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With a plethora of terminology, and sometimes several meanings for same terminology, the world of Supply Chain can get very confusing. In this section, we define basic supply chain terms and their most accepted meanings. This section is always in improvement. You are welcome to send in your comments and contributions.
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| ERP Definition Framework |
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It all started with Materials Requirements Planning (MRP) when companies starting managing their inventories by anticipating usage and planning orders accordingly to keep the stocks at a desired (low) levels. The key inputs for these plans are Master Production Schedule (MPS), Bills of Materials (BoMs), Inventory Status, Lead times, Standard times (and schedules), Routing of parts and Standard Costing |
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Manufacturing Resource Planning (MRP II) goes one step further and assigns standard costs to parts and products in order to create a closed loop system that can generate financial figures on production and inventories that management can live with |
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Enterprise Resource Planning (ERP) went a step further to record and report every transaction of the enterprise. In order to facilitate planning under this paradigm all transactions are standardised. The processes are mostly coded for best practice applications, and hence create an impetus for process improvement. However, these systems tend to be one size fit all approach, and are difficult and costly to modify, if they do not fit a particular industry/organisation |
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ERP II is emerging as a solution to the problems with ERP; they combine the breadth of ERP with the depth of applications designed for particular industry |
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| Supply Chain Management Systems |
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These systems work closely with the ERP or other transactional data repositories to conduct analytics to provide decision making support to supply chain managers. The decision support typically includes planning (for 4 weeks to 9 months horizon) and scheduling (for 1 shift to 4 weeks horizon) related to: |
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Transportation |
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Inventory management including Stock Movements |
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Distribution Network Configuration |
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Production |
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Procurement |
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Demand |
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There are several providers of software in each of these categories, though typically top 1-2 companies have overwhelming market share in each category |
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Most large players have assembled end-to-end capabilities through acquisition or in-house development. Depth, breadth functionality and ease of use vary |
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There is on-going debate on Best-of-Breed (the concept of selecting the best software in each category and integrating all of these in a bundle to work together) vs. End-to-End service provider. Each concept has its own proponents and benefits |
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| Demand Planning & Forecasting |
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| Objective |
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Project future demand statements by region
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3 years by Product Line |
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6-9 months by model and critical component |
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| Typical Activity and System Functionality |
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Flexible time series, horizon, and time bucket definition/reporting |
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Ability to isolate trends/factors, e.g., macroeconomic factors, seasonality, calendar influence,
business cycles, and short/medium trends |
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Use of multiple modeling algorithms with automatic "best-fit" selection |
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Exception reporting for turning points/trends |
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Manual intervention for special events, e.g., price increases, promotions, distribution problems,
and macro economic events |
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Ability to set macro level targets and drill down |
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Ability to add economic drives to forecast such as housing starts, consumer confidence index,
innovation policies, GDP, incomes, inflation, etc. |
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Monitoring/operating of forecast accuracy and deviations to actual results |
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Support what-if scenarios and multiple versions of single forecast |
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User interface supporting graphics and basic presentation capability |
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Interface to PC spreadsheet applications |
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| Inventory Management |
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| Product Stocking Policy (Inventory holding policy) by location and product for each point in the supply chain |
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| Typical Activity and System Functionality |
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Take historical demand patterns, future demand forecasts, lead times, service level requirements, and margins into account to create inventory targets (safety stock policy) for each inventory holding location
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Based on inventory targets, create and manage a Replenishment Plan (inventory movement policy) for each product |
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Measure and report the effectiveness of the inventory management function |
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Carry out analysis of causes of service failures, and find means of rectification |
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| Supply Planning |
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Create a plan to create supply in order to satisfy the projected demand. Three alternate sources of supply are:
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Finished goods Inventory |
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Fresh Production |
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Purchase |
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Typical Activity and System Functionality
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Create a production plan to satisfy the project demand and stock replenishment |
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Provide input for inventory management and replenishment planning |
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Create a procurement plan, if necessary, for finished goods item |
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Key Questions
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Supply
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Demand
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- Are there opportunities to level demand (e.g., level load, move production between operations)?
- How should the base, optimal production program be set up?
- Should capacity be increased or reduced (people and/or equipment)?
- Which production capabilities should be improved?
- Should more or less production be outsourced?
- Should production pre-build inventory or reduce inventory levels?
- What should be the non-operational (investment) inventory position?
- Should the lead time commitment be changed?
- Should higher (or lower) target service levels be established?
- What should be the supply policy for internal and external vendors and customers along the supply chain?
- Where and how can the cheapest product be obtained (trading, exchange)?
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- Are additional sales opportunities (new products and/or customers) worth additional costs (e.g., possible overtime, higher inventory)?
- Should the promotion schedule or price be adjusted to manage expected demand for certain months and/or parts of the operation?
- How should the base marketing program be set up?
- Are there marketing strategy shifts (e.g., price, mix, or share strategies) that better leverage the operations?
- What is the optimal supply/demand balance for the coming period?
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| Distribution Network Optimisation – Key Questions |
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What is the best way to move product from plants to customers (how should product flow)? |
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How much inventory should be maintained and where should it be stored? (How many tiers should exist in the network?) |
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How many distribution facilities are required and where should they be located? |
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What types of facilities are most appropriate, given product handling requirements? |
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What is the most appropriate ownership structure? |
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Most importantly, how do customer service requirements influence all of these issues? |
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Will customer service levels be enhanced or degraded? |
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Will restructuring put the company at a competitive advantage or disadvantage? |
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Can sales and marketing be persuaded that restructuring is appropriate? |
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| DISTRIBUTION NETWORKS – BUSINESS STRATEGY LINK |
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| PLANNING AND SCHEDULING |
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| Scheduling |
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Which parts (mix) should be made and in what sequence? |
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How much should be made of each? |
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On which machines should production be run? |
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How much overtime should be scheduled? |
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Who should work where? |
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What raw materials need to be ordered? |
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How and when should product be moved? |
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How can short-term supply opportunities be taken advantage of? |
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Should some orders not be accepted? |
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Should some orders be delayed (e.g., manage past due)? |
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How can demand volatility be controlled in the short term? |
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Which orders should be expedited? |
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| PLANNING, SCHEDULING AND EXECUTION - TIMING AND LEVEL OF DETAIL |
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| EXPERIENCE BASED PROBLEM SOLVING |
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| ANALYTICAL PROBLEM SOLVING |
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