Microsoft Case Study

Designing, Testing and Implementing a

Theory of Constraints based
end-to-end Supply Chain Solution

Presented by: Dr. Alan Barnard (CEO, Goldratt Research Labs)

Date: Oct 19, 2017

© 2017 Goldratt Research Labs All Rights Reserved.

 Presentation Outline

1. Introducing Microsoft
2. Microsoft’s 1DSC Initiative
3. TOC Project Results
4. TOC SC Solution Design

5. Self-Configurable Simulation Model

6. Implementation & Project Status

7 Final Remarks

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

1. Introducing Microsoft

©2017 Goldratt Research Labs. All Rights Reserved.

 Microsoft – Software History

Office for Windows Office 97 Office 2000 Office 2001 Office 2003 Office 2007 Office 2010 Office 2013
1990 1997 1999 2001 2003 2006 2010 2013 2015

A Software giant, has a Supply Chain?

Why?

©2017 Goldratt Research Labs. All Rights Reserved.

 Microsoft – Hardware History

Microsoft Softcard Microsoft Mouse Microsoft MacEnhancer Microsoft MACH 20 Microsoft Keyboard
for Apple II 1983 1985 1988 1994
1980

Microsoft Sidewinder Microsoft Xbox Microsoft Xbox 360 Microsoft Zune Microsoft Surface 1.0
1996 2001 2005 2006 2007

Microsoft` Kinect
2010

Microsoft Hardware story

©2017 (courtesy
Goldratt pcmag.com
Research Labs. and pcworld.com)
All Rights Reserved.
 Our Digital Supply Chain Variability

Custom Controllers Hololens

Xbox Family

Surface Surface Surface Surface Pro

Studio Book Surface Laptop
Hub
©2017 Goldratt Research Labs. All Rights Reserved.
 Microsoft Supply Chain – By the numbers…

>290M
Units Manufactured & Shipped
>31,000
Number of Active SKU’s

~$11B >600+
Number of Suppliers
Total Amount of Annual Spend (includes component suppliers)

13
Number of Manufacturing 52
Locations Number of Distribution Centers

3M+
Est. FY16 Number of Retail and
3.5M+
Est. FY16 Deliveries
Commercial Sales orders

191
Countries Served
30K+
Number of Outlets
(Carriers, Retailers and MS Stores)

Last Updated: February 2016

©2017 Goldratt Research Labs. All Rights Reserved.
 Microsoft’s Changing Landscape

In the Past 2015 Pressures Opportunities

One major event Multiple events COGS Growth Build to Order
every year – The and markets YOY 15% to 33%
Holiday Season
Multiple new High Inventory Mass
New product every products every obsolescence Customization
2-3 years year

3-5 years average Shelf life 1-2 years Coping Mechanisms

shelf life Build exactly to forecast

COGS as % of COGS as % of Allocate product and capacities

revenue: 20% revenue: 35% based on forecast / statistics

©2017 Goldratt Research Labs. All Rights Reserved.

 Manohar’s Personal Story 2014

Daughter Microsoft Perfect Gift

2 Months later
1

3
Lenovo Yoga

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

2. Microsoft’s 1DSC Initiative

©2017 Goldratt Research Labs. All Rights Reserved.

 1DSC Program Goals and Principles

Goal: Seize Missed Opportunities Principles

Thousands of Millions lost One Platform Connected

wasted hours Lost cost recovery, across all products to customers and
Manual touches and increased expense, and channels at any partners for
rework across supply poor cash to cash volume Commerce and Care
chain cycle time

Lost revenue Negative All Customers Data Driven

inability to deliver customer Solve for consumer, Efficiently and
against customer & perception enterprise and proactively manage
partner promise Poor customer partner our hardware business
experiences impact environments
brand and satisfaction

How we deliver

SAP out of the box Cloud Powered Service Oriented

Agile Plug and Play Up-to-date

*1DSC = One Devices Supply Chain

©2017 Goldratt Research Labs. All Rights Reserved.
 1DSC – Operating System for the Hardware Supply Chain
LI F E C Y C LE

Engineering Customer Repair units

Envision Activation Receive
R&D Plan Deliver Purchase Fulfil to
a Product Customer units Capture Optimize
Product, Manufacture Product to Contact customer & Predict
Issues support to feedback
Source parts Channel
resolve

Supply Chain Partner Systems SC Partner Universal Stores

S UPPLY C H A I N O S

Connect Collaborative
Make Portal Supply Chain MS Sales

CM-PLM CM-SFCS Deliver WMS TMS Supply Chain Collaboration Device Telemetry MS Store / CSS Jarvis Entitlement

Design Tools SAP MAX (Supply Chain Analytics)

Plan & Integration

Optimize Network HD Insight Event Hubs
MS Product CAD 1PDM Plan Source Deliver Trade Care

NPI Sourcing Planning Manufacturing GSC Returns / Care Quality Financial performance
A N A LY TI C S

• Functional End to • Spend • Demand Accuracy • Functional End to • Sales vs Forecast • Return Rate • Factory quality • P&L
End First Pass End First Pass
Yield • Supplier Quality • Supply Fulfillment Yield • Inventory Health • CSAT • Field quality • Inventory

• Supplier • Inventory Risk • Functional OBA • On time Delivery • TAT • Repair quality • OPEX
Compliance
• Quality excursions

*1DSC Infrastructure

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

3. TOC Project Results

©2017 Goldratt Research Labs. All Rights Reserved.

 Message from Microsoft CTO
The Results of TOC Implementation

©2017 Goldratt Research Labs. All Rights Reserved.

 Microsoft TOC Project Results
Highest ever Inventory Turns for Microsoft
Working Capital Savings ~ $250M
Service Levels Up ~ 5%

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

4. TOC SC Solution Design

©2017 Goldratt Research Labs. All Rights Reserved.

 Design and Development 2015

Oct 2014 -> July 2015 Aug 18 Aug 26

Adhoc analysis of stock
out impacts
Possible solutions
Excel simulation of TOC
logic
30 min conversation 1st workshop by
with Shane Kolar, Sr Goldratt Research
Director, Planning on Labs (GRL) with
how TOC could offer a Microsoft CTO, IT
robust solution GM, Planning Team

Aug 28 – Sep 13 Sep 14-18 Sep – Dec Dec 16

Analysis of Joint workshop with System System Changes live
current data GRL, Illumiti, development in production
1st version of Microsoft Planning and testing with BTO, BTA logic
simulator and IT Teams on Simulation
system design refinement

©2017 Goldratt Research Labs. All Rights Reserved.

Special Situations that add to Complexity

Multiple new Product Launches each year

100% Subcontracting model

- Forecasting needed to continue procurement
- Priority communication challenges

Varying and long lead times

- Product life cycle – 1 to 2 years
- Component lead time – 3 to 4 months

Demand peaks can be 5 to 10 x normal run rates

Some Demand peaks unpredictable

©2017 Goldratt Research Labs. All Rights Reserved.

6
MICROSOFT DIGITAL DEVICES SUPPLY CHAIN
Designing TOC-based SCM Solution Using Harmonytoc.com

1DSC Strategy and Tactic Tree

©2017 Goldratt Research Labs. All Rights Reserved.

19
Slide 19

6 using to Using
. .., 16-Nov-16
7
MICROSOFT DIGITAL DEVICES SUPPLY CHAIN
Designing TOC-based SCM Solution Using Harmonytoc.com

©2017 Goldratt Research Labs. All Rights Reserved.

20
Slide 20

7 using to Using
. .., 16-Nov-16
 Learning and Innovation

Launch = BTX Sustaining = BTA or ATO EOL = BTX

BTX: BTA: ATO: BTX:

Push supply model Pull supply model Pull supply model Push supply
model

©2017 Goldratt Research Labs. All Rights Reserved.

 Hybrid TOC Model

Demand is king, forecast is guide RRT Demand On Order

700 300
1 Set initial Set on-hand + Target Stock Level (TSL) based on 900
total demand within Reliable Replen Time (RRT) 300
Target (TSL) 850
800 300
On hand
2 Replenish Place orders whenever
product On-Hand + On-Order falls below target stock level -75 PO for 75 units
(TSL)

3 Adjust a Could we have stocked out?

Target Increase target if stock was in Red too much
Increase target 1200
within last RRLT(Too Much Red - TMR)

b Do we have too much?

Reduce target if stock was in Green too much Reduce target 600
within last RRLT (Too Much Green - TMG)

c Is forecasted demand within RRT from step 1 Forecast 1800 Target 1800
significantly different from TMR, TMG or TMR 1200
current target? If yes, Adjust to forecast within
RRT Forecast 1500 Target 1200
TMR 1200

©2017 Goldratt Research Labs. All Rights Reserved.

Design and Development Cycle

Analyze
Patterns

Implement Simulate
in SAP Rules

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

5. Self-Configurable Simulation Model

©2017 Goldratt Research Labs. All Rights Reserved.

Self-Configurable Simulation Model Design

©2017 Goldratt Research Labs. All Rights Reserved.

User Interface of Self-Configurable SCSIM Model

Simple User Interface to

import Data created from
SQL Query

©2017 Goldratt Research Labs. All Rights Reserved.

26
 User Interface of Self-Configurable SCSIM Model

Summary of
Data imported

User Data/Variability Generation Options

Select Scenario and Run mode Select SCM rules to use

©2017 Goldratt Research Labs. All Rights Reserved.

27
User Interface of Self-Configurable SCSIM Model

MICROSOFT SC SIMULATION MODEL DEMO – SINGLE RUN EXPERIMENT

View Supply Chain created

from imported data

©2017 Goldratt Research Labs. All Rights Reserved.

28
User Interface of Self-Configurable SCSIM Model

View Cumulative
Demand Forecast vs.
Actual Customer Orders vs.
Allocations vs.
Daily Production Capacity.

©2017 Goldratt Research Labs. All Rights Reserved.

29
Self-Configurable SC Simulation Model Results

MICROSOFT SC SIMULATION MODEL DEMO – SINGLE RUN EXPERIMENT

©2017 Goldratt Research Labs. All Rights Reserved.

 Self-Configurable SC Simulation Model Results

SCM SIMULATION MODEL DEMO – SINGLE RUN EXPERIMENT

©2017 Goldratt Research Labs. All Rights Reserved.

 Self-Configurable SC Simulation Model Results

SCM SIMULATION MODEL DEMO – SINGLE RUN EXPERIMENT

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

6. Implementation & Project Status

©2017 Goldratt Research Labs. All Rights Reserved.

 BTA - Technical Implementation in SAP

Reorder Point =
Consensus Forecast Target Stock Level
Time Shift forecast
by 1st RRLT

Final Forecast
SAP Ariba
Suppliers
Historical Forecast SAP - APO

Lowest Inventory

Purchase
Target Stock Level
Requisitions Purchase Orders
Purchase Requisitions
Lead Time SAP - ERP

©2017 Goldratt Research Labs. All Rights Reserved.

 BTO - Technical Implementation in SAP

PPS Transport
MAD GI RDD

SAP Ariba
Suppliers Inventory

Current Load ½
Production
MAD – Material Availability Date Buffer
GI – Goods Issue Date
PPS – Pick Pack Ship Time
RDD – Customer Requested Delivery Date
GATP – Global Available to Promise SAP - GATP

©2017 Goldratt Research Labs. All Rights Reserved.

 Implementation and Adoption 2016
Jan - Mar April - July End of August
Pilot runs for BTO Change Management Mostly implemented
Pilot runs for BTA for few (unplanned delays) for Finished Goods
product lines

Finished Goods Implementation Status

©2017 Goldratt Research Labs. All Rights Reserved.

Lessons Learned…

In God we trust. All others bring data – W.E. Deming

• Self-configurable simulation model is possible, though not easy
to create.
• Simulation tools are effective decision support and training tool
• Simulation model was used to create new Hybrid TOC BTA and
BTX rules
• Don’t underestimate the change management effort
• “Theory“ in Theory of Constraints can become a challenge
(unless explained)
• SAP is more flexible than it is given credit for

There is nothing more practical than a good theory – Kurt Lewin

©2017 Goldratt Research Labs. All Rights Reserved.

37
Path forward

Simulation model to test rules at each implementation

Expand solution to component purchases

Expand solution to exchange and B-SKUs

Systemically communicate Build Priority with Suppliers

SAP Ariba

Work with SAP to include TSL priorities

SAP IBP into Response and Supply Modules

Demand Driven MRP implementation in SAP

©2017 Goldratt Research Labs. All Rights Reserved.

 Presentation Outline

7 Final Remarks

©2017 Goldratt Research Labs. All Rights Reserved.

In closing – Be a Trimtab

©2017 Goldratt Research Labs. All Rights Reserved. Photo By: Dawn Endico
Source: https://www.haikudeck.com/call-me-trim-tab-inspiration-presentation-GCPVMoYXCE
 Thank You

Dr. Alan Barnard Manohar Madhira

CEO Senior PM Manager
Goldratt Research Labs Microsoft
alan@goldrattresearchlabs.com manohar.madhira@microsoft.com

©2017 Goldratt Research Labs. All Rights Reserved.