a tS e@ i e @ e © e a i is be fhe s ‘@ @ BUILDING COMPETITIVE OPERATIONS, Fr ID PY (cM Wl ati") Supply Chain Professional LEARNING SYSTEMcccocccccecccoccooocooo0co00003aModule 2: Building Competitive Operations, Planning, and Logistics Table of Contents Introduction 21 Section A: Demand Planning Supply Chain Dynamics. 24 Forecasting sen 2-12 Collaborations snnninnnnnnnnnnnnnnninsin 231 Role of Marketing in Demand Planning... 2-40 Section B: Product Design Considerations Collaborative Product Design for the Supply Chain sn sennnnneennsi DSB Varieties of Product Design sssnnnnnninnninsninnninsnnnsnn 2.65 Section C: Manufacturing Planning and Controlling Sales and Operations Planning (S&OP). 275 Master Production Scheduling... Material Requirements Planning, 2-88 2-101 2-105 2-119 Distribution Requirements Planning... Capacity Management... Inventory Management. Section D: Logistics Transportation 2-149 ‘Warehousing... 2-183 3PL and 4PL... 2-208 Reverse Logistics — 2-213 Global Logistics and International BusinesS.......0ss:snnnnnnnnnne sense BADDD Bibliography. 2.261 © 2005 aPics ‘All eights reserved,° Introduction 2005 APICS All rights reserved. Time, distance, and collaboration ate basic elements in modem supply chains, and their relationships weave like three bright threads through the fabric of this module on operations and logistics. ‘Time grows progressively shorter as a measure of supply chain operations. It takes less time to complete all basic operations: New products come to market faster, orders are filled more rapidly, communications have become not merely faster but in some cases instantaneous. Documents we once dropped in the ‘mail for delivery in a few days and then committed to express services for next-day delivery now move from computer to computer around the Internet faster than we could print them and walk them down the hall Distances, by contrast, grow longer, and it’s the increasing speed of operations and communications that makes the global extension of supply chains possible. ‘A fast-food restaurant in one region may send orders by broadband modem to a call center in another region, which sends them back to the kitchen in the restaurant—because electrons move faster across hundreds of miles than feet ‘move from room to room. We ean be, in some rather breathtaking ways, closer to people in other countries than to our colleagues in the same building. Why not, in that case, put manufacturing plants in Canada, India, Poland, and South Carolina—or anywhere that labor and essential services are available at the right price? Why not put distribution centers near an express transportation hub in a distant region? Why not draw upon suppliers for raw materials from mines and forests on different continents if delivery is but a day away? As time annihilates distance, collaborations undreamed of a decade or two in the past become essential for the present and future, All walls collapse—the Berlin Wall and the Iron Curtain on a global scale and, closer to home, the imaginary wall between functional areas in our firms. In the virtual corporation and the virtual network, we can—and therefore we must—share ideas and data to be competitive. Suppliers, manufacturers, and customers all come together on design teams, Planners gather from all functional areas and—by way of software—from multiple supply chain partners, to hammer out one forecast to ‘guide all operations along the chain. Logistics providers bring together multiple ‘modes of transportation to bring the links of the chain closer together. aModiule 2: Building Competitive Operations, Planning, and Logistics This module explores the impact of shrinking time, lengthening supply chains, and expanding collaboration in four areas: + Demand planning ‘As competition grows more intense among global supply chains, accurate forecasting and demand planning become ever more essential. This section covers methods of forecasting, the importance of collaboration in developing forecasts that synchronize operations along global chains, and the central role of marketing in the process © Product design Like the section on demand planning, the section on product design pursues the importance of collaboration. Multiple functional areas and supply chain partners may be represented on design teams. Working together, they can create designs that not only satisfy customer demand but are efficient to produce, assemble, transport, and store. © Manufacturing planning and controlling This section provides an overview of the role of manufacturing in the 2st operations in a continuing S&OP process, down through the several levels sntury supply network, from the collaboration of sales and of planning, and onto the factory floor, where everything moves faster and more efficiently with the aid of lean and Just-in-Time production techniques. ‘© Logistics Selection of the most appropriate means of transportation and effective ‘warehousing contribute to a profitable supply chain. Logisties can no longer be an afterthought; products are now being designed with efficient transport and cost-effective storage in mind from the beginning, As the ‘most costly aspect of the supply chain, logistics demands careful attention from supply chain managers intent upon optimizing both profits and customer satisfaction. In this section we look not only at the forward chain that takes products to the customer but at the reverse logistics chain that brings products back for repair, reuse, and recycling. © 2005 aPICS All rights reserved, 22Section A: Demand Planning This section is designed to ‘* Define the role demand planning plays in supply chain management ‘© Identify the sources of variability in demand * Describe supply chain dynamics, especially the bullwhip effect (or ripple effect) + Explain strategies for successfully countering the bullwhip effect ‘+ Describe the forecasting process, including both quantitative and qualitative approaches © Describe various collaborations among supply chain partners that can facilitate successful demand planning, including CPFR * Describe the role of marketing in demand planning rr Ralph Waldo Emerson claimed that the world will beat a path to your doorway if you build a better mousetrap. It’s a pleasant thought, but unfortunately demand isn’t that easy to generate—or predict, Planning for demand—how many of your “better mousetraps” customers will purchase, at what price, on what timetable~ is the key to building a successful supply chain. Everything in the supply network depends upon the number of customers that tread that path to the retailer (or Web site) offering your product: manufacturing, capacity, warehousing, transportation, location and type of retail outlets, amounts of raw material to extract—everything. If production outstrips demand, you suffer losses and perhaps go bankrupt. If orders exceed supply, your frustrated customers may beat an alternate path to your competitor’s doorway. Demand drives your business—to the stars or into the ground. In this section, we'll look at various aspects of demand planning, including the following: + Supply chain dynamics Demand is often (if not always) a moving target, varying for many reasons— some predictable, some not. Worse, supply chains have an annoying way of ‘magnifying customer demand to create greater variability at each point along the network leading back to the supplier of raw materials, It’s called the bullwhip effect or the ripple effect. We'll look at demand planning, describe the bullwhip effect in greater detail, and identify ways to alter the supply chain infrastructure to counteract the effects of demand variability © 2005 APICS “All rights reserved. 23Modiule 2: Building Competitive Operations, Planning, and Logistics © Forecasting You only need to think about the latest weather forecast to see where this topic leads. The general rule here is “all forecasts are wrong.” And yet forecasting demand is a necessary part of managing a supply network, especially at the beginning of a product's life cycle when there is no history to help you—not that the future is bound to repeat the past. Forecasting demand can be—and indeed should be—a combination of educated estimation and quantitative analysis. We'll look at various forecasting tools used in demand planning. ‘+ Collaborative demand planning To a significant degree, supply chain management follows the commonsense rule that two heads (or more) are better than one, We'll look at various ways collaboration among trading partners can improve demand planning, including vendor-managed inventory (VMI) and collaborative planning, forecasting, and replenishment (CPFR) + Role of marketing Demand planning belongs to marketing, the home base of people who are closest to prospects and customers. Finding potential customers and identifying needs the company can solve, creating and maintaining demand with various communications and promotions, helping to refine product design and packaging to meet customer needs, forecasting demand throughout a product’s life cycle, pricing products and services to be affordable and profitable at the same time: All this falls to marketing, + Supply Chain Dynamics © 2005 Pics All ights reserved, Determining how much to produce (and therefore how many factories to build, employees to hire, and so forth) would be a simple matter if demand were stable. It isn't, Demand is a moving target. Sometimes customers flock to stores and Web sites to buy your products or enjoy your services; other times they just yawn and stay home. The unpredictable perversity of human nature explains some of this, but the effects of perversity tend to disappear when time and customer numbers are large enough. Nevertheless, demand varies for a number of reasons, some of which ‘we know and some of which we probably don’t. ‘Worse yet, demand fluctuations at the retail level tend to be magnified up the supply chain—for reasons to be explored in the following section. This is called 24