© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Case study: CPG Co.
Supply Chain Audit and Opportunity
Assessment
Jack Muckstadt
Dave Murray
Jim Rappold
Cayuga Partners LLC
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
CPG Co. Engagement History
• A leading CPG company with global operations and
premium, category-leading brands
– Sophisticated supply chain planning capability; in-house
domain expertise
– Increasing competitive pressure on margins forcing a need for
increased operational efficiency
• Cayuga Partners proposed a 4-phased process to
improve the performance of manufacturing and supply
chain operations:
1. Education and Strategy Sessions
2. Supply Chain Audit and Opportunity Assessment
3. Pilot Implementation
4. Continuous Improvement
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
1st Law of Supply Chain Physics
“Local optimization results in global
disharmony”
How does this apply to CPG Co.?
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Supply Chain Mgt. Systems @ CPG Co.
EIM
SAP R/2
AspenTech SCM
SAP R/3
SEM -
Strategic
Evaluation
Model
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Operational
Level
Long Range
Planning
Tactical
Level
Future
Dvmt
Under
Construction
Scheduling Time Buckets: Real Time
Horizon: 15 weeks
Granularity: Feeder
Methodology: MIMI LP/Sched
Primary Scheduling Time Buckets: Real Time
Horizon: 15 weeks
Granularity: Feeder
Methodology: MIMI LP/Sched
Secondary SchedulingTime Buckets: Real Time
Horizon: 15 weeks
Granularity: Feeder
Methodology: MIMI LP/Sched
To SAP/MRP for Direct
and Indirect Materials
Purchasing
SchedulingTime Buckets: Real Time
Horizon: 15 weeks
Granularity: Module
Methodology: Manual with MIMI
rules for synchronization
Scheduling Time Buckets: NA - Real Time
Horizon: 15 weeks
Granularity: Product/Module
Production Orders, Product-
to-Machine Center
Assignments
Feeder Scheduling Time Buckets: NA - Real Time
Horizon: 15 weeks
Granularity: Feeder
Feeder
Schedule
Feeder
Schedule
Plant
Schedule
Plant
Schedule
“Stable zone”
Schedule
Longer
Hori
zon
More
Det
ail
Long Range PlanningPurpose: Financial Planning, LR Planning
Time Buckets: Monthly
Horizon: 1-5 Years
Granularity: Size Group/Machine Center
Demand
Forecasts
Policies, Days, …
Planning ModelScope:
Time Buckets: Weekly/Monthly
Horizon: Current year plus 1 year
Granularity: Product/Machine Center
Demand
ForecastDemand Management
Purpose: Consolidate Domestic and Export
Demand Forecasts, Net Plan vs Actual
Time Buckets: Weekly/Monthly
Horizon: Current year plus 1 year
Config,
Prod’s,
Attrib’s
Example: Current CPG Co. Models
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
The CPG Co. Supply Chain
Suppliers of Direct
& Indirect Materials
Plants,
Offsites, Cold
Storage
Public
Warehouses
(0’s)
Ra
nd
om
, N
on
-Sta
tio
na
ry
Co
ns
um
er
De
ma
nd
Time
Wholesalers
(000’s)Retailers
(00,000’s)
Ra
w M
ate
ria
l
Current Scope
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Suppliers of Direct
& Indirect Materials
Plants,
Offsites, Cold
Storage
Public
Warehouses
(0’s)
Ra
nd
om
, N
on
-Sta
tio
na
ry
Co
ns
um
er
De
ma
nd
Time
Wholesalers
(000’s)Retailers
(00,000’s)
Ra
w M
ate
ria
l
Marketing
Models
Promotions,
Incentive
Programs, …
Sales and
Distribution
Models
Example: Current CPG Co. Models
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
ET Scheduling - MC
Primary Scheduling - MC
Filter Scheduling - MCCM Scheduling - MC Feeder Scheduling - MC
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
Scheduling
Primary Scheduling
Scheduling Scheduling Scheduling
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
3rd Law of Supply Chain Physics
“Inventories are a consequence of supply
chain design and customer service
objectives”
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Promotions
23.8%
Warehouse:
Production Lot Sizing
16.6%
Warehouse:
Demand Uncertainty
over Production Cycles
42.0%
Public Warehouses:
Demand Uncertainty
7.4%
Distribution System:
Processing & Handling
10.2%
Causes of Inventory
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Retool Manufacturing
Equipment,
Processes and
Decision Systems
($nn.nB)
40.4%
Speed Up Distribution
($n.nB)
10.2%
Manage Uncertainty
($nn.nB)
49.4%
Opportunities
$nn.nB
Annual
Inventory
Turnover
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5th Law of Supply Chain Physics
“Effective supply chain design will reduce
uncertainty dramatically, and improve
operational and financial performance
significantly”
. . . however, residual uncertainty will still exist and
must be effectively considered in a decision support
environment
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Potential economic benefits of supply chain
structural change and uncertainty reduction
0
5
10
15
20
25
30
35
Actu
al
Base C
ase M
od
el
25%
Red
ucti
on
in
Setu
p T
ime, 0%
Co
llab
25%
Red
ucti
on
in
Setu
p T
ime, 25%
Co
llab
25%
Red
ucti
on
in
Setu
p T
ime, 50%
Co
llab
25%
Red
ucti
on
in
Setu
p T
ime, 75%
Co
llab
0%
Red
ucti
on
in
Setu
p T
ime, 25%
Co
llab
0%
Red
ucti
on
in
Setu
p T
ime, 50%
Co
llab
0%
Red
ucti
on
in
Setu
p T
ime, 75%
Co
llab
50%
Red
ucti
on
in
Setu
p T
ime, 0%
Co
llab
50%
Red
ucti
on
in
Setu
p T
ime, 25%
Co
llab
50%
Red
ucti
on
in
Setu
p T
ime, 50%
Co
llab
50%
Red
ucti
on
in
Setu
p T
ime, 75%
Co
llab
Un
its
(M
illi
on
s)
Scenarios
Inven
tory
Demand Uncertainty over Production Cycles
Production Lot Sizing
Demand Uncertainty
Distribution & Handling15%
25%
33%
45%
11%
21%
34%32%
39%
46%
57%
NPV =
$ 125.6M
$ 201.6M
$ 272.6M
$ 371.4M
$ 87.2M
$ 169.4M
$ 279.4M$ 259.2M
$ 322.1M
$ 379.8M
$ 465.4M
% Reduction =
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Upon further analysis . . .
• Net Present Value of high return, lower risk opportunities
– Managing production capacity $ 59 million
– Reducing demand uncertainty $ 34 million
– Coordinating promotions $ 53 million
– NPV of combined opportunities $ 97 million
• Other opportunities:
– Better coordination of manufacturing and distribution
– Modifications to the physical operating environment
– New production, distribution, and procurement policies
– These additional opportunities are likely to have an NPV at
least as large as those identified to date
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
CPG Co. Opportunity Assessment
Summary
• Findings
– There are large and immediate opportunities to improve
supply chain and manufacturing operations performance
– Further analysis is needed to validate, quantify and
prioritize some of these opportunities
• Recommendations
– Pilot the “No B/C” Strategy and other recommended
improvements
– Incorporate missing operational dynamics (i.e., distribution,
retail) in the Supply Chain Evaluation Model; further
evaluate scenarios, define KPI’s, validate impact of
uncertainty; develop, prioritize business cases
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Suppliers of Direct
& Indirect Materials
Plants,
Offsites, Cold
Storage
Public
Warehouses
(0’s)
Ra
nd
om
, N
on
-Sta
tio
na
ry
Co
ns
um
er
De
ma
nd
Time
Wholesalers
(000’s)Retailers
(00,000’s)
Ra
w M
ate
ria
l
Sales and
Distribution
Models
Strategic
Planning
Model
Increase the breadth of the
analysis to include:
• Direct and Indirect
Material
• Public Warehouses
Increase the depth of the analysis to include:
• the effects of uncertainty
• the evaluation of alternative scheduling
policies and equipment options
Marketing
Models
Promotions,
Incentive
Programs, …
A Broader Viewpoint
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
ET Scheduling - MC
Primary Scheduling - MC
Filter Scheduling - MCCM Scheduling - MC Feeder Scheduling - MC
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
Scheduling -
Primary Scheduling -
Scheduling -Scheduling - Feeder Scheduling -
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Suppliers of Direct
& Indirect Materials
Plants,
Offsites, Cold
Storage
Public
Warehouses
(0’s)
Ra
nd
om
, N
on
-Sta
tio
na
ry
Co
ns
um
er
De
ma
nd
Time
Wholesalers
(000’s)Retailers
(00,000’s)
Ra
w M
ate
ria
l
Strategic
Planning
Model
Increase the breadth of
existing LRP, Tactical and
Operational level models
where appropriate
Potential Future Development
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
ET Scheduling - MC
Primary Scheduling - MC
Filter Scheduling - MCCM Scheduling - MC Feeder Scheduling - MC
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
Scheduling -
Primary Scheduling -
Scheduling -Scheduling - Feeder Scheduling -
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Suppliers of Direct
& Indirect Materials
Plants,
Offsites, Cold
Storage
Public
Warehouses
(0’s)
Ra
nd
om
, N
on
-Sta
tio
na
ry
Co
ns
um
er
De
ma
nd
Time
Wholesalers
(000’s)Retailers
(00,000’s)
Ra
w M
ate
ria
l
Strategic
Planning
Model
Apply uncertainty
principles to LRP,
Tactical and
Operational levels
where appropriate
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
ET Scheduling - MC
Primary Scheduling - MC
Filter Scheduling - MCCM Scheduling - MC Feeder Scheduling - MC
Operational
Level
Long Range
PlanningLong Range Planning
Tactical
Level
Planning Model Demand Management
Scheduling -
Primary Scheduling -
Scheduling -Scheduling - Feeder Scheduling -
Potential Future Development
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Observations
• Advances in technology continue to drive the transformation
of operational requirements and capabilities, and the
disintermediation of traditional organizational structures and
business processes
• Despite widespread deployment of ERP and APS technology
in large manufacturing enterprises, local sub-optimization
presents substantial opportunities for improved supply chain
efficiency and competitive advantage
• Corporate strategy is typically not well aligned with
operational capabilities, limiting ability to execute to plan
• Shared vision, a holistic supply chain view, new policies and
performance metrics, common nomenclature and a
framework of operating principles are needed to enable the
necessary change
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
5 Principles of Collaborative Supply
Chain Design and Operation
1. Know your customers’ requirements
2. Construct a lean supply chain organization
3. Build tightly-coupled information infrastructures with
your suppliers and customers
4. Build tightly-coupled business processes
5. Construct tightly-coupled decision support systems
based on understanding the total supply chain
© Cayuga Partners LLC. Proprietary and Confidential. All Rights Reserved
Analytics
Learning Tools
ModelsCoaching
Course-
ware
EDUCATE . . .
SIMULATE . . .
INNOVATE!
Cayuga Partners’
Supply Chain Innovation
Program™
1. Education and Strategy
2. Supply Chain Audit and
Opportunity Assessment
3. Pilot proof-of-concept projects
4. Implement with on-going
Education, Simulation and
Consulting for Continuous
Improvement Program Elements
Innovation
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“There is nothing more difficult to plan,
nor more dangerous to manage,
nor more doubtful of success,
than the creation of a new order of things.
For the reformer has fierce enemies in all who would
profit from the preservation of the old,
and only lukewarm defenders in those who would gain
from the new.
This lukewarmness arises partly from the fear of their
adversaries, who have law in their favor, and partly
from the incredulity of mankind, who do not truly
believe in anything new until they have had an actual
experience of it.”
- Niccolo Machiavelli - 1513