SCM

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

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

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

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

5. Dynamics of Material Flow
Supplier Plant Warehouse Logistics Retailer

6. Dynamics of Order Flow
Supplier Plant Warehouse Logistics Retailer

7. Supply Chain Planning Processes
Demand Planning
Material Requirement Planning
Demand Forecasting
Supplier Plant Warehouse Logistics Retailer
Production
Plan
Component
Requirement
Order Management

8. Supply Chain Planning Decisions
OPERATIONAL
TACTICAL
STRATEGIC
Procurement Distribution
Manufacturing Logistics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

23. Thank You
Over to Dr. Mathirajan ….