Professional Documents
Culture Documents
HP Supply Chain Best Practices
HP Supply Chain Best Practices
Agenda
Beer Game HP supply chain today HP HP Supply Chain Innovations HP
Forecasting Supply Chain Network Design Inventory and Capacity Optimization Warranty Product Design for Supply Chain
SPaM
2012
18
HPs Supply Chain operates on the principle that one Supply Chain model does not serve the needs of all customers. HPs Supply Chain strategy is based on a flexible, modular set of Supply Chain pathways that enables HP to deliver on customer requirements while supporting their buying preferences. HPs Supply Chain enables both direct and indirect routes to market to reach customers in over 148 countries around the world HP HP HP HP 148
2012 2 18
SPaM
HP
2012
18
Customer Requirements
Minimize Costs
SKU variety SKU NPI window management Market dynamics Customer segment/s match
IP investment Volumes Source Routes to Market Direct Indirect Channel indirect Global Delivery Regional requirements 148 countries 148 Localization Global trade regulations
Full turn key Guided turn Key Buy/sell
Make
Deliver
No touch Low touch High value CTO
HP owned CM ODM
Deliver value:
Customers: TCE : Shareholders Profit Market share
SPaM
2012
18
Plan
Plan
Plan
Procurement
Source
Source
Source
Logistics Services
Manufacture Manufacture Manufacture
3PL partners International Direct Ship Factory Express Lego Code of Conduct Take back Compliance Design for SC
Fulfill
SPaM
2012
18
team of world-class experts in decision support with extensive consulting experience and advanced analytical and technical skills
SPaM
Purpose drive competitive advantage through the application of analytics to HPs critical operations and business problems HP
an
innovation lab to develop leading-edge business processes and methodologies knowledge broker across the HP businesses HP BU
a
a
15
SPaM
2012
18
Executive sponsors: HP Supply Chain Board HP Hosted by IPG, serves all HP businesses IPG BU Projects co-led and funded directly businesses BU BU SPaM
Typically 3 months long with 2 SPaMsters @ 50% time 3
Account managers as contact points for scoping a project or drive-by consulting (<10 hrs) <10
IPG, PSG/TSG, EMEA, APJ
2012
18
Analytics Consulting
Data analysis / predictive modeling / Financial / spreadsheet modeling / Optimal decision-making under uncertainty
Neutral facilitation with end-to-end profitability view Problem-framing Strategy synthesis or Excel/Access tool development Excel/Access
2012
18
Pan-HP Tools, Methods, Programs HP Knowledge brokering across BUs, regions SPaM BU
9
The SPaM sweet spot: analytics and consulting skills matched to complex business problems SPaM sweet spot: Analytics Consulting
Knowledge Brokering Across Businesses Neutral Facilitation with End-to-End View Stochastic Inventory Theory Risk Analysis and Simulation Deterministic Optimization Problem-Framing and Synthesis Decision-Making Under Uncertainty Spreadsheet and Financial Modeling / Data Analysis and Predictive Modeling
SC Network Design Inventory & Capacity Setting Planning (Ops, Orders, Projects) Forecasting Complexity Management / DfSC / Customer & Marketing Analytics* & Other Business Decision Support** * Customer & Marketing Analytics examples: channel replenishment strategy; pricing as an inventory balancing lever; risk analysis of big deal pricing; statistical benchmarking of margin and attach rates across accounts ** Other Business Support examples: warranty decision support; statistical benchmarking applied to returns or logistics rates; SPaM portfolio decision model for IP licensing
2012 2 18 10
Application of problem-solving skills across a typical project Phases of engagement Relationship management
Developing Hypotheses
Clarify problem Use ingoing knowledge of context and problem and business appropriateness context as start (i.e., is this the right problem to be working on?) Refine with initial datagathering interviews Employ rough-cut / pareto analysis to identify key drivers
Draw conclusions from the Gather information collected information to test the hypotheses Focus on insights and sowhats Interviews Business data External information Identify what can be learned beyond the specific problem
11
SPaM
Develop new business processes and methodologies to solve critical business problems faced by the hp businesses while maintaining a world class reputation for the company and the group HP HP
more than 12 patent applications filed between 00 and 06 covering innovation in inventory and capacity algorithms, forecasting methodologies and metrics, financial flows, modeling tools, and new business models 2000 2006 12
articles in a variety of business and operation research journals and magazines including Harvard Business Review, Sloan Review, Supply Chain Management Review, Operations Research/Management Science and others Sloan Review Operations Research/Management Science white papers on a wide variety of topics for internal HP audiences HP
SPaM
2012
18
12
SPaM
co-leads the project with customer full-fledged member of the project team technical experts
2012
18
13
gathering
problem solving
2012
18
14
Assessment: governance
&
IPG EMEA Commercial (Jun02) IPG EMEA Consumer (Jun02) HP Home and Home Office (May 06)
recommendations:
whats it used
objectives (why:
for)
outputs roles
(what, when)
ROI
Basic
2012
18
15
Example Past Projects BCS (Oct03) NSS Americas (Jun03) ISS Americas (Apr03)
SPaM Publications SPaM Measure, Then Manage, APICS (Assoc. for Ops. Mgmt.), Oct02
Cameras PLC Tool (Nov04) PSGA Emerging Tech PLC Tool (Apr03) NA Inkjet HW PLC Tool (Oct02) Inkjet Hardware Long-Term Forecasting Tool (Dec03)
Forecasting for Short-Lived Products: Hewlett Packard's Journey, J. of Business Forecasting, Dec02
2012
18
16
The last step. New tools often not required for impact. Goals are: - Save labor
List of good practices Template for process Interviews with decision makers
Governance
SPaM
2012
18
17
with clear R&R to align key monthly marketing and ops forecasts
Metrics dashboard tool to review key metrics and allow scenario analysis for alignment
Process (understand)
Metrics (measure)
SPaM Assessed gaps between current process and best practice, and designed store-wide forecast alignment process Developed statistical forecasting tools and metrics dashboard tool
Forecasting Excellence
Statistical forecasting tools: daily calls daily orders quarterly sales
Tools (automate)
Methods
Statistical (improve) analysis of key predictive factors
Recommendations Adopt proposed process and newly developed tools Value delivered Operations planning aligned with revenue forecast and Aspire planning Aspire Improved ops forecast accuracy to reduce costs of excess and shortage (multi-$M/yr) Improve quality of inputs to Aspire planning process Aspire 2012 2 18
Our forecasts are more accurate, the operational team is more aligned and we spend less time in meetings. Going forward, we will use what we learned on this project to make improvements in other areas of the store where we need to forecast.
-Cindi Zelanis, Manager Store Operations Project Completion: May 2006 -HP Home & Home Office
SPaM SPaM
18
(A-F)/F 2000
10
2004
50%
0%
-50%
-100%
1 17 33 49 65 81 97 113 129 145 161 177 193 209 225 241 257 273 289 305 321 337 353 369 385 401 417
Before
2012 2 18
9/02
After
SPaM
19
Outline
Historical Context Business Conditions & Requirements Tool Capabilities Challenges Faced Keys to Success Next Steps Closure
SPaM
2012
18
20
Historical Context
Forecasting with ad-hoc Excel spreadsheets Excel Many key elements were being factored into the forecasts (life cycle profile, seasonality, price drops, etc.) No robust mechanism for handling key forecast elements Limited ability to track the impact of changes or events (e.g., price reductions, high channel inventory, big deals) No mechanism for rigorous analysis of forecast metrics (accuracy, bias, etc.) Little consistency or sharing of best practices among analysts No aggregate analysis & reporting capability or process
SPaM
2012
18
21
Forecast accuracy critical to platform profitability Long lead times (Asian sourcing) Short product life cycle (PLC) Run-rate actuals not available until late in build cycle Existing spreadsheet methodology was lacking in robustness and statistical rigor Investigation showed time-series methods to be ineffective for short PLC products Tool & process requirements: & a uniform forecast-generating process ability to rigorously represent PLC profiles, seasonality, & events capture of best practices better documentation of forecast assumptions forecast accuracy feedback loop aggregate analysis capability (due to product line convergence)
SPaM
2012
18
22
Tool Capabilities
Generates a demand profile for new products based on life-cycle, runrate and seasonality parameters run-rate Enables powerful adjustment of demand profile by overlaying a suite of event templates Easy to reflect changes in timing of product launches Self-documenting by maintaining underlying forecast context in a central database Auto-update feature allows time-series checking once actuals are available Enables rapid forecast iterations through roll-up and drill-down capability XXXX Enables simple and effective forecast accuracy analysis
SPaM
2012
18
23
Start with a generic PLC Product Life Cycle Runrate assumption, 12 month life, heavy stock-in period runrate 12
SPaM
2012
18
24
SPaM
2012
18
25
Layer on events such as price drops e.g., this product had price drops in Mar03 and Jun03 3 6 3
SPaM
2012
18
26
Layer on additional events; Capture explanatory comments using the Event View Event View
SPaM
2012
18
27
Aggregate forecast is plotted below, And can be compared to actuals and short-term demand signal
SPaM
2012
18
28
John Solomon .
Was VP Consumer Imaging & Printing, IPG North America now promoted IPG Executive Sponsor Forecast accuracy, a critical metric for business management, improved through the use of the PLC tool. The implementation of PLC tool has increased analyst productivity: PLC It allowed the analysts to spend more time on understanding business trends and developing insights. The PLC tool raised the quality of the aggregate views and insight provided to management. PLC Analysts are more easily able to share best practices and learnings after standardizing on the PLC tool. PLC
2012 2 18
SPaM
29
50%
0%
-50%
-100%
1 1 7 33 49 65 81 97 13 1 1 29 1 45 1 61 1 77 1 209 225 241 257 273 289 305 321 337 353 369 385 401 41 93 7
9/02
More accurate forecasts Aggregated views of the business Improved analyst productivity:
Leveraging of last months forecast Sharing of best practices Leveraging of one anothers forecasts Ability to cross-train and back-fill
SPaM
2012 2 18
Challenges Faced
Forecast stakeholders believed time-series methods produced better results The merits of a PLC-approach werent immediately apparent Risk that the tool would have to be abandoned due to standardization on APO demand planner APO Obtaining IT support to migrate from a prototype to an operational tool IT
SPaM
2012
18
31
Keys to Success
1. 2.
Low risk / low investment required A close-knit team comprising a strong theoretician, a flexible and user-oriented developer, and a solid set of seasoned forecast practitioners xxx Management support throughout the project Superior conceptual approach & mathematics as demonstrated through higher forecasting accuracy Exceptional usability of the tool Flexible / powerful event templates (enabling simple capture and documentation of forecast drivers) / Ease of iteration and aggregation (through roll-up and drill-down capability) xxxx
SPaM
3. 4. 5. 6. 7.
2012
18
32
SPaM Publications SPaM The ReEngineering of HewlettPackard's CDRW Supply Chain, SC Mgmt. International Journal, 02
NA consumer desktops (Oct05) NA commercial desktops & notebooks (Oct05) NA inkjet low touch strategy (Oct04)
Key findings on cost and turn-around time opportunities, tradeoffs, & risks
SPaM
2012
18
33
SPaM Publications SPaM HP Combined OR and Expert Knowledge to Design Its Supply Chains, Interfaces, Jun05
Optimization of number and location of nodes in the network from hundreds of possible combinations of inbound hub, mfg. site & outbound hub hub hub optimization = minimize cost structure, while meeting turn-around-time specification =
Analysis to understand key hidden cost drivers masked by average TE, IDC, MOH cost metrics TE,IDC,MOH Examples: expediting costs between multiple hubs, material costs driven by inbound hub complexity, true cost-toserve major customers, cost-risk tradeoff of one vs many ODM partners. hub hub / ODM
SPaM
2012
18
34
2012
18
35
The current ESS EMEA Supply Chain is complex; having numerous nodes and diverse product routings from source through to the customer delivery point
Objective
Define the optimum ESS EMEA Supply Chain network structure i.e. determine the number and location of all the nodes in the network ESS EMEA
Customer Feedback
SPaM helped us to clearly identify the cost implications of the various network node scenarios and in particular the cost drivers. Based on the results we have started the implementation of a merge centre at what was determined as the optimum location, from the available alternatives and we are now re-scoping the product being considered for a potential future distribution centre. SPaM
Recommendation : Number & location of inbound (VMI) HUBs feeding the 2 HP manufacturing sites (VMI)hub HP Number & location of finished goods (SOI) HUBs & distribution points shipping finished product to either the customer or the consolidation points hub Number & location of consolidation points merging product & shipping to the customer
Kladno Sarvar
SPaM
37
SPaM
Reinhard Winkler, Vice President, IPG Supply Chain IPG Operations EMEA
EMEA
Y%
Z%
X%
S%
A%
C%
2012 2 18
B%
SPaM
SPaM
38
How the supply chain impacts company competitiveness from a high level metrics perspective Frame the problem:
The major supply chain cost categories Product attributes that drive these costs
2012
18
39
Inventory-driven Costs -
Cash-to-Cash Cycle
SPaM
2012
18
40
Singapore
SPaM
41
Advantages:
Labor
Guadalajara rates are 15% to 25% of the rates in other regions Guadalajara 15 25
Disadvantages:
Tax
Lack of tax rebate
Inventory
Poor relative transportation infrastructure and delays from customs clearance
SPaM
2012
18
42
Products at a high level can be represented as a set of attributes that drive each of the identified cost categories The important attributes:
Labor content Weight Inventory holding costs
Component devaluation, short product life-cycles, etc..
Profit margin
drives tax savings benefit
SPaM
2012
18
43
HP Products HP
Camera InkJet Printer Desktop PC
Labor Content
Weight Inventory
Very L M L
L M M
H M H
L M L to M
SPaM
2012
18
44
Product Characteristics:
70
Average Price = $1000 =1000 1 man-hour labor 1 12.5 kg 12.5 Devalues at 50% / year 50 Profit Margin ~ 5% 5
60
$19.7
50 40 30 20 10 $6.3 0 -10 GDL Surface Totals: $29 Sing Air $60 Freight MOH Sing Surf $66 Tax savings Inventory $1.8 $7.6 $(4.8)
$20.6 $56.6 $19.7
$25.0
Demand:
250k / month 25 / 40% uncertainty 40
2012 2 18
45
Product Characteristics :
Average Price = $5000 =5000 8 man-hours labor 8 150 kg 150 Devalues at 15% / year 15 Profit Margin ~ 25% 25
Scenario Supply Chain Cost Comparison ($ / unit) 600 500 400 300 200
$33 $450 $300 $81 $61 $(121) $75 $61 $(121) $88 $(86) $33 $33
100
$75
0 -100 -200
$14
Demand:
50k / month 5 / 75% uncertainty 75
2012 2 18
Freight MOH
SPaM
46
Avoid products where competitive advantage is low: high margin, low devaluation rate products
high end servers, high end printers, etc..
2012
18
47
SPaM Publications
Analysis & recommendations on joint levers for improving inventory & responsiveness
inventory targets, capacity targets, planning process, forecasting process & metrics,
EIP Windows Planning (05) BCS Demo Inventory (05) PSGA Material Wait Time (05) BPC Order Allocation Logic (03) Cameras Value of Responsiveness (03)
Value of Time in Supply Chains, Inside SC Mgmt, Feb & Apr04 White Paper on DI application, Effective Use of Demand Uncertainty in Strategic Decision Making, May04
Excel tool supporting operational decisions EXCEL Opportunity assessment and ROI analysis
2012 2 18
SPaM
48
SPaM Publications
Metrics and targets for part inventory management Tools (e.g., Excel and/or Access) EXCEL / ACCESS)
Notebooks Inventory Target Setting (05) NACC Monitors (05) BCS Components (04) LJ Supplies Planning (04) GSO EMEA (03)
Part Tool, Part Process, ORMS (Operations Research/Managem ent Science Today) , Oct 99
SPaM
2012
18
49
2012
18
%001
ecivre S
%08
01 ylppuS fo skee W
SPaM
50
Inventory
t+L
R+t R+t+L
2R+t 2R+t+L
stock out
SPaM
2012
18
51
Supplier
Mean Replenishment Time Replenishment time variability (std dev)
Customer
Mean Demand or Consumption Demand variability (std dev)
Operating Policies
Service Level Review Period
SPaM
2012
18
52
SC segments #5 FGI
MTA
SC segments #1 FGI
MID Micro
Procurement
SC segment #4 Vendor Inventory
Customer
SPaM
Tech Center
PCAC
2012
18
53
250
450 400
Backorders Shipments
Backorder Vanishes!
50
150 100 50
No v
No v
M ay
M ay
Se p
Se p
Ju l
M ar
M ar
Ju l
'9
Ja n
'9
Ja n
Ja n
'9
SPaM
2012
18
54
SPaM
2012
18
55
HP
In stores the inventory setting rule for HP hardware was one to show and two to go; each stores inventory stocking goal was the same. HP
Wal*Mart warehouses
Wal*Mart stores
2
Inventory
24
2400
Sales force recognized they could work with Wal*Mart to optimize inventory, cutting losses from mark downs and increasing sales.
SPaM
2012
18
56
WOS targets
Low
Deskjet 400L Deskjet 694 Officejet 500 51626A 51641A t-shirt transfer
Together these inputs were used to calculate how much inventory should be held at each of their 24 warehouses and 2400 stores. The table is typical of the output that we produced. 24 2400
SPaM
2012
18
57
10 8 Inventory 6 Turns 4 2 0
$4.6
$4.7 $3.6
80.0
$3.4
75.0 May June July Aug Sept Oct Nov Dec Jan Feb In-stock % Sell-thru Turns
Customer Feedback: HP Named Supplier of the Year by Worlds Largest Retailer: Hewlett-Packard Company is the Supplier of the Year for electronic goods by WalMart Stores, Inc. WalMarts Supplier of the Year awards recognize business partners who consistently demonstrate excellence in product performance, pricing, marketing, shipping and customer service. HPs innovative supply-chain-management models help WalMart reduce inventory-related stock costs. In addition to the Supplier of the Year award for electronic goods, HP won WalMarts Supplier of the Quarter award. HP HP HP source: HP Press Release
2012 2 18
SPaM
58
%001
ecivre S
%08
ylppuS fo skee W
01
SPaM
59
Queuing quiz
How long is the waiting time for a printer if the daily demand is always 100, and the line can build 100 perfect printers every day? 100 100 How long is the waiting time if either the daily demand or build capacity are not exact, but only averages?
SPaM
2012
18
60
$16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 0% 10%
Today
With current demand and line configuration, 20% idle capacity and 15 DOS minimize the total cost for the Zebra line 20 15
Inventory cost
20%
30%
40%
50%
60%
SPaM
61
$16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 0% 10% 20%
Excess capacity (%) Mfg TAT Today
12.0
$12M
10.0 8.0
Total cost
SPaM
62
Repair strategy Support network analysis (Call center, Delivery model + Spares)
Is Offshoring Really IPG EMEA Support Cheaper?, Call Center Strategy (04) Magazine, Jan 2004 IPG AP Support Strategy (Mar05) IPG/PSG Cons. Prod. N.Am Call Center Transition Cost Analysis (Jun03) IPG Inkjet System (Feb03) Laser Hardware Support Supply Chain Improvement (03) Setting Warranty Policy for Products that generate Annuity Streams, Wty Week, 2004. Reinventing Warranty at HP: an Engineering Approach to Warranty., Qual. and Reliability Eng. Intl, 2003.
SPaM
2012
18
63
3. Warranty planning
Conceptual mapping of key cost drivers Cost savings for given plan of record Planning model development Cost driver mapping Data-driven root cause identification
ESS SPAR Warranty Planning Model (Jun04) BCS Warranty Opportunity Model (Aug05)
ESG - HP9000 Warranty Deep Dive (Dec03) ESG Warranty cost pareto analysis (Mar03)
SPaM
2012
18
64
Business need BCS needed to better understand the drivers of warranty costs to accelerate improvement BCS BCS lacked tools to implement better data-driven warranty management BCS SPaM contribution SPaM Developed cost driver map Built the Warranty Opportunity Model Provided training and documentation
Findings and recommendations The sensitivity model is very effective to ensure proper focus of resources Providing accurate data into the SPAR process helps to set realistic targets SPaM The BCS Warranty Opportunity Model is a giant step forward in our ability to plan our warranty activities. BCS [The model] will ensure our warranty reduction efforts are focused on the right drivers
SPaM SPaM
Value delivered The model has been fully implemented and is being used by the BCS warranty team BCS It has been used to re-set SPAR targets in a data-driven way SPAR The model enables the valuation of warranty initiatives in a matter of hours instead of weekscritical to development of the POR POR 2012 2 18
65
84
18 16 14 12 10 8 6 4 2 0 Weighted average of warranty policy length in months
A usage and time dependent warranty event model allows the design of warranty policies. In some cases we can increase customer service while simultaneously reducing HPs warranty expense!
HP
This translates to a cost reduction of > than $5M over product life. We developed a repeatable process for predicting warranty costs and accruals more accurately. SPaM was a great catalyst, we anticipate great benefits to SPO from this work. Thank you! 500 SPaM SPO Kevin Deats, Customer Experience Manager SPO Marcos Esterman, Quality Process Development Engineer SPO
2012 2 18
SPaM
66
Project innovation: Integrated cost model includes quantification of repurchase rate changes due to customer satisfaction increase or decrease.
Customer Feedback: This project exceeded all my expectations; the financial modeling was exceptional. The team provided us a good model to run different call center ramp scenarios, and highlighted the importance of changing partner contracts to focus on pooled call volumes. We expect to save >$4M per year as a result of the transition of our business to offshore locations. This tool will allow us to plan the type of partner ramps we can afford and effectively predict breakeven and savings over time. Thank you!
NPV includes: - CSAT delta costs (using system profits) CAST - Operating costs - Startup costs, including training All India ramps positive NPV within first year!
SPaM
400
67
Notebook features (Oct05) ISS EMEA SKUs, platforms (Oct05) NA consumer desktop SKUs (Oct04) IPG EMEA and APJ consumer SKUs (Jan06) IPG APJ commercial SKUs (July 07)
SKUs
Guidelines: minimum efficient scale SKU or platform volume, target efficient scale feature volume, or cost/unit premiums on low volume features SKU
ROI calculators (Excel) for cost-benefit screening EXCEL) Governance process & metrics
SPaM
2012 2 18
68
End-to-end benefit and cost predictions for alternative degrees of part commonality; products, product families, and product categories.
3. Postponement
Simulation of alternative product build strategies Recommendations on where products should be configured (i.e. in or out of region). Calculators that support packaging design choices and shipment methods
Mass BPD Design for Direct (05) Customization at Hewlett-Packard, BPC Common Chassis Harvard Business (03) Review, 97
4. Logistics Enhancement
ROSe (05) Plastic Pallets (05) Freight vs. IDC calculator (03)
SPaM
2012
18
69
DfSC
Systematically trade off responsiveness, material, and supply chain costs to maximize profitability Variety Control Logistics Enhancement Commonality and Re-Use /
Trade off supply chain costs against sales impacts to determine feature set / Example: all DVD-R, no CD-Readers. 1.2 and 1.4 processors, no 1.3
Redesign product and or packaging to improve density factor, size and/or optimize # per pallet/load / / Example: 10 PCs in bulk pack for corporate customers replaces 10 packed separately
Examples: 15 rack versions become 7, same printer architecture for large format, business, and home photo printers
Modify product to allow process resequencing and postponed differentiation Example: generic printer engine from Asia becomes localized DeskJet in Europe.
Change build location and transfer price Example: make storage hardware feature soft, give software business unit high transfer price, burn disks in tax haven, air ship to final configuration in region.
Example: socket instead of solder high value components, chassis snaps together and apart without special tools.
SPaM
2012
18
70
45% reduction
1. 1
55 modules 55 49 options 49
200 2
200 3
42% less inventory and better availability for bPC; $25M BPC 42 2500
Postponement
Reducing physical size saves >$1/unit in IPG PCC costs IPG PCC 1 Tax and Duty Reduction
98
2004
ESS Storage
4800
2012
18
71
Investigation and analysis to help make decisions that take the supply chain into account This happens in different functions and at different levels. Some examples:
Individual HP and ODM engineers make everyday engineering decisions and choices HP ODM Development teams make decisions about individual products Managers with responsibility for a suite of products look across GBUs for opportunities GBU Councils make policy decisions that affect multiple GBUs GBU
SPaM
2012
18
72
Calculators
Calculators on web pages Downloadable spreadsheets
Databases
What power cords are best to select Point to point transit time and cost information for analysis support
SPaM
2012
18
73
SPaM
2012
18
74
SPaM
2012
18
75
Mean demand: Q = 5,000/week Q=5000/ # SKUs: n = 20 SKU n=20 Demand uncertainty: fe ~60% (CoV) fe 60%( ) Std. dev. demand: W = Q * fe W= Q * fe Product cost: c ~ $200/unit c $200/ Product price: p = $220/unit p $220/ IDC percent: h = 40% per year IDC h =40% Mean lead time: L = 8 weeks L=8 Std. dev. lead time: s = 0.8 weeks s = 0.8 Review period: R = 1 week R=1 Delivery frequency: f = 1/week f = 1/ Service level target: SL = 95% : SL = 95%
SPaM
2012
18
76
Whats at stake?
Calculate current CD-RW inventory costs CD-RW
I $ / unit /WOS
Derivation of equations
* SS units ! k
Safety stock in WOS WOS SSWOS ! k fe L R Cycle stock in WOS WOS CSWOS 1 ! 2 f
L R W 2
SS units W ! k L R ! k fe L R Q Q 1 CSWOS ! 2 f IWOS ! CSWOS SSWOS SSWOS ! * Assumes deterministic lead time. This calculation has 10% error if : s2 e .21 L R
fe 2
Analysis Approach Page 2 of 6
SPaM
2012
18
77
Spread Volume
Universal SKU
0% 1 2 3 4 5 6 7 8 9 10 Product Number
Consolidate Volume
0% 1 2 3 4 5 6 7 8 9 10 Product Number
0% 1 2 3 4 5 6 7 8 9 10 Product Number
SPaM
2012
18
78
Safety stock savings in $/unit $/ 1 RRnp1 ! 1 n SS$savings ! I $ / unit / WOS SSWOS RRnp1 / unit
Qt n
79
PDE
0% 0% 1%
PPMD
PDE
Eng./Trad. Chinese Eng./Simp. Chinese International Eng. International Eng. Eng./Simp. Chinese International Eng.
0% 1% 0% 0% 0% 1%
SPaM
80
$4.00 Change in IDC savings ($/unit) $3.00 $2.00 $1.00 $0.00 0 -$1.00 -$2.00 -$3.00
10
Actual savings using dem and share by SKU
20
30
40
Upper bound always occurs when demand variance is identical for all SKUs
SPaM
2012
18
81
Americas
Dealers
Supplier
Printers
Europe
Italy France Germany Spain etc. Australia Japan Korea Taiwan etc.
Asia
SPaM
2012
18
82
Americas Supplier
Dealers
Printers
Europe
Printers
Europe
Asia
Dealers
Asia
Dealers
SPaM
2012
18
83
Weeks of Supply
At the Factory At Distribution Centers
Product Availability
SPaM
2012
18
84
M ar
Ju l
5000
M ay
N ov
Se p
Ja n
A AQ generic
AA AU
AB AY
SPaM
2012
18
85
Today
The Past
Bulk Pack
2012 2 18
FGI on pallet
SPaM
86