case study: cpg co. supply chain audit and opportunity ...€¦ · supply chain audit and...

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Case study: CPG Co.

Supply Chain Audit and Opportunity

Assessment

Jack Muckstadt

Dave Murray

Jim Rappold

Cayuga Partners LLC


CPG Co. Engagement History

• A leading CPG company with global operations and

premium, category-leading brands

– Sophisticated supply chain planning capability; in-house

domain expertise

– Increasing competitive pressure on margins forcing a need for

increased operational efficiency

• Cayuga Partners proposed a 4-phased process to

improve the performance of manufacturing and supply

chain operations:

1. Education and Strategy Sessions

2. Supply Chain Audit and Opportunity Assessment

3. Pilot Implementation

4. Continuous Improvement


1st Law of Supply Chain Physics

“Local optimization results in global

disharmony”

How does this apply to CPG Co.?


Supply Chain Mgt. Systems @ CPG Co.

EIM

SAP R/2

AspenTech SCM

SAP R/3

SEM -

Strategic

Evaluation

Model


Operational

Level

Long Range

Planning

Tactical

Level

Future

Dvmt

Under

Construction

Scheduling Time Buckets: Real Time

Horizon: 15 weeks

Granularity: Feeder

Methodology: MIMI LP/Sched

Primary Scheduling Time Buckets: Real Time

Horizon: 15 weeks

Granularity: Feeder


Secondary SchedulingTime Buckets: Real Time

Horizon: 15 weeks

Granularity: Feeder


To SAP/MRP for Direct

and Indirect Materials

Purchasing

SchedulingTime Buckets: Real Time

Horizon: 15 weeks

Granularity: Module

Methodology: Manual with MIMI

rules for synchronization

Scheduling Time Buckets: NA - Real Time

Horizon: 15 weeks

Granularity: Product/Module

Production Orders, Product-

to-Machine Center

Assignments

Feeder Scheduling Time Buckets: NA - Real Time

Horizon: 15 weeks

Granularity: Feeder

Feeder

Schedule

Feeder

Schedule

Plant

Schedule

Plant

Schedule

“Stable zone”

Schedule

Longer

Hori

zon

More

Det

ail

Long Range PlanningPurpose: Financial Planning, LR Planning

Time Buckets: Monthly

Horizon: 1-5 Years

Granularity: Size Group/Machine Center

Demand

Forecasts

Policies, Days, …

Planning ModelScope:

Time Buckets: Weekly/Monthly

Horizon: Current year plus 1 year

Granularity: Product/Machine Center

Demand

ForecastDemand Management

Purpose: Consolidate Domestic and Export

Demand Forecasts, Net Plan vs Actual

Time Buckets: Weekly/Monthly

Horizon: Current year plus 1 year

Config,

Prod’s,

Attrib’s

Example: Current CPG Co. Models


The CPG Co. Supply Chain

Suppliers of Direct

& Indirect Materials

Plants,

Offsites, Cold

Storage

Public

Warehouses

(0’s)

Ra

nd

om

, N

on

-Sta

tio

na

ry

Co

ns

um

er

De

ma

nd

Time

Wholesalers

(000’s)Retailers

(00,000’s)

Ra

w M

ate

ria

l

Current Scope


Suppliers of Direct


Plants,

Offsites, Cold

Storage

Public

Warehouses

(0’s)

Ra

nd

om

, N

on

-Sta

tio

na

ry

Co

ns

um

er

De

ma

nd

Time

Wholesalers

(000’s)Retailers

(00,000’s)

Ra

w M

ate

ria

l

Marketing

Models

Promotions,

Incentive

Programs, …

Sales and

Distribution

Models

Example: Current CPG Co. Models

Operational

Level

Long Range

PlanningLong Range Planning

Tactical

Level

Planning Model Demand Management

ET Scheduling - MC

Primary Scheduling - MC

Filter Scheduling - MCCM Scheduling - MC Feeder Scheduling - MC

Operational

Level

Long Range


Tactical

Level


Scheduling

Primary Scheduling

Scheduling Scheduling Scheduling


3rd Law of Supply Chain Physics

“Inventories are a consequence of supply

chain design and customer service

objectives”


Promotions

23.8%

Warehouse:

Production Lot Sizing

16.6%

Warehouse:

Demand Uncertainty

over Production Cycles

42.0%

Public Warehouses:

Demand Uncertainty

7.4%

Distribution System:

Processing & Handling

10.2%

Causes of Inventory


Retool Manufacturing

Equipment,

Processes and

Decision Systems

($nn.nB)

40.4%

Speed Up Distribution

($n.nB)

10.2%

Manage Uncertainty

($nn.nB)

49.4%

Opportunities

$nn.nB

Annual

Inventory

Turnover


5th Law of Supply Chain Physics

“Effective supply chain design will reduce

uncertainty dramatically, and improve

operational and financial performance

significantly”

. . . however, residual uncertainty will still exist and

must be effectively considered in a decision support

environment


Potential economic benefits of supply chain

structural change and uncertainty reduction

0

5

10

15

20

25

30

35

Actu

al

Base C

ase M

od

el

25%

Red

ucti

on

in

Setu

p T

ime, 0%

Co

llab

25%

Red

ucti

on

in

Setu

p T

ime, 25%

Co

llab

25%

Red

ucti

on

in

Setu

p T

ime, 50%

Co

llab

25%

Red

ucti

on

in

Setu

p T

ime, 75%

Co

llab

0%

Red

ucti

on

in

Setu

p T

ime, 25%

Co

llab

0%

Red

ucti

on

in

Setu

p T

ime, 50%

Co

llab

0%

Red

ucti

on

in

Setu

p T

ime, 75%

Co

llab

50%

Red

ucti

on

in

Setu

p T

ime, 0%

Co

llab

50%

Red

ucti

on

in

Setu

p T

ime, 25%

Co

llab

50%

Red

ucti

on

in

Setu

p T

ime, 50%

Co

llab

50%

Red

ucti

on

in

Setu

p T

ime, 75%

Co

llab

Un

its

(M

illi

on

s)

Scenarios

Inven

tory

Demand Uncertainty over Production Cycles

Production Lot Sizing

Demand Uncertainty

Distribution & Handling15%

25%

33%

45%

11%

21%

34%32%

39%

46%

57%

NPV =

$ 125.6M

$ 201.6M

$ 272.6M

$ 371.4M

$ 87.2M

$ 169.4M

$ 279.4M$ 259.2M

$ 322.1M

$ 379.8M

$ 465.4M

% Reduction =


Upon further analysis . . .

• Net Present Value of high return, lower risk opportunities

– Managing production capacity $ 59 million

– Reducing demand uncertainty $ 34 million

– Coordinating promotions $ 53 million

– NPV of combined opportunities $ 97 million

• Other opportunities:

– Better coordination of manufacturing and distribution

– Modifications to the physical operating environment

– New production, distribution, and procurement policies

– These additional opportunities are likely to have an NPV at

least as large as those identified to date


CPG Co. Opportunity Assessment

Summary

• Findings

– There are large and immediate opportunities to improve

supply chain and manufacturing operations performance

– Further analysis is needed to validate, quantify and

prioritize some of these opportunities

• Recommendations

– Pilot the “No B/C” Strategy and other recommended

improvements

– Incorporate missing operational dynamics (i.e., distribution,

retail) in the Supply Chain Evaluation Model; further

evaluate scenarios, define KPI’s, validate impact of

uncertainty; develop, prioritize business cases


Suppliers of Direct


Plants,

Offsites, Cold

Storage

Public

Warehouses

(0’s)

Ra

nd

om

, N

on

-Sta

tio

na

ry

Co

ns

um

er

De

ma

nd

Time

Wholesalers

(000’s)Retailers

(00,000’s)

Ra

w M

ate

ria

l

Sales and

Distribution

Models

Strategic

Planning

Model

Increase the breadth of the

analysis to include:

• Direct and Indirect

Material

• Public Warehouses

Increase the depth of the analysis to include:

• the effects of uncertainty

• the evaluation of alternative scheduling

policies and equipment options

Marketing

Models

Promotions,

Incentive

Programs, …

A Broader Viewpoint

Operational

Level

Long Range


Tactical

Level


ET Scheduling - MC



Operational

Level

Long Range


Tactical

Level


Scheduling -

Primary Scheduling -

Scheduling -Scheduling - Feeder Scheduling -


Suppliers of Direct


Plants,

Offsites, Cold

Storage

Public

Warehouses

(0’s)

Ra

nd

om

, N

on

-Sta

tio

na

ry

Co

ns

um

er

De

ma

nd

Time

Wholesalers

(000’s)Retailers

(00,000’s)

Ra

w M

ate

ria

l

Strategic

Planning

Model

Increase the breadth of

existing LRP, Tactical and

Operational level models

where appropriate

Potential Future Development

Operational

Level

Long Range


Tactical

Level


ET Scheduling - MC



Operational

Level

Long Range


Tactical

Level


Scheduling -




Suppliers of Direct


Plants,

Offsites, Cold

Storage

Public

Warehouses

(0’s)

Ra

nd

om

, N

on

-Sta

tio

na

ry

Co

ns

um

er

De

ma

nd

Time

Wholesalers

(000’s)Retailers

(00,000’s)

Ra

w M

ate

ria

l

Strategic

Planning

Model

Apply uncertainty

principles to LRP,

Tactical and

Operational levels

where appropriate

Operational

Level

Long Range


Tactical

Level


ET Scheduling - MC



Operational

Level

Long Range


Tactical

Level


Scheduling -



Potential Future Development


Observations

• Advances in technology continue to drive the transformation

of operational requirements and capabilities, and the

disintermediation of traditional organizational structures and

business processes

• Despite widespread deployment of ERP and APS technology

in large manufacturing enterprises, local sub-optimization

presents substantial opportunities for improved supply chain

efficiency and competitive advantage

• Corporate strategy is typically not well aligned with

operational capabilities, limiting ability to execute to plan

• Shared vision, a holistic supply chain view, new policies and

performance metrics, common nomenclature and a

framework of operating principles are needed to enable the

necessary change


5 Principles of Collaborative Supply

Chain Design and Operation

1. Know your customers’ requirements

2. Construct a lean supply chain organization

3. Build tightly-coupled information infrastructures with

your suppliers and customers

4. Build tightly-coupled business processes

5. Construct tightly-coupled decision support systems

based on understanding the total supply chain


Analytics

Learning Tools

ModelsCoaching

Course-

ware

EDUCATE . . .

SIMULATE . . .

INNOVATE!

Cayuga Partners’

Supply Chain Innovation

Program™

1. Education and Strategy

2. Supply Chain Audit and

Opportunity Assessment

3. Pilot proof-of-concept projects

4. Implement with on-going

Education, Simulation and

Consulting for Continuous

Improvement Program Elements

Innovation


“There is nothing more difficult to plan,

nor more dangerous to manage,

nor more doubtful of success,

than the creation of a new order of things.

For the reformer has fierce enemies in all who would

profit from the preservation of the old,

and only lukewarm defenders in those who would gain

from the new.

This lukewarmness arises partly from the fear of their

adversaries, who have law in their favor, and partly

from the incredulity of mankind, who do not truly

believe in anything new until they have had an actual

experience of it.”

- Niccolo Machiavelli - 1513

case study: cpg co. supply chain audit and opportunity ...€¦ · supply chain audit and...

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