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Supply Chain Planning: Finding the Right Model

Introduction
Overview

A supply chain planning (SCP) model serves as an internal market mechanism or process for
companies. Its purpose is to match supply and demand, and align the entire organization around
key operational plans that drive success and profitability given the demand for their products in
the marketplace.

In a competitive market, customers have many options to satisfy their demand for a product.
Companies must therefore anticipate that demand and provide products to customers on a timely
basis and at a marketable price. They do this by managing the functions and activities in the
supply chain.

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Benefits of a Supply Chain Planning Model

Companies that define and implement an effective SCP model realize tangible economic and
qualitative benefits.

Economic Benefits
o Increased asset utilization, e.g., raw material, work in progress (WIP), and
finished goods inventory
o Lower operating expense, e.g., fewer expedited shipments and less manual
effort
o Improved margin, e.g., right product, right place, and right time

Qualitative Benefits
o Improved customer service, e.g., increased fill rates and on-time delivery
o Improved competitive advantage
o Lower cross-functional and organizational friction

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Objectives

After completing this module, you should be able to:

Define a supply chain planning (SCP) model


Discuss why it is important for companies to have the "right" model in place
Discuss how various factors (i.e., business model, manufacturing class, manufacturing
operating model, procurement operating model, and fulfillment operating model) influence
a company's SCP model

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Supply Chain Planning Model
Overview

A supply chain planning (SCP) model is comprised of process, technology, and organizational
assets. Companies use these assets to intelligently commit, build, and deploy a company's
physical assets (e.g., supply, manufacturing capacity, and labor) to meet the market demand for a
product over time, and in the most profitable manner possible.

SCP helps ensure that product is available to meet the customer's desired quantity and date. In
other words, it is the process of balancing available supply against demand. Companies
accomplish this by understanding and predicting customer demand, and then fulfilling it with the
most efficient allocation of available inventory and production capacity.

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Supply Chain Planning Functional Areas

Supply chain planning allows companies to manage their supply chains by connecting the
functions in the supply chain via a set of plans and processes. Companies use SCP capabilities
to plan and integrate the supply chain functions at the execution, operational, and strategic levels.

Supply chain functions include:

Procurement - buying materials to support the manufacturing process


Manufacturing - making the product
Fulfillment - managing the activities involved in delivering the product, i.e., moving and
storing

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Supply Chain Planning Processes

SCP capabilities are grouped into four main planning processesdemand, supply, production,
and fulfillment planning. Click on the "Output" button to see process outputs.

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Factors that Influence SCP Models

Business characteristics that influence a company's SCP model include:

Business Model
A business model describes in simple terms why a company exists and how it makes money. The
business model identifies the product a company makes, the customers they serve, and the unique
aspect(s) of the business that enable the company to create value and generate income.

Manufacturing Class
A company's manufacturing process usually differs based on the type of products they
manufacture. Manufacturers are classified into three main classesrepetitive, discrete, and
process.

Supply Chain Operating Models


Supply chain operating models explain the details of how a company manages its assets to execute
against the business model strategy. These operating models act as a set of rules under which a
company operates, and are defined within the context of the key functional areas across a
company's supply chainmanufacturing, procurement, and fulfillment.

The SCP model for a company is also influenced by the degree of integration between each
supply chain functional area. Most supply chains are owned "piece-meal" (not "end-to-end"), with
one executive responsible for each functional areaprocurement, manufacturing, fulfillment, and
so on. To achieve the potential benefits of an effective supply chain, companies must develop
truly integrated supply chain planning capabilities. To that end, the different functional areas must
share with one another their operating decisions as well as their SCP models.

Companies within a particular industry segment generally have common demand and supply
characteristics, as well as operating constraints. The unique characteristics of a particular
industry cause companies within that industry to have similar business model and supply chain
operating model characteristics. These common characteristics also drive similar SCP models
from company to company within an industry.

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Check Your Understanding

Indicate whether each of the following statements is true or false.

True False
An SCP model is comprised of process, technology, and
organizational assets.

Manufacturers can be classified into three main


classesrepetitive, discrete, and process.
Supply chain operating models explain the details about
how a company executes its financial and marketing
strategies.

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Topic Summary

A supply chain planning (SCP) model, comprised of process, technology, and organizational
assets, is used to intelligently commit, build, and deploy a company's physical assets (e.g.,
supply, manufacturing capacity, and labor) to meet the market demand for a product over time,
and in the most profitable manner possible. Supply chain planning allows companies to plan and
integrate their supply chain functions at the execution, operational, and strategic levels.

A company's SCP model may be influenced by their business characteristics, including their:

Business model
Manufacturing class
Supply chain operating models

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Business Model Influences
Overview

A business model describes in simple terms why a company exists and how it makes money. The
business model identifies the product the company makes, the customers they serve, and the
unique aspect(s) of the business that enable the company to create value and generate income.
It could be with a new type of product (such as a wireless cell phone or a laser disc), a new way
of selling or distributing old products (such as online retailing), or a new twist on new or old
products, sales and marketing techniques, and distribution strategies.

The bottom line is that a business model answers several key strategic questions about a
company:1

What is the product or service provided?


Where is the product in its life cycle, e.g., early growth, maturity, or decline?
Who is the customer?
What does the customer value?
What is the underlying economic logic that explains how a company can deliver value to
customers at an appropriate cost?

It is critical for every company to define its business model as they address strategic and tactical
issues concerning their business, including which SCP models they ultimately use.

1
Magretta, Joan. "Why Business Models Matter." Harvard Business Review (May 2002): 86-92.

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Business Model Example

Amazon.com is a well-known example of a new twist on the old business model concept of
retailing.2 The online retailer began with the simple premise to sell books directly to consumers
while minimizing the distribution assets it owned. The idea was to capture consumer demand
while simultaneously building relationships with book publishers to gain favorable wholesale
prices based on large volumes. Amazon would then mark up the product, receive an order, and
have a carrier ship it directly to consumers.

Amazon.com has since grown to carry most consumer durable products. And, while they have
acquired some of their own distribution assets to maintain appropriate service levels, the
business model (illustrated in the responses to the key strategic questions below) remains
essentially the same.

Key Strategic Questions Amazon.com Business Model

What is the product or service provided? Books, printed materials, and other consumer durable
products

Where is the product in its life cycle? Products vary in their marketplace maturity, e.g., for books,
the product ranges from new releases to "classics"

Who is the customer? Consumers on the Internet

What does the customer value? Selection, convenience, and home delivery at a reasonable
price

What is the underlying economic logic? Drive scale/volume over time with a lower fixed-asset base
Aggregate demand to command low wholesale prices and
have a lower break-even point because they have fewer assets in
place

2
Spector, Robert. Amazon.com: Get Big Fast. New York: HarperCollins, 2002.

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Business Model and SCP Model Alignment

It is critical that a company's SCP model supports its business model. If it does not, two things
can happen:

1. The SCP model can fail because the investment required to build the model does not see
an adequate return.
2. The business model can fail because it requires changes, along with the planning model,
to be viable over the long term.

Decision makers must be keenly aware of this dynamic as they strive to ensure alignment and
consistency between the two modelsbusiness and supply chain planning.

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Check Your Understanding

Indicate which of the questions below are answered by a company's business model. Check all
that apply.

Answered by a company's
business model
What is the product or service provided?

Who is the customer?

Who are the suppliers?

What is the underlying economic logic that explains how a company can
deliver value to customers at an appropriate cost?

None of the above

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Business Model Influence on SCP Model

The influence a company's business model has on the SCP model varies from case to case.
Decision makers must consider the basic characteristics of their company's business model and
how those characteristics impact the supply chain.

Specifically, they must consider the following:

Influence of customer and customer values on the SCP model


Influence of product mix and product life cycle on the SCP model
Influence of underlying economic strategies on the SCP model

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Influence of Customer on SCP Model

Supply chain planners analyze and react to customer needs based on who they are and what
they value, including:

Customer Size
Large customers with many locations may be interested in collaborating on demand and
promotion planning to better enable their own production and distribution processes. A large
customer may want to replenish or place orders on a daily basis to own less inventory and ensure
appropriate in stock positions. In addition, they may require visibility to the status of their orders,
as well as receipt of product at a regional distribution center.

On the other hand, a small company will likely want to place orders and replenish stock monthly,
with a focus on customer service and minimal activity related to restocking. They may also prefer
to have the product delivered directly to their stores rather than a regional distribution center. A
supplier dealing with both large and small customer groups must consider their different needs
when determining the appropriate supply chain planning models to use.

Service Level Expectation


Different customers may have different service level expectations that may influence the SCP
model. For example, an automotive company places significant value on receiving the product
just prior to needing it for production so they don't have to carry excess inventory. This dictates a
certain service level provided by suppliers, which in turn drives safety stock and inventory
deployment decisions.

Price Sensitivity
A customer that values low product cost usually requires minimum quantities for orders (to ensure
that a full truckload can be shipped to the customer), as well as a minimum lead-time. Companies
take these factors into account when planning for the supply and fulfillment of orders from such
customers.

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Influence of Customer on SCP Model - Customer Segmentation

Customer service involves balancing customer needs against profitability. This includes
assessing trade-offs and creating an optimal balance between meeting customer demands or
service levels, and incurring the costs associated with doing so.

Customer segmentation or prioritization is the process of segmenting customers based on


their strategic value and profitability, and establishing service guidelines accordingly. Customer
segments could include:

Strategic Customer Segment - comprised of high-volume, high-profit level customers


that a company does not want to lose to competitors.
Growth Segment - comprised of up-and-coming customers that have the potential to
become strategic customers in the future.
Low Profitability Customer Segment - account for a small percentage of the company's
business. While they may be good for brand awareness, they do not warrant costly
service levels.

Because a company may choose to segment their customers into different groups and provide
each group with the different levels of service, they may not be able to use the same SCP model
for each segment. Hence, planners must take into account the various segments and service
levels when determining the SCP strategies for the company.

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Influence of Product on SCP Model

Product characteristics also affect the SCP model, including:

Product Mix - A company that produces the same products over and over again may
require specialized manufacturing capability. Furthermore, their objective during
production planning would be to ensure material availability and maximize capacity
throughput. On the other hand, a company that produces unique and complex products
requires significant manufacturing flexibility to manufacture the products.
Product Life Cycle Considerations - The life cycle of the product is an important
consideration in determining the appropriate SCP model. For a new product introduction,
planners do not have historical data on which to base demand projections. They must be
able to forecast the demand for such products using historical profiles of one or more
similar or "like" products, and possibly even combine the profiles of such products. In this
case, the supply planning model must be able to quickly react to variations in the forecast.

For mature markets and products, on the other hand, planners use the historical demand
pattern to statistically forecast future demand, and develop the appropriate safety stock
and inventory policies.

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Influence of Underlying Economic Strategy on SCP Model

The underlying economic strategy of a company also influences the SCP model.

Consider the impact of Amazon's strategy of driving scale and volume over time with a lower
fixed asset base. The company does not actually manufacture the products it sells, and may not
carry some of the products in its inventory. As a result, it must tightly integrate itself with its
suppliers' information base to meet customer requirements. It would be bad business for
Amazon to promise to ship a book in two days when the book is actually out of print and not
available through any of their suppliers.

Conversely, a company such as Wal-Mart has invested heavily in its distribution system. Their
supply chain model3 requires that product demand at their stores be fulfilled through this
distribution system (exceptions to this rule exist, but we will not discuss them here). In this
situation, it is important for the company to plan their safety stock levels, inventory policies,
and transportation to optimize the cost of their entire network.

3
Walton, Sam, with Huey, John. Made in America: My Story. New York: Doubleday Books, 2000.

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SCP Model Influence on Business Model

There is a symbiotic relationship between business models and SCP capabilities. Supply chain
strategies or capabilities often drive and influence the business model. A good business model is
often anchored around a carefully designed customer channel and supply chain strategy that
leverages a company's SCP and execution capabilities to gain advantage in its marketplace.

Dell and Wal-Mart are recognized for creating a competitive advantage through their respective
supply chain advancements.4 Both companies have invested in supply chain assets to enable,
and then create, unique and effective business models that are increasingly difficult for
competitors to replicate or compete against.

In fact, it is often difficult to delineate where a good business model ends and where a supply
chain strategy or unique capability begins. What matters is that the business model works, drives
value, and allows a company to effectively compete in whatever they do.

Example

4
Copacino, William C., and Byrnes, Jonathan L. "How to Become a Supply Chain Master." Supply Chain Management
Review (Sept/Oct 2001): 24-32.

A less publicized, but equally relevant example of this symbiotic phenomenon is Scholastic5, the
world's leading publisher and distributor of children's books. They combine a diverse set of titles,
from Clifford the Big Red DogTM to the market darling Harry PotterTM, with a unique business
model and innovative supply chain capabilities.

Scholastic has invested heavily in high-volume fulfillment capabilities that allow them to target
and dominate the direct-to-classroom book club business in the United States. In this case, who
their customers are is really influenced by what Scholastic can do from a supply chain
perspective. Without their fulfillment capabilities, they might not have the direct-to-classroom
customers.

5
Mulani, Narendra P., and Lee, Hau. "New Business Models for Supply Chain Excellence." Achieving Supply Chain
Excellence Through Technology (ASCET), Volume 4. San Francisco: Montgomery Research, May 2002, www.ascet.com.

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Influence of Technology Advancement on Business and SCP Models

The advancement of technology influences the dynamic between business models and key SCP
capabilities.

Despite the collapse of many Internet-based businesses, the promise of an Internet-based


network economy has driven numerous technology advancements. Technology will continue to
fundamentally shift how people and companies exchange information and work together to
conduct business.

As companies strive for productivity improvements and innovation, new business models and
supply chain capabilities will depend on information sharing and low cost networking capabilities.
Businesses will interact differently with customers, suppliers, and employees. New software
packages will also continue to leverage this underlying technology, influencing how companies do
business and how they choose to compete.

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Check Your Understanding

Indicate whether each of the following statements is true or false.

True False
Business models are stories of how companies
were initially capitalized.

A good business model describes the underlying


economics of a business.
A company with "early stage products" relies on
its historical data to forecast demand.

The Internet and other types of technology have


little influence on business models.

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Topic Summary

A good business model answers key strategic questions about a company, telling us who their
customers are and what they value, and how the company makes money. A business model
often influences the choice of an SCP model. At the same time, supply chain planning and
execution capabilities can also influence business models. Finally, technology plays a major role
in influencing business models and supply chain capabilities.

Business Model: Key Influence on the Supply Chain Business Model


Strategic Questions
What is the product or Production Planning
service provided?

A company that produces the same products over and over must have
manufacturing capabilities that focus on materials planning and resource utilization
A company that produces unique and complex products may need to have
manufacturing capabilities that can quickly adjust to changes

Where is the product in its Demand and Supply Planning


life cycle?

New products that don't have a market history require various modeling
techniques to estimate their demand and to set initial supply levels
More mature products rely on history to drive statistical demand plans

Who is the customer? Demand Planning

Larger, strategic customers are candidates for collaborative demand planning

Supply and Fulfillment Planning

Larger customers receive products in regional distribution centers, while


smaller customers may need store or factory location delivery
Customer segmentation and prioritization may lead to multiple SCP models,
with more costly service levels provided to the most strategic customers

Production Planning

Larger customers may need visibility into order status and shared production
plans

What does the customer Supply and Fulfillment Planning


value?

Need for speed of delivery drives service levels as well as inventory


deployment and safety stock settings
Need for low cost drives minimum order quantities and lead-times

What is the underlying Supply and Fulfillment Planning


economic logic?

A company such as Amazon.com must be tightly integrated with suppliers to


plan supply and deployment to meet customer needs
A company such as Wal-Mart must optimize the cost of inventory, safety stock,
transportation, etc., for its entire network

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Manufacturing Class Influence
Overview

A company's manufacturing processes usually differ based on the type of products they
manufacture. Furthermore, the processes used to create a company's finished goods influence
the design of the SCP model. Companies generally fall into one of three manufacturing classes.

SC Manufacturing Manufacturing Class Definition


Class
Discrete Product uniquely manufactured, requiring resources capable of being
retooled to work on different products (e.g., aircraft manufacturer)
Repetitive Production lines repeatedly manufacture a product from the same product
family (e.g., automobiles)
Process Large batches of product produced simultaneously (e.g., wine and beer)

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Manufacturing Class - Discrete

In discrete manufacturing, each manufactured item is different from the previous one, requiring
customized machinery and specialized tools. Manufacturing resources are capable of working on
different products at different times; for example, a lathe machine may be used to make an auto
transmission axel at one time, and a long cylindrical steel bar at another. Given that each item is
unique, it does not make sense to forecast the demand for each. Thus, companies forecast
requirements for raw materials, semi-finished goods, and sub-assemblies.

Emphasis in discrete manufacturing is placed on the production planning process. Each item may
have multiple alternative routes through the production facility. Thus, during the planning process,
companies must ensure the availability of resources, materials, and labor, while at the same time
considering alternate routes for the product. In addition, companies must minimize production
lead-time. The goal of production planning in this environment is to maximize throughput
(produce the maximum amount of product given a limited set of resources), as well as resource
utilization (keep the resources working and minimize down times).

Once the goods have been manufactured, they must be shipped and distributed to the customers
at the lowest possible cost.

Manufacturing Demand Planning Supply Planning Production Planning


Class
Discrete Forecast for Raw Schedule production facility to maximize
raw materials, material inventory throughput
semi-finished planning Schedule production to minimize
goods, and sub- Minimize production lead-time
assemblies distribution lead- Schedule production to maximize
times and costs utilization of resources

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Manufacturing Class - Repetitive

In repetitive manufacturing, a company repeatedly produces the same item on a manufacturing


line. For instance, the same family of motorcycles or cars is produced on the same motorcycle or
automotive assembly line, e.g., an automotive plant assembly line produces different versions of
the same car model, another plant produces different versions of a different model, and so on.

It is important for such manufacturers to continuously operate their assembly lines. There are also
a limited number of "slots" on an assembly line; if an assembly line has 150 slots during a shift,
the assembly line can produce 150 items during that shift, and items are slotted on the line to
ensure that the line is balanced. Furthermore, the amount of time needed to complete the
operations at each station is approximately equal. Planners must ensure that items are scheduled
such that the line is always balanced.

Once the items are off the line, the manufacturer sends them to the locations where they will be
sold, i.e., car dealers. During distribution planning, companies decide on the modes of
transportation that minimize costs and lead-times. When doing so, the manufacturer must also
ensure that transportation is available when needed, taking into consideration the number of
stops, and the number of truckloads to ensure minimal unloading and reloading.

Manufacturing Demand Planning Supply Planning Production Planning


Class
Repetitive Forecast the Distribution planning to Schedule lines to
number of items by type ensure: ensure balance
o Minimum
transportation lead-times
o Minimum total
distance traveled
o Minimum total travel
times

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Manufacturing Class - Process

Process manufacturing is a capital-intensive process due to large and expensive machinery


(e.g. wine vats, oil refineries), and high stopping and starting costs. Producers would rather run a
machine continuously at any given capacity than stop production to ensure 100 percent capacity
or to avoid build up of finished goods inventory.

The paper industry is an example of this class of manufacturing. There are essentially two steps
to the production process. The first step is to convert the trees into paper. The second step is to
take the paper, print on it, cut it to the right shape and size, and then use it (e.g., by sticking it
onto a juice carton). Not only is the capital investment in the machines large, the stopping and
restarting costs are very high as well. Hence, manufacturers want to continuously operate the
machines, which means that raw material must be available to do so. Forecasting the demand for
the end paper products, however, is not as crucial.

Deciding what shape and size to cut the paper is not simple either. Paper manufacturers model
this problem using various operations research techniques to determine the optimal "cuts" for the
paper. The manufacturers then need to determine the best way to distribute and ship the product
to their customers.

Manufacturing Demand Planning Supply Planning Production Planning


Class
Process Forecast Ensure raw material availability at all Maximize
demand for the final times machine utilization
product Determine optimal product mix to be Minimize
produced stopping and
Distribution plan to ensure: restarting
o Product availability
o Minimum transportation
lead-times

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Topic Summary

A manufacturer plans for the use of materials and resources depending on its manufacturing
class. Manufacturing classes influence the SCP model in different ways.

Functional Area SC Operating Model Influence on SC Planning Model


Manufacturing Discrete Heavy reliance on an accurate forecast for raw
Class (Product uniquely materials, semi-finished goods, and sub-assemblies
manufactured)
Heavy emphasis on supply planning to make sure
required material is available to meet production plan
Heavy emphasis on reducing production lead-
times/ensuring flexible schedule

Repetitive Some reliance on demand forecast and inventory


(Product mass produced on planning
production line)
Heavy emphasis on maximizing production capacity
and determining the right production sequencing

Process Some reliance on demand forecast and inventory


(Large batches of product planning
simultaneously produced)
More reliance on continuous production and
avoiding costly starting and stopping of the process

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Manufacturing Model Influence
Overview

Manufacturing operating models determine the way in which a company plans and produces their
finished goods inventory. The major differentiation between the four primary manufacturing
operating models is whether the manufacturer builds a product to stock or waits for a more
specific demand signal to complete the product.

The primary manufacturing operating models include:

Functional Area SC Operating Model Operating Model Description


Manufacturing Make to Stock Product produced prior to orders
Make to Order Product produced after order received
Configure to Order Build base product, then build add-ons after order
Engineer to Order Design product with customer, produce after order

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Manufacturing Operating Models - Make to Stock (MTS)
A make to stock (MTS) manufacturer produces product in advance of receiving customer orders,
and then stores inventory at its warehouses. When an order then comes into the order
management system, they locate product at a preferred distribution center for shipment to a
customer. During demand planning, MTS organizations rely heavily on forecasting and inventory
planning.

Example

An example of an MTS company would be a canned food producer. There are a limited number
of months in the year in which food products are canned; yet the company must project demand
and ensure availability of product on grocery store shelves for the entire season. Lack of product
on the shelves translates directly to lost customer sales. Click the example button to see an
illustration of how goods flow through the supply chain of an MTS canned food producer.

Example

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Influence of the MTS Model on SCP Model

An MTS company must forecast demand for their products and then ensure availability of the
product when customers demand it. Companies in this environment consider several important
factors, including:

Forecasting Customer Demand


Forecasting customer demand is critical; under-forecasting translates to lost sales while over-
forecasting means that product could sit on the shelf and perish. To avoid this, companies
typically use advanced statistical techniques to forecast customer demand. Statistical techniques
are most useful where historical data is a good predictor of the future, and where demand trends
(due to variables such as seasonality, temperature variations, etc.) are apparent.

Distribution of Product
Distribution of the product is also crucial. Even if companies forecast demand accurately, they
must still ensure availability of the product at the locations where customers want it. To develop
optimal distribution plans, planners need to understand the demand pattern and set optimal
inventory and safety stock targets, which assist in managing demand fluctuations.

Product Allocation
Allocating product to important customers plays an important role in this environment. Typically,
long-term agreements are established with such customers. Failure to honor these commitments
carries a financial penalty.

Scheduling Production Facilities


Scheduling production facilities is key to maximizing throughput and resource utilization. After
forecasting the demand for the product, companies have a very good idea about what, when, and
how much must be produced.

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MTS Summary

The make to stock manufacturing model influences the SCP model in all supply chain planning
areas.

Manufacturing Demand Planning Supply Planning Production Planning


Operating
Model
MTS Forecast product sales Develop optimal Schedule production
o Use distribution and sourcing facility for maximizing
statistical models plans throughput and utilization
o Use Maintain and manage
historical sales inventory targets
o Use Manage safety stock
extraneous factors, e.g., levels
seasonality, economic
Allocate supply
conditions, competitor
capacity to largest and most
information
important customers

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Manufacturing Operating Models - Make to Order (MTO)

A make to order (MTO) company manufactures products only when an order is placed, keeping
little, if any, inventory on hand in a warehouse, and placing less emphasis on finished goods
inventory planning. However, because they rely on available resource capacity when an order is
placed, they must perform advanced production and capacity planning.

Example

An example of an MTO industry is aircraft manufacturing. An aircraft manufacturer produces


aircrafts for a particular airline after receiving a commitment from the customer for a certain
number of airplanes.

The figure illustrates the flow of goods through the supply chain of an MTO aircraft manufacturer.

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Influence of the MTO Model on SCP Model

An MTO company receives an order before starting the manufacturing process (e.g., an aircraft
manufacturer). Every airplane ordered is customized and made to order. Companies in this
environment consider several important factors, including:

Forecasting total dollar sales


Knowing customer demand for finished goods is not as important in the MTO environment as in
the MTS environment. A manufacturer of heavy customized machinery or airplanes would have
difficulty forecasting what, when, and how many specific machines or airplanes they might sell.
However, they could probably accurately forecast dollar sales, as well as the raw material
needed to manufacture each of these customized machines.

Forecasting long-term raw


material requirements
Companies could use information based on historical sales, marketing plans, and sales
relationships with clients to establish a long-term plan for raw materials to provide visibility to
their suppliers. Although planning for raw materials is usually conducted during supply
planning, companies sometimes plan for raw materials (and semi-finished goods and
components) during demand planning. This is especially true in cases where they cannot
forecast finished goods accurately, but can more accurately forecast raw materials or semi-
finished goods.

Ensuring material availability to start production quickly


The manufacturer waits for an order before beginning production. Therefore, they need
materials available to start production quickly, manufacture the product at the fastest rate
possible, and ensure rapid delivery times to customers. Once a customer order has been
received, companies strive to meet order delivery commitments to their customers at the lowest
possible cost (including transportation).

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MTO Summary

The make to order manufacturing model influences the SCP model in all supply chain planning
areas.

Manufacturing Demand Planning Supply Planning Production Planning


Operating
Model
MTO Forecast raw material Ensure material Schedule production
requirements, not finished availability (critical) facility for maximum speed
product Develop strategic through the facilityminimize
Forecast dollar sales materials plans based on production lead-time,
historical orders and changeover times, and costs
marketing insights
Plan for efficient
delivery to customer
minimize transportation costs
and transportation lead-time

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Manufacturing Operating Models - Configure to Order (CTO)

A configure to order (CTO) manufacturer offers a base product with a variety of options, or
configurations, that can be added when they receive customer orders. The production of a PC is
a good example of such an environment; customers can customize their personal computer by
specifying the RAM, hard disk size, size of monitor, etc. Since there are many possible
configurations of a product, the manufacturer waits for an actual order before configuring the
finished good.

Example

The classic example of a configure to order company is Dell Computers. Dell pre-assembles a
base model computer and then adds the components upon receiving a customer order. Dell relies
on a crucial link between their order management systems and their manufacturing sites to serve
customers. Advanced supply and materials planning that reduces the lead-times of component
parts assists in quick turnaround times of finished products to customers.6

6
Copacino, William C., and Byrnes, Jonathan L. "How to Become a Supply Chain Master." Supply Chain Management
Review (Sept/Oct 2001): 24-32.

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Influence of the CTO Model on SCP Model

The CTO manufacturing model is mostly used when there are a few critical components that
need to be put together based on a specific configuration of those components as desired by the
customer. Companies consider several important factors in a CTO environment, including:

Forecasting Individual Component Requirements - There may be so many possible


configurations of the product that it makes sense for the manufacturer to wait for an
actual order before configuring the final product. The manufacturer does not forecast the
sales of each individual configuration, but instead forecasts the requirements of each
component.
Efficient Production - Once the manufacturer receives an order, they must configure the
product quickly and efficiently, and ensure that the product is delivered when desired by
the customer at the lowest possible cost.
Material Availability - Note that CTO and MTO are quite similar. The major distinction
between the two is that for the CTO, the manufacturer must ensure the availability of
components and sub-assemblies (the manufacturer may choose to manufacture or
purchase the components), while in the case of the MTO, the manufacturer must ensure
availability of raw material to begin production as soon as an order is received.

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CTO Summary

The configure to order manufacturing model influences the SCP model in all supply chain
planning areas.

Manufacturing Demand Planning Supply Planning Production Planning


Operating Model
CTO Forecast Ensure component Schedule production
component and sub- availability facility for maximum speed
assembly Plan for efficient through the facilityminimize
requirements production and delivery to production lead-time
Forecast dollar customerminimize
sales transportation costs and
transportation lead-time

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Manufacturing Operating Models - Engineer to Order (ETO)

An engineer to order (ETO) environment is one in which a manufacturer works with the
customer to design or engineer a product before it is produced. Similar to CTO, there are many
possible configurations of a product in this environment, all driven from customer orders. The
manufacturer must wait for the order before producing the finished good. This model emphasizes
production planning, customer collaboration, and research and development.

Example

An example of an ETO company is a semiconductor manufacturer that designs and creates


products based solely on the specifications of their customers. Another example would be a
defense contractor for high-tech goods, spacecrafts, or other defense equipment. Such
companies engineer the product required by the Department of Defense (DOD) based on the
specific engineering requirements set forth by them.

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Influence of the ETO Model on SCP Model

The ETO manufacturing model is mostly used when customer specifications are unique and each
product needs to be designed and engineered specifically for the customer. Companies consider
several important factors in an ETO environment, including:

Limited Production Capacity - Companies usually invest in limited production capacity


because actual demand is more uncertain; there is more risk and they hold back capital
to maximize their return. Many times the capital equipment required for manufacturing is
not known prior to the order, and may even have to be custom ordered and manufactured.
Capacity and Resource Utilization - Much of the capital equipment used in this industry
is generally quite flexible and can be adapted for use for different products. However, due
to limited available capacity, companies need to allocate the capacity on their machines
to orders and continuously monitor capacity and resource utilization.
Collaborative Forecasting - The manufacturing organization must rely on the forecast of
their customers in planning the materials for the final products, and is therefore very
dependent on customer orders for the specialized product to determine material
requirements. However, many of the required materials may have long lead-times, and
thus the manufacturers must collaborate closely with their customers to forecast demand
accurately. Customer collaboration is key in this type of industry.

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ETO Summary

The engineer to order manufacturing model influences the SCP Model in all supply chain
planning areas.

Manufacturing Demand Planning Supply Planning Production Planning


Operating
Model
ETO Strong emphasis on Supply planning tightly High emphasis on
collaboration to determine coupled and integrated with capacity planning and
specifications and help demand planning or customer utilization
forecast material and order requirements
production requirements

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Topic Summary

Functional SC Operating Model Influence on SC Planning Model


Area
Manufacturing Make to Stock Heavy reliance on accurate demand forecast and
(Product produced prior to inventory planning to mitigate finished goods inventory risk
orders)

Make to Order Little reliance on demand forecast and inventory planning


(Product produced after order
Heavy reliance on production and capacity planning to
received)
make sure orders can be built when placed

Configure to Order Some reliance on base model forecasts and inventory


(Build base product, then build planning
add-ons after order)
Heavy emphasis placed on supply planning for add-on
components to ensure build-outs can occur on demand

Engineer to Order Heavy emphasis placed on production and capacity


(Design product with customer, planning, as well as customer collaboration capability
produce after order)

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Procurement Model Influence
Overview

Procurement operating models determine the way in which a company interacts with its suppliers.
In recent years, the procurement mindset of even the largest, most powerful buyers, such as the
automotive industry, has shifted from the traditional adversarial cost-reduction procurement
mindset, to a more collaborative model designed to reduce joint costs and improve overall
product quality. Given this shift in dynamic, there are now two primary procurement operating
modelsHub (Just in Time) and the Classic Procurement Model.

Functional Area SC Operating Model Operating Model Description


Procurement Hub or "Just in Time" Company co-locates with its suppliers, tightly coupled operations
Classic Procurement Model Centralized or decentralized, company manages purchase orders

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Procurement Operating Model - Hub or JIT Model

A company employs a Hub or Just in Time (JIT) strategy when it co-locates with its suppliers
the company's suppliers place their facilities close to the manufacturer's manufacturing facility.
This may be a supplier's manufacturing facility, an "assembly or finishing" plant, or a warehouse.
The close proximity allows the suppliers to respond more quickly and frequently to the customer's
requirements.

In this model, the manufacturer often limits the number of suppliers. Typically, in a Hub
environment the supplier is responsible for monitoring and replenishing inventory at their
warehouse. The manufacturer's procurement group does not need to generate a purchase order
(PO), through the PO execution process, to replenish the warehouse.

Example

The suppliers of Dell Computer have warehouse locations near the Dell manufacturing sites.
When Dell manufactures computers, they are able to pull components directly from these supplier
warehouses on an "as needed" or JIT basis.7

Wal-Mart is another example of a company using the JIT procurement strategy. Wal-Mart
collaborates with many of its vendors in providing them with point-of-sale (POS) data so that the
vendors can understand the market demand pattern. In return, the vendors manage the inventory
of their products at the Wal-Mart stores, determining when the shelves need to be replenished as
well as the replenishment quantities. In many cases, the vendors do not get paid until the product
has been sold by Wal-Mart to its customers. This concept is sometimes also referred to as
Vendor Managed Inventory (VMI).

7
Copacino, William C., and Byrnes, Jonathan L. "How to Become a Supply Chain Master." Supply Chain Management
Review (Sept/Oct 2001): 24-32.

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Influence of the Hub Procurement Model on SCP Model

The Hub procurement model is mostly used when the manufacturer has quick turnaround
requirements from their suppliers. In many cases, the response times to material requirements
are measured in hours, not days. As a result, the supplier must have a steady stream of material
available to meet these requirements. Companies consider several important factors in the Hub
procurement environment, including:

Collaboration with Suppliers


There is tight integration between the manufacturer and the suppliers; the manufacturer shares its
supply and production plans with its suppliers. The suppliers generally use the production plans
to understand the manufacturer's requirements in the short-term, and plan their production
accordingly. They simultaneously use the information to gain visibility into the manufacturer's
longer-term plans.

Optimal Inventory and Safety Stock Levels


The manufacturer typically specifies a required service level from their suppliers and measures
their performance based on this service level. The suppliers then must use the manufacturer's
plans to determine their inventory and safety stock levels to meet these requirements. If the
supplier is incapable of determining the inventory, safety stock and replenishment policies, the
manufacturer may develop such policies for the supplier.

Blanket Purchase Orders


Because of the close relationship between the manufacturer and supplier, many manufacturers
place a blanket purchase order (PO) with their suppliers and pull material against that PO. A PO
is not created each time material is ordered from the suppliers.

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Hub or JIT Procurement Model Summary

The just in time strategy influences the SCP model in all planning areas.

Procurement Demand Planning Supply Planning Production Planning


Model
Hub or JIT Forecast component PO automatically Manufacturer's
Strategy and sub-assembly generated and managed by production plans continuously
requirements shared with suppliers shared with suppliers to
suppliers so that they can Suppliers' inventory ensure availability of parts and
factor into their own production planning is tightly coupled with components
and inventory plans manufacturer's production
plans

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Procurement Operating Model - The Classic Procurement Model

In a classic procurement model, the manufacturer is responsible for monitoring and


replenishing its component inventories. When they realize they have fallen below a certain
inventory level, they issue a purchase order to a supplier to replenish the component.

Example

Consider the case of a seasonal producer of canned fruits and vegetables. The producer must
plan in advance the demand for their products, and contract with a farmer for a crop. Strategic
planning usually encompasses their entire network of manufacturing facilities, and is generally
conducted at their headquarters by a planning and procurement group.

During the pack season, one manufacturing facility may need more sugar to can fruits. In this
case, that particular manufacturing facility places an order for the sugar. In such instances where
the manufacturing facilities are reacting to unanticipated situations, they may procure materials
directly from their suppliers without having to involve the centralized procurement group.

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Influence of the Classic Procurement Model on SCP Model

The classic procurement model is used when manufacturers determine their own material
requirements, and then pass those material requirements onto their suppliers. There are several
variations to the classic procurement model; a company may employ one or more of such
variations, including:

Centralized Procurement
A company purchases components for its entire manufacturing network. Such a company often
engages in centralized planning to aggregate the material requirements across its global network.

Decentralized Procurement
Each manufacturing facility orders components to meet its own demand. Purchase orders in such
an environment are often recommended by a material requirements planning (MRP) execution
system.

Collaborative Procurement
Companies share information with suppliers in advance so that they can plan to replenish
components in a given time frame. In such an environment, the manufacturers share their
production plans with suppliers, and may also provide visibility to their inventory positions.

Operational Integration
The manufacturer and the supplier engage early in the design process to jointly design the
required components. Once the design in finalized, the manufacturer and the supplier may jointly
create a forecast for the requirements of the designed component.

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Classic Procurement Model Summary

The classic procurement model influences the SCP model in all planning areas.

Procurement Demand Planning Supply Planning Production Planning


Model
Classic Forecast component Manufacturer is Manufacturer's
Procurement and sub-assembly responsible for maintaining production plans not shared
requirements sometimes appropriate levels of supply to with suppliers
shared with suppliers so that meet production schedule and Contingency plans
they can factor into their own customer demand often required in case of a key
production and inventory Limited collaboration material shortage from
plans with suppliersmaterial suppliers
requirements are sent and
confirmation is requested

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Topic Summary

Functional SC Operating Model Influence on SC Planning Model


Area
Procurement Hub or "Just in Time" Model Heavy emphasis on integration between production
(company co-locates with its planning/scheduling and inventory planning capabilities across
suppliers, tightly coupled companies to facilitate "pull" based replenishment
operations)

Classic Procurement Model Heavy emphasis on accuracy of production schedules and


(centralize or decentralized, material release plans so a company can generate accurate POs to
company manages POs) suppliers
Heavy reliance on raw material planning to ensure
production feasibility

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Fulfillment Model Influence
Overview

The way in which a company chooses to distribute product to fulfill customer orders may also
have an impact on the SCP model. In an MTS manufacturing environment, product is typically
pulled from stock at central or regional distribution centers for shipment to customers. In such
an environment, companies rely on an accurate demand plan to develop stocking and inventory
policies for their distribution centers.

For some seasonal products, or for those with highly uncertain demand patterns (e.g., the retail
fashion industry), product may be distributed in a flow through model, in which cross-dock
facilities are used to receive product from manufacturers, and merchandise is dynamically
allocated to customers and regions according to the latest market demand.

For configure to order products such as Dell Computers, a direct model of distribution from
manufacturers to customers/consumers may be appropriate.8

Functional SC Operating Influence on SC Planning Model


Area Model
Fulfillment Pulled from Product shipped from central or regional distribution centers to customers
Stock
Flow Through Product received in a cross-dock facility pre-allocated or allocated at time of receipt
Model to customers and then shipped
Direct Model Product shipped directly from supplier or manufacturer to customer/consumer

8
Copacino, William C., and Byrnes, Jonathan L. "How to Become a Supply Chain Master." Supply Chain Management
Review (Sept/Oct 2001): 24-32.

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Fulfillment Operating Models - Pull from Stock Model

A company that pulls from stock manufactures product in advance of receiving a customer
order and stores finished goods inventory in its warehouse(s). When an order comes into the
order management system, they allocate product at a preferred distribution center for shipment to
the customer. To be successful, these types of companies rely heavily on forecasting and
inventory planning to meet customer demand and drive profitability.

Example

Consider a manufacturer of school supplies. The manufacturer typically manufactures product


and stores the product at one or more of its distribution centers so that it can be shipped to retail
customers when they need it.

In addition, while school supplies are sold throughout the year, this business is also seasonal; the
big push is in the late summer months prior to new school year. Also, while some school supply
products are in the mature stage of the product life cycle (e.g., binders, paper, pencils), others,
such as fashion accessories (e.g., hair clips, temporary tattoos, etc.), come and go by the season.
As a result, companies in this business must use different forecasting and inventory planning
models for the different products.

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Influence of the Pull From Stock Model on SCP Model

The pull from stock model is most often used in the MTS environment, in which product is
manufactured, stocked, and then shipped to customers when demand arises. Companies
consider several factors in this model, including:

Long Lead-Times
Companies, such as the school supplies company, must have accurate forecasts to take full
advantage of once-per-year opportunities. Production lead-times are too long to try and correct
insufficient initial production and inventory stocking decisions. Since some of their products have
a stable historical demand pattern, they can accurately base the forecast for these products on
history.

Seasonality
Planners must base the demand forecast for trendy seasonal items on other items with similar
characteristics. Companies must also be able to respond quickly should the actual demand be
much different from the forecasted demand.

Demand planners need to integrate closely with the Sales and Marketing functions that are
closest to the customer. This allows them to better anticipate the latest back to school fads, so
that when orders come in, they can be pulled from stock and shipped to customers.

Optimal Inventory Policies


Companies must efficiently manage their inventories in a pull from stock model. If they carry too
much inventory, they risk product obsolescence and high inventory-carrying costs. Conversely, if
they carry too little inventory, they will lose sales and customers. Thus, companies in such an
environment use their "best" forecast to develop inventory policies. However, the supply chain
must also be flexible enough to quickly respond to drastically different demand patterns.

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Pull from Stock Model Summary

A pull from stock fulfillment model influences the SCP model in all planning areas.

Fulfillment Demand Planning Supply Planning Production Planning


Model
Pull from Collaborative demand Emphasis on finished Production schedule
Stock planning with the largest, most goods inventory planning and aligned to forecast, factoring in
strategic customers statistical based inventory other economies of scale
Historical-based safety stock calculations that within the production
forecast consider variability of supply environment
and demand when setting
Forecast accuracy is
inventory targets
key

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Check Your Understanding

Indicate whether each of the following statements is true or false.

True False
In the Pull from Stock Model, companies store product at distribution
centers and warehouses, and then allocate the product to customer
orders as they receive such orders.

A Pull from Stock Model does not require the company to worry about
forecasting. They should concentrate on manufacturing product and
distributing to their distribution centers and warehouses.
In a Pull from Stock Model, companies must develop sophisticated
inventory policies that consider demand and supply variability.

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Fulfillment Operating Models - Flow Through Model

A company that utilizes a flow through model to distribute product manufactures product in
advance of receiving a customer order. However, instead of storing product in a warehouse and
waiting for an order to pull it, the company ships product to a cross-dock facility. It then allocates
the inventory "in-transit" or at "time of receipt" of an actual customer order, shipping directly to a
store location.

Companies benefit from this approach because they avoid finished goods carrying costs and
customer allocation decisions, enabling them to react to more timely market conditions in
deploying product. In the make to stock and pull from stock models, the company incurs more
finished goods inventory risk and storage costs.

Example

Consider a large national specialty retailer that sells fashion apparel for men, women, and young
adults. While they sell product year around, more and more specialty retailers such as this are
trying to anticipate and even drive trends in the youth market, turning over merchandise
assortments 15-20 times a year. The majority of the capital and energy is used to stock, sell, and
introduce new attire that is "hip" and the latest in fashion.

For such a company, the new product lines may not have a historical precedent; similarly, they
will not be certain of what specifications will be popular (e.g., colors, zippers or buttons, pocket
style, etc.) for items such as shirts or slacks, leaving uncertainty about what will "take off" across
the numerous stores across a country. To solve this dilemma, they may assess trends on similar
merchandise introduced in some earlier seasons and follow the sales patterns at the stores very
closely. The company can then analyze store level POS data to know what fashions are selling
and in what areas. As this data begins to show a trend, the company can leverage it and allocate
product to the highest demand areas as it is shipped and sent to its cross-dock facilities.

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Influence of the Flow Through Model on SCP Model

The flow through model is most often used in environments where items are first shipped to
cross-docking facilities and then moved quickly to points of demand once the company has
obtained a better demand signal. Companies consider several factors in this model, including:

Accurate Forecasting
A company deals with products in various stages of their life cycles. As a result, they need to use
different types of forecasting models to forecast the demand for each of their products. For new
products, the company must have the ability to analyze similar items, and use their historical data
to forecast the demand for the new items.

Product Allocation
One advantage of the flow through model is that the distribution of the product to demand points
is delayed until the company is able to obtain a better demand signal. This is an extremely
valuable capability because it leverages the latest market intelligence to distribute product where
it could be sold for the highest retail price or margin. Furthermore,

If product is not allocated correctly, stores may have to reduce price dramatically to move
it in order to free up space for the next wave of products.

If a product completely "bombs," this approach also allows companies to signal changes
in original product plans and divert capacity to more popular products.

Efficient Distribution Network


Because a company may wait for a better demand signal before distributing the product to its
demand points, the company must also have a very efficient distribution network because the
lead-times to replenish inventory are short. Since the company replenishes product based on
actual sales, they must ensure that product gets to the stores quickly.

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Flow Through Model Summary

A flow through fulfillment model influences the SCP model in all planning areas.

Fulfillment Demand Planning Supply Planning Production Planning


Model
Flow "Like-item" forecasting Ability to allocate Flexible production
Through capability is important to help finished goods inventory to planning is important so that
Model determine initial wave of ship to points of highest and capacity can be diverted to
distribution most profitable consumption better-selling or higher-margin
Ability to analyze POS (store and region) product
data and respond in a timely An efficient distribution
fashion to help influence network is vital to ensure that
distribution and production product gets to the demand
decisions is vital point with the shortest possible
lead-times

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Check Your Understanding

Check all of the SCP capabilities that are most important in the flow through model.

Important in the
Flow
Through Model
"Like-item" forecasting

Ability to analyze POS data

Efficient distribution network

Optimal inventory policies

Ability to aggregate demand to obtain better terms and


conditions from suppliers

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Fulfillment Operating Models - Direct Model

A company that utilizes a direct model to distribute product most often produces product in a
configure to order or engineer to order manufacturing model, and distributes it directly to the end
customer or consumer. Many companies in the high tech industry fall into this category. In most
cases the product itself is not very capital intensive, allowing companies to produce and market
directly to a large, but highly fragmented, customer base.

Example

Dell Computers9 is the prototypical example of the direct model. Dell pre-assembles a base
model computer, and then adds the components upon receiving a customer order. For Dell,
linkage between their order management systems and manufacturing sites is crucial. Advanced
supply and materials planning reduces the lead-times for acquiring components and parts, and
this assists in ensuring short lead-times for customer orders.

Dell needs to forecast at a various product levelscomponent, intermediate product, and finished
goods. Because the configuration of products influences the required components on hand, Dell
must link supply planning closely with the demand forecast. Furthermore, Dell needs to tightly
integrate with its suppliers so that they can respond rapidly to Dell's materials requirements.

9
Copacino, William C., and Byrnes, Jonathan L. "How to Become a Supply Chain Master." Supply Chain Management
Review (Sept/Oct 2001): 24-32.

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in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from
Accenture. This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any
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Influence of the Direct Model on SCP Model

The direct fulfillment model is mostly used when a company ships directly to their customers. In
many cases, there is a base product that is configured to suit the customer's preferences. There
are a few critical components that need to be put together based on a specific configuration of
those components as desired by the customer. Companies consider several important factors in
a direct fulfillment model environment, including:

Forecasting requirements for each component - There may be so many possible


configurations of the product that it makes sense for the manufacturer to wait for an
actual order before configuring the final product. The manufacturer does not forecast the
sales of each individual configuration, but can forecast the requirements of each
component.
Efficient production - Once the manufacturer receives an order, the manufacturer must
then configure the product quickly and efficiently, and ensure that the product is delivered
when desired by the customer at the lowest possible cost.
Material availability - The manufacturer must ensure the availability of raw materials,
components and sub-assemblies to begin production as soon as an order is received. To
help shorten the lead-times to acquire material, suppliers have dedicated facilities near
the final assembly and packaging locations so there is a ready supply of material and
components to meet customer demand.
Capacity and resource utilization - In many cases, the company has limited
manufacturing capacity and resources. Because of the limited available capacity,
companies need to allocate the capacity on their machines to customer orders and
continuously monitor capacity and resource utilization.

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Direct Model Summary

A direct model distribution strategy influences the SCP model in all planning areas.

Fulfillment Demand Planning Supply Planning Production Planning


Model
Direct Required to forecast at Demand and production Base product production
Model various product levels plans must be shared and schedule driven by demand
component, intermediate tightly integrated with key forecasts
product, and finished goods material and component Final assembly and
Demand planning must suppliers configuration operations tightly
be tightly integrated with Suppliers often co- coupled with customer order
supply planning locate with final assembly management systems
facilities

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Topic Summary

Functional SC Operating Model Influence on SC Planning Model


Area
Fulfillment Pull from Stock Model Heavy reliance on accurate demand forecast and
(Product shipped from central or inventory planning to mitigate finished goods inventory risk
regional DCs to customers)
Goes hand-in-hand with make to stock manufacturing
model

Flow Through Model Some reliance on demand forecast and inventory


(Product received in a cross-dock planning
facility, allocated to customers, and
Heavier reliance on timely and accurate demand
then shipped)
signal (POS or customer order) to perform accurate
customer allocations and shipments

Direct Model Reliance on demand planning for production, capacity


(Product shipped directly from supplier and inventory planning
or manufacturer to
In a configure to order manufacturing model, heavy
customer/consumer)
emphasis placed on supply planning for add-on components
to ensure build-outs can occur on demand
Commonly used in engineer to order and configure to
order manufacturing environments

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Conclusion
Module Summary

A supply chain planning (SCP) model serves as an internal market mechanism or process for
companies. Its purpose is to match supply and demand, aligning the entire organization around
key operational plans that drive success and profitability given the demand for their products in
the marketplace.

An SCP model is comprised of process, technology, and organizational assets. Companies use
these assets to intelligently commit, build, and deploy a company's physical assets (e.g., supply,
manufacturing capacity, and labor) to meet the market demand for a product over time, and in the
most profitable manner possible.

There are many factors that influence a company's SCP model, including the company's
business model, manufacturing class, and supply chain operating models (manufacturing,
procurement, and fulfillment).

A good business model answers key strategic questions about a company, telling us who their
customers are and what they value, and how the company makes money. A business model
influences the choice of an SCP model.

A manufacturer plans for the use of materials and resources depending on their manufacturing
classdiscrete, repetitive, or process. These manufacturing classes influence the SCP model
in various ways.

Companies use various supply chain operating models: manufacturing (make to stock, make to
order, configure to order, and engineer to order), procurement (just in time and the classic
procurement model), and fulfillment (pull from stock, flow through model, and the direct model).
These SC operating models each influence a company's SCP model.

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