Академический Документы
Профессиональный Документы
Культура Документы
0: Emerging trends
in Sustainable Supply Chain
WORKING DRAFT
Last Modified 2/11/2019 1:55 PM SE Asia Standard Time
Printed
3 objectives in value / supply chain of business
High
Delight
Segmented
Service
Supply
Chain
High Objectives High
Cash Profit
Flow Margin
1
Let me start with SC History
2
Historical Background
3
The Transition (1970 – 1995)
⚫ Inventory models came under attack (70’s)
⚫ Enter MRP → MRP II → ERP
⚫ And from Japan, JIT, TQM, Kaizen, etc.
Business
Partners
End
Suppliers 3PL Manufacturers 3PL Warehouses
Consumers
Service
Traders Dealers
Providers
CFAs
Wholesalers
Retailers
6
Supply Chains to be functionally coordinated, globally
collaborated and should have the ultimate target
of satisfying customers at optimal logistics cost &
working capital ...
8
3 objectives in value / supply chain of business
High
Delight
Segmented
Service
Supply
Chain
High Objectives High
Cash Profit
Flow Margin
9
How do we quantify logistics costs reduction, inventory reduction and lost
sales reduction in CFO financing language
High Delight
Service
Value Chain
Challenges
High High
Cash Profit
Flow Margin
Less Firefighting
10
Finance Basics
EBITDA stands for earnings before interest, tax, depreciation and amortisation.
Profit
Profit is the difference between a company’s sales, or ‘revenues’, and its costs. It is clearly
preferable to make a profit (sales more than costs) than a loss.
Gross Profit
At the top of any profit and loss account (or income statement) is the sales figure. This is
one of the most important figures in a set of accounts. Beneath the sales figure there is the
cost of sales figure. These are costs that vary with sales. Deducting these costs from sales
gives the gross profit figure. So if sales are £1m and the cost of sales is INR 750,000, then
the gross profit is INR 250,000.
PBIT or EBIT
Gross profit is calculated before overheads, or indirect costs, which do not vary with sales.
These include the costs of property and full-time staff. Gross profit less operating costs is
operating profit. This is also known as profit before interest and tax (PBIT) or earnings
before interest and tax (EBIT). PBIT is frequently used by creditors to measure a company’s
earning and paying capacity.
11
Logistics Costs Reduction translating to financing language
12
Inventory Reduction translating to financing language
= INR 10 * 10%
13
Lost Sales Reduction translating to financing language
Lets assume INR 10 reduction in lost sales will bring INR 10 sales revenue !
Ideally, this is not the case !
Why ?
14
End-to-end perspective on supply chain management – Functions & Decisions
1 Supply Chain strategy
Understand market and value chain dynamics and define strategy with optimal cost and flexibility
4
5 Supply management 3 2 Service level management
Ensure reliable supply Understand customer &
and integrate with 5 7 2 product requirements by
suppliers with right segment and serve
inbound material stock them accordingly with
right finished goods
6
stock
15
End-to-end perspective on supply chain management – Functions & Decisions
1 Supply Chain strategy
Understand market and value chain dynamics and define strategy with optimal cost and flexibility
Software
companies Global logistics
companies
▪ FedEx, UPS,
BAX Global
Components
makers
▪ Storage Contract Final
▪ Semicond- manufac- customers
Companies
uctors turers/OEMs PC companies Distri- Resellers
▪ Large
and product
flows
▪ Mother- ▪ Asian ▪ Direct (Dell, butors
▪ Retail
enterprises
boards (Mitac, FIC, Gateway) ▪ Ingram ▪ Consumers
▪ VARs
▪ Flat-panel Acer …) ▪ Indirect (IBM, Micro, ▪ SMEs
▪ Integrators
displays ▪ U.S. (SCI, Compaq, HP, Tech
▪ Other Solectron ..) Toshiba, Apple) data ▪ Dealers
Components
Local
distributors
assemblers
▪ (Arrow, ▪ (White box)
Avnet)
17
Cisco’s Value Network
18
Global Apparel Value Chain
Tracing back the dress you are wearing
Apparel
Textile companies manufacturers Retail outlets
North America All retail outlets
US garment factories
Department
(designing, cutting,
stores
sewing, buttonholing,
Cotton, Fabric ironing) Brand-named
Natural wool, Yarn (weaving, apparel
fibres silk, (spinning) knitting, companies Specialty stores
etc. finishing) Domestic and
Mexican/Caribbean
Basin subcontractors
Mass mer-
Asia chandise chains
Off-price, fac-
Domestic and Trading
tory outlet, mail
overseas companies
order, others
subcontractors
All retail outlets
19
Globally Dispersed Manufacturing
An Illustration: How Li & Fung Limited Might Make a Dress
Zippers+…
[Japan+…]
20
How Many Countries Does It Take to Make a Coat?
To make this jacket for the U.S. market, Hong Kong garment producer Li & Fung ordered
materials from factories in five countries and had them delivered to Thailand, where the jacket
was stitched together. Using a network of Web sites, Li & Fung stays in touch with its worldwide
suppliers and can compress the time it takes to get items into stores
Taiwan, which specializes in making
China, the world’s largest material for outdoor clothing,
producer of cotton, made the liner produced the shell and fleece
Thailand, a leading
exporter of imitation
fur, ringed the hood
Germany, which gave
the world the snap
Japan, the globe’s biggest producer of stainless fastener in the 1880s,
steel for zippers, put its teeth in this zipper sent the snaps
21
22
Two types of KPIs
Lead Output
Compliance KPIs
Lead Process
Compliance KPIs
23
Three important lag KPI’s
24
Example: Inventory lag vs lead
25
55 KPI’s cover all processes and performance dimensions
Order and demand Production Supply Distribution
SC integration
Performance management management management management
dimension
Service 1. % of first commit 7. Production OTIF 9. Supplier OTIF % / 14. Dispatch plan OTIF %
+/- 1 day of request date % Perfect orders in % of 15. Delivery accuracy +/-
• Reliability
2. Order changes 8. Production total 1 day of confirmed
3. Confirmed orders planning 10. PO vs GRN deviation date
cancelled accuracy %
4. Unconfirmed order 11. Billing Cycle/ vendor
portfolio payment terms
5. Forecast accuracy 12. Accounts Payables
6. Forecast bias 13. Non order invoice
• Time (leadtime) 16. Customer requested 19. Average 20. Average supply LT 21. Average delivery
LT production LT LT
17. Order confirmation
LT
18. Order fulfillment LT
• Adaptability 22. Billing cycle 24. Purchase order automation 25. Customer order automation
23. Accounts Receivables (Manual orders %) (Manual orders %)
Cost 26. Order-processing 27. Changeover 28. Inbound logistics 30. Out-bound logistics spend 32. Spot contracts
cost costs for spend on on contracting costs
emergency contracting 31. Warehousing and intra-plant 33. IT cost
orders 29. Spot purchase transfers spend on 34. Management and
costs contracting planning cost
Working 35. Inventory days (work in 38. Inventory days norms 41. Inventory days 43. Cash-to-cash
capital progress) compliance (raw materials) norms (finished cycle time
36. Inventory accuracy compliance products) compliance 44. Inventory
37. Production BOM 39. Inventory accuracy 42. Inventory accuracy accuracy
accuracy 40. RM BOM accuracy
Complexity/ 45. Number of SKUs 47. Number of production 49. Number of ship-to
Size 46. Number of SKUs locations locations
with 80% volume 48. Number of regions 50. Number of ship-to loca-
with operations tions with 80% volume
Financials 51. Net external sales (value) 54. Return (EBIT) in percentage of fixed assets (cash
52. Cost of goods sold savings)
53. Return (EBIT) in percentage of sales (cash 55. Working capital
savings)
26
Along with cross functional team, 3 key areas with various measures is required
to excel in supply Chain
Service Cost
1 Service ▪ Total order fulfillment lead time ▪ % inbound on ex-works / FOR cost
Lead- Transport
time ▪ Customer requested lead time ▪ % outbound on ex-works / FOR cost
▪ Production lead time ▪ % mode-mix for inbound, intra-plant,
2 Cost
▪ Supplier lead time outbound
▪ Dispatch lead time
3 Inventory/Capital Outsourci ▪ Outsourcing ratio – transport
ng ▪ Outsourcing ratio – warehouse
Capital costs
Forecast
▪ Forecast accuracy ▪ Inventory days/value finished goods
▪ Forecast Bias Inventory ▪ Inventory days/value WIP
▪ Inventory days/value raw materials
▪ Inventory days/value spare parts
▪ Confirmed orders cancelled ▪ FG Inventory age distribution
Volatility ▪ Share of order changes in frozen ▪ Inventory accuracy%
horizon
▪ Plant capacity utilization
27
Costs in Value Chain
28
Starting point – industries differ in their supply chain maturity and performance
Service level –
Supply chain cost OTIF to request Order lead time Inventory
Percent of COGS Percent Days Days
3 Consumer
7.0 95.0 10 36
electronics
8 Basic
8.0 89.0 35 76
materials
29
Supply chain
excellence pays off
10-15% higher product
availability
30
Supply Chain Decisions
Decisions
Temporal Functional
• Procurement
• Strategic
• Production
• Tactical
• Operational • Logistics
32
SCM Functional Decision -
Procurement Decision
Procurement must provide material of
PROCESS DESIGN
•Process Selection INVENTORY MANAGEMENT
•Service Operations Design
•Choice of Technology •Independent Demand
•Process Flow Analysis •Materials Requirement Planning
•Layout of Facilities •Just-in-time
35
Facility
Structure Communications
Warehouses, & IT
Factories, Technology base,
Processing Centres, Trained manpower,
Distribution Centres, Good infrastructure,
Retail Outlets and and Technology
Offices life-cycle
Inventory Components
of Logistics Transportation
Inventory turnover ratio,
Obsolescence, Rail,
Locked up capital, Warehousing Truck,
Uncertain lead times and & Packaging Air,
External factors Housekeeping, Water and
Packaging costs, Pipeline
Retrieval time and
Damage during storage
Automation
36
SCM Functional Decisions
⚫ Logistics decisions
37
SCM Temporal Decisions
⚫ Three levels of temporal decisions
◼ Inventory control
◼ Material handling
◼ Production / distribution
Tactical ◼ Equipment selection
coordination
◼ Layout design
◼ Order/freight consolidation
38
Conflicting Objectives
in the Supply Chain
1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost
39
Conflicting Objectives
in the Supply Chain
3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices
40
Exercise: Conflicting Objectives
Objectives Implications
Sourcing
Production
Planning Warehousing
Distribution
Sales
Supply chain changes often are a team effort and therefore require a
transformation approach because
▪ Cling together swing together – one cannot solve the issue alone
▪ Changes in one affect others
▪ Entire "gang" moves at the speed of the slowest member – no overnight or
individual solution
42
43
43
Challenges to keep in mind while consulting SC !!
44
Challenges to keep in mind while consulting SC !!
Accelerating pace of technology
45
Disruptive technologies have made more hardware accessible to drive Supply
Chain improvements
Examples
▪ Bar-code scanners (360 degree retail,
Readers – 1D, 2D, rugged, healthcare
(Data
collection)
▪ RFID readers
▪ ASRS / shuttles
Material
handling /
▪ Conveyers (roller, belt, chain)
automation ▪ Pick to light / voice
▪ Sorters, A-frames, Robots
▪ Location (GPS)
Sensors
▪ Traffic – flows
▪ Environmental condition ex. Temperature
▪ Short distance – Bluetooth
▪ Satellite
Cameras
▪ In-store operations, shelf / consumer
monitoring
▪ Traffic control
46
Leveraging existing life streaming video technology to improve CAMERAS
on shelf availability
Camera at shopping
cart scans shelfs on
customers tour
Branch manager
receives information
about out of shelf
and visited aisles
Improvements
▪ Shelf availability increases
▪ Wrong placed products/broken
package can be detected
immediately
▪ Information on which aisles are
visited – leveraged to improve
planogram
47
Challenges to keep in mind while consulting SC !!
48
Within 4 years, LED bulbs prices will have dropped by over 80%
Average LED replacement lamp retail pricing trend (60W A-lamp)
USD/lamp
50
Dawn of a NEW ERA in retail
The true story of leading Chinese e-tailer Taobao/Tmall in Nov 11th 2013
Sales
400M people Million RMB
visited Taobao and 35,000
35,000
Tmall, equivalent every 30,000
US man, women, child 30,000
(and their pet)
25,000
20,000 19,100
$US3.3M paid for a
15,000
13.3 carat diamond ring
10,000
6,700
5,000
RMB 35bn sales 100 1,000
0
completed, more than
total retail sales in HK 55’’ 00:06 01:00 13:00 21:00 23:59
for the entire November
>1,000,000
27 ~4,000
30,000
Average Promotion
Central mart Yixun
1 In Shanghai
52
Challenges to keep in mind while consulting SC !!
53
Rising labor cost of classical manufacturing outsourcing countries …
Cross-sector manufacturing labor hourly wage
USD
Developed countries, 2014
Germany 44.8
8 Switzerland 57.6
US 36.1 Russia
Japan 35.2 Malaysia
South Korea 19.9
6 Argentina
China
Turkey
4
Thailand
Mexico
2 Egypt
India
Indonesia
0
2007 12 2018
Big data
55
EIGHT FACTS OF BIG DATA (1/2)
If you stacked a pile of CD-ROMs … it would stretch
1 on top of one another until you reach
the current global storage capacity
8o,ooo km
beyond the moon
295 exabytes
for digital information …
56
EIGHT FACTS OF BIG DATA (2/2)
5 By 2020, IT departments
will be looking after
10x more servers
6 By 2020, IT departments
will be looking after 50x more data
7
By 2020, IT departments
will be looking after
75x more files
8
We have produced more data
in the last 2 years … 3,5oo,ooo,ooo,ooo,ooo,ooo,ooo
2010 2012
57
Challenges to keep in mind while consulting SC !!
58
Few players who has not coped with basic innovative and digital supply chain
have seen the greater downfall ! Traditional
Disruptors players
Traditional players Description of disruption market entry downfall
North American video rental shop chain with 60,000 9,000 stores
employees and 9,000 stores
▪ 2002 - Redbox with automated rental kiosks
enters the market 8 years
▪ 2007 - Netflix introduces online streaming
▪ 2010 - Blockbuster files for bankruptcy
Closed down
Global leading cell phone provider with 35% market 35% market
share in a crowded space share
▪ 2007 Apple releases the first smart phone
▪ 2008 Anroid’s open sourced mobile device
2 years
platform enters the market
▪ 2012 Nokia’s market share has dropped 10x down
to 3.5% 3.5% market
share
59
While disruptors are seeing success, established leaders are undertaking major
innovation transformations of their own
Industry disruptors Established leaders
Pioneer in connectivity and semi-autonomous technology in Car manufacturer implementing digital initiatives ranging from
automotive industry (e.g., latest informatics system and customization of CDJ to single board driver assistance
maintenance upgrades sent directly via Cloud to vehicle) controller system
Finance 20-
$1b+ #11 50% 90%
40%
Loans Loan Forbes Digital sales in Commercial
delivered APR promising Co. 2014 payments through
digital channels
Small business lending site leveraging big data analytics and non- Renowned as the leader in digital banking, after building a digital
conventional data to achieve loan decisions within minutes and commercial onboarding platform focused on automated
better risk assessment with score technology focused on integration of external data sources and “easy to use”
health of business not credit score of owners functionality. The “build it and they will come” approach had
rapid success at switching walk-in customers to digital users
60
What can SC 4.0 “digital” and “predictive” achieve?
Using more data and Simplifying and, where Existing and new
better analytics to create feasible, eliminating what technologies becoming
insight and make better humans do that is rework or cheaper and more
decisions – e.g. what low-value add – e.g., accessible – e.g. low-cost
do we maintain when, automatically generating data storage, internet of
what is the optimal schedule reports, automating things, math innovations,
dangerous or strenuous advance in human-
tasks machine interfaces
61
Supply Chain 4.0 Innovation & digital curve Physical flow Planning SC strategy
spread across various cycle stages Performance management Order management Collaboration
Adoption rate 18 Closed-loop planning 31 Predictive maintenance and 43 Advanced Warehouse Resource 49 Smart public and personal parcel lockers
augmented reality maintenance Planning & Scheduling
1 Autonomous container 19 Dynamic end-to-end network assistance 50 Automated replenishment
optimization and warehouse 44 GPS-based map generation &
2 Human-free container ships design 32 ATP based on real-time customer location determination 51 Vehicle tracking and data mining
constraints 45 Asset utilization & yard manage-
3 Fully autonomous (driverless) 20 Data mining and automated 52 AGV solutions for
root-cause analysis for 33 Real time point-of consumption ment for logistics assets internal transport
truck
performance management inventory tracking 46 Onboard units for economic driving
4 Ergonomic exoskeletons
53 Online order Broad
34 Predicting optimal delivery monitoring
21 Range imaging sensor systems 47 Advanced Transport Management use
5 Automation of planning/ times
Software (TMS) and dynamic
machine-learning 22 Fully automated ITEM picking / 35 Information platforms routing and load identification
Robotics
6 Augmented reality assistance 36 Smart shelves 48 AGV-based goods-to-man
for truck driving and delivery 23 Real-time performance solutions
activities transparency and target 37 Smart packaging
adjustment
7 Drones for delivery 38 Online auction of logistic
24 Real-time re-planning capacity
8 Real-time and mobile S&OP
25 Uberization of transport 39 Location and condition control
9 Micro-segmentation
26 Gesture and motion tracking 40 Predictive analytics in demand
10 Automated profit-optimization in planning
planning 27 Wearable user interfaces /
Smart glasses 41 Fully automated CASE picking/
11 Early warning system for SC Robotics
risks and deviations 28 Optimizing shipping by 53
42 Use of demand probability
influencing customer order
12 Nearly autonomous truck and distributions
behavior
truck convoying systems
29 Analytical evaluation of manual
13 Cloud logistics platform inputs to demand forecasts
52
14 3D printing for slow movers 30 No-touch order processing
44 51
15 Joint planning in cloud 50
43 49
46 48
16 Predictive shipping 38 42 47
34 45
17 Delivery to trunk of car 25 29 37 41
16 31 33 35
15 19 21 24 28 36 40
30 32
23 27 39
7 10 14 18
6 11 20 22 26
8 9 13 17
1 2 3 4 5
12
Failure
1 2 3 4 5 6 Cycle
Vision Technological pre- Innovation Pilot use Selective Broad use stages
requesites developed developed use (or failure)
62
Few industry lags well behind other industries on supply chain innovation
maturity
Advanced incum-
DIGITAL MEDIA bents and estab-
lished “startups”
constitute the
new normal
Tipping
AUTO & RETAIL
point
MATERIALS & TRADITIONAL
METALS Mainstream MEDIA
customers
UTILITIES adopt
Advanced
incumbents start
adapting to the
new model Laggard
incumbents die
Early adopters
start embracing the
new models
Innovative startups
create disruptive
New trends business models
emerge
Digitally nascent Emerging or on the adoption curve New normal
Time
63
Digital SC Compass that maps top 20 SC innovation 4.0 Value
Driver
levers to the 6 main value drivers SC 4.0
Lever
Micro- Predictive
Dynamic segmen- analytics in
network tation demand Closed-loop
configura- planning planning
tion
Supply chain Automation
cloud of knowledge
work
End-to-end/ Advanced
multi-tier profit
connectivity optimization
Real-time re-
Automation of
planning Capital
Capital Cost
Cost warehousing
No-touch Autonomous
order pro- and smart
cessing vehicles
Automated Human-
root cause machine
analyses Digital Smart interfaces
performance logistics
manage- On-line planning
ment In-situ 3D algorithms
trans- printing
parency
64
9 innovations to focus on now
Innovations with most favorable aggregated score across 6 dimensions
Res-
Res- Res- pondents
pondents pondents expecting
Time to expecting expecting disruptive Dis-
Cycle stage broad use failure high impact change agreement1
Innovation today Years Percent Percent Percent Quartile
1 1 = low disagreement, 4 = high disagreement; sorted degree of disagreement into quartiles for each survey question and took average disagreement
quartile across questions
65
There are 7 innovations that respondents identified as game-changers
Average impact potential along low-high and optimization-disruptive axes
7 game-changers
▪ 3D printing for slow movers
▪ Nearly autonomous truck and truck convoying systems
▪ Fully autonomous (driverless) trucks
▪ Automation of planning / machine-learning
▪ Cloud logistics platform
▪ Joint planning in cloud
▪ Information platforms
66
The size of the prize – applying SC digital and predictive levers with deeper
understanding of 3 key ingredients bring huge potential to get unlocked in
all supply chain categories
Key drivers
Lost sales ▪ Predictive analytics
(service) ▪ Shortened lead time
-50% ▪ Demand shaping
-65-75% >-75% ▪ Real-time planning
Transport ▪ Automation of
-10-15% -15-30% transport
and ware-
housing cost -30-50% and logistics
Service
▪ Uberization
Agility
SC -5-10% ▪ Automation of
admin cost everything in the
Capital Cost SC back-office
-50-80%
-75-90% ▪ SCaaS – Supply
Chain as a Service
67
INTELLIGENT WAREHOUSING AND PACKAGING
68
SOURCE: Festo; Ubimax, Fetch
Segmentation
69
Supply chain segmentation
Basic beliefs
▪ One-size fits all does not meet requirements for anyone, you
need to understand the differences between
– Products (e.g., Value density, life-cycle, demand)
– Customers (e.g., Volume, strategic importance)
Governing principle – Supply (e.g., Production, Supplier, leadtime)
Segmentation should ▪ Understand the driver of performance and cost to define the
add value to the supply right segments
chain but not increase
▪ Don’t stop at the first stage – segmentation effects the whole
the complexity cost
supply chain from customer to supplier
significantly
▪ Be pragmatic, not perfect – segmentation needs to drive
feasible solutions and each segment needs to be large
enough to have impact
▪ Segmentation should be seen as an ongoing effort: Re-
segment on a regular basis (e.g., annually)
▪ Different horizons of segmentation should be considered (e.g.
strategic vs. tactical)
70
3 steps need to be followed when segmenting a supply chain to
define the optimal setup
Step 1 Step 2 Step 3
Segmenting
Identify performance and Define supply chain Derive supply chain
a supply chain
cost drivers segments strategy per segment
Detailed ▪ 1.1 List all segmentation ▪ 2.1 Segmentation ▪ 3.1 List supply chain
steps drivers Methodology elements
▪ 1.2 Select key drivers for ▪ 2.2 Define segmenting ▪ 3.2 Define strategy for
supply chain requirements terminology supply chain elements
and cost
▪ 1.3 Identify breakpoints of
key drivers to define
segment boundaries
▪ 1.4 List all driver
combinations possible
71
Example 1 – Segmentation for CPG Company based on Volume
and Variability
72
Demand Planning and Forecasting
73
SCM improvement potential with better forecasting ILLUSTRATIVE
Cost Quality
74
What is the use of mean forecast error ?
Ideal value = 0;
75
What is the use of mean absolute deviation ?
76
Let us calculate weighted mean absolute percent error (MAPE)
77
1 3 major steps in statistical base forecast creation
Built-up FC
78
Demand planning solution overview – point solutions
Strengths Weaknesses
▪ Market leading statistics software ▪ Rather expert tool; complex for
▪ Most sophisticated, but also more complex less sophisticated user
statistical forecasting functions
▪ Recently nice user interface, data man-
agement and workflow functions added
▪ Market leading demand forecasting ▪ Lack of advanced statistical
software analyses
▪ Advanced statistics functions ▪ Not well suited for non demand
▪ Recently nice data management and planner users, e.g. sales
workflow functions added
▪ Excel based user interface ▪ Only basic statistical functionality
– Easy to use ▪ Not the cheapest solution
– Fast
– Offline planning
▪ Excellent solution for manual, collaborative
planning and S&OP
▪ Fast implementation by “Software as a
Service” offering
79
Inventory Planning
80
Transport/delivery
Inventory is a necessary evil in most supply chains Demand/order
Final
Supplier Production
customer
1 The cost of inventory can be extremely high for goods that depreciate in value quickly (e.g., computer chips)
81
Rock/boat analogy: Often, inventory can be reduced significantly only once
inefficiencies in operations are addressed
Supply
Rejections
Planning
Issues
BOM Accuracy
Forecast
error Equipment
breakdowns (✓)
▪ If inventory levels are
reduced without addressing
Rock = Problems Inventory
the underlying problems, the
entire operation can take
Forecast damage
Supply Planning Equipment
BOM Accuracy error
Rejections Issues breakdowns
▪ Manufacturing R&D
▪ Material
▪ Distribution SG&A Cost
▪ Transportation
▪ SG&A (Tax Efficiency) COGS Profit
Total
Profit
Revenue Growth
▪ New service offerings
▪ Improve service level Sales
ROCE
▪ New sales channels
▪ Improve forecast accuracy
Capital
AP Turnover
Inventories AR
▪ Accounts Receivable Capital
Inventory
▪ Fixed Assets Employed
▪ Working Capital Cash
Fixed Assets
83
Addressing the underlying drivers to improve performance and reduce
inventories is an important component of the answer
Market-,
Stock
turns = Supply
flexibility + Plant
flexibility + Rational risk
management + demand-
management
X
Process
discipline
84
Even though there are several types of stock, such target stock
levels are calculated as the sum of cycle and safety stocks
Typical
inventory layers Description
▪ Average inventory level between two order/production cycles ("sawtooth"), used to
Cycle stock
meet expected customer demand in cycle
▪ Inventory en route between shipment and delivery location, moving via truck, rail,
In-transit
air, ocean or another transportation mode
▪ Work-in-process (or progress) inventory: materials are not yet in their final finished
WIP
good form, but are either being produced, or further processed
Reserve stock/ ▪ Inventory on hand, but reserved or "tagged" for specific customers (e.g.,
facing stock presentation quantities/facing stock in retail or special customer specifications)
85
Safety Stock Calculation
d = average demand
z = Safety factor
Service level Z
95.0% 1.65
99.0% 2.33
= NORMSINV(0,99) in Excel
2
Safety stock = z lt d2 + d lt2
86
Cycle Stock Calculation
▪ Cycle Stock
87
Six building blocks to institutionalize the best practices in
inventory excellence
1
Data
transparency,
6 benchmarking and 2
standardization
Building
5 Blocks 3
Organization
design
4
88
Production Planning and
Optimization
- Line balancing
Reminder on Takt time
What is it?
▪ Takt is the time interval between completed
products which must be achieved in order to
achieve customer demand.
90
To satisfy customer demand on average a part must be produced every Takt
91
Staffing calculation CORRECTION
92
End
93