SOA Enabled S&OP Solution Whitepaper

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Consumer electronics and office equipment companies must react quickly to volatile supply and demand conditions. Rapid changes in technology compress product lifecycles. Many products last less than a year, with production cycles of only three months. Consumers have their pick of a large variety of new and existing products that are being aggres- sively marketed. It’s difficult to predict what they will choose to buy. Frequent retailer and manufacturer promotions disrupt buying patterns and put downward pressure on prices. Poor forecast accuracy can lead to excess inventory or write-offs. Or it can lead to stock-outs, resulting in lost sales and poor customer service. Adding to the uncertainty is accelerating growth in the Asia-Pacific region. This growth extends and strains supply chains, which can affect delivery reliability and increase risks.

To achieve success in this kind of environment, all members of the supply chain need visibility into current and future events, along with the means to work together to solve problems and deal with delivery constraints as they arise. Therefore, it’s not surprising that retailers and original equipment manufacturers (OEMs) have been cooperating for years on programs such as vendor-managed inventory (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR). l

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SOA Enabled S&OP Solution Whitepaper

  1. 1. SOA Enabled Sales and Operations Planning Solution for Electronics Industry Methodology and CPFR / VMI Case Study Henry Dao1 Redha Bournas2, Kumar Keeranoor2 Shubir Kapoor3 Dhananjoy Bhattacharya4 Sanjay Panikkar4 Markus Ettl3 Paul Brody11 IBM Global Business Services2 IBM Software Group3 IBM Research4 IBM Global Business Solutions Center
  2. 2. Table of Contents1. Introduction ............................................................................................................................42. Industry Challenges................................................................................................................53. Solution Overview and Benefits ............................................................................................94. Solution Methodology..........................................................................................................12 4.1 Methodology Overview ....................................................................................................12 4.2 Step 1 - Developed Business Process Model and Mapped to CBM Model......................12 4.3 Step 2 - Developed Data Flow Models .............................................................................16 4.4 Step 3 - Developed Business Services Portfolio...............................................................17 4.5 Step 4 - Selected CPFR / VMI Sub-process as the Focus.................................................18 4.6 Step 5: Design and Implemented Proof of Concept..........................................................21 4.6.1 CPFR / VMI Solution Use Cases ...............................................................................21 4.6.2 CPFR / VMI Solution Reference Architecture ..........................................................23 4.6.3 CPFR / VMI Solution Implementation based on IBM SOA......................................24 4.6.4 Forecast Business Process Models .............................................................................26 4.6.5 Replenishment Plan Business Process Models ..........................................................31 4.6.6 CPFR / VMI Solution Functional Architecture and Components..............................355. References ............................................................................................................................39 List of FiguresFigure 1: When rapid response is critical, collaboration among organizational facilities and with supplier, partner and customer systems must be automatic and event driven..........................6Figure 2: The solution focuses on the key processes in demand and supply planning for CPFR and VMI ...................................................................................................................................9Figure 3: SOA adds incremental business benefits to CPFR / VMI ..............................................11Figure 4: Solution Methodology ....................................................................................................12Figure 5: CBM helps to connect business strategy with IT strategy..............................................13Figure 6: CBM provides a framework for modeling an enterprise ................................................13Figure 7: Intersection of CBM and business process defines the value creating business services ................................................................................................................................................14Figure 8: S&OP process acts as an overarching process to orchestrate the critical processes ......15Figure 9: S&OP process at Level 1 and Level 2 ............................................................................15Figure 10: The components that support S&OP processes have been highlighted in the Component Business Model for Electronics Industry............................................................16Figure 11: S&OP Data Flow Model...............................................................................................17Figure 12: S&OP Business Services (Example) ............................................................................18Figure 13: CPFR / VMI Process ....................................................................................................19Figure 14: High Level CPFR / VMI Solution Design....................................................................22Figure 15: S&OP Solution Reference Architecture .......................................................................24Figure 16: SOA Implementation Process.......................................................................................26Figure 17: Start Forecast Process ...................................................................................................27Figure 18: Generate Baseline Forecast Process .............................................................................27Figure 19: Generate Consensus Forecast Process - Part I..............................................................28Figure 20: Generate Consensus Forecast Process - Part II.............................................................29 Page 2
  3. 3. Figure 21: Collaborate on Consensus Forecast Process – Part I ....................................................30Figure 22: Collaborate on Consensus Forecast Process - Part II ...................................................31Figure 23: Start Replenishment Plan Process ................................................................................32Figure 24: Generate Baseline Replenishment Plan Process...........................................................32Figure 25: Generate Consensus Replenishment Plan – Part I........................................................33Figure 26: Generate Consensus Replenishment - Part II ...............................................................34Figure 27: Collaborate on Consensus Replenishment Plan ...........................................................35Figure 28: S&OP Solution Architecture Components ...................................................................37 Page 3
  4. 4. 1. IntroductionSales and Operations Planning (S&OP) is the most fundamental process for reliable earnings andgrowth in Supply Chain. A spring 2007 survey AMR research of 101 manufacturers and recentdiscussions with 22 leading S&OP practitioners affirm that S&OP is more than a tool to balancethe local supply and demand. Increasingly, S&OP is becoming the engine that moves globalmanufacturing business forward.Despite the importance of the process, based on an Aberdeen’s whitepaper “Executive Sales andOperations Planning: Process and Technology Strategies”, nearly 92% of the companiesindicated that they have an executive S&OP process in place. However, 62% of companies havenot gained any quantifiable financial benefit out of this process. Technology is one of the keylimitations identified in Aberdeen’s whitepaper.S&OP is typical of the challenges that enterprises face today in integrating their businessprocesses across numerous partners and then accelerating performance of those activities.Bringing product today is an extremely collaborative activity – within the enterprise and acrossenterprise boundaries. The information required to run these processes smoothly resides inmultiple IT systems spread across firewalls and with incompatible standards of information.Service Oriented Architecture is a framework and set of tools that, when applied correctly, can beused to simplify the process of integration and help enterprises focus on managing the businessprocess, not the mechanics of integration.The primary focus of this paper is to demonstrate our methodology of how to take a businessprocess and accelerate it using Services Oriented Architecture (SOA). The methodology wedemonstrated here can be applied to development of any SOA based solution. We selected theS&OP process for the initial solution development since it is a critical process to be enabled. Forthe development of actual software assets, we selected CPFR / VMI processes to focus on.VMI is a streamlined approach to inventory and order fulfillment. VMI involves partnershipsbetween OEMs and customers that change the traditional ordering process. Through VMI, theordering process is driven by demand information sent by customers to OEMs instead ofpurchase orders created by customers. VMI’s centralized link between OEMs and customersenables faster, less complex transactions without creating individual lines of communication forevery business relationship.CPFR is the sharing of forecasts and related business information among business partners in thesupply chain to enable automatic product replenishment. CPFR is designed to improve the flowof goods from the raw material suppliers, to the manufacturer, to the retailers shelves. It also isdesigned to quickly identify any discrepancies in the forecasts, inventory, and ordering data sothat the problems can be corrected before they negatively impact sales or profits.Our paper describes how we developed the SOA-based IBM solution which overcomeslimitations of existing collaborative planning; forecasting and replenishment (CPFR)/vendormanaged inventory (VMI) technologies to help consumer electronics and office equipment OEMsaddress their supply chain challenges. The paper details the methodology used for the end-to-endsolution development. Page 4
  5. 5. 2. Industry ChallengesConsumer Electronics companies must react quickly to constantly changing demand businessconditions across a vast extended global supply chain. In addition to managing their ownbusiness plans, they must react continuously to a wide range of events: o Supply constraints & cost changes o Demand changes o Competitive pricing actions o Shortening product life cycleTo stay on top of things, they must not only react quickly but also work closely with a number ofkey partners: o Component suppliers o Contract manufacturers o Retailers o Logistics companiesAs a result, real-time collaboration is critical to the sales and operations planning process inconsumer electronics.S&OP is the set of business processes and technologies that enable an enterprise to respondeffectively to demand and supply variability with insight into the optimal market deployment andmost profitable supply chain mix. It consists of the following processes: Business and Financial Planning Demand Planning Supply Planning Demand and Supply MatchingIt is a monthly process that involves cross functional teams including sales and marketing,operations, finance, customer service and engineering. It integrates the marketing plan, the salesplan, the operations plan and the financial plan into a single business plan with: consensus decision making demand and supply balancing senior management review continuous improvementS&OP strategies help companies make “right-timed” planning decisions for the best combinationof products, customers, and markets to serve. The typical planning period ranges from weeks toas long as two years. When applied correctly, S&OP has the power to enable an enterprise toachieve an immediate and significant increase in return on investment (ROI). It can have a directimpact on profitability, performance, customer satisfaction, and the product portfolio. Page 5
  6. 6. Recently, the S&OP Planning time has shrunk from quarterly and monthly cycles to weeklyupdates based on daily monitoring of operations that can span three continents. Client HQ Customer DCs Customers Suppliers Contract Manufacturers Japan Component Factory Suppliers Client DCs Logistics Mexico Factory Retailers Companies Other service providers Asia FactoryFigure 1: When rapid response is critical, collaboration among organizational facilities andwith supplier, partner and customer systems must be automatic and event driven.S&OP requires rapid coordination between every part of the business as well as with the retailer,component suppliers, contract manufacturers, logistics and other service companies. Informationacross systems must flow just as quickly as it does across organizational boundaries.For the solution development, the scope of Sales and Operations Planning processes includes thefollowing five sub-processes: Sales and operations planning Collaborative planning, forecasting and replenishment (CPFR) Vendor managed inventory (VMI) Collaborative marketing Price monitoringFor the case study and solution development, we selected CPFR and VMI processes as theprimary focus. Page 6
  7. 7. Sales & Operations Planning Orchestrate Business and Demand Supply Demand and Financial Planning Planning Planning Supply Matching Consensus VMI Consensus Replenishment CPFR Plan Replenishment Plan CPFR VMI Suppliers Manufacturer Manufacturer DCs Retailer DCs Retailers Customers Pull Signal Replenishment Replenishment Pull SignalFigure 2: CPFR and VMI are the critical processes that integrate into S&OP processesMany current VMI and CPFR programs lack the fully automated, event-driven processes thatenable timely collaboration on forecasts, demand plans and supply chain events. Even inside thefour walls of the enterprise, disparate technologies can make it difficult to communicate at thesame pace business information changes. Most OEMs rely on multiple departmental systems andtechnologies. It’s enough of a challenge to automate shared processes among the siloed groupsinvolved in the S&OP process—sales and marketing, procurement, manufacturing andlogistics—let alone to extend collaborative processes to all involved players external to theorganization.Without automation, cross-enterprise collaboration is hampered by inaccurate and datedinformation. Lacking reliable replenishment information, retailers pad sales forecasts to increaseallocation of constrained products. In the absence of a commitment process for suppliers, theorder process is not really collaborative. And, without good planning tools, it’s hard to useinformation from consensus forecasts effectively.With early CPFR initiatives, the partner requesting the program (most often the retailer)frequently specified the enabling technology, usually a proprietary solution. It became clearthat—if each new CPFR program involved implementation, integration and maintenance ofincompatible systems—the IT complexity and support costs for the OEM organization wouldincrease exponentially.To address this challenge, in June 2001 a VICS working committee released an extensibleMarkup Language (XML) specification to serve as a basis for standardization. Although apromising first step, this move to standardization did not address CPFR program flexibility andscalability.Accelerating the CPFR adoption process first requires CPFR interoperability—where during anypeer-to-peer collaboration, one trading partner can use his or her CPFR application and the other Page 7
  8. 8. trading partner can use another. These disparate applications should be able to work on privatelyhosted networks, public exchanges or the Internet.In addition, the OEM must be able to leverage its existing CPFR applications to quicklyimplement new initiatives with additional supply chain partners and also be able to adapt theapplications as individual partner relationships evolve. Page 8
  9. 9. 3. Solution Overview and BenefitsIBM Global Services developed an SOA-enabled solution that provides the interoperability,standardization, flexibility and scalability necessary to help you realize the full benefits of VMIand CPFR. Software decisions to support CPFR no longer need to be dictated by internal systemsand the technologies your trading partners have in place. In addition, CPFR implementationsneedn’t be limited to one-on-one projects. Create Joint CPFR / Plan Demand Plan Supply and Develop VMI Business Plan Replenishment Plan Retailer / Distributor POS/Data Analysis Retailers/ Distributors Sell-Through Collaboration Create Call and Replenishment Develop Generate Sell- Plan Joint Gather Master Through Collaboration Business Data Agreement Consensus Plan Forecast Manufacturers Adjust Sell- Through Generate Forecast Replenishment Plan Manuf. POS/Data Prepare for Prepare for Analysis Sell-Through Replenishment Collaboration Collaboration System Generate Statistical Sell- Through Forecast (Daily) Process CoverageFigure 2: The solution focuses on the key processes in demand and supply planning forCPFR and VMIEssentially, the IBM solution provides four business services built on an SOA platform: Statistical forecasting service—to generate a baseline forecast (SOA platform will allow companies to plug in multiple forecasting solutions, not just the forecasting solution described here but any solution, for example SAP APO, etc). Forecast collaboration service—to generate a consensus forecast. Inventory and replenishment analysis service—to generate a baseline replenishment plan. Replenishment planning collaboration service—to generate a consensus replenishment plan.With the SOA platform and Web Services, enterprises can plug in and use any of these servicesin the CPFR or VMI process. Altneratively, other SOA-compliant services can be integrated intothe process flow with ease.The IBM solution combines SOA and Web services for optimal benefit. Recently, there’s beensome confusion in the business world about these two elements. You can have one without the Page 9
  10. 10. other, but it’s best to have both. SOA offers flexibility through componentization. But withoutcommon connections, you’re limited in how far you can extend components and the compositeapplications. Web services offer standardization and interoperability to enable access tocomponents and applications from the widest range of user devices, but you first need to havecapabilities to extend. With SOA and Web services together, you have the optimal IT flexibilityand responsiveness to support your changing business.The IBM solution enables key capabilities in your S&OP process to be packaged into SOAservices and quickly implemented—allowing rapid integration to multiple systems and businesspartners. You can combine and reuse pre-built service components to quickly develop and deploycollaborative applications in response to marketplace conditions. Essentially, you eliminate theneed for duplicate CPFR systems. You’re able to: Speed execution on CPFR agreements by building collaborative capabilities once and then leverage them to speed execution on CPFR agreements with new trading partners Offer new services to your customers without having to worry about the underlying IT infrastructure Improve alignment of the CPFR business process with actual operations.The IBM collaboration platform is role based with security-enhanced sign-on. Your partners andcustomers can only see their own information, helping to foster trust-based relationships.Also because of the modular design, enterprises have maximum flexibility to determine the scopeof the solution. Solution architects can pick and choose the components they want to implement.Enterprises can even outsource selected services to IBM Global Business Services.For example, one IBM client in the electronics industry did not want to do advanced statisticalforecasting. IBM manages that step by generating a statistical baseline forecast as the startingpoint of this company’s weekly S&OP process. Using information from point-of-sale (POS)systems and promotion plans, IBM creates a forecast baseline that is used by the electronicscompany in its collaboration with retail partners. Once the collaborative forecast is agreed upon,IBM generates the detailed replenishment plan. This arrangement has allowed the electronicscompany to focus on relationship management with its retailers. The average forecast accuracyfor products four weeks out has risen from 50 percent to approximately 90 percent at the retailpartner distribution center level of measurement.IBM’s SOA solution has distinct capabilities to address CPFR / VMI challenges faced byconsumer electronics companies Forecasting analytics developed by IBM Research proven with multiple client engagements Inventory analytics developed by IBM research has built in optimization including price protection expenses, inventory carrying costs, and customer service SOA exception based and event driven collaboration platform for forecast and replenishment plan SOA and web service based standard modular design which could be adapted to specific client situation or ERP environmentImplementing CPFR / VMI through an SOA architecture provides incremental benefits toenterprises: Page 10
  11. 11. Benefits CPFR / VMI Greater Value from SOA Revenue Higher customer service Provide a window into the Much faster integration of new partners and process changes in future and thus enhanced an SOA architecture Flexibility decision making Reuse of services reduces on boarding time by about 50% Combine and reuse pre-built service components for rapid Shorter customer order lead Speed times application development and deployment in response to market change Shorter supplier lead times Decreased system implementation time by 25% Integrate historically separate systems, facilitate mergers and More stable production rates, Efficiency hence higher productivity acquisitions of enterprises Reduce cycle times and costs for external business partners by moving from manual to automated transactions Reduced transaction errors as data moves between systems, some companies down to ZERO. Increase IT Staff Productivity by 30% Shorter customer order Offer new services to customers without having to worry Service backlogs, about the underlying IT infrastructure Lower finished goods inventories Eliminate duplicate systems, build once and leverage Lower IT Costs by 15% Cost Reduced obsolescence 100% Payback in 24 months Reduced premium freight costs Greater control of the business Improve visibility into business operations Risk with known root causesFigure 3: SOA adds incremental business benefits to CPFR / VMI Page 11
  12. 12. 4. Solution MethodologyThis section will describe the solution methodology and provide details for each step to showhow we developed this solution. 4.1 Methodology OverviewFor the solution development, a five-step approach was followed. First we developed businessprocess models for the Sales and Operations Planning processes which included five processes.After the process models were complete, we mapped the processes to Component BusinessModels. Secondly, we defined the Data Flow Models for each process model, in which the dataelements and dependencies are determined. The third step was to define all the business servicesassociated with each level 3 business process and business components. The fourth step was toselect CPFR and VMI as the focus to narrow down the scope for solution development. Finally,we designed and built a proof of concept by enabling CPFR / VMI processes with SOA and WebServices. In Figure 4 below, the top-down five step solution methodology is shown. Mapped Process S&OP Business 1 Models to CBM CBM Process Models (WBI) Developed Data 2 Flow Model Data Flow Models Developed Business Services 3 Business Portfolio Service Portfolio Selected 4 CPFR/VMI sub- CPFR / VMI process Business Services as the Focus Designed and Generate 5 Generate Generate Baseline Built CPFR/VMI Generate Baseline Consensus Consensus Replenishment Forecast Replenishment Proof of Concept Forecast Plan Plan Web Service Web Service Web Service Web Service Figure 4: Solution MethodologyThe design is focused on the modularity and standardization for flexibility. It is designed to plugand play with other industry solutions. 4.2 Step 1 - Developed Business Process Model and Mapped to CBM Model Page 12
  13. 13. Component Business Modeling (CBM) is a method developed by IBM in 2004 that allowsorganizations to identify opportunities for improvement and innovation by regrouping theiractivities into a manageable number of discreet, modular, and reusable components. This enablesflexibility and provides for a clarified focus on the core capabilities needed to run the businessand drive business strategy.CBM is applied at the intersection of business strategy and enterprise IT strategy to help theclient determine the area that creates the most value. Business Strategy Enterprise IT • Product centric • Process automation • Customer centric • In/Out sourcing • Supply chain centric • Systems investment Key • What investments will provide me with competitive advantage? questions for • On which areas should I focus my management attention? CIOs and • Which functions should I consider out-sourcing? Which ones CEOs should I keep in-house? Figure 5: CBM helps to connect business strategy with IT strategyCBM provides the framework for analysis, modeling the enterprise in logical components. Business Functions Total CBM Model Design Mfg Sales Admin Examples: Strategy & Boeing bets on planes Planning that sell for 10+ years Level of Process Control IBM must manage Monitoring thousands of sales people & Control Lenovo must compete in a low cost environment Detailed Wal-Mart is an expert at Execution low-cost procurement Figure 6: CBM provides a framework for modeling an enterpriseThe business process defines the physical tasks that are required for business execution withineach component. The intersection of components and business processes will define the businessservices needed to create value for your enterprise. Page 13
  14. 14. Potential Production Improve Forecast Accuracy Reduce Stock-outs Improve Inventory Turns Value Drivers Aftersales Service & Business Financial Product / Process Process Admin. Admin. Mktg & Supply Chain Mgmt Mgmt Sales Forecast Accuracy Value Material Availability Finished Goods Inventory Turns KPI’s (examples) Forecast Bias On Time Delivery Obsolete Inventory Accountability Level Direct Develop Baseline Forecast Develop Consensus Forecast Develop Baseline Replenishment Plan Develop Consensus Replenishment Plan Activities (example) Control Business Component Demand Planning Business Services Business Purpose Execute Activities People User Interaction Services Applications (Connection, Routing, Broker, Transform ation..) Infrastructure Middleware (Rich Client, Web Server, Portal Server, Collaboration Tools, ...) Business Process Services Service Implementation IT Applications Middleware (Process Flow Engine, Rules Engine,...) Integration Business Function Services Middleware (Application Server, ....) Information Services Middleware (DBMS, ETL, ...) Figure 7: Intersection of CBM and business process defines the value creating business servicesWe followed this concept. First, we developed business process models for the Sales andOperations Planning processes including the following five processes up to level 3 process leveldetails: Sales and Operations Planning Collaborative Marketing Price Monitoring Collaborative Planning, Forecasting and Replenishment Vendor Managed Inventory Page 14
  15. 15. Sales & Operations Planning Orchestrate Business and Demand Supply Demand and Financial Planning Planning Planning Supply Matching $ Supply $ Retail Price Price Marketing Marketing Opportunities Opportunities from from Retailers Collaborative Manufacturers Collaborative Price Price Consensus Marketing Marketing Monitoring Monitoring Consensus VMI CPFR Replenishment Replenishment Plan Plan CPFR VMI Suppliers Manufacturer Manufacturer DCs Retailer DCs Retailers Customers Pull Signal Replenishment Replenishment Pull SignalFigure 8: S&OP process acts as an overarching process to orchestrate the critical processesBelow is the example of S&OP process showing level 1 and 2 steps. Each step shown in theprocess map has been detailed out at level 3 with defined process, input and outputs. Business / Demand Planning Supply Planning Demand and Supply Financial Matching Planning Collaborate with Customers Customers and Develop Consensus Forecast Finance Set CPFR Financial VMI Consensus Goals Replenishment Replenishment Orders Plan Product Create Marketing Price Baseline Monitoring Forecast Impacts Supply Collab Mkt Chain Countermeasures Develop Create Rough Develop Unconstraine Cut Capacity Constrained Planning d Plan Plan Plan Balance Reconcile S&OP Supply with Meeting and Financial Participants Demand Plan Allocate Supply Collaborate Suppliers (high level) with Suppliers Figure 9: S&OP process at Level 1 and Level 2 Page 15
  16. 16. Then we identified the components that are critical in supporting the S&OP processes andmapped each business component to S&OP processes. This mapping has been done for all fivebusiness processes. Below is just an example showing S&OP process and related businesscomponents. Consumer Relationship Client Relationship Supply Chain (Manufacturing, Business Administration and Distribution & Logistics) Risk Management Online Strategy Svcs) Chain Strategy (eg Online New Business Supply New Business Supply & Supply Chain Planning Value Added Services Ops Demand Generation and Market Partner Strategy (Channel, Supply Ops Corp Strategy & Planning Making Services, etc.) Chain Planning Planning Strategy and Strategy and Category/ Brand Strategy Brand Strategy Planning Innovation Innovation and Functional Solutions Dev Services. Strategy Convergence Development New Market Strategy Platform Competitor Analysis Procurement/ Sourcing Line of Business Strategy & Planning Decisioning Assembly/ Production and Asset Utilization/ Capacity Planning Pricing Strategy Reuse Decisioning Distribution/ Logistics Investment Decisioning Decisioning Market and Portfolio Coverage Model & Sales Forecasting & Demand Mgmt, SOP for Alliance and Outsourcing Strategy Solutions Management Planning components Online Program Mgmt Decisioning Business Performance Mgmt Monitor and Manage Monitor and Manage Mgmt Fulfillment Logistics & Parts Reverse Reverse Chain Mgmt Services Supply Value Added Software, Component, Platform Partner Mgmt (Channel, Assembly/ Production Design and Development Services, etc.) Management Governance, Organization & Process Design Solutions/PLM/SLM (Design to end Demand Generation & Inventory Mgmt & tracking of life planning) Aggregation (WIP, stock and in transit) Legal & Regulatory Compliance Solution/Offering Mgmt Services Scenario Tracking Equipment Maintenance & Outsourcing Mgmt Mgmt Marketing/ Supplier Mgmt & Customization Tracking Treasury & Risk Mgmt Finance, Renewal Program Mgmt Communications Accounting & General Customer Feedback & Issue Solutions/Services& Process Quality Control Ledger Resolution Tracking Optimization Reverse Logistics & Parts Fulfillment Reverse Logistics & Parts Fulfillment Network Optimization Product Catalog Classification & Warehouse & Transportation Value Added Services Supply Chain Maintenance (End of life) Business Development Mgmt Prototype Development & Testing Network Optimization Indirect Procurement/ MRO Buying Sales Promotion & Execution Facilities Mgmt Solutions Development & Launch Collaborative Account Planning Partner Enablement Execute Execute Customer Configuration Assembly/ Production Execution Services Delivery/ Solutions Human Capital Mgmt Execution Solutions Offering Mgmt (HW, SW Order Execution Purchasing & Contract & Value added services) Execution IT Systems and Operations After sales support (Call center, Reuse field services)Figure 10: The components that support S&OP processes have been highlighted in theComponent Business Model for Electronics IndustryAs a result, the linkage between processes and business components are established. Thisstructure will allow different views of business services associated with each business process. 4.3 Step 2 - Developed Data Flow ModelsAfter defining the processes at 3 levels of detail, the next step is to capture the informationdependency across the entire system of processes. Tracing along the detailed level 3 processflow, the data entities which are consumed and produced at each task are identified. Followingthis, an analysis is conducted on the dependencies between these data entities. A data entity isdependent on another, if there is a task that uses the latter in the process of generating the former.The dependency is captured graphically by an arrow that points from the latter to the former. Thedata flow model for the entire system contains the graphical depiction of all possibledependencies. Page 16
  17. 17. For the S&OP example, the data flow model is as shown below. CPFR/VMI: Demand Planning CPFR/VMI: S&OP: S&OP: Collaborative Replenishment Planning Supply Demand Marketing: Develop Master Generate Planning and Identifying Consensus Sell- Generate Agreement Supply Opportunities Through Forecast Replenish ment Plan Matching Create Get Generate Generate Joint POS Consensus Determine Criteria Statistical Sell- Business Data Replenishme for Triggering Through Plan nt Plan Opportunity Forecast S&OP: Demand Total Develop S&OP: Business / Consensus Unconstrained Planning Identify & Agree Financial Planning Generate Forecast Plan that Opportunity Generate Consensus Set Reconcile Exists Baseline Forecast Financial with Forecast Financial Goals Plan Create Rough Cut Capacity Plan Analyze Balance Countermeasure Supply Scenarios for and Retailer Collaborate on Develop Demand Market Constrained Opportunities Identify Impact Identify Impact Plan Analyze on S&OP on S&OP Countermeasure Financial Goals Financial Goals Scenarios for Collaborative Allocate Manufacturer Marketing: Supply Collaborating (high level) Review Consumer Price Monitoring: Price Planning Against Criteria Price Monitoring: Decide on Products, Monitoring Collaborative Criteria & Frequency Review Consumer Process for Monitoring Price Against Criteria Figure 11: S&OP Data Flow Model 4.4 Step 3 - Developed Business Services PortfolioIBMs Service Oriented Modeling and Architecture (SOMA) techniques were used to identifybusiness services. As per SOMA, the service identification techniques include top down, bottom-up and middle out techniques. We followed the top-down approach called domain decompositionwhere business process decomposition is employed to identify services and flows (processes) andfunctional area analysis were used to identify candidate component boundaries. The steps are asfollows:Functional area analysis - decomposing business domains into functional areas is enabled throughthe CBM introduced earlier. Each level 3 task is mapped to a CBM component in a step which isidentified as creating a “heat map”. This maps domains to CBM “competency” and functionalareas to CBM “hot business components”. This produced the alignment of functionalresponsibilities of business to structured and automated IT.The next step links process models with CBM components or, stated differently, decomposes theprocesses into the identified domains (functional areas), hence linking process models with CBMhot components. As a result, the services candidates fall into different CBM component based Page 17
  18. 18. domains. Note that only a subset of the total number of CBM components may be involved in thesolution and hence in the domain decomposition.The table in the figure below contains the candidate services for the S&OP example and alsoillustrates their decomposition across the domains that are identified by the components incolumn 1. Components L1 S&OP Process L2 S&OP L3 S&OP Process Process Business Services Services Services Input Services Output Process Description Description Finance, 1.1 Business and 1.1.1 Set 1.1.1.1 Feedback (S&OP) Feedback loop from Get Financial feedback Data Retrieve the financial Financial plan Accounting and Financial Planning Financial Goals S&OP process if plan adjustment data adjustment data General Ledger there are any Get Price Monitoring Input Retrieve the price Price Monitoring Input adjustments to the monitoring input Corp. Strategy 1.1 Business and 1.1.1 Set 1.1.1.2 Develop volume & Determine sales Generate Volume & Price Collaborate to come up Financial plan Volume & Price Point and Planning Financial Planning Financial Goals price points volume and price Point with sales volume & adjustment data,Price points for product price point. monitoring input lines Corp. Strategy 1.1 Business and 1.1.1 Set 1.1.1.3 Set Financial & Set high level Generate financial plan This service will Volume & Price Point Financial plan and Planning Financial Planning Financial Goals Annual Volume Plan volume and compute financial & financial plans volume target for product lines and create the financial plan Line of Business 1.1 Business and 1.1.1 Set 1.1.1.4 Develop SKU plans Develop business Update financial plan with SKU This service is updating Financial plan Financial plan Strategy and Financial Planning Financial Goals and volume plans financial plan with sku Planning by SKU information Line of Business 1.1 Business and 1.1.1 Set 1.1.1.5 Validate supply Validate Generate Supply Requirement Create the supply Financial plan Supply Requirement Strategy and Financial Planning Financial Goals requirements to meet plan requirements for requirement Planning supply to meet Reconcile Supply Requirement Retrieve the supply Supply requirement Supply requirement business and capability information adjustment data volume plan from the system and validate requirements for supply to meet business and volume plan Line of Business 1.1 Business and 1.1.1 Set 1.1.1.7 Validate supply Validate that supply Reconcile Supply Avalibility Retrieve the supply Supply availability data Supply availability Strategy and Financial Planning Financial Goals availability is still available to availability data from adjustment data Planning meet the plan the system and validate whether enough supply is still available to meet the plan Finance, 1.1 Business and 1.1.1 Set 1.1.1.8 Generate baseline Generate baseline Generate Baseline Financial The format of baseline Financial plan Baseline Financial Accounting and Financial Planning Financial Goals financial forecast financial forecast Forecast financial forecast is Forecast General Ledger based on business different from financial plan plan Finance, 1.1 Business and 1.1.1 Set 1.1.1.9 Translate financial Translate financial Accounting and Financial Planning Financial Goals forecast to units forecast into units of General Ledger products Finance, 1.1 Business and 1.1.1 Set 1.1.1.10 Quarterly review of Generate the financial Review the Baseline Financial Financial performance Accounting and Financial Planning Financial Goals financial performance performance monthly/quarterly Forecast data General Ledger financial performance Finance, 1.1 Business and 1.1.1 Set 1.1.1.11 Monthly review of Accounting and Financial Planning Financial Goals financial performance General Ledger Forecasting and 1.1 Business and 1.1.1 Set 1.1.1.12 Update Demand Update Demand Update Demand Requirement This service will be Financial performance Demand planning Demand Financial Planning Financial Goals Planner based on financial Planner application invoked to retrieve the data requirement Management plan with financial plan financial performance data and update the demand planning requirement Figure 12: S&OP Business Services (Example) 4.5 Step 4 - Selected CPFR / VMI Sub-process as the FocusTo focus on the most important processes and narrow down the scope for solution development,CPFR / VMI processes have been selected. Page 18
  19. 19. Create Joint CPFR / Plan Supply and Develop Plan Demand VMI Business Plan Replenishment Plan Retailer / Distributor POS/Data Analysis Retailers/ Distributors Sell-Through Collaboration Create Call and Replenishment Develop Generate Sell- Plan Joint Gather Master Through Collaboration Business Data Agreement Consensus Plan Forecast Manufacturers Adjust Sell- Through Generate Forecast Replenishment Plan Manuf. POS/Data Prepare for Prepare for Analysis Sell-Through Replenishment Collaboration Collaboration System Generate Statistical Sell- Through Forecast (Daily) Process CoverageFigure 13: CPFR / VMI ProcessAs a result, the business services associated with these processes have been selected forimplementation. The services are listed below.Business Services for Plan Demand Get sell-through history Generate baseline sell-through statistical forecasts Capture forecast variance exceptions Update baseline sell-through statistical forecasts Get baseline sell-through statistical forecasts Get sell-through History Generate sell-through exceptions Notify identified exception Generate sell-through consensus forecast Notify sell-through consensus forecastBusiness Services for Plan Supply and Develop Replenishment Plan Get sell-through forecast Get Replenishment Plan Data Generate Replenishment Plan Get Replenishment Plan Get Replenishment Vital Data Generate Replenishment Exceptions Page 19
  20. 20. Generate consensus replenishment plan Notify consensus replenishment planFor the CPFR/VMI solution development, we leveraged assets from a business partner collaboration system that wasdeveloped for IBMs System x hardware brand. The collaboration system enables optimized “recommended-buy” decisions as a first step towards establishing an efficient auto-replenishment process between IBMand its largest resellers. It comprises a web-based visibility dashboard that provides real-time visibility tochannel inventories, innovative forecasting and inventory analytics for optimized replenishment decisions,and proactive alerting of stock-out and excess inventory situations based on up-to-date reseller inventoryand sales information. The integrated channel forecasting and inventory management capabilities areimproving operations with business partners in terms of inventory utilization, price protection cost, and customerserviceability.The key strategic capabilities of this new collaboration system include: • Single point of standardized reporting for channel managers and business partners • Customized inventory decisions based on statistical forecasting and risk-optimized recommended buy using variability of historical sales out & inventory data • Proactive buy/sell headlights to business partners • Automatic alerts on aging inventory / price protection risk for more effective demand conditioning • Fully automated data extraction from EDI / BIDS for timely views of daily sales and inventory transactions • Web-based access to IBM and business partner data for channel collaboration • Robust product transition planningBusiness benefits include • Less inventory in the channel while maintaining high product availability • Improved cash flow and budgeting for IBM due to reduced price protection expenses • Reduced strain on manufacturing by smoothing the flow of orders results in better supplier collaboration • Lower inventory carrying costs for channel partners • Fewer inventory write-offs for channel partnersFor this solution development, we also leveraged the asset from The Supply Chain Control Towersolution. The Supply Chain Control Tower solution addresses challenges confronting enterprisescentering on visibility, control and coordinated orchestration of increasingly dynamic, extendedand complex supply chains. IBM, which already has a Supply Chain solution offering in themarket place has introspected to revamp the existing architecture in order to make it flexible,using the Service Oriented Architecture (SOA). The IBM enterprise Supply Chain Controlsolution includes the following main functions: • Event Management Support • Real-time decision making using analytics • Consolidated, accurate and consistent view of all customer and supply chain data, alerts and events in real-time • Execution of supply-demand matching in real-time • Supplier collaboration dashboard • Supplier performance dashboard Page 20
  21. 21. The technology underlying this solution is based on the following components: 1. WebSpherePortal which provides a role based desktop single common user interface to all users to access allapplications and information 2. WebSphere Process Server for process choreography using openstandards BPEL and open standards Web Services to integrate with various ERP systems such asSAP R3, SAP BW and i2, and 3. Open standards protocol (OAGIS) to integrate with clientlegacy systems. 4.6 Step 5: Design and Implemented Proof of ConceptIn this section, the design and implementation methodologies of the S&OP solution arepresentation. The approach is based on “business modeling driven implementation”; specificallythe IBM SOA business modeling driven implementation is used. The implementation stepsdescribed below assume the solution services and processes that meet the customer requirementshave been identified using the IBM Component Business Modeling process as described in priorsections.4.6.1 CPFR / VMI Solution Use CasesThe S&OP solution focuses on the forecast and replenishment plan processes. For either process,the objective is for the OEM and partner (retailer or distributor) to agree on a consensus plan. Theessential high-level process implemented in the S&OP solution is depicted in Figure 14 below.Based on the generic CPFR/VMI business process shown in Figure 13 above, we developed aspecific business process flow for the S&OP solution implementation which is depicted in Figure14. All the business services identified in the prior section were incorporated in the businessprocess flow of Figure 14. The scenarios are described in detail below. Scenario 1: Consensus Forecast Calculation and Collaboration ScenarioIn this scenario, a baseline forecast for a Stock Keeping Unit (SKU) is calculated using an IBMproprietary forecast analytics engine based on Point of Sale (POS) input data. This baselineforecast is then compared against the supplied business partner forecast for the same SKU. If theabsolute value of the difference is greater than a pre-set tolerance, an alert is generated to triggera Portal collaboration between OEM personnel and the business partner. The OEM personnel andthe business partner collaborate on the forecast until they reached a consensus forecast. Scenario 2: Consensus Replenishment Plan Calculation and CollaborationIn this scenario, a baseline replenishment plan is calculated using an IBM proprietary inventoryanalytics engine based on the consensus forecast as input. For a given SKU, if the differencebetween any calculated re-order point and the sum of the actual “On Hand”, “In Transit” and“Backlog” business partner inventory is greater than zero, then an alert is generated. This alertwill then trigger a Portal collaboration between OEM personnel and the business partner to Page 21

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