Supply Chain

Supply Chain Strategies
Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 1 of 113
CORPORATE/COMPETITIVE STRATEGY
MARKETING AND SALES STRATEGY How the market will be segmented What products/ services will be offered to different customer segments How the product will be positioned, priced, promoted, and distributed PRODUCT DEVELOPMENT STRATEGY The portfolio of new products that a company will try to develop Whether the development effort will be made internally or will be outsourced completely or partially
SUPPLY CHAIN STRATEGY Insourcing/Outsourcing of Supply Chain Activities Supply Chain Design. Broad structure of the supply chain including design decisions related to inventory, transportation, operating facilities, and information flows Supplier Strategy for Raw Materials and Other Inputs Manufacturing/Operations Strategy for Production/Service Operations Logistics Strategy: How the goods will be transported to and from the company; how the products will be distributed; and what customer services will be offered
Requirements for Achieving Strategic Fit

1. Functional Strategies Should Be Aligned with the Competitive Strategy 2. Resources & Processes in Each Function Should Be Aligned with their Functional Strategies 3. All Stages in the Supply Chain Should Be Aligned with the Supply Chain Strategy.
ACHIEVING STRATEGIC FIT

Identify the Market Segments to Be Targeted Identify the Needs of the Target Customer Segments
STEP 1
Define the Desired Variety, Cost, and Service Level Requirements to Meet the Identified Customer Needs Identify the Extent of Unpredictability of Demand, Disruptions, and Delays that the Supply Chain Must Be Prepared for to Meet the Characteristics of Customer Needs
STEP 2
Understand the Supply Chain Capabilities (What the Supply Chain Is Designed to Do Well: Be Efficient or Be Responsive)
Identify the Uncertainties the Identified Customer Needs Impose on the Supply Chain
STEP 3
Remove Mismatches, If Any, between Supply Chain (Customer) Requirements and the Supply Chain Capabilities Supply Chain REQUIREMENTS: Predictable or Unpredictable Demand Supply Chain CAPABILITIES: Efficiency or Responsiveness
1.1 Understand the Demand-Side Uncertainty

Wider Range of Required Quantity (Greater Variance) Shorter Lead Times (Faster Response) Greater Product Variety More Number of Distribution Channels Higher Rate of Product Innovation (Higher Frequency of New Product Introduction) Higher Service Levels HIGHER DEMAND UNCERTAINTY (Lower Predictability) Higher Forecast Errors
Lead To
Higher Costs
Increase in Both Lost Sales due to Stockouts; and Also Forced Markdowns due to Excess Stock
1.2 Understand the Supply-Side Uncertainty Factors that Increase Supply-Side Uncertainty Include:
Frequent breakdowns Poor quality Limited supply capacity Inflexible supply capacity Unpredictable and low yields New/evolving products New/evolving production processes
Demand-side uncertainty (that is, uncertainty from the customer) can be combined with the supply-side uncertainty (that is, uncertainty from the supply chain itself) into an Implied Uncertainty Spectrum.
Step 2: Understanding Supply Chain Capabilities: Supply chain capabilities range from those that focus on being responsive to those that focus on producing/supplying at the lowest possible cost (that is, being highly efficient).
Abilities that Make a Supply Chain Responsive

Ability to respond to wide range of quantities demanded Ability to deliver within short lead times Ability to handle a large variety of products Ability to build highly innovative products Ability to achieve a very high service levels Ability to handle supply uncertainty (to prevent disruptions)
Responsiveness Spectrum. In most real life situations the companies can achieve either responsiveness or efficiency Given, the trade-off between efficiency (cost) and responsiveness, a key strategic choice or any supply chain is the level of responsiveness it seeks to provide. This leads to the Responsiveness Spectrum.
Responsive Supply Chain
RESPONSIVENESS SPECTRUM
Efficient Supply Chain
Efficiency
Responsiveness
Implied Uncertainty
IMPLIED UNCERTAINTY SPECTRUM

Certain Demand Uncertain Demand
Table 5.2 Comparing Efficient and Responsive Supply Chains
Characteristic Efficient Supply Chains Primary Supply Chain Objective
Responsive Supply Chains
Table 5.2 Comparing Efficient and Responsive Supply Chains
Characteristic Efficient Supply Chains Satisfy predictable demand efficiently at the lowest possible cost
Responsive Supply Chains Respond quickly to unpredictable demand to minimize stockouts, markdowns, and obsolete inventory
Primary Supply Chain Objective
Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)
Characteristic Efficient Supply Chains Pricing
Characteristic Efficient Supply Chains Reduce prices by reducing costs; and reducing margins to compete on price
Pricing
Charge higher margins to compete on product innovations
Characteristic Efficient Supply Chains Product Design Strategy
Characteristic Efficient Supply Chains
Product Design Strategy
Use modular product designs Maximize performance to allow postponement while of the product differentiation minimizing product cost to achieve high product variety (through integral design) at a reasonable cost
Sourcing Strategy: Criteria for Supplier Selection
Responsive Supply Chains High product quality, flexibility/agility to adapt to changing requirements with speed, and supply reliability in the face of high demand uncertainty
Sourcing Strategy: Criteria for Supplier Selection
Adequate product quality and low cost
Characteristic Efficient Supply Chains Manufacturing Strategy
Make capacity flexible and Focus on Manufacturing deploy excess capacity high capacity utilization Strategy to be responsive to lower costs to demand/supply uncertainty
Characteristic Efficient Supply Chains Inventory Strategy
Responsive Supply Chains Deploy significant buffer stock of finished goods (make-to-stock environment); or components (configure-to-order environment) to deal with demand/supply uncertainty
Inventory Strategy
Reduce inventory throughout the network without reducing service levels; generate high inventory turns;
Characteristic Efficient Supply Chains Lead Time Objective
Lead Time Objective
Shorten lead times Invest aggressively as long as to shorten lead times it does not increase cost
Individual Stages in the Supply Chain Can Have Different Levels of Responsiveness/Efficiency as long as the Supply Chain Achieves the Overall Desired Level of Responsiveness/Efficiency.
Different Levels of Responsiveness/Efficiency at Different Supply Chain Stages

Company and Its Business Model IKEA, offers a limited variety of modular, stylish furniture at a reasonable cost through its very large, responsive retail outlets. Manufacturers and Their Supplier Contract manufacturers and their suppliers (located in low-cost countries) focus on being efficient to satisfy the predictable, stable demand at the lowest possible cost. Retailers The large scale IKEA stores with the limited variety of modular furniture are very responsive to varying customer needs. They absorbs most of the fluctuations in demand while incurring significant inventory costs.
Different Levels of Responsiveness/Efficiency at Different Supply Chain Stages

Company and Its Business Model England, Inc., a furniture manufacturer located in Tennessee, works on made-to-order basis offering very high level of responsiveness at a short lead time of three weeks. Manufacturers and Retailers Their Supplier England, Inc., as the manufacturer, absorbs most of the uncertainty by being responsive through its flexible manufacturing processes at a slightly higher cost. Retailers of England, Inc. allow customers to select from a wide variety of styles from catalogs and promise quick deliveries in less than three weeks. Retailers do not carry much inventory and, thus, are very efficient and low cost businesses. However, they pass most of the implied uncertainty on to the manufacturer (England, Inc.).
Examples of Tailoring the Supply Chain for Strategic Fit

Responsiveness through Manufacturing Processes: New versus Matured Products Responsiveness through Faster Mode of Transportation (Identical Mfg. Processes) Responsiveness through Inventory Aggregation and Faster Modes of Transportation
Supply Chain Stocking Strategies
SUPPLY CHAIN STOCKING STRATEGIES (Oracle 12i)
SUPPLY CHAIN STOCKING STRATEGIES (Oracle 12i)/ PLANNING STRATEGIES (SAP ERP)
Also Called: Manufacturing Environments,
Also Called: Manufacturing Environments, Demand Response Strategies, or
Also Called: Manufacturing Environments, Demand Response Strategies, or Product Positioning Strategies
1. Make To Stock (MTS), also called Ship To Order (STO),
1. Make To Stock (MTS), also called Ship To Order (STO), 2. Assemble To Order (ATO) or Configure To Order (CTO)
1. Make To Stock (MTS), also called Ship To Order (STO), 2. Assemble To Order (ATO) or Configure To Order (CTO) 3. Make/Build To Order (MTO)
1. Make To Stock (MTS), also called Ship To Order (STO), 2. Assemble To Order (ATO) or Configure To Order (CTO) 3. Make/Build To Order (MTO) 4. Engineer To Order (ETO)
The classification is based on and determined by:

a) The level of direct customer contact during design-to-delivery cycle

a) The level of direct customer contact during design-to-delivery cycle b) The type of inventory an organization chooses to maintain

a) The level of direct customer contact during design-to-delivery cycle b) The type of inventory an organization chooses to maintain c) The delivery (or customer) lead time (the amount of time a customer is willing to wait to get the products ordered)
1. MAKE TO STOCK (MTS)

or, SHIP TO ORDER (STO)

The producer produces the shippable end items in anticipation of customer orders

The producer produces the shippable end items in anticipation of customer orders Stocks the finished product in inventory for immediate shipment

The producer produces the shippable end items in anticipation of customer orders Stocks the finished product in inventory for immediate shipment MTS emphasizes immediate delivery of good quality, reasonably priced, off-the-shelf, standard items.
Examples of MTS Products

Appliances Audio/Video Equipment Off-the-Rack Clothing Frozen Food Computer Peripherals Automobiles, Motorcycles, Bicycles
Make-to-Stock Strategy and Lead Time
Design
Design
Procure
Design
Procure Fabricate
Design
Procure Fabricate
Subassemble
Design
Procure Fabricate
Subassemble
Final Assemble
Design
Procure Fabricate
Subassemble
Final Assemble
Test
Design
Procure Fabricate
Subassemble
Final Assemble
Test
Stock as Inventory
Customer Order
Design
Procure Fabricate
Subassemble
Final Assemble
Test
Stock as Inventory
Customer Order
Design
Procure Fabricate
Subassemble
Final Assemble
Test
Stock as Inventory
Pack & Ship
Customer Order
Design
Procure Fabricate
Subassemble
Final Assemble
Test
Stock as Inventory
Pack & Ship

Customer Lead Time
In MTS Environment,
In MTS Environment,
Rather than the customer, the Cycle starts with the producer,
In MTS Environment,
Rather than the customer, the Cycle starts with the producer, who:
Specifies the product,
In MTS Environment,
Specifies the product, Acquires the raw materials, and
In MTS Environment,
Specifies the product, Acquires the raw materials, and Produces the end item for stock.
In MTS Environment,
Products are made and put into inventory before an order is received from a customer.
In MTS Environment,
Customer is not willing to tolerate a delay
in receiving the product.
In MTS Environment,

Often, very large stocks of finished goods are held
to provide a variety of sizes, colors, and features.
In MTS Environment,

Often, very large stocks of finished goods are held
to provide a variety of sizes, colors, and features.

If the price and quality are acceptable,
the customer orders the product, and the producer ships immediately from stock.
In MTS Environment,
Customers are unable to express preferences as to the design of the product.
In MTS Environment,
Production volume of each sales unit
tends to be high.
In MTS Environment,
Production volume of each sales unit
tends to be high.
Reasonably long and predictable
product life cycles are assumed
Generally, firms make to stock when:

1. Demand is fairly constant and predictable.

1. 2. Demand is fairly constant and predictable. There are few product options.

1. 2. 3. Demand is fairly constant and predictable. There are few product options. Delivery times demanded are much shorter than the time needed to make the product.

1. 2. 3. 4. Demand is fairly constant and predictable. There are few product options. Delivery times demanded are much shorter than the time needed to make the product. Product has a long shelf life.
Making an MTS Production Plan What is a production plan?

Its the MPS
Master Production Schedule (MPS) is the anticipated build schedule for the items that are assigned to the master scheduler for planning. An MPS shows: which MTS end products or ATO modules should be produced, how many, and when.
Making an MTS Production Plan

Total Production Required for a Period = Total Demand Forecast for the Period + Back Orders to Be Delivered during the Period + (Desired Ending Inventory Opening Inventory)*
*Planned Change in Inventory during the Period
The MTS manufacturing system is vulnerable to forecast inaccuracies.

Market demand is not perceived directly,
but only through the abstract medium of forecasts.


Demand pattern needs to be
well known and predictable.


Demand pattern needs to be
well known and predictable.

Customer identified only after production,
often through the channels of a complex distribution chain.
Main Risk: Inaccurate sales forecasts due to:

Neglect of seasonal factors, or from Unexpected phenomena affecting demand trends

Neglect of seasonal factors or from Unexpected phenomena affecting demand trends
The Result: Overstock / Shortage

Neglect of seasonal factors or from Unexpected phenomena affecting demand trends
The Result: Overstock / Shortage

The finished goods inventory acts as a buffer
against uncertain demand.
Ready availability of finished goods allows MTS manufacturers to reach a wide range of buyers, and compete in a market where features and prices of competing products are similar.
Ready availability of finished goods allows MTS manufacturers to reach a wide range of buyers, and compete in a market where features and prices of competing products are similar. Other Characteristics of MTS: Short customer lead times, and high inventory costs
Operations management focuses entirely on replenishment of inventory.
The actual level of production may bear little correlation to the level of actual customer orders
The actual level of production may bear little correlation to the level of actual customer orders Sales and production control merge at the finished goods inventory (the buffer).
The actual level of production may bear little correlation to the level of actual customer orders Sales and production control merge at the finished goods inventory (the buffer).
Finished Production Goods Inventory Sales
Distribution resource planning (DRP-II) becomes very important in MTS environment. What is DRP-II?
DRP-II is the
extension of DRP-I
What is DRP-I?
Distribution Requirements Planning (DRP-I)

The process of planning of
materials movement into, within, and out of a distribution network.
Distribution Requirements Planning (DRP-I)

The process of planning of
materials movement into, within, and out of a distribution network.

Performs all the inventory
replenishment calculations.
Objective of DRP-I
To maintain a well-
balanced inventory at all appropriate locations within the distribution network so that:
Objective of DRP-I
To maintain a well-
balanced inventory at all appropriate locations within the distribution network so that:
The inventory can be
pulled through the distribution network to provide just-in-time deliveries to the customers.
Distribution Resource Planning (DRP-II)

The extension of DRP I into
the planning of the key resources (in addition to materials) required in a distribution system: Warehouse space, Workforce, Money, Vehicles Any other pieces of necessary equipment
Distribution Resource Planning (DRP-II) becomes very important in MTS environment.

Product passes through multiple channels
before reaching the end user.


The distribution system has to support
accurate forecasting and trend analysis.


The distribution system has to support
accurate forecasting and trend analysis.

In the extreme case of FMCG,
DRP becomes the heart of the system that links various stocking and sales points.
The Most Important Aspect of ERP in MTS:

A totally integrated production and distribution system that

ensures a stable flow of products
at the point of consumption at the right time without overstocking, and

ensures a stable flow of products
at the point of consumption at the right time without overstocking, and

is responsive to any changes
CRP and SFC are not likely to be critical.
What is CRP?
Capacity Requirements Planning (CRP) The process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production. CRP produces a report that shows: the capacity required, by work center and by time period, to actually execute the proposed MPS. The objective: To ensure that sufficient capacity is available where and when it is needed to accomplish planned production.
What is SFC?
Shop Floor Control (SFC) An element of MRP II system that is directly responsible for the shop floor activities required to execute, monitor, and track the planned production.
CRP and SFC are not likely to be critical in MTS environment.
Why?

Because only a few standard items are produced
in a more or less steady and stable environment, where:

in a more or less steady and stable environment, where: Bills of material are stable.

in a more or less steady and stable environment, where: Bills of material are stable. The rate of production is fairly fixed.
Engineering becomes involved in MTS environment only if and when:

Engineering changes are to be introduced New products are introduced
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CTO Planning Strategy

Supply Chain

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Supply Chain Strategies

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 1 of 113

Requirements for Achieving Strategic Fit

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 3 of 113

ACHIEVING STRATEGIC FIT

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 4 of 113

1.1 Understand the Demand-Side Uncertainty

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 5 of 113

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 6 of 113

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 7 of 113

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 8 of 113

Abilities that Make a Supply Chain Responsive

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 9 of 113

Responsive Supply Chain

Efficient Supply Chain

IMPLIED UNCERTAINTY SPECTRUM

Table 5.2 Comparing Efficient and Responsive Supply Chains

Characteristic Efficient Supply Chains Primary Supply Chain Objective

Responsive Supply Chains

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 12 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains

Primary Supply Chain Objective

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 13 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains Pricing

Responsive Supply Chains

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 14 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Responsive Supply Chains

Charge higher margins to compete on product innovations

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 15 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains Product Design Strategy

Responsive Supply Chains

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 16 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains

Responsive Supply Chains

Product Design Strategy

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 17 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains

Responsive Supply Chains

Sourcing Strategy: Criteria for Supplier Selection

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 18 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains

Sourcing Strategy: Criteria for Supplier Selection

Adequate product quality and low cost

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 19 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains Manufacturing Strategy

Responsive Supply Chains

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 20 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains

Responsive Supply Chains

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 21 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)

Characteristic Efficient Supply Chains Inventory Strategy

Responsive Supply Chains

Make-To Stock (MTS) Planning Strategy by Khalid Sheikh / 22 of 113

Table 5.2 Comparing Efficient and Responsive Supply Chains (continued)