1 GSC PLANNING

Global supply chain management is what makes the biggest companies what they are today. Mastering this discipline requires a Planning focus vision rather than executing, resulting in major investments in the Service level. While the SC has many definitions that could be applied to it, it can be defined as “A supply chain is a multiple customer-supplier relationship”. This is based on the minimum presence of 3 actors in a supply chain, relatively: Supplier -> Manufacturer -> Distributor -> Final market

Those are assessed through different flows according to the subject that is flowing. In the SC industry there are 3 major flows:

FLOW DESCRIPTION
Physical Flow It’s the Goods, that starts from raw materials to the point where the final product is achieved. This transformation is developed in a linear path: Supplier -> Manufacturer -> Distributor -> Final market.
Information Flow Considered as the planning flow, it’s characterized by the exact opposite flow: Final market -> Distributor -> Manufacturer -> Supplier.
Cash Flow As for the Information flow, the path is going from the end to the beginning of the SC: Final market -> Distributor -> Manufacturer -> Supplier.

According to the supply and demand analysis, we can refer to the section starting from the Supplier to the mid Manufacturer as the SUPPLY SECTION, the remaining, from mid Manufacturer to the Final market side, is referred as the DEMAND SECTION.

1.1 SUPPLY CHAIN PLANNING

Managers around the globe have realized that differentiating on processes is more advantageous than differentiating on product, seeing that this approach can offer a differential advantage to companies. The SC planning is a forward-looking process of coordinating assets to optimize the delivery of goods, services and information from supplier to customer, balancing in such way the supply and demand. SC planning looks after current processes, including the ones originated in pure services industries, and determine methods for orchestrating the execution flow, the information flow and the financial flow in SCs.

In this industry we have the so-called SC Planners, those are the ones who have the ability to look at the whole SC from upstream to downstream with both short- and long-term mindset.Those SC Planners are tech-savvy, and they feel comfortable to work aside machine. They combine technical and business knowledge with collaboration and communication skills in writing and verbal conversation.

To be trained for the future endeavors, there are 3 major topics that have to be analyzed:

  1. Whether the company has a SC consciously established and improves it; or if it has merely evolved.
  2. Whether the business and SC strategies are aligned.
  3. How effectively a SC is planned, considering that the more effective it is, the lower are the operating costs and the Costs of Goods Sold (CoGS).

1.2 SCS STRATEGY

A supply chain, can be analyzed as previously seen, in Supply and Demand areas, or, as Upstream and Downstream. Those identifies the tiers of a supply chain in relation to our focus company.

Upstream supply chain operations encompass:

  • Supplier management.
  • Procurement and transportation.
  • Ensures reliable supply of materials input.

Downstream supply chain involves:

  • Order management.
  • Warehousing and transportation.
  • Timely product delivery.
  • Customer satisfaction.

[Image 1: Upstream and downstream]

A SCs can be defined as: “A network of facilities that produces raw materials, transform them into intermediate goods and then final products, and deliver product to customers through a distribution system.” The structure of a SCs follows 3 dimensions described as follows:

LENGTH: It’s the number of tiers across the supply chain.

WIDTH: It’s the number of suppliers represented within each tier, even though this is sometimes counted as N° of plants.

COMPANY POSITION: It’s the key that differentiates between business planning and SCs.

1.3 SC MANAGEMENT

Sc management is defined as “The integrated process of plan, source, make, deliver, return and enable, spanning from the supplier’s supplier to the customers customer.” This deals with 2 relevant topics:

AREA MANAGERIAL TOPICS
Upstream Related to the outsourcing and off shoring topics. Outsourcing simply means delegating business processes to another company or independent contractors. Meanwhile, off shoring involves running a portion of business operations in another country.
Dowstream Related to the volatility in clients’ requirements and the related flexibility needed in production mix, volume, plan and product; the new products and process technologies, and their speed of execution; internalization and the market globalization; explosion in customer requirements (This can be solved with Stock-keeping units (SKUs)) etc.

1.4 SCOR MODEL

Supply-chain operations reference (SCOR) model is a process reference model developed and endorsed by the Supply-Chain Council as the cross-industry, standard diagnostic tool for supply chain management. The SCOR model is a management supply chain tool that can be used to address, improve and communicate decisions related to supply chain management within a company and with its suppliers and customers. It explains the processes within the supply chain and provides a standardized baseline for improving these processes.

The SCOR model integrates business concepts similar to benchmarking, measurement and re-engineering into a singular framework. This provides a comprehensive look at the business processes needed to satisfy customer demands. It also creates a standard method for evaluating the supply chain’s efficiency and effectiveness to highlight improvement areas. As a standard, companies in any industry with a supply chain may use it successfully.

There are over 250 SCOR metrics that are organized in a hierarchical (and codified) structure from organization level 1 to process level 2 to diagnostic level 3. The metrics are categorized in five performance attributes: Reliability; Responsiveness; Agility; Costs; and Asset management efficiency. The first three attributes are considered customer-focused; the latter two are internally focused. Organizations use these metrics to establish requirements for the supply chain. This helps them determine which attributes to prioritize and which areas it performs at an average pace. The levels for measuring these metrics and evaluating the supply chain are:

LEVELS (FUNDAMENTALS) ACTION
Scope (Type) How specific companies are able to differentiate their business. It’s the definition of the scope (The type of product, the type of processes, etc.).
Configuration (Category) Useful to enlighten SC complexity it differentiates capabilities.
Activities (Activity) Every process is broken down into specific activities
LEVELS (ADDITIONAL) ACTION
Workflow It’s intended to a micro level organizational design.
Transactions The design of the specific documents that have to be exchanged between specific actors.
PERMANCE ATTRIBUTE DEFINITION
Reliability The ability to perform tasks as expected. Reliability focuses on the predictability of the outcome of a process. Typically, metric for the reliability include On-time; the right quantity, the right quality.
Responsiveness The speed at which tasks are performed. The speed at which a supply chain provides products to the customer, examples include cycle-time metrics.
Agility The ability to respond to external influences, the ability to respond to marketplace changes to gain or maintain competitive advantage. SCOR Agility metrics include flexibility and adaptability.
Costs The cost of operating the supply chain processes. This includes labor costs, material costs, management and transportation costs. A typical cost metric id cost of goods sold.
Asset Management Efficiency The ability to efficiently utilize assets. Asset management strategies in a supply chain include inventory reduction and in-sourcing vs outsourcing. Metrics include Inventory days of supply (Average time between your company purchasing the products/ items and selling them to customers.); and capacity utilization.

1.4.1 COMPONENTS OF THE SCOR MODEL

The SCOR model includes several components, which repeat continuously in a process that begins with the supplier and finishes through the customer. Each step requires the success of the other steps for the supply chain to continue successfully. The six components are:

COMPONENT DEFINITION
Plan The first component is SUPPLY and DEMAND PLANNING. This requires creating a balance between the resources and demand requirements and establishing communication throughout the chain. This also involves aligning the supply chain with the organization’s overall financial plan and establishing business rules. These business rules measure and improve the efficiency of the supply chain, and they may affect concerns like assets, inventory, regulatory compliance and transportation.
Source The source component involves ACQUIRING MATERIALS and SOURCING INFRASTRUCTURE. It provides guidance regarding aspects of the supply chain such as inventory, supplier agreements, networks and performance. This component may also discuss processes for handling supplier payments and receiving, verifying and transferring products.
Make The make component emphasizes MANUFACTURING and PRODUCTION. Considering whether the manufacturing process is engineer-to-order, make-to-order or make-to-stock can help you make informed decisions regarding supply chain management. This component involves production activities like packaging, staging and releasing products. It also involves managing aspects of the supply chain like the equipment, facilities, production network and transportation.
Deliver The delivery component relates to MANAGING, WAREHOUSING and TRANSPORTING ORDERS. This includes receiving customer orders and invoicing customers appropriately once they receive the products. It also involves managing aspects of the supply chain, like assets, exporting requirements, finished inventories, importing requirements, product life cycles and transportation.
Return The return component involves handling RECEIVING ITEMS and managing various supply chain aspects. Companies can prepare efficient systems to handle the return of containers, defective products or packaging from customers to ensure satisfactory customer service. This component also includes managing assets, business rules, regulatory requirements, return inventory and transportation.
Enable The final component relates to processes that involve managing the supply chain, REGULATORY COMPLIANCE and RISK MANAGEMENT. You can also refer to it as the support component. It involves managing supply chain aspects such as business rules, contracts, data, facilities, performance and resources.

1.5 FISHERS MODEL [1997]

One of the two models of SC is the FISHERS MODEL of 1997; this is based on the simple principle of “Specific product characteristics requires specific SC characteristics”. This is simply a definition process that upon specific characteristics of your product, suggests the corresponding SC model. Those benchmarks are the mid column of the following table that showcases the difference between a water bottle on the left and a Starbucks coffee on the right:

FUNCTIONAL PRODUCT SUBJECT INNOVATIVE PRODUCT
PREDICTABLE DEMAND UNPREDICTABLE
LONG (>2YR) PRODUCT LIFE CYCLE SHORT (3-12 MN)
LOW (5-20%) CONTRIBUTION MARGIN HIGH (20-60%)
LOW (10-20 VARIANTS PER CATEGORY) VARIETY HIGH (OFTEN MILLIONS OF VARIANTS)
LOW (~10%) AVERAGE FORECAST ERROR HIGH (440-100%)
LOW (1-2%) AVERGE STOCKOUT RATE HIGH (10-40%)
0 END OF SEASON MARKDOWN HIGH (1-25%)
6 MN – 1 YR LEADTIME FOR MTO PRODUCTS 1 D – 2 WK

Following this first definition, a SC for a FUNCTIONAL PRODUCT requires a PHYSICALLY EFFICIENT SC, while an INNOVATIVE product requires a MARET RESPONSIVE SC. Those SC are defined upon a list of subjects that have to be addressed, those are:

PHISICALLY EFFICIENT SC SUBJECT MARKET RESPONSIVE SC
Supply predictable demand efficiently at the lowest possible cost PRIMARY PURPOSE Respond quickly to unpredictable demand, minimizing stockout, markdowns and obsolete
High average utilization rate MANUFACTURING FOCUS Excess buffer capacity
Generate high returns and minimize inventory throughout the chain INVENTORY STRATEGY Deploy significant buffer stocks of parts/goods
Shorten the LT as long as it doesn’t increase cost LEADTIME FOCUS Invest aggressively in ways to reduce lead time
Depending on cost and quality SUPPLIER SELECTION Depending on speed, flexibility, and quality
Maximize performance and minimize cost PRODUCT DESIGN STRATEGY Modular design and postpone the product differentiation

1.6 HAU LEE MODEL [2002]

Hau lee is the 2nd model of SC, this is an evolution that is based on two main pillars: FISHERS MODEL, and PROCESSES. The base principle of this model is that “As per FISHER model, we define the SC only upon the products characteristics, however, we must revert the attention on the processes as well to define our SC model”. In addition to what has been analyzed in the FISHER model, HAU LEE highlighted that there is an additional uncertain topic to be addressed, this is the SUPPLY PROCESSES that can either be stable or unstable. If you fully understand what FISHER meant by PREDICTABLE or INNOVATIVE products, you know that this is basically a definition of products that can either have a stable demand, being that way “Predictable”, and products that have an unpredictable demand, being that way labelled as “Innovative”. Considered all these, we reach a system characterized by 4 possible outcomes:

Examples of those SC’s are Whirlpool (LEAN); Nokia-Ericsson (RISK HEDGING); Microsoft-Xbox (AGILE). (Those companies are selected as case studies presented in the class).

2 THE VENDOR

2.1 VENDOR’S RATING

One of the most important topics within the SC is the supplier’s role, this is due different reasons, between which:

  • The majority of the cost of produced items lies in the purchased items.
  • The quality of purchased materials is pivotal.
  • The majority of supply chain risks are located at lower levels.
  • Vendor management is human management: Honesty and integrity are antecedents.
  • Research shows that purchased items account for 60% of sales, 50% of all quality problems, and 75% of all warranty claims.
  • The quality of supplies directly affects the overall quality of the company.
  • Better supplier relationship management is pivotal.

Taken this in consideration we must address the matter constantly in an improving overview through a series of action that includes but it’s not limited to:

  • Better communication.
  • Listening, reflecting and supporting the supplier.
  • Provide suppliers with detailed products description.
  • Evaluate the supplier’s performance objectively.
  • Provide suppliers with technical assistance if needed.
  • Requirement related changes must be communicated to suppliers in a timely manner.

Evaluating the vendor quality:

  • While making significant purchase decision, companies must seek assurances.
  • The vendor quality survey could provide this assurance.
  • This approach has recently been replaced by third parties’ audits and certification schemes.
  • The vendor quality survey entails a visit to a potential supplier facility.
  • The divisions involved in such pre-quality checks include design, quality, production and purchasing.

To do such activities, 3 departments can be involved in the process to achieve an overall detailed result. Joining those with the respective activities, we can draw a responsibility matrix as follows:

Participating Departments
ACTIVITY PRODUCT DESIGN PURCHASING QUALITY CONTROL
Establish a vendor wuality policy S S L
Use multiple vendors for major procurements L
Evaluate quality capabilities of potential vendors S S L
Specify requirements for vendors S S
Conduct vendor surveillance S L
Evaluate delivered product S S L
Conduct improvement programs S L
Use vendor quality ratings in selecting vendors L S

To accomplish a detailed and complete quality evaluation of the vendor there are a set of considerations that have to take place, part of those are the followings:

  • Checklists are created and inspections are performed, however, observations and evaluators’ experiences are important.
  • Supplementary aspects.
  • Interpretations are needed to reach saturation.
  • Once suppliers are selected, it is time to get down to detailed levels.
  • Always ask questions! Always challenge! Never take things for granted!
  • Utilize a combination of qualitative and quantitative manners.
  • Focusing on the quality of suppliers are vital.
  • Problems must be prevented!
  • Competition is between SCs.
  • Transmit buyer requirements to suppliers in detail.
  • Ensure close contact and open communication.
  • Closely work with suppliers to establish and explain procedures for inspections, tests and product acceptance
  • Each party must pay an absolute attention to checks and control.
  • Corrective action plans must be developed and training, if necessary, must be given.
  • Statistical process control must take place.
  • Data collection, observation and critical evaluation skills must be continuous.

All of those topics have to be addressed in order to have a clear response to the base questions of SCs:

  • What is your corporate strategy?
  • Are you driven by sustainability?
  • Are you pursuing low?
  • Cost strategy?
  • Are you up for the highest quality materials?
  • How to choose suppliers?
  • Based on price? Based on service capability?
  • Based on consistent quality?

For a proper supplier evaluation, 3 plans have been developed.

2.1.1 CATEGORICAL PLAN

In this scenario various departments of the buying firm form an evaluation form to collect and maintain informal evaluation records according to each department’s requirements. The major suppliers are then evaluated on a monthly basis in accordance with the checklist. After featured KPIs are weighted, each discipline is given and assigned 3 suppliers: “Preferred”, “Neutral” and “Unsatisfactory”.

2.1.2 THE WEIGHTED PLAN

The evaluation process goes in accordance with various terms decided on a case-by-case basis i.e., quality, service and price. Each of these is then associated with a weight that reflects the hierarchy of interest of the company. See example below:

2.1.3 THE COST RATIO PLAN

Supplier’s performance is evaluated by using the tool of standard cost analysis, this requires the identification of additional costs encountered while doing business with a given supplier; the costs associated with quality, service and price elements are the ones normally taken into consideration. Each of these costs is then converted to a “cost ratio” which expresses the additional cost as a percent of the buying firm’s total amount of purchase from that supplier. Let’s analyze an example of a supplier A. The costs of purchased goods with him is EUR. 2’000, the total cost of purchase from all suppliers is EUR. 100’000, resulting in a 2% for supplier A. this same approach is adapted to quality and price cost ratios. Assuming a 2% for delivery cost and another 1% for the cost ratio, and that we set as a price for this product EUR. 72,25, we will have an additional 3% (EUR. 2,17) to add. The final cost would be EUR. 74,42 per piece. This data is not easily available in practice. Therefore, in normal conditions, this method is scarcely used because of its complexity.

2.2 SUPPLIER’S LIABILITY

If a product and/or service results in damages to the customer’s activity, the supplier (manufacturer) is considered liable for the defective product/service. Regulations take place to define the circumstances under which suppliers are considered liable, i.e.:

  • In Italy Norms are: D.P.R. n. 224 25.5.1998 and Decreto Legislativo n.172 dated 21/5/2004.
  • In Europe Directive 85/374 CEE and also 1994/10/CE and 2001/95/CE.

A product is defective in accordance with different scenarios, those include but are not limited to:

  • When it cannot provide its users with the safe utilization in accordance with what is specified in the directions for use.
  • A product is defective when it cannot generate the expected result for which it is chosen for.
  • A product is defective when it doesn’t deliver the same quality that is to be obtained by another product of the same series.

Some examples into the state of possible defects include Presentation defect (the way the product is presented); design defect (the way the product is designed); production defect (the way the product is produced). However, we can distinguish the liability for the supplier as follows:

LIABLE IF NOT LIABLE IF
The knowledge in terms of the consequences of an incorrect use was unknown at the moment of supply. The product is delivered in the right conditions but reaches the customer in materially modified and altered conditions.
The delivered product is one of the components of a mixture defined by the customer, but the combination becomes defective. The product delivered of the correct quality cannot be used by the customers in proper conditions.
The correctly delivered product is stored / used incorrectly by the customer. The product delivered of the correct quality is out of the scope of the supply agreement.

3 GLOBAL FOOT PRINTING AND NETWORK DESIGN

3.1 FROM FACTORY TO CUSTEMOR CENTRIC SCS

The evolution of a newborn product launched on the market follows a market trend that is shared among all industries due to the nature of use and human behavior toward new products. This can be analyzed in the SC as shown in the following image.

This has to be analyzed in accordance with the demand-capacity ratio that governates a factory production. Example is showcased below:

3.2 SCS MODULES

In line with each company’s requirements and strategies we can incur into different types of SCs configurations that are differentiated by cost quality and service. Among the infinite number of possibilities, we can highlight specific modules that define the most complete and explanatory types. Each of these is analyzed according to two axes: “AREAS” identifying the geographic area (Regions), and “EXECUTION FLOW” that identifies the process within the execution of the product through S-Supply, M-Manufacturing, D-Distribution.

IMAGES TO BE ADDED

4 BALANCING DEMAND AND SUPPLY VIA INTEGRATED BUSINESS PLANNING

4.1 VOLATILITY AND GLOBAL PLANNING

The volatility and global planning are a very crucial and complicated subjects within the GSCM, this can be analyzed through a case study of a real-world example. MAERSK, the world’s largest container shipping company went through an interesting track of records. During 2012 it lost from 8 to 9 million per day, resulting in a total loss of approximately 600 million in the first quarter. Seen the conditions, the team intended to solve such problems through the adoption of specific strategies aimed at restoring the profitability and maintaining the industry leadership.

The challenge has to do with the need to increase the financial results in the short term and breaking the volatility and delivering more sustainable shareholder value over the medium to long term. The strategy was made by 3 activities, respectively named:

ACTIVITY DESCRIPTION
BACK-TO-BACK Focused on the short-term financial results by identifying the measures to cut costs and increase the revenue. In the overall this was the easiest step within the process.
FINISH TO FOUNDATION This stage goal was focused on breaking down the silos to make planning and operating systems more integrated and coherent.
SUSTAINABLE PROFITABLE GROWTH The goal was to be the best performing container shipping company while maintaining the prime position size wise.

Those goals were achieved according to the improvement of 3 specific steps: S&OP, CPFR, and IBP.

4.2 SALES AND OPERATION PLANNING (S&OP)

Sales & Operations planning (S&OP) is a planning mechanism developed by Dick Ling in the 1980s, the process develops plans for the next 1-18 months, and often it applies on an aggregated level (product families) rather than individual Stock Keeping Units. This mechanism is defined by its fundamental nature of being a CONSENSUS plan of all management actors involved. The scope is to develop tactical plans by providing management with the ability to strategically direct its businesses to achieve a competitive advantage with the main purpose of balancing Supply and Demand. A typical planning cycle can be seen below:

First line is the strategic side, the most important input here is the demand management related to the forecast, where the Mater Production Schedule is prepared. This follows with the preparation of the Material Requirement Planning (MRP) where the expected demand I translated into the corresponding plans for components and raw materials. The cycle ends with the operational line.

4.2.1 S&OP OBJECTIVE

S&OP retains a twofold objective: FIRST, to balance supply and demand. SECOND, to connect the strategic plan of a firm with the operational plan both from vertical (matching the strategic and the operational plans) and a horizontal (involving cross-functional teams across the planning stage) perspective; and by providing a consensus on sales forecasts and production plans, it enables companies to respond effectively to both demand and supply variability.

4.2.2 S&OP PROCESS

This is achieved by the implementation of 5 steps:

PHASE DESCRIPTION
Data Gathering Historical data from sales, production, and inventories, as well as customer orders, are collected as inputs for the demand forecast/plan.
Review of Demand Planning This is focused on what the company can sell rather than what they can produce. Following the data gathering phase, a forecast is made upon those data to define a preview of the possible sales development. The maturity of such forecast is made upon the following criteria: Data management; use of forecasting methods; management of such methods; performance management; the organization; people management.
Supply Planning The operations team collects information about the inventory strategy, the supply chain available capacity, and the internal capacity. Based on the baseline demand forecast, the team then drafts an initial supply plan that is designed to fulfill the forecasted requirements.
Pre-S&OP Meeting Once the supply planning is defined, the capacity constraint is analyzed to define any possible problems or limitations. The goal is to clearly balance the demand with the supply. To comprehend the entire system, the S&OP team must include representatives from all the different functional areas involved.
Executive S&OP Meeting The meeting aims at setting the direction rather than analyzing further potential problems. The end result is the APPROVED CONSENSUS PLAN.

4.3 COLABORATIVE PLANNING FORECASTING AND REPLENISHMENT (CPFR)

CPFR is a collection of new business practices that aim to achieve two goals: Radically reduce inventories and expenses and improving customer service. CPFR as a cohesive bundle of business processes made of supply chain partners that share: Information, synchronize forecasts, risks, costs, and benefits to improve the overall supply chain performance, manage demand uncertainties, and define the promotional and replenishments plans. The establishment of a proper CPFR happens over 4 steps: Analysis, strategy and planning, demand and supply management, and execution.

In a more practical way, the processes start with the alignment with the regulation and assigning roles and responsibilities; following this, the demand is forecasted, and the corresponding order planning is drafted. Once the strategy and supply chain management are over, the plan can be executed, thus collecting orders and fulfilling them. At the end, the CPFR employs the exception management and performance assessment. The benefits of such a system are related to the information quality, the service quality and the resulting increase in revenues through the implementation of the inventory levels, the impact on sales and the responsiveness implementation.

4.4 INTEGRATED BUSINESS PLANNING (IBP)

The Integrated Business Planning process is a development of the S&OP that takes place once this last one is not functional anymore. The IBP at this point is implemented without replacing the S&OP. The S&OP is primarily focused on the sales and operations functions of the organization, while IBP encompasses the entire enterprise. IBP aims to align all aspects of the business, including finance, marketing, human resources and supply chain. IBP is a combination of S&OP’s and CPFR’s, it’s the best practice to improve demand forecasting accuracy and increase collaboration throughout the whole supply chain. The benefits are related to a sales and margin growth and a reduced inventory cost, with a set of products now tailored to both the manufacturers and retailer’s brand.

Those tree strategies have a stronger impact in relation to the phase in which they are implemented. Considering 3-time horizons (TH), from short to long term, the utilization should be:

S&OP (1st TH) -> CPFR (2nd TH) -> IBP (3rd TH)

5 LEONARDO, COMPANY PROFILE

Leonard is a leader within the aerospace, defense, and security sectors. The company has a solid industrial base in five countries, a global commercial network, strategic partnerships and collaborations in the most important international programs. Leonardo’s logistic & Planning Operation is based on four pillars:

PILLAR DESCRIPTION
Customer Satisfaction
  • Perfect delivery (right product, quantity, mix and timing).
  • Service level as requested by each Customers.
  • Suppliers’ synchronization to customer’s demand.
  • Minimizing material handling.
Economics
  • Inventory optimization.
  • Logistics cost productivity.
    • People Development
    • Standard organization.
  • Engagement & training.
    • Standard process
    • Create conditions for continuous material flow (suppliers - customers).
  • Volume levels, production mix and increase saturation.
  • Integrate sales, production and purchasing.
  • Significantly reduces inventory, pointing out irregular flow.

    • Such logistic and planning process can be divided into 3 steps (going from the supplier to the customer):

    Inbound logistics -> Manufacturing and internal logistics -> and Outbound logistics

    This process is traveled upward in the case of the material flow or backward if speaking of the information flow.

    FLOW MOVEMENT
    Material Flow Within the inbound logistics we have the movement of goods and materials from suppliers and vendors to Leonardo and during this phase the warehouse management takes place. This, is implement through two main approaches in Leonardo strategy: the Consignment Stock (CM) and the Vendor Managed Inventory (VMI). Then the materials are sent to the manufacturing line where they will be transformed into the final goods and products, packed, and sent to the final warehouse (within the outbound logistics that also covers the flow of products leaving the organization).
    Information Flow Starting with the customer requirements, Leonardo has to improve the efficiency of its suppliers. How is that possible? Thanks to the strategy given by the Master Production Plan with a time horizon of few years. On the tactical level it is translated into the Master Production Schedule (MPS), while on an operative level we refer to the Material Requirements Planning (MRP). The information flow allows Leonardo to better satisfy its customers and at the same time develop a better relationship with its supplier.

    5.1 PLANNING SCHEDULING AND EXECUTION

    The process in scope is traveled from MPP to MRP for each product that will be produced. Below is outlined the meaning of each of the steps taken.

    USE THE FULL IMAGE

    PHASE DESCRIPTION
    MASTER PRODUCTION PLAN (MPP) Refers to the high-level strategic plan for production. It outlines the overall production strategy for an extended period, often covering a year or more. This plan is relatively stable and sets the framework for more detailed planning.
    MASTER PRODUCTION SCHEDULING (MPS) On a medium-term basis, Leonardo sets into action the Master Production Scheduling, a detailed plan that specifies the quantity of each finished product to be produced within a certain time frame. Of course, the main input tool is the Bill of Materials (BOM) which provides a specific breakdown of the finished product to know every single material, component, part of it. This phase can last from months to 1 or 2 years, and it is dedicated to the tactical choices within the planning process. Is a critical component of the Material Requirements Planning (MRP) system and the broader manufacturing or production planning process.
    MATERIAL REQUIREMENTS PLANNING (MRP) In the short-term period, the company provides the Material Requirements Plan, a method for efficiently managing the inventory and production of materials in manufacturing or production processes. The outputs of this process, in fact, will be purchase requisition, supplier scheduling, and planned work orders (instructions that outline the work required to complete a specific production task). To develop the MRP, Leonardo absolutely needs to know: Safety margins and stock of inventory, lead times of the shipment. This helps organizations ensure that they have the right materials in the right quantities at the right time to meet their production demands while minimizing inventory costs. To develop a Master Production Plan, Leonardo has to implement 2 systems:
    • THE ORDER BOOK: It provides the company with a clear overview of what needs to be produced and at which moment. It’s a kind of record that contains a list of customer orders that need to be fulfilled within a specific time.
    • THE ORDER INTAKE FORECAST: This allows Leonardo to make informed decisions about their production and SC activities since it is a projection of the future orders the company expects to receive. This is all correlated with the acquisition of new contracts (new relationships with new suppliers) and various strategic choices related to Make or Buy and so on. These activities allow the development of a 5-year MPP.

    5.2 SUPPLIER COLLABORATION

    Each supplier receives from Leonardo the Logistics Agreement (LA), where all the guidelines that drive the relation between them and the suppliers are set and defined. As part of their commitment to a continuous improvement, they embraced 2 programs related to sustainability and relationship with the suppliers:

    LEAP: Designed to strengthen the SC and make it sustainable in the medium-long term. LEONARDO thinks that a sustainable business could generate value for its customers and the environment.

    LEADS: This (Leonardo Assessment and Development for Sustainability) is an evaluation model aimed at outlining the aspects and risks of sustainability and growth of the suppliers. For a supplier to take part in the LEAD program of Leonardo, he has to:

    • Put into action an excellent performance in terms of quality and delivery.
    • Has to be competitive in economic terms.
    • Needs to invest and improve its business continuously.

    The advantages taken from the collaboration could be the good business relation in the long term, the support from Leonardo, and the engagement in new projects or initiatives. The communication between Leonardo and its suppliers takes place thanks to a portal called “IDoc” and the suppliers are also able to communicate the delivery of the goods thanks to an Advanced Shipment Notice (ASN) so that the company will perfectly know the lead time.

    5.3 INVENTORY MANAGEMENT

    Leonardo developed an inventory management strategy that includes 2 different methods:

    STRATEGY DESCRIPTION
    VENDOR MANAGED INVENTORY (VMI) The CS method is based on a communication of the withdrawals realized by Leonardo in a month. The supplier will send the necessary goods based on the schedule and information received. This method allows a lower cost of the warehouse and lower space occupied. (Consignment stock is stock legally owned by one party, the supplier in this case, but held by another, Leonardo, meaning that the risk and rewards regarding to the said stock remains with the first supplier while Leonardo is responsible for distribution or retail operations).
    CONSIGNMENT STOCK (CS) This gives total responsibility to the supplier. In this scenario, the supplier has to maintain the stock level within an agreed range himself. How does it proceed? The supplier receives in real time the stock level in the inventory and the withdrawals of the company. Then it can proceed with the delivery of goods by creating an Advanced Shipment Notice to notify Leonardo.

    6 PLANNING SCS FOR SUSTAINABILITY

    6.1 THE TRIPLE BOTTOM LINE

    The TBL joins three realms: Social, Environmental and Economic. Together, those can define what a real sustainable initiative is. We have however to consider an implication in this explanation, the main goal of a company is to be economically sustainable, therefore, we can say that in order to be sustainable, you have to be Economically advantageous, and socially and environmentally responsible.

    6.1.1 SUSTAINABLE SUPPLY CHAIN MANAGEMENT

    According to the SCs, as we mentioned in the first chapters, we can identify the supplier section as the upstream, and the customer section as the downstream. Once highlighted that, we can say that the focus company can just be as sustainable as its supplier, and as sustainable as much the client is willing to pay. The sustainable management is defined as “The management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development”. The goal becomes to close the loop, reaching in such a way a CIRCULAR ECONOMY, and that can happen at different stages of the process, defining the respective approach. See below the strategy defined by closing the loop at each stage of the process.

    As shown in the image, the loop can be closed in 3 areas, respectively in the Supply, Manufacturing, or Distribution section. In the distribution, we can incur into 2 main scenarios distinguished by the maintenance requirements.

    PHASE STRATEGY
    DISTRIBUTION
    • DIRECT REUSE / RESALE: Product are directly resold with no actions taken on them.
    • REPAIR: Products are modified through maintenance activities and resold on the market afterwords.
    MANUFACTURING
    • REFURBISHMENT: Changes are being made to the product configuration.
  • REMANUFACTURING: Some specific components are being remanufactured from scratch.
    • SUPPLY
    • CANNIBALIZATION: The new product produced competes with the original product.
  • RECYCLING: The product is disassembled allowing the reuse of materials to build new product.

    • 6.2 A NEW BUILDING STOCK OF SC STRATEGY

    Sustainability is, with no discussion, a matter of interest in today’s economy, and seen as such, many attempts have been developed to define the value gained from it. This approach has been extended in the SCs design with the development and improvement of the HAU LEE model from a 2-dimensional chart (Demand Uncertainty, Supply Uncertainty) to a 3-dimensional graph (Demand Uncertainty, Supply Uncertainty, Strategical importance of sustainability).

    As seen in the graph, the third dimension is included for the sustainability, where this last one can define a product as either an:

    • ORDER WINNER: This is the case in competitive markets, where being sustainable gives you an edge on other companies.
    • MARKET QUALIFIER: This is the case where if a company is not sustainable it will not be taken into consideration at all.

    6.3 PLANNING THE SUSTAINABLE SC

    The planning of a sustainable supply chain, requires a 4-steps approach described as follows:

    • Improving the performance of your own operations.
    • Working with suppliers to increase efficiency and competitiveness (Upstream).
    • Ensuring that goods and services provided to your suppliers are sustainable (That the supplier of the supplier is sustainable basically). This identifies the main problem in this planning activity since we can’t achieve a close loop without involving the 2nd and 3rd tier of suppliers.
    • Working effectively with customer and sales channel to design sustainable products and services (Downstream).

    6.4 SUSTAINABLE CASE STUDIES

    Nike: In 1996 Nike was accused of using child labor in the production of its soccer balls, and as an attempt to solve the PR scandal in 2004 Nike voluntarily published 700 names and addresses of all contract factories / manufacturers. Later they set up an internal team for sustainable product development where the suppliers were actually involved in the process. This was developed because they knew they could not achieve their goals without working within the supply chain. From this example, different insights can be extracted. It is clear from the stages how much time has to be invested to achieve a sustainable chain. Sustainability has to be seen as a volunteer act made out of social pressure. It’s hard to convert a product into a sustainable product unless sustainability is embedded in the design stage as well.

    Apple: In 2009 Apple was pilloried because of a suicide at Foxconn, one of its suppliers. In 2015, trying to solve the issue, the sustainability report (related to 2014) referred to 633 supplier audits, instead of 83 social sustainability audits in 2009. That case underlines how a sustainable SCs is achieved by implementing a visible SCs.

    Esquel: Esquel is one of the world’s leading producers of premium cotton shirts based in HK. In early 2000, Nike, Marks & Spencer and other customers started demanding that the cotton in their shirts be grown organically. At that time, most of Esquel’s cotton came from Xinjiang and a switch to organic cotton could cause crop yields to drop by 50%. In this scenario, Esquel decided to team up with Standard Chartered Bank that provided micro financing to help farmers in Xinjiang try sustainable-farming techniques (This is an example of Supply Chain Finance). This approach allowed Esquel to improve its own manufacturing process for washing, ginning, and spinning organic cotton fiber and achieve its goal.

    Mattel: In 2007, a lead paint on its toys damaged the brand and forced the company to conduct an expensive recall. It was traced the paint’s source to a third-tier supplier which had sold a batch of leaded yellow pigment to a paint company with a fake certification, and the paint company sold the paint to a Mattel’s long time contract manufacturer. In this case, while the responsibility goes to the third-tier supplier, the costs needed for the recall and the brand damage are absorbed from Mattel.

    Walmart: In 2005 decided to be fueled by 100% renewable energy and, at first, its suppliers were skeptical but resulted in a win-win. This is a situation of environmental sustainability within the supply chain.

    ERP: In 2002 Braun-Gillette, Electrolux, HP, and Sony decided to create a joint venture called European Recycling Platform with the goal of collecting waste of electrical and electronic equipment.

    Natura: Produces natural cosmetics and focuses on supplier sustainability, sustainable operations (use of 75% recyclable material), social sustainability involving about 10.000 families.

    Caterpillar: Relationship with the suppliers through questionnaires and company visits at the supplier’s site and also development of a code of conduct to be signed by the suppliers.

    Ikea: Training its suppliers

    7 PLANNING WHEN SCS ARE AT RISK

    When talking about risk, the concepts of risk and resilience are usually confused. In this context we can define as risk “The future damage or impact” of an action, while for resilience we define at a basic level “The ability to survive” visible in the past. In this context, the risk management becomes a fundamental tool to help enterprises. This assessment is based on the relationship between two variables, the probability and likelihood of happening, and the impact that this brings.

    RISK = FREQUENCY X MAGNITUDE / RISK = N° X $

    7.1 RISK

    To reduce the risk, it is possible to act in 2 ways: Reducing the impact; reducing the frequency. Risk management can be identified in Image ??; where upon the two variables we can draw the better strategy to adopt.

    On the basis of this chart, we can draw a matrix of lower complexity by identifying 4 major areas of risk. This is drawn on 2 zones per each axis, of LOW and HIGH value, resulting in such way in the VULNERABILITY MAP.

    Analyzing this chart, we can see that Risk(B) ~ Risk(C) in a monetary value, meaning that:

    • Area C: 1’000 times x 10 EUR = 10’000 EUR
    • Area B: 10 times x 1’000 EUR = 10’000 EUR

    Nevertheless, those 2 scenarios have to be treated in different manners, for a very simple principle, Experience. In Area C we have dealt with this problem many times, therefore we know how to proceed and deal with it, and we also acknowledge a lot of experience and new information. In the opposite way, Area B is distinguished by new problems that never occurred, therefore they come with new challenges that have to be identified and elaborated in order to find a solution.

    7.2 RISK MANAGEMENT CASES

    7.2.1 EMIRATES VS SELL

    In all industries SC risk management have different degrees of impact, reaching an average of 1M $ per each h of disruption. With this, it often also results in a loss in service level that implies a worst scenario for the company. The examples have been many, among those we have the Emirates announcement of new services in US that had to be cancelled for problems in the assembly line of both BOEING and AIRBUS. This was a subsequent result of SELL (Aircraft manufacturer company) delay in supplying the needed assembly parts for the assembly line, including seats, bathrooms and galleys.

    7.2.2 NIKE VS I2

    Other relevant experiences have been shared in other sectors, including the fashion brand of NIKE. In In February 2001 Nike announced that it had lost $100 m in sales the previous quarter because of the snafus in its supply chain. The debacle came right after the company went live with its i2 technology planning system. After a year of installation work, Nike decided it was time to launch the switch, and the new system immediately created havoc across the chain. In this situation Nike blamed i2, with the chairman complaining to analysts, “This is what we get for our $400 m?”, while the vendor, in turn, complained that Nike had pushed the system into service too quickly and had required too much customization. The lesson learned from such an experience is that whoever is to blame, both companies lost big, as a matter of fact, Nike stock dropped 20% on the day it made the announcement, and i2’s fell 22% the same day.

    7.3 THE NEGATIVE EFFECT ON PERFORMANCES

    The share value of companies with reported disruptions dropped when compared to companies in the same sector that did not experience disruptions, the following drops were analyzed: - By 13% in the year before the disruption - By 7% in the year of the disruption - By 10% the year after the disruption - By 2% two years later

    7.4 RESILIENCE

    Disruptions are defined by subsequent phases that can change in length but are always present. Those refers to:

    PHASE DESCRIPTION
    Preparation This is a time frame before the disruptive occurrence, usually its anatomy can suggest that something is about to happen.
    Disruptive Effect it’s the occurrence of the event.
    First Response Usually after an occurrence, there is a small-time frame where there is no impact, it’s because it still have to be perceived from the client.
    Initial Impact Defines the beginning point where the service level start to drop.
    Time of Full Impact Is the point of maximum effect.
    Preparation Actions are starting to be implemented.
    Recovery Actions are in place.
    Long Term Impact Is the impact left after the long run. However, this is not meant to be always negative. In some scenarios, companies decided to implement their service level when this is affected and disrupted, resulting in the long run with a positive long-term impact. The evaluation of a disruption can be executed through 2 main KPI’s: The Area of the above graph, calculating the difference between service levels; and the Full Time To Recover (FTTR) that counts the time from the disruption occurrence and the point of return to the pre occurrence level. However, when areas are equal, the one that occurred in a shorter time period is always better because it leaves no time for the customer to acknowledge the occurrence, while in the other scenario, customers start to talk and consult each other and spread the news impacting even more the event. There are 2 main solutions to embrace for resilience:
    REDUNDANCY: This represents a sheer cost with limited benefit unless it is needed due to a disruption. The incremental cost due to redundancy is effectively an insurance premium. This requires to keep some resources in reserve to be used in case of a disruption in form of: - Additional stock. - Additional capacity. - Additional suppliers. - Knowledge and process backup.
    FLEBILITY: To better understand this practice, we can consider the UPS case where due to a severe blizzard all road and airports were shut down. UPS flew in employees from around the country to help process the stranded packages and load the outbound planes. That tactic was possible because of UPS’s uniform practices: the people who were familiar with operations at one location could operate at any of them since the processes and the sorting machines were interchangeable.

    8 THE ROLE OF CUSTOMER SERVICE IN SCM

    On the contrary of the capacity and cost KPI’s (Related to the above sentence), to evaluate the service level we have a multidimensional KPI that has to be tailored according to the industry in which the company works and the tiers of the SC. Those KPIS are grouped in:

    • PERCEPTION: Related to the B2C segment, where client’s perception is fundamental to the final evaluation.
    • QUANTITATIVE: Related to the B2B segment, where it is important to have an On Time In Full (OTIF) system. This is the ability to provide on time and the whole quantity agreed between the parties.

    8.1 PERCEPTION – B2C

    The primary distinction made by the B2C segment is the differentiation between a product and a service offer. We define as “Service operations management” those activities, decisions, and responsibilities of operations managers in service organization. But why this big emphasis on the distinction between Service and Product. Well, first reason is that for a service is impossible to have an inventory of stored services, leading to a big difference in the SC, and moreover, it is distinguished by the “creation” process that requires sales skills instead of manufacturing skills. From the customer’s perspective, the service is a combination of the experience and their perception of the outcome. It could be defined as:

    SERVICE = EXPERIENCE + OUTCOMES (Where the PERCEIVED service and the PROVIDED service have a difference)

    SERVICE EXPERIENCE: The service experience is the customer’s direct experience of the service process. It concerns the way the customer is dealt with by the service provider, this contains aspects of how customer-facing staff interact with customers and the customer’s experience of the organization and its facilities. Some aspects of the experience include: The personalization of the process for the client; the responsiveness; the flexibility; the intimacy with the client; the extent to which clients feels appreciated by the organization; the courtesy and competence of the staff; and the interaction with other customers.

    SERVICE OUTCOME: The service outcome describes the result for the customer of service delivery, i.e., the ability of a recipient of a software training course to construct a spreadsheet, or for a patient in a hospital to enjoy full mobility after a hip operation.

    8.1.1 SERVICE LEVEL

    The SL measures the performance of a system, or supply chain in this case. To do so, it is important to identify well what is working properly and what lacks performance and therefore improve what needs to be done. The SL is often based on 3 factors: Cost; Process Conformance (That the results is what it was agreed on); and Internal Customer Satisfaction. Some examples of usual SL agreements for a phone provider are:

    KPI CRITERIA VALUE
    Telephone response 95% in 3 rings
    Problem resolution 65% through first line support within 8 hours; 35% in second line within 24 hours
    Complaint escalation First line manager in 8h, to Senior manager in 16 h
    Request for software fix Initial response within 5 working days; Outline proposal within 15 working days

    Customer service is one of the most critical components of the logistics and Supply Chain Management. Through customer service customers get a feel for the product and the business that is selling it. The supply chain is only complete when the product has reached the customer and through customer service the company gets to hear all the pain points and the demands of the clients, and this data can help improve the supply chain. In this scenario, customer satisfaction is the result of customers’ assessment of a service based on a comparison of their perceptions of service delivery with their prior expectations.

    While the level of satisfaction results upon the perception of the service, it is assessed upon all stages as shown above. The problems are created in two main stages:

    GAP 1: Can be related to INTERNAL causes like the lack of understanding of customers’ expectations or insufficient resources, or EXTERNAL causes like the inappropriate expectation of the service experience and outcome.

    GAP 2: It is also linked to INTERNAL causes like the incorrect delivery mostly related to problems in the BOM preparation, or again EXTERNAL linked to the inappropriate expectation of the service experience and outcome. The service quality factors are those attributes of service about which customers may have expectations and which need to be delivered at some specified level. In the list below 18 quality factors which try to capture the totality of service quality, where we can distinguish:

    Availability, Attentiveness, Aesthetics, Access, Commitment, Cleanliness, Comfort, Communication, Care, Courtesy, Competence, Flexibility, Functionality, Friendliness, Integrity, Reliability, Responsiveness, Security.

    Nevertheless, while all have their impact, the most relevant one remains the RESPONSIVENESS, this is union of SPEEED and TIMELINESS of the service delivery.

    9 ALIGNINING A NEW PRODUCT DEVELOPMENT AND SC MANAGEMENT

    When designing a new product, New Product Development (NPD), it must be kept on mind that the design itself is going to have a big influence in the SC. An example of this principle can be seen in Ikea’s strategy. They have grown dramatically by “reinventing the furniture business”. Ikea has accomplished this by designing products so that they can packed compactly and efficiently in kits, which customers take from the stores and assemble at home. These kits are easy and cheap to transport, so products can be manufactured efficiently in a small number of factories and then shipped relatively cheaply to stores all over the world. The products strategy is based on a so-called Product/Price matrix where each product is based upon its style and price range.

    9.1 DESIGN PROCESS

    A well based design process is critical for the efficiency of a system such the one implemented by Ikea. They follow a very strict and functional process that includes 3 main steps:

    • Definition of the price for the proposed product and identification of the manufacturer.
    • Definition of the material to be used.
    • Start of the design process once the above-mentioned topics are fully addressed and solved.

    Once the product, is designed, manufactured and delivered to Ikea’s store, the remaining part of the SC is delivered to the customer duty. The distribution of the product, is indeed led to the customer responsibility, leading this way to a reduces cost for the SC that can result in a respective lower price for the customer.

    9.2 PRODUCT FEATURES

    Among all characteristic that defines the specification of a product, there are some that can help improve the SC and thus improving the competitiveness advantage among all competitors, some of the most relevant are highlighted here after:

    External variety reduction (HEINZ): By analyzing sales, they reduced the Stock Keeping Units SKU of ketchup by about 10’000 units through a simple ABC-ABC analysis (The ABC analysis of inventory is a method of categorizing inventory items based on their importance).

    Commonality (AIRBUS): 4 main families of aircraft, but thanks to a common cockpit configuration they reached a commonality level of 95%.

    Platforms (STARBUCKS / VOLKSWAGEN): Starbucks offers a great number of products, but all combinations are based on a limited set of standard components. The same is applied in the automotive industry by Volkswagen group that has developed a series of different cars based on the same platform.

    Modularity (SMART): Modular products comprise loosely coupled components including one-to-one mapping from functional elements to physical components. Those products have: Interchangeable components; Individually upgradable components; Autonomous components; Standard interfaces. While integral products have interdependent components, so a change in a component requires changes in others. Original Equipment Manufacturer (OEM) are companies that produces components or products that are used in another company’s product. On average an OEM collaborates with 200-300 first-tier suppliers. In this specific case, SMART has only 25 and only 20% of the value of the car is produced in the plant where SMARTs are assembled. That bring along the process some benefits, including High variety at low cost; Short lead time; High speed in reacting to demand.

    Postponement (BENETTON/HP): Postponement denotes the action to postpone a certain number of supply chain activities until the arrival of customer orders. This technique is useful in high variety contexts, nevertheless, to be applied it may require a redesign of the product/production process to align product feature to supply chain feature. In the case of Benetton, we can distinguish the before and after as follows:

    Purchase or production of yarn -> Dyeing -> Finishing -> Parts production -> Packing
    Purchase or production of yarn -> Parts production -> Packing -> Dyeing -> Finishing

    As it can be read through the process, Benetton is capable of producing ahead of time, without forecasting the color.

    9.3 NPD-SCM ALIGNMENT

    Multifunctional teams (WHIRPOOL): Whirlpool acquired Kitchen Aid to fulfill the demand of a high segment of the market. Those were characterized by a high performance with an excellent design and were assembled in the same assembly line of other products in the company portfolio. Their process for a New Product Development (NPD) has a specific and predefined process shared among all objects:

    • Planning (R&D and new technologies, market needs).
    • Conceptual design and System design (aesthetic and functional elements).
    • Details level design (BOM and agreements with suppliers).
    • Test and integration (Product approval, test and launch window).
    • Lessons learnt (for continuous improvement and do not replicate the mistakes).

    In a process of that kind, the Presence of a project leader is fundamental to the successful coordination an inter-functional team which involves: Global Product Development, Procurement, Marketing, Consumer Design, Manufacturing, Service and Quality responsible. For the successful achievement out of their NPD, Whirlpool manages:

    • A Multi-functional team.
    • The product development team that proposes a design and the SC team (In the case of the Manufacturing) reacts and assesses the impact on the complexity of production (i.e., Manufacturing very often says to reduce the variety that the designer or marketing propose).
    • Iterations
    • Checks the alignment made by the SC during the trial assessing the impact on cost and the complexity induced.

    Dedicated organization (BTCINO): Seen the portfolio and all its variety of different products tailored for different customers, an ad-hoc department manages the alignment between designers and supply chain to outline proposals for product commonality, simplifying in this way the manufacturing flow.

    10 ABBREVIATIONS

    • Costs of Goods Sold (CoGS)
    • Stock-keeping units (SKUs)
    • Supply-chain operations reference (SCOR)