  What product to build at which plant  Significance & location of tax heavens  Number, location and capacity of DCs  Which DC should serve which customer  Number and location of repair centers  Optimal design of spare parts Manufacturing Logistics Spare Parts  Decision Variables for GSCM

17. GSCM at Digital Equipment Corp.  Which supplier to keep  Which product to buy in a nation  Which supplier should supply each plant  Location & availability of cheap labor  Length of material pipeline in time  Export regulations, duty rates Supplier Selection Miscellaneous

18. GSCM at Digital Equipment Corp.  GSCM minimizes a weighted sum of total cost and activity days 1. Production Costs 2. Inventory Costs 3. Material Handling Costs 4. Taxes 5. Facility/Production Line Fixed Costs 6. Transportation Costs 7. Duty Costs  Objective Function for GSCM  Total cost includes

19. GSCM at Digital Equipment Corp.  Customer demand is met for each product, in each period, in each customer region  Limits on number of facilities making each product  Limit on number of facilities using each manufacturing style  Fixed charges for products made by each facility  Fixed charges for facilities making any product  Fixed charges for manufacturing style used by each facility  Limited production capacity, inventory storage, and shipping volume  Constraints for GSCM

20. GSCM at Digital Equipment Corp.  Solution Approach Users are invited to advise and assist the solver by specifying with each constraint just how much it would cost to violate the constraint Elastic penalties help solver decide which constraints are hard and which are soft The solver uses branch and bound enumeration The problem of realistic size and detail, the GSCM features constitute a formidable class of large, difficult optimization problem

21. GSCM at Digital Equipment Corp.  A reduction of $167 million in annual manufacturing cost  A reduction of $200 million in annual logistics cost  Number of plants was to be reduced from 33 to 12  Five times more computers were manufactured  Impact of GSCM on DEC (1990-1994) Arntzen, Brown, Harrison, and Trafton “ Global Supply Chain Management at Digital Equipment Corporation”, Interfaces,1995, pp. 69-93

22. Conclusions  Supply Chain Planning: A critical factor in the success and profitability of a company  Short Product Life Cycle: Improper planning can take the company out of business  Bad News: Planning is an hard problem to formulate as well as solve  Good News: Plethora of Commercially available software for supply chain planning

23. Thank You Over to Dr. Mathirajan ….