Ngẫu hứng Supply Chain Management

Serendipitous Adventures in Supply Chain Studies

Fundamentals of
Supply Chain Management
facilitated by Thao Santa8
[Link]

Santa8 - Sân chơi, chúng ta cùng tám

This is a difficult topic

Together we
“FIND”
the ANSWERs

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Fundamentals of Supply Chain Management
Supply Chain Overview • Definition
1
• 4 parties and 3 flows in a supply chain
• 5W1H decisions to design a supply chain
• Pillars for excellent supply chain
•
•
Attributes of a supply chain
Governing principles of KPI reporting Objective
2 Supply Chain Strategy • Business strategy
• Organizational strategy • Understanding
• Supply chain strategy fundamentals
Inventory Management • Inventory types
3 • Experience sharing
• Problems
• ABCN Classification
• Networking
• Inventory Carrying Cost
• KPIs

S&OP Planning •
4 S&OP Process
• Principles
• S&OP Project 3 | Santa8
Fundamentals of Supply Chain Management

5 Structured Problem Solving

6 Supply Chain Design – Case Study

Objective
• Understanding
fundamentals
7 Introduction about E-com
• Experience sharing
• Networking
8 Overview about Customs

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 TOGETHER

Learn to have
the right thinking,

Learn to ask
the right questions,

and Learn to develop

your own thinking

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 0

Way of working

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About classmates

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In class

Everyone participates, no one

dominates

Just ask if any questions

Be prepared to

Respect time limits, be on time

answer the
every time
questions at

Relate to your daily work and

any time
challenges

No disruptions: phone, email, side

conversations

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Applying “Structure” in communicating helps time saving, understanding,
and better remembrance

• Time Saving: The use of structure in communication streamlines the information flow, making it
more organized and efficient. This reduces the time needed to convey and comprehend messages, as
the structured format allows for quicker absorption of key points without unnecessary digressions.
• Enhanced Understanding: Applying a structured approach in communication ensures clarity and
coherence. Information is presented in a logical order, making it easier for the audience to follow the
message. This enhanced clarity fosters a deeper understanding of the content, preventing confusion
or misinterpretation.
• Improved Remembrance: A well-organized structure aids in memory retention. When information is
presented in a structured manner, it becomes more memorable. The brain can better encode and
recall details, leading to improved remembrance of the communicated content over time.
• Section divider every 2 min: If it take your more than 5 mins to deliver a long content, insert a
section divider every 2 min

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Assignment

• In-class discussion
• Every session:
• Note: 2 day after class
• 15-min check-in: same day of new class
• Homework:
• 5W1H – include into Note
• Final assignment:
• Record – 30 mins: What have you learnt from the course?

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 Assignment

After class – due on Wed Before new session – due on Sat

Bạn dành bao nhiêu thời gian để ôn bài trong tuần vừa qua?

Bạn có nộp bài ghi chép đúng hạn

Bạn học được gì trong bài học trước?

Nội dung nào bạn thích nhất? Vì sao?

Bạn có câu hỏi nào không?

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 Assignment

After class – due on Wed Before new session – due on Sat

• Each person has 1 file for note taking • 1 link for each session

• Submit email to get shared folder • S1: [Link]

• Link: [Link] • S2: [Link]

• S3: [Link]
• S4: [Link]
• S5: [Link]
• S6: [Link]
• S7: [Link]
• S8: [Link]

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Those who are diligent will be rewarded

Refund is for whom are engaged with class:

✓questions in class
✓questions in note
✓questions in check-in
✓on time
✓3 good summaries

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Attitude we should have

Own your knowledge

Build better everyday

Facilitate learning agility

Disciplined Patient Sincere

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 1

Supply Chain Overview

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Departments in a company collaborate with each other through S&OP
process, where Supply Chain team play the coordinator role

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Question?

What is supply chain

management?
APICS definition of supply chain management

What is
Supply Chain The design, planning, execution, control, and monitoring of supply chain activities with

Management? the objective of creating net value, building a competitive infrastructure, leveraging
worldwide logistics, synchronizing supply with demand, and measuring performance
globally
(APICS Dictionary, 14th edition)

…and ensuring customs compliance.

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Question?

What does “4 parties” “3 flows”

mean in supply chain?
4 parties and 3 flows in a supply chain

Key Supply Chain Management Processes

Payment flow

Supplier Manufacturer Distributor Retailer

Product flow

Information flow

We can consider supply chain as linked organizations - supplier, manufacturer, distributor and retailer
connected by product, information and payment flow.

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Question?

What is the role of

each party?
5W1H decisions to design a supply chain

Business objective
Why
Suppliers

Product mix What Who Distributor

Customer
Supply Chain
Design
Transportation mode Warehouse

How Where Factory

Information system
Store

When
Planning horizon

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Question?

What does 5W1H mean?

Exercises: Practice 5W1H for a supply chain

5W1H Questions

You are now designing a new supply chain. Please apply

the 5W1H model to make decision

Group Question Industry

1 What, Why, Who Footwear

2 How, When, Where Footwear

3 What, Why, Who Porcelain

4 How, When, Where Porcelain

❑ Preparation: 5 min for all groups

❑ Presentation: 5 min for each group
❑ Peer review: 5 min

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Question?

What are activities in

supply chain?
(SCOR Model)
What are the major activities in a supply chain?

PLAN SOURCE MAKE DELIVER RETURN

• S&OP: Demand planning & • Procurement • Production execution and • Distribution • Reverse logistics
Supply planning • Sourcing/ Outsourcing control • Transportation
• Production planning • Production scheduling • Warehouse
• Material planning
• Transportation planning

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Question?

What makes an excellent

supply chain?
 What makes an excellent supply chain?

Here are the 5 pillars

Organization design Process Systems and technology People Supply chain metrics

How: Creation of an How: Key processes already How: Tie all processes together How: Skilled employees with a How: Metrics that are in place to
organizational structure to support in place and functioning at and allow the supply network to process focus, can see the end- assess performance against a
the strategic business plans and competitive velocity operate from the same, to-end supply chain as a single relevant standard and identify
goals of an enterprise simultaneously available data entity, and manage accordingly strengths to encourage and
weaknesses to amend

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Question?

What are the main KPIs of a

supply chain?
 What are the main KPIs of a supply chain?

The SCOR attribute:

Definition

Reliability Responsiveness Agility Cost Asset utilization

The ability to perform How fast a supply chain The ability to respond to Total cost to operate the The ability to efficiently
tasks as expected provides products to its marketplace changes to maintain supply chain utilize its assets
customer competitive advantage

❑ On time in full ❑ Cycle time ❑ Flexibility: volume, ❑ Labor cost ❑ Capacity utilization
❑ Quality pass rate for ❑ Lead time (internal product mix ❑ Material cost ❑ Week of supply for
Example

Raw material and and external) ❑ Adaptability ❑ Planning cost inventory

Finished good
❑ Forecast accuracy

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The meaning of the 4 governing principles of KPI reporting

1. Link to business 3. Come with

2. Issue visualization 4. Drive actions
objectives insights

• Identify your business • Visualize the KPIs to • Translate the • Identify bottleneck and
objectives show performance vs. quantitative findings into potential issues
target insights to explain
• Translate business performance trends • Define plan on how to
objectives into • Show variation between tackle the challenges
measurable goals actual and target • Read and interpret the based on KPI analysis
(KPI) data to present findings to
• Assign color coding in a larger audience • Create action list on how
• Compare KPI of actual order to raise attention to handle situation (incl.
performance with • Prepare insights in an task owner, activities, due
target • Deep dive into variation easily understandable date)
format

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What are the major trends in current supply chain outlook? Self-study

Big data Sustainability

Big supply chain analytics uses Sustainability involves the

data and quantitative methods to activities that provide present
improve decision making for all benefit without compromising the
activities across the supply chain need of future generation

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 Supply chain analytics leads to better decision making and hence Self-study
improvement opportunity

[Link]

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Sustainability is built on the basis of the Triple Bottom Line: Self-study
Social- Environment - Economics
The Triple bottom line

Social

Sustainability Economics
Environmental

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 5 technology that helps to drive competitive advantages Self-study
in supply chain
Here are the 5 game-changers

AI/Machine Learning Robot and

IoT Blockchain 3D printing
and Analytics Automation

How: Data generated by connected How: Bring visibility and How: Automate data analytics to How: Cobot (collaboration robot) How: Customized parts helps
devices is helping businesses run transparency to supply chain automate warehouse operations, work alongside humans to production gets closer to
more efficiently, gain insight into processes to improve trust improve delivery times, improve safety and efficiency, demand: reduce logistics cost,
business processes, and make real- among supply chain partners proactively manage inventory, with the support of AI and IoT improve speed-to-market,
time decisions optimize strategic sourcing, and reduce carbon footprint, reduce
create new customer experiences inventory risk
that increase satisfaction and
boost sales
Application: Application: Application: Application: Application:
• Manufacturing • Food industry • Fashion industry • Warehousing • Aviation
• Transportation • Automotive
• Utilities • Medical/ healthcare
• Footwear

[Link]
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 2

Supply Chain Strategy

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A supply chain strategy starts with business strategy

1 2 3
BUSINESS ORGANIZATIONAL SUPPLY CHAIN
STRATEGY STRATEGY STRATEGY

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 Aligning Business strategy with Supply chain strategy

Source: APICS CSCP textbook, 2020

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Planning Horizon

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When creating a business strategy, there are 5 ways that companies can
choose to compete

To create a sustainable competitive advantage:

Objective • Distinguish the company from competitors and outperform them
• Achieve financial and market performance

Focused
Low cost Best cost Focused low cost Broad differentiation differentiation

Price is the basis for competition Price and quality are the basis Price and speed is the basis for Customer experience and quality Innovation and niche marketing
for competition competition are the basis for competition are the basis for competition

Mass market is the target Mass market is the target Niche market is the target Mass market is the target Niche market is the target

Example: Walmart’s “Everyday Example: Toyota launched Lexus Example: Redbox rent video Example: Sandvick mining Example: Adidas/Nike launch
low prices” helps the company models to compete against movies through vending provides rock drilling equipment. their limited collections and sell
increase sales volume and luxury-car makers as BMW and machines for 1$. This price is Keeping the client’s continuous at premium prices to serve the
enhance bargaining power with Mercedes. Lexus is a car with higher than Nextflix to see a operation is more important small group of fashionistas with
suppliers through economy of premium-quality at costs below movie, but is much lower than than the prices of machine/spare high willingness to pay
scales those of competitors other DVD companies. parts. Therefore, the company
provides always-on field support.

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There are 4 types of organizational strategy, and they are not necessarily
exclusive

❑ Satisfy customer, grow, compete, organize the company and stay profitable

Objective ❑ Align strategy among supply chain partners to serve end customer and
stay profitable for the entire chain and each company

Customer focus Forecast-driven Demand-driven Product-type-driven

How: Focus on “END CUSTOMER” How: Operate as a “PUSH” organization How: Operate as a “PULL” organization How: Operate HYBRID supply chain for
each type of product

• Focus on what’s good for customer, • Production is based on given schedule • Production as demanded for use or to • Functional products: low profit margin
not the nucleus company replaced used items and predictable demand
• Material is issued based on given
• Not about most innovative product, schedule • Material is issued when users signal • Innovative products: high profit margin,
lowest price, fastest time but about the short life cycle, unpredictable demand
balance of these elements • Inventory is pushed by central team • Inventory is pulled by field warehouse

Execution: Execution: Execution: Execution:

• Align the balance of goals among • Forecast is the major input for all • Firm order is the major input for all • Functional products: focus on cost and
supply chain partners activities activities quality

• Set a balance of goal for each company • Products are pushed downstream from • Products are pulled upstream from end • Innovative products: focus on speed,
manufacturer to end customer customer to manufacturer flexibility and quality
• Encourage internal collaboration in
each company to meet the goal

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Forecast-driven vs Demand-driven strategy: Pros and Cons

Forecast-driven - PUSH Demand-driven - PULL

Advantages Advantages
• Better capacity management: Loading can be spread among different • Low inventory carrying cost and low risk of obsolescence
periods to reduce supply variation
• Lower production cost due to reduced overtime and outsourcing cost
• Lower risk of lost sales due to stockout

Disadvantage Disadvantage
• Inventory is built up, which can lead to high inventory carrying cost • Risk of lost sales due to stockout
and obsolescence • Risk of capacity variation, which leads to lower efficiency and higher cost

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Which factors will impact PUSH vs PULL model?

PUSH PULL

Short Customer’s expected lead time Long

Long Relative of product shelf-life to production Leadtime Short

Favor Favor
PUSH PULL
model model

High Level of demand certainty Low

High Importance of economy of scale Low

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Volume-Variety Matrix

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 Fashion products adopt push allocation model

How does it work?

100% 60%

Push to stores
❑ Minimize inaccuracy in forecast
Fashion 20% at store level
products
20% ❑ Opportunity to allocate
quantity to stores with better
Total buy qty. Wave 1 Wave 2 Wave 3 sales after start of season

Determine first allocation

quantity based on store Push remaining quantities
capacity and minimum based on store sales
display quantities performance

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Functional vs Innovative products: What’s the implication for a supply
chain?

Functional product Innovative product

❑ Inventory: Minimal safety stock ❑ Inventory: High safety stock to buffer demand variation

❑ Production: Maximize capacity utilization ❑ Production : Excess buffer capacity to buffer spike in demand

❑ Supplier: Chosen for Cost and Quality ❑ Supplier: Chosen for speed, flexibility and quality

❑ Product design: to minimize cost and maximize efficiency ❑ Product design: to postpone differentiation as long as possible

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Supply chain strategy: The 3Vs focus

Managing Visibility – Velocity and Variability are fundamental to supply chain

Visibility Velocity Variability

Definition Definition Definition

❑ The ability to view important information ❑ The relative speed of all transactions, collectively, ❑ The natural tendency of all business activities to
throughout a supply chain no matter where the within a supply chain community. fluctuate above and below an average value
information is located. ❑ Increase in safety stock or buffer capacity is the
common method to deal with variability

Benefit Benefit Benefit

❑ “What gets measured, get improved” ❑ Higher asset turnover ❑ Managing variability helps to increase velocity and
❑ Higher speed-to-market efficiency in the supply chain

How How How

❑ People: Build capability to make decision effectively ❑ Select more rapid mode of transportation ❑ Demand variability: manage and minimize
❑ Process: Optimize process with clear RACI ❑ Inventory: use Just-in-time inventory bullwhip effect (will be covered in next section)
❑ System: Build system to enable real-time and ❑ Speed up flow of demand and cash ❑ Supply side: Continuous improvement
accurate data extraction and dashboards to track
performance

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 3

Inventory Management

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Overview of inventory management

Deep dive in Safety stock

Ordering principles

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How many forms of inventory is your company holding?

Example: Different forms of inventory for a footwear manufacturer

Raw material (RM) Work-in-progress Finished goods (FG) MRO

❑ Within a supply chain, a party’s FG could be another party’s RM

❑ Within a company, a department’s FG could be another department’s RM, and they are all WIP from the overall
company’s perspective

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Example: Inventory KPIs measured in one actual consulting project

KPI Definition Calculation

Total
inventory
Total value of inventory based on COGS Total inventory value = Inventory quantity * COGS
value

% inventory % value of inventory with forecast compared to Total % value of inventory with forecast = Value of inventory with
with forecast inventory value forecast/ Total inventory value

Weeks of
How long the current on hand will last based on sales forecast Weeks of Supply (WOS) = Total inventory value/ Average weekly
supply
sales revenue

In-stock rate
% Number of SKUs with stock on hand compared to Number of In-stock rate = Number of SKUs with stock on hand
SKUs in Assortment list

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Question?

Inventory holding cost vs COGS

– Which is bigger?
 It is costly to hold inventory, that is why we need to minimize inventory
holding
There are many elements contributing to Inventory Carrying Cost Illustration of the elements
Cost (% of
Cost type
COGS)
Insurance
Cost of capital 16%
Warehouse storage 2.89%
Tax 1.17%
Obsolescence Tax
Insurance 0.06%
Obsolescence 0.8%
Scrap 1.29%
Inventory carrying Relocation 1.43%
Scrap Relocation
cost Total inventory carrying cost 23.64%

Understand the potential

Warehouse Walmart holds total inventory of $43.8 bn.

ADM & … AS-IS
storage Carrying costs: 23.64% 🡪 $10.35 bn.

WHAT-IF Imagine Walmart cuts just 5% inventory

Cost of Capital
Saving will be as big as $518 mil, and go straight to
RESULT
bottom line

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Question?

Why do we need to keep

inventory?

What form of inventory

should we keep?
Hints: SC management is to deal with lead time and limited resources

Payment flow

Supplier Manufacturer Distributor Retailer

L1
L2
L3
L4
Product flow

Information flow

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Question?

How to manage inventory

effectively when we have so
many SKUs but my planning
team is limited in capacity?
 ABCN approach helps to prioritize and focus effort on the highest value-
creating items
Assortment planning

Class A Class N Class B Class C

❑ 20% - 30% SKUs ❑ 5% - 10% SKUs ❑ 20% - 30% SKUs ❑ 40% - 60% SKUs
❑ 50% - 70% Sales ❑ Innovative or Renovative ❑ 20% - 30% Sales ❑ 10% - 30% Sales
products

Planning effort, review frequency, partnership with supplier

Priority in production and inventory storage

High Low

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 How to segment products into ABCN – apply Pareto principle into the 4
steps process

Items of high
• Annual quantity
20%

contribution Calculate annual

(~20% of items) value • Unit value

Items of mid
• Rank according to annual value for
80% value, 20% items
Pareto principle of 80/20

contribution Rank from largest

item
~80% of total value to smallest

80%
(~30% of items)

• Accumulate the value % from top

80%

Cumulate value % item

Items of low
contribution
(~50% of items) • Apply the criteria to define segment
~15% of total value for each item
Apply ABC criteria

20%
~5% of ttl value

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The decision making mechanism of inventory can impact overall planning
efficiency of the supply chain
Factors Centralized Decentralized

Decision is made here

Decisions are made here

❑ Alignment of priority among locations

Pros ❑ Consider factory’s capacity ❑ Consider local insight about demand

❑ Lower risk of bullwhip effect

❑ Lack of alignment of priority among locations

Cons ❑ Lack of local insight ❑ Risk of bullwhip effect
❑ Lack of consideration for factory’s capacity

How to build a hybrid solutions that can combine the advantages of both approaches?

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 Inventory location impacts the cost and lead time of the supply chain

Factors Centralized location Decentralized location

Inventory is kept here

Cost Inventory is kept here

❑ Inbound transport
❑ Outbound transport
❑ Inventory holding

Lead time
❑ Order fulfillment

Companies usually need to do simulation to make decision about inventory locations and policy (Centralized, Decentralized, Hybrid)

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Overview of inventory management

Deep dive in Safety stock

Ordering principles

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 The cycle stock and safety stock come as a result of daily business pursuing
satisfactory service at optimized cost
QTY
Definition of Cycle stock Order 1 Order 2 Order 3
arrive arrive arrive
200
It is the stock formed by items arriving infrequently but in
large quantities to meet frequent but small-quantity
demands. Also called working stock or lot size stock
• Each order 200 pcs
• Daily consumption 20pcs
• Next order arrive when all stock consumed
• Order 1 arrive at Day 0 0 10 20 30 Days

QTY
300 Order 1 arrive Order 2 arrive
Definition of Safety stock Order 3 arrive

200

It is the level of extra stock that is maintained to mitigate risk

100
of stock outs due to uncertainties in supply and demand. Also Demand Supply Safety stock
variance variance
called buffer stock
0 10 20 30 Days

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 The estimated average level of inventory can be calculated from average
cycle stock plus safety stock
The formula to calculate Average Stock if Cycle Stock consumes smoothly each time

QTY
300
Average Stock
RECEIPT

CS

100
CS / 2 SS
SS Safety stock

0 10 20 30 Days

Example
What can average stock help?
Order 200 units each time, Safety stock is constant at Average stock quantity
arrives when finishes 100 units • Estimate the average stock level for target
setting, e.g. stock turn

200 / 2 100 200 • Estimate stock carrying cost

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4 steps define our approach to safety stock
QTY
Step 1:
300 Order 1 arrive Order 2 arrive
Establish service
level Order 3 arrive

200

Step 2:
Map out service 100
factor Demand Supply Safety stock
variance variance

0 10 20 30 Days
Step 3:
Study the supply
and demand
variance Demand variance

Avg Leadtime x SD Demand^2

Leadtime variance SS = Z x +
Step
Step 4:
4: Avg Demand^2 x SD Leadtime^2
Setup safety
Setup safety
stock
stock Service expectation

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 Define an optimal service level by balancing stock out cost and inventory
carrying cost
Definition of service level

The expected probability of not hitting a stock-out during the next replenishment cycle, and thus, it is also the probability of not losing
sales

The more safety stock built, the higher the service level However we need to balance the inventory carrying cost and
stock-out cost
Probability
The higher inventory
Service level Probability of The lower the inventory
The higher carrying cost
stock-out
The higher stock-out cost
Carrying cost

Stock-out cost

Mean of SS Demand
demand at LT
A balance of marginal carrying cost and stock-out cost will leads to optimal
Inventory
inventory level, i.e. optimal service level

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 Demand and supply variance is the fundamental cause of the need of
safety stock

Avg Leadtime x SD Demand^2

SS = Z x +
Avg Demand^2 x SD Leadtime^2

If no demand and supply variance, then SS=0

There are many factors that will cause demand and supply variance

Some factors that impact the demand Some factors that impact the supply
• Raw material • Raw material supply delay
• New product launch
• Product proliferation • Power supply blackout
• Marketing plan • New marketing programs • Workers availability during long holiday
• Increased promotions • Manufacturing • Machine breakdown
• Geography expansion • Environment campaign by government
• Transportation delay
• Change of competition
• Market place • Transportation • Customs issue
• Change of customer preferences
• Port congestion
• Others • Severe weather change • Disaster weather, e.g. typhoon
• Others
• Industrial strike

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 Watch out the pitfalls when calculate optimal service level

Reflect capital element in Markdown is significant in Establish an accurate holding It is difficult to define stock-out
holding cost apparel industry cost is key cost precisely

• Capital cost is the biggest cost • For apparel business, the • Holding cost is the key parameter • M is more than gross margin, but
component for holding cost, can markdown can be up to 30% of to compute optimal service level how much more is difficult to
contribute up to 50% of holding retail sales, with significant define
cost contribution to holding cost

• Many companies are not aware • A proper tracking of the • Differentiate holding cost for • It is important to note that M
of or miss out the capital cost markdown cost is key to compile different items, which will help needs to reflect the total margin
element when compiling the a proper holding cost for apparel enhance the significance of the contribution, not just unit gross
holding cost business formula margin

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Overview of inventory management

Deep dive in Safety stock

Ordering principles

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Question?

• How to calculate buffer

to address variability in
supply and demand?

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To address variability in demand and supply, we can have buffer in TIME or
QUANTITY

Time buffer Quantity buffer

Add buffer time to normal lead time to protect against

Add buffer inventory to normal stock to avoid stockout in
fluctuation in supply lead time so that an order can be
case of late shipment
completed before its real need date

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 6 common models of inventory ordering policies

Order based on cycle stock and safety stock through periodic Order N periods Ordering quantity is equal to net requirement for a given
Safety stock review
of supply number of periods
(Deep dive in next section) (Example: Order to cover demand of next 1 month)

Actual order quantity is always equal to a pre-determined Order based on the quantity that optimized the total cost of
Fixed quantity fixed quantity inventory holding and ordering cost
order EOQ
The fixed order quantity will be ordered whenever inventory (EOQ: = sqrt(2SA/ci) (*)
falls below reorder point

Minimum quantity is the reorder point and maximum is the Order quantity is equal to the net requirement of the period
“order up to” inventory level (Example: Small hardware store chain use L4L to replenish
Min-max Lot-for-lot
An order is suggested if sum of available inventory an each retail store with just what was sold
scheduled receipt is below the min

(*): S: Order cost, A: Annual demand, c: Cost per unit, i: Carrying cost
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4

S&OP

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We will explore S&OP in two aspects

Fundamentals of Best practices

S&OP

TBC

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Supply chain collaboration will evolve from internal to external with the
development of maturity

Stage 4
High

CPFR
Stage 3

• Enforce common process on

S&OP data sharing & performance
Stage 2
management along SC
• Planning collaboration with
Semi-Functional • Unified planning data partners
Stage 1 collaboration shared across functions • Collaboration on forecast &
Maturity

• Formal process on replenishment program, e.g.

collaboration and VMI
Multiple dysfunction • Some level of sharing and alignment
alignment across • Executives participation in
functions S&OP meeting
• Demand, supply and FIN • No standardized way of • Best practice is to cover
work in silo working & collaboration full functions, becomes a
• No unified planning data regular way for leadership
shared team to run business (IBP)
• Information shared with
SC partners
Low

Low Level of collaboration

High
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 APICS definition of sales & operation planning

✔ A process to develop tactical plans that provide

management the ability to strategically direct its
businesses to achieve competitive advantage on a
continuous basis by integrating customer-focused
marketing plans for new and existing products with
the management of the supply chain.

S&OP key characteristics

✔ One integrated set of plans

✔ Reviewed by management

✔ Regular practice, e.g. once a month

✔ Aggregated (product family) level

Source: APICS Dictionary, 14th edition

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 The aim is to balance demand and supply to optimize profitability

S&OP process is the act of balancing …

Demand Supply

Demand Confirmed Resources/

Inventory
Forecasts Order Capacity

S&OP process

Source: APICS
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 S&OP is the collaborative planning of demand & supply

Sales and operations planning (S&OP) overview

Business Strategy and Plan

Create demand Balance demand Capacity

with supply planning

Prioritize Demand Sales & Supply

Communicate Communicate RM planning
demand management Operations management
for alignment for alignment
Planning

Influence Optimize Production

demand performance scheduling

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 Typically S&OP can bring significant impacts

Working capital improvement

Cost reduction
-20-30%
-5-10% • RM and WIP inventory
• FG inventory
• Labor productivity
improvement
• Fixed cost optimization
• Freight cost reduction

Sales growth

Tangible Impacts +2-4%

• Improved service
• Reduced out of stock

Source: [Link]
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 There are 5 steps in S&OP process

01
• Demand forecasting Collaborative demand
planning • Production constraints
• Collaborative Demand shaping
evaluation

02
Consolidated supply
planning • Factory resources planning
• Inventory optimization
• Allocation of demand to
supply
• Peaks and valleys smoothing 03 Supply demand
balancing
Exceptions

• KPI measurement
04 Management
& Profit Analysis
• Exceptional case focused
• Profit based scenario
analysis

• Gap analysis between plan

and reality
• Root cause analysis and
05 Management review

action list

The goal is to drive better visibility among different departments, and come up with a “internal agreed best plan” for future
execution

Note: There are various “similar” ways to define steps

79 | Santa8
We will explore S&OP in two aspects

Fundamentals of Best practices

S&OP

TBC

80 | Santa8
Best practices for an effective S&OP

Establish flow Run meeting effectively

governance • Preparation
• Process and meeting flow • Facilitation
• Who is doing &
• Follow up
accountable for what
(R&R) along the timeline,
before and after meeting

Produce insightful Provide guidance in

reporting decision making

• Facilitate decision making • Share governing principles

with Insightful reporting • Establish decision tree

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S&OP is a complex process with many parties involved, a clear flow
governance will ensure compliance and effectiveness

Forward looking Forward looking Financial and strategic Strategic information

• Demand forecast • Supply capacity and information • Business strategies
constraints • Financial budget
• Capacity plan to fulfil • Company policies
Past performance Past performance demand
Inputs • Demand KPIs • Supply KPIs • Projected cost &
• Root cause analysis • Root cause analysis service level KPIs
• Action plan • Action plan • Balanced Capacity • Proposed optimal
plan operation plan to
mitigate demand

S&OP 4. Exceptions
1. Collaborative Demand 2. Consolidated Supply 3. Supply Demand 5. Management Review
monthly Management and Profit
Planning Planning Balancing
cycle Analysis

Week 1 Week 1 Week 2 Week 3 Week 4

Aligned Sales plan • Capacity plan • Balanced Capacity • Proposal of optimal • Agreed Operation plan
Outputs • Demand projections plan operation plan to
• Intake plans mitigate demand

Sales Demand planning Capacity planning Executive management team

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Exercise: Match the leading departments to each step of the S&OP process

Toolbox

Match the elements by colour to their 5. Executive

Management management
corresponding process step Review team
One or two departments can be lead for
a single step

4. Exceptions
Capacity & 1.
Management Sales /
Demand and Profit Collaborative
planning S&OP Cycle Demand
Sales Analysis Demand planning
Continuous Plan and Planning
Execution review.
Measure and act on
Capacity Demand deviations
planning planning

3. Supply 2.
Capacity & Consolidated
Executive Demand Demand Capacity
management Balancing Supply planning
planning Planning
team

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Let’s start with an example of ineffective meeting

• Example of a ineffective meeting (video)

[Link]

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 Ineffective meetings can be very costly

• Studies show managers spend

30% to 70% of their time in Globally estimated cost :
meetings
US$2-3 trillion per year
• Survey show managers believe
that an incredible 20% to 50%
of all the time spent in
meeting is wasted

Possible impact of ineffective and inefficient meetings:

• Unclear root cause and misleading focus

• Imbalance workload, high WIP and DOI
• Mismatch between demand and supply

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An effective meeting requires quality work from 3 stages: before, during
and after the meeting

40% 20% 40%

Pre-meeting During meeting Post-meeting

• Have all previous actions been met? • Time frame • Have the actions captured been
• Attendance communicated?
• Have all action outputs been • Objective
communicated? • Agenda • Are the actions generated being worked
• Next steps on?
• Is the meeting adequately prepared for?
• Will all the actions be met by the next
meeting?

86 | Santa8
Meeting effectiveness checklist provides guidance to carry out the
necessary tasks before, during and after the meeting

Objective: The checklist serves as a structured tool to guide and measure the effectiveness of the meeting.
How does it work:
• Each phase of the meeting contains a set of questions for participant to evaluate and score from 1 to 5.
• Each question will have correspondent weight depend on its importance.
Very poor Poor Basic Good Excellence
Zero % met <50% 50% - <80% 80% - <100% 100 % met
1 2 3 4 5
A) Pre-meeting
1 Meeting agenda is shared to all participants at least 2 days in advance
2 Actions defined to be completed 100% before this meeting
3 Relevant parties involved in the decision making, have done all required pre-meeting preparation
4 The reported data is accurate and comments are duly completed and circulated for reading before meeting
5 Decision making objectives are clearly defined at the outset
B) During meeting
6 Assign meeting facilitator controls time spent per section and use parking lot
7 Root causes analysis are discussed and projected recurrent trends are factored in to the decision making
8 Attendees have participated into discussion during the meeting
9 Discussion address forward looking issues and prioritizes nearer term/high impact problem
10 Decision made is fact-based and supported by KPI's presented in the report
11 Decision made is financial driven i.e. best supporting company's profitability goal
12 Agree on the purpose and agenda of the next meeting
C) Post-meeting
13 The action list is sent within 24 hours to attendees with due date and responsible parties specified
14 The actions set were linked to projected impacts (financial or KPI's)

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Action log is a tool to capture decision making and follow up execution

Action log will be used in the opening meeting and recap of the meeting
Objective: Action log is used to assign, track and review action to ensure its accomplishment
How does it work:
• Each decision or action will be captured with clear date, person in charge, dependence
• Each action should be updated with status, an overall progress will be provided in the summary tracker
Action Tracker
Meeting Name:

No. Actions Assigned Date Category Owner Status Due Date Dependence Remarks
1 Done
2 In Progress
3 Overdue
4 Drop
5

Action Progress Summary

Number of action with status

Month Total Completion Percentage
Done In Progress Overdue Drop Open or No Status
Oct 2016 1 1 1 1 1 5 20%
Nov 2016 - - - - 4 4 0%
Dec 2016 - - - - 5 5 0%

Completion measurement: Effective 80% - 100% Marginally effective 50% - 80% Ineffective <50%

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An insightful KPI report will help facilitate decision making with 4 governing
principles
Governing Principles

Link to
business
objectives

Issue
visualization

Come with
insights

Drive actions

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 Ensure decision makings are always in line with company pursuance

Daily decisions, in aggregate, decide how well the organization’s strategic goal can be achieved

Establish a set of guiding principles, deriving from company’s strategic goal, to facilitate
decision making with empowerment at execution level in the S&OP process Profit margin

Customer
satisfaction

Follow best practices of key guiding principles to manage supply and prioritize demand Strategic
alignment
to generate optimum business result
Sales
revenue

In situations with conflicting criteria, it is all about balancing the principles for optimal Demand
result of the specific case, which heavily relies on business acumen and thus should be volume

escalated to pre-defined level (individual or group) for decision making

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Usually there are 5 major types of decision to be made for S&OP

5 major types of potential decisions

C H
Expedition Move orders Move order out Cancel
Change capacity (Air freight) amongst buckets of the factory orders

A B D E F G
Move within Move to another Move to
Hire new Increase OT Move to sub-
production production group another
workers hours contractor
group factory

What cost elements are associated with such decisions?

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 Decision tree provides a structure way to help examine relevant aspects to
ensure decision quality
B
1st priority: increase OT

Yes

Is the total company level A 2nd priority: hire new

workers
1st priority: Low CL

overload? YES
Yes: which orders to be 2nd priority: match prd grp
All fac overload Increase capacity? pushed back? capacity

Is it all the factories overload? Others

YES No: Push order back: G1

1st priority: orders w/ prd
grp imbalance
customer agree? st &2nd priority: Outsource:
which to outsource?

Other

Able to increase capacity?

Total level overload
C1 st & 2nd priority: Air freight

NO
No: Outsource or Air
1st priority: Low CL PON
freight or Drop order

C
D
Able to push back orders? 1st priority: same prd grp
H
2nd priority: replenishment
order
Last priority: Drop order:
NO Which to drop?

At least 1 fac under-load

Cross-fac levelling: which
fac better?
Which order to be shifted? E 2nd priority: similar prd grp
(bra/brief)
3rd priority: flash order

What is the overall

Three potential solutions

company loading
situation? Other 1st priority: firm order Other

At least 1 fac overload

Yes: which orders to be 2nd priority: replenishment
pre-produced? PON
Total level under-load Yes

Give holiday or control

All fac under-load
OT?
No: Pre-production: Others
material available (w/o
changing MD)?
At least 1 fac not balance-
load
Pre-procure material?
Expedite Outsource Drop order Total level balance-load Yes
No
All fac balance-load All prd grp balance-load?
Training?
No: need training or new
machine to balance load?

92 | Santa8
Case study

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SITUATION THE PROBLEMS
• >HK$1B leading company • Unstructured communication between sales team
intimate manufacturer and factories

• Headquartered in HK with • Large variance between projections and purchase

operation in China, orders
Thailand and Cambodia

• Leadership team
appointed Consulting Firm • No cross-department alignment on projected
to identify improvement
orders and forecasts
opportunities in supply
and demand planning

• Mis-alignment of priorities and frustration from

management

• Production capacity was not measured accurately

• Low OTIF performance

 SOLUTIONS DESIGN
Establish a systematic and singular approach to sales projections to stabilize factory loading in S&OP Deep dive

Standardize sales
Develop production planning framework Establish cadence of information
projections

Production Align series of

Product
planning meetings to
segmentation
dashboard feed S&OP

Pre-meeting
Customer Identified alignment and
engagement production measure meeting
dashboard bottlenecks effectivess

Cost simulator
Confidence Knowledge and
to enable
level of capability
scenario
projections building
analysis
 Training program Training is delivered with different forms to enable application

Basic Supply Chain Classroom Team discussion

Product segmentation

Sales forcecast & demand planning

Operation management
Modules and workshops

Supply management

Sales and Operation planning

Homework and coaching Learning by doing
Budget and Master finance

Management reports

Lean and Six Sigma

Problem solving and excel

Meeting effectiveness

Team management
IMPACTS TO CLIENT
Forecast Accuracy

73%
FINANCIAL
95%
IMPLICATION
Abs Deviation to 100%
55%
Utilization
Est. >15%
33%
Net Profit Increment

12%

A PR -1 6 MA R -1 7 8%

DE C -1 6 MAR-17
AMA
[Link]