Foundations of

Global Supply Chain Management

Supply Chain Planning

Dinesh Garg
Indian Institute of Science
Bangalore-India

September 27, 2003

 Outline of the Talk

 What is Supply Chain Planning

 Supply Chain Planning Process

 Supply Chain Planning Decisions

 Software Tools

 GSCM at Digital Equipment Corporation

 Conclusions
 What is Supply Chain Planning ?

Supply Chain is a set of activities (e.g. purchasing,

manufacturing, logistics, distribution, marketing) that
perform the function of delivering value to end customer

Traditionally, all the business units along a supply chain

have their own objectives and these are often conflicting

There is no single plan to carry out supply chain activities

 What is Supply Chain Planning ?

There is need for a mechanism through which the

execution of various business activities along a supply
chain can be planned in an integrated fashion.

The supply chain planning is an effort to achieve the

primary goal of “producing and distributing the
merchandise at the right quantity, to the right
locations, and at the right time with minimum system
wide cost” in the presence of conflicting goals of various
business units
 Dynamics of Material Flow

Supplier Plant Warehouse Logistics Retailer

 Dynamics of Order Flow

Supplier Plant Warehouse Logistics Retailer

 Supply Chain Planning Processes
Demand Forecasting
Material Requirement Planning Demand Planning

Component Production
Requirement Plan

Supplier Plant Warehouse Logistics Retailer

Order Management
 Supply Chain Planning Decisions

STRATEGIC

TACTICAL

OPERATIONAL

Procurement Manufacturing Distribution Logistics

 Supply Chain Planning Decisions
• Supplier •Location, Number,
Selection Capacity of Plants • Mode of
•Location, Number,
•Allocation of •What Products to Shipment
Size of Warehouses
Suppliers to the Produce
Plants •Which Plants to • Port Selection
Produce them
•Warehouse
Allocation
• Customer • Vehicle Routing
• Procurement • Inventory
Allocation
Policy Decisions
• Distribution Policy • Fleet Size
• Manufacturing
Policy
• Production
Schedule
•Scheduling on • Finished Goods
• Vehicle Routing
Machines Inventory
• Workload
Balancing
 Software Packages

i2 Six: A comprehensive solution suite for spend/

production/ revenue/ logistics/ fulfillment optimization

Solution suites for network design & optimization/

manufacturing planning & scheduling/ global logistics
management/ service & parts management

JD EDWARD: The advanced planning software

to synchronize demand & planning/ network
Optimization/ production & distribution planning
Software Packages

ARIBA Spend Management: It helps

companies driving down enterprise wide spend

mySAP SCM: A complete supply chain

planning solution

iBann: A complete solution suite from demand

collaboration to order management
 Results

 Reduced inventory levels by 10-15%

 Reduced markdown & scrap by 10-15%

 Used resources10-20% more efficiently Companies that

utilized best-in-
 Improved delivery reliability by 95-95% class SCM solutions
have
 Reduced outages to 0-5%

 Reduced cycle time by 10-20%

 Reduced transportation cost by 10-15%

Global Supply Chain Model (GSCM)
@
Digital Equipment Corporation
 GSCM at Digital Equipment Corp.
HISTORY

1957: Founded by Ken Olsen

1961: Started Construction of first computer PDP-1
1978: Took Over the majority of minicomputer market
1980: Second Largest Computer company in the world
1990: DEC suddenly found its sales faltering
1998: DEC was sold to Compaq
2002: Compaq was taken over by HP
2003: Digital Global Soft is a well respected IT service
company in India. Earlier it was 51% subsidiary of DEC
 GSCM at Digital Equipment Corp.
DEC in Late 80s and Early 90s:

1987:
DEC successfully supported a full range of products for over 20
years with 33 plants in 13 countries including 30 distribution and
repair centers
1989-1990:
A mismatch among capacity, infrastructure, and demands of new
markets
1988 - 1993:
Digital reengineered the business processes throughout
manufacturing and logistics.
Corporate Logistics and Manufacturing initiated the development of
GSCM for simultaneously balancing the conflicting attributes of
manufacturing and logistics
 GSCM at Digital Equipment Corp.
 Decision Variables for GSCM
 Number, location and capacity of plants

 What product to build at which plant

Manufacturing
 Significance & location of tax heavens

Number, location and capacity of DCs

Logistics
 Which DC should serve which customer

 Number and location of repair centers

Spare Parts
 Optimal design of spare parts
 GSCM at Digital Equipment Corp.

 Which supplier to keep

 Which product to buy in a nation Supplier Selection

 Which supplier should supply each plant

 Location & availability of cheap labor

 Length of material pipeline in time Miscellaneous

 Export regulations, duty rates

 GSCM at Digital Equipment Corp.
 Objective Function for GSCM

 GSCM minimizes a weighted sum of total cost and activity days

 Total cost includes

 Production Costs
 Inventory Costs
 Material Handling Costs
 Taxes
 Facility/Production Line Fixed Costs
 Transportation Costs
 Duty Costs
 GSCM at Digital Equipment Corp.
 Constraints for GSCM

 Customer demand is met for each product, in each period, in

each customer region

Limits on number of facilities making each product

 Limit on number of facilities using each manufacturing style

Fixed charges for products made by each facility

Fixed charges for facilities making any product

 Fixed charges for manufacturing style used by each facility

 Limited production capacity, inventory storage, and shipping

volume
 GSCM at Digital Equipment Corp.
 Solution Approach

The problem of realistic size and detail, the GSCM features

constitute a formidable class of large, difficult optimization
problem

Users are invited to advise and assist the solver by specifying

with each constraint just how much it would cost to violate the
constraint

Elastic penalties help solver decide which constraints are hard

and which are soft

The solver uses branch and bound enumeration

 GSCM at Digital Equipment Corp.

 Impact of GSCM on DEC (1990-1994)

 A reduction of $167 million in annual manufacturing cost

 A reduction of $200 million in annual logistics cost

 Number of plants was to be reduced from 33 to 12

Five times more computers were manufactured

Arntzen, Brown, Harrison, and Trafton “ Global Supply Chain Management at

Digital Equipment Corporation”, Interfaces,1995, pp. 69-93
 Conclusions
 Supply Chain Planning: A critical factor in the
success and profitability of a company

 Short Product Life Cycle: Improper planning can

take the company out of business

 Bad News: Planning is an hard problem to formulate

as well as solve

 Good News: Plethora of Commercially available

software for supply chain planning
Thank You

Over to Dr. Mathirajan ….