Lecture Series: Consumer Electronics Supply Chain …metin/Or6366/Folios/ce_planning.pdfLecture...

2003 © UTD

Lecture Series: Consumer Electronics Supply Chain Management

Mohit Junejai2 Technologies

Divakar Rajamani, Ph.D.University of Texas at Dallas

Center for Intelligent Supply Networks (C4ISN)

2003 © UTD

Lecture 2: Planning the Consumer Electronics Supply Chain

2003 © UTD Slide 3 Center for Intelligent Supply NetworksC4ISN

Agenda

CE Products and Supply Chain StructurePlanning ProcessesInformation Flow across Planning ProcessesRolesKey Performance IndicatorsFuture Trends in Planning

2003 © UTD

CE Products and Supply Chain Structure


PV-SD5000

Digital Still Cameras

Electric Shavers

Plasma TV

VCR’S

End Product Offerings - Diverse Product Range

4-month life cycle

50 % sales done in

December

Hi TechLow turn

High Margin

CommodityLow TechHigh Turn

Low Margin


Consumer Electronics US Market Sales

US Consumers bought 95 billion dollars of CE product in 2002


Supply Chain for End Product


Industry Characteristics4 month lead time

Built to stock Delays,Out of stockOverstocked

Coordination


CE Industry Issues

High degree of parts customizationLong R&D design process timesLong lead time to create additional capacity for custom partsPoor customer service / supply flexibilityLow re-use of partsShort component life cycles leading to service issues

High supply risk due to reliance on custom partsShort product lifecyclesHigh demand unpredictability, inflexible manufacturingUnresponsiveness to demand signals due to manual monthly planningFragmented procurement across factories

Inventory boom-bust cycle (bull-whip effect)Low customer service levelsGeographically fragmented supply chainMargin erosionHigh spares inventory, inconsistent availability

Stock outsReducing marginsHigh logistics costsHigh inventory, store level stockoutsHigh promotions costs

COMPONENTSUPPLIERS

OEMs SALES COMPANIES

RETAILERS

2003 © UTD

Planning Processes


CO

LLAB

OR

ATIO

NCE Industry Key Planning Processes

DEM

AND

LOG

ISTI

CSAL

LOC

ATIO

N

SupplierCollaboration

FactoryPlanning

CPFR

DemandPlanning

TransportationPlanning

AllocationPlanning

DistributionPlanning

DemandPlanning


ReplenishmentPlanningSU

PPLY

FactoryCollaboration

DemandPlanning


MasterPlanning Factory

Planning


Planning Funnel

hour

sho

urs

days

days

wee

ksw

eeks

mon

ths

mon

ths

year

+ye

ar +

operationaloperational tacticaltactical strategicstrategicschedulingscheduling

Business Planning

Transportation Planning

SchedulingDistribution Planning

Master Planning

Demand Planning

Replenishment Planning

Factory Planning

Allocation PlanningCollaboration


Demand Planning

DefinitionThe Demand Planning process helps predict and influence future sales by customer

Typical constraintsLack of visibility into future customer needs

The long product lead time introduces further uncertaintyComplex interaction between a wide array of products and brands

Lack of visibility to competitionLack of quality data

Availability of sales dataAvailability of POS data

BenefitsDecrease inventory obsolescence and mark downsIncrease customer service and fill rates


Demand Planning

CE Industry ChallengesFrequent Promotions and MarkdownsFrequent new product introductions, short product life cycleSeasonal DemandLow forecast accuracy for new products, spiky demands


Demand Planning

Retailersuse point of sale information to forecast their sales. They use merchandize planning to set pricing and markdowns on product.

Sales companies forecast based on shipments and historical sales, market information as well as planned promotions. They forecast across retailers in a market.

OEM’s forecast across sales companies based on market analysis, business plan as well as historical shipments to sales companies.


Supply Planning

DefinitionThe supply planning process optimizes the use of both capacity and material in order to maximize satisfying anticipated demand

Typical constraintsPlanning assumes fixed lead times – infeasibilitySimplistic inventory planning leads to overstock and lost sales situationsDistribution Space & Handling Constraints Manufacturing capacity constraintsPurchasing material constraints - alter production schedules

BenefitsReduce cost of inventory, expeditingGlobal coordination – sharing information across supply chain entities


Supply PlanningCE Industry challenges – Replenishment and Distribution

Complex distribution network with possible alternates in fulfillment locationInventory management - Safety stock vs. CSL tradeoffInventory rebalancing between DC’s

CE Industry challenges – ManufacturingDiscrete Part Manufacturing: Factories aligned with product lines. Strategic sourcing – Supplier Selection, Scorecard and AllocationProduct sourcing – Obsolescence management, Part re-use, BOM gradingSignificant Material ConstraintsRequires Assembly coordinationSeasonal Build Ahead – high demand in the Christmas seasonManufacturing lot size


Supply PlanningRetailers typically perform replenishment planning

calculate purchase from demand forecast and inventory / projected receiptsstore level inventory deployment plan

Sales companies perform a distribution plancreates the material purchasecreates the Inventory deployment across warehouses

OEMs create a capacity and material feasible master plan across factories and make factory sourcing decisions

OEM/Component supplier - Factoryeach factory creates a material and capacity feasible productionschedule and detailed material procurement plan based on its vendor allocation and preference rules


Allocation PlanningDefinition

Allocation planning process refers to disaggregating expected supply / commits to the customer against anticipated demand. The order promising function is an extension of allocation planning where a sales order is promised against this allocation.

Typical constraintsAllocation constraints include allocating material across multiple dimensions (customer, product and time) and also account for customer demand fulfillment strategiesOrder promising constraints include accounting for real lead times to customer, accounting for alternate fulfillment locations and alternate products

BenefitsIncreased customer service and retentionIncreased profitsIncreased order promising accuracy – hitting promise dates in execution


Allocation Planning

CE Industry ChallengesDefinition clear Tier structure between customers to allocate constrained supply

This structure tends to get changed annuallyDifferent customers can have agreements on shipments within different time windows – Weekly vsMonthly commitsProduct Substitution acceptable


Allocation Planning

Sales companiescreate allocation plans from warehouse / Sales org to different retailers / groups of retailers

OEMs create allocation plans for allocation of finished goods between various sales companies – this is usually done as a part of the master plan

Component suppliers create allocation plans for components and capacity across various OEM’s


Logistics PlanningDefinition

Logistics planning refers to planning of material transfer between source and destination locations

Selection of mode of transportMaximizing container densityMaintaining loading constraintsRoute selectionRegulations Shipment tracking

Typical constraintsContainer sizeStacking constraintsRoute optimization – hubs, merge in transits etc

BenefitsIncreased container utilizationReduced freight costsBetter shipment tracking


Logistics Planning

CE Industry IssuesLoad building / Load Configuration – CE products have complex freight loading and configuration rulesTransportation Mode - Multi Modal - Air freight for expediting, truck for inland transport and ship for overseasLimited number of carriers that have ability to deliver the productDistribution cost as a percentage of Total Cost is high


Logistics Planning

Retailers plan logistics from their warehouses to storessome retailers have negotiated product pick up agreements with sales companies / manufacturers

Sales companies plan logistics from their warehouses to retailers / smaller customers

OEMs plan logistics from factories / divisions to sales company warehouses

Component suppliers plan logistics from their plants to OEM assembly plants


Collaboration

DefinitionCollaboration in the process of sharing information across supply chain entities in order to better meet end customer demand

Collaboration workflows typically enable electronic transfer of data like forecasts, commits, purchase orders, designs etc

Typical constraintsNot all supply chain entities are technologically advancedNot all entities can agree on sharing confidential data

BenefitsOn-time and more responsive deliveriesReduction in inventories through improved longer term visibilityReduction in costs – reduced obsolescence, better planned promotions, reduced markdowns and reduction in expedites


Collaboration

CE Industry IssuesCollaborative replenishment planning for geographically separate DCs , plantsCollaborating on demand which is over a long lead timeCollaborating on joint promotions


Collaboration Process

Collaboration Process is typically performed weekly

Retailer

OEM

Sales Company

Component Supplier

CPFR

FactoryCollab

SupplierCollab

Product LeadTime

Retail PO

Sales Co. PO

OEM PO

Retailer Purchase Forecast

Sales Co. Purchase Forecast

OEM Purchase Forecast

M1 M2 M3 M4 M5

POStatus

POStatus

POStatus

Retailer

Sales Company

Component Supplier

2003 © UTD

Information Flow Across the Supply Chain


Retail Planning Processes

DemandPlanning

DemandPlanning


AllocationPlanning

ReplenishmentPlanning

CPFR



1. POS Forecast

2. Adjusted POSforecast

3. PurchaseForecast

4. SupplyCommit

5. InventoryDeployment


Sales Companies Planning Processes

DemandPlanning

DemandPlanningDemand

Planning

MasterPlanning

FactoryPlanning


AllocationPlanning

ReplenishmentPlanning

FactoryCollaboration CPFR



1. Total Sales Forecast

3. Sales co. PurchaseForecast

4. Commits

2. Total sales plan,Key retailer forecast

5. Inventory Deployment


OEM’s Planning Processes

DemandPlanning

DemandPlanning

FactoryPlanning

MasterPlanning

FactoryPlanning


AllocationPlanning


FactoryCollaboration


7. ConstrainedSupply plan

1. Total manufacturingforecast

2. Production Requirements

3. Independent requirements

4. FactoryProcurement

5. Commit

6. Commit

8. Commit

2003 © UTD

Roles



FactoryCollaboration CPFR

CO

LLAB

OR

ATIO

NCE Industry Key Planning Roles

DemandPlanning

DemandPlanning

DemandPlanningDE

MAN

D



TransportationPlanningLO

GIS

TICS

AllocationPlanning

ALLO

CAT

ION

FactoryPlanning

MasterPlanning


ReplenishmentPlanningSU

PPLY Factory

Planning

MerchandisePlanner

Buyer

LogisticsPlanner

Merchandise &DemandPlanners

DemandPlanner

Procurement Planner

Procurement &Demand, MasterPlanners

Buyer & FactoryPlanners

Master, FactoryPlanner & Buyer

FactoryPlanner

DemandPlanner

DemandPlanner

LogisticsPlanner

LogisticsPlanner


Planning Roles – Decisions they makeMerchandise Planner

Pricing decisions, demand forecasting-store level, promotions and CPFR

BuyerRetail

Replenishment at store level, create long term procurement plan, negotiate price for spot buys and inventory deployment plans, CPFR

Sales CompanyReplenishment at sales company DCs, create long term procurement plan and inventory deployment plans, factory collaboration

FactoryReplenishment at factory warehouses, create long term procurement plan, negotiate price for spot buys, supplier collaboration

Logistics PlannerCarrier/Mode selection, load consolidation configuration and routes – includes merge in transit

Master PlannerHigh level factory sourcing decisions, high level capacity and material plan, independent buy

Demand PlannerBusiness planning, forecasting, promotions, analysis of point of sale data, facilitate pricing decisions, CPFR

Factory PlannerCreate a detailed capacity and material plans, schedules at plant level, and supplier collaboration

2003 © UTD

Key Performance Indicators


Key Performance Indicators (KPIs)

Financial KPIs are used to measure the business performance (tactical and strategic)

Typically byDivision/CorporateQuarter/YearEntire Customer base

Operational KPIs are defined to monitor various planning processes (operational and scheduling)

Typically bySKU / Product FamilyCustomer/ Customer GroupWeek/Month

Can be used for scorecards


Key Performance IndicatorsLogistics

Container utilizationNo of Empty trips% Expedites (Trans.)Number of Touches

SupplyPeriod of cover by SKU / Warehouse wrt Safety stockInventory turnsObsolescenceMaterial earliness (temporary inventory buildup) Safety stock shortage Material lateness Shortage - % demand fulfilled based on purchase planMarkdowns ($)Resource utilization

DemandForecast accuracy

Error in revenue forecast by customerError in revenue forecast by division / product familyForecast error wrt sales order2 month forecast cumulative error wrtshipment by key product / customer

Forecast volatility / stabilityWaterfall chart of dollarized forecast by customer (forecasted bucket)Forecast variance by month for key product / customer

AllocationConstrained Sales ($) by month vs business plan typically at division levelAllocated forecast ($) vs forecast by customerAllocation realized –Allocated forecast with sales order received at SKU


Key Performance IndicatorsExecution scorecard

On time delivery against PO’s Right Quantity against POWeekly / Monthly Order Delivery (measures for order cycle)PO lead timeLock PeriodFill rateIn stock percentageMis-labelingPromotion order shipment (penalty for mis-shipment)

CollaborationBaseline Forecast vsCollaborative / Consensus ForecastCommit wrtCollaborated / Consensus forecast

2003 © UTD

Future Trends in Planning


VMI Trend in CE Industry


VMI Trends for CE Retailers


Outsourcing Assembly (or Kitting)


Information Sharing and Collaboration for CE Retailers


Information Sharing and Collaboration for CE Manufacturers


Challenges in Retailer Interaction


Challenges in Interaction with CE Manufacturers


Frequency of Merchandising and Replenishment Planning


Frequency of Demand and Supply Planning


Delay in Demand Propagation

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