How to Improve Supply Chain Management

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Supply Chain for Management
Consultants
Practical guide how to improve the business of your customer

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Supply chain is extremely complex, especially in the era of
multichannel and globalization. Therefore, you have to become
very analytical and innovative to find savings and improvements

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Thanks to this presentation you will
learn main aspects of supply chain
that you need in consulting projects

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The presentation is organized into 9 sections
General information
on Supply Chain
Retail - Examples of
business analyses of
Supply Chain
FMCG - Examples of
Supply Chain
SMCG - Examples of
Supply Chain
Purchasing - general
information
Distribution model -
general information
Commodity - Examples
of business analyses of
Supply Chain
Sales forecasting and
customer service -
general information
Production Planning -
general information

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General information on
Supply Chain

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Introduction to General
Information on Supply Chain

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In this section we will talk about 6 topics that will serve as an
introduction and give you a flavor of what supply chain is
What is Supply
Chain?
Components of
Supply Chain
Finding the strategic
fit
Lost sales and stock
level
How to tackle the
uncertainty?
How much Supply
Chain costs?

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What you will see in this presentation is a part of my online course.
For more check the link with discount below. You will find there a lot
of cases with calculations and Excel provided.
Click to check my course
Consultants
$190
$15

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We can look at supply chain from 2 different perspectives
Global perspective Internal perspective

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Operational framework for Supply Chain covers the physical flow of
goods as well as exchange of information
Physical flow
of goods
Flow of
information
Supply chain
management
and control
Degree of integration/fragmentation
External/internal organization and control
Inbound logistics
(Procurement)
Internal logistics
(Production)
Outbound logistics
(Distribution)
Suppliers Producer Central Warehouse Point of Sales Customers
Orders and order filling system
Information regarding demand forecasting
Information regarding efficiency and costs monitoring
Other information
- Procurement
- Planning
- WIP Management
Stock management
and warehouse
management
Transport Transport Transport

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We can also view the Supply Chain as internal processes from
customer order taking till goods delivery
Finished
Products depot
Shipping
(delivery to
customers)
Raw materials
warehouse
Production
Production
planning
Purchase
planning
Raw materials
purchase
Customer Service
Office -
Accepting an order
Suppliers
Customer CustomerRaw
materials
Products
Raw
materials
Sales planning
Physical flow of goods
Information flow
Supply chain management and control

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In other words by supply chain we mean
all activities you do and resources you
need to move goods and services at the
right time, quantity and quality

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We can be talking about 5 components that supply chain consist of
Distribution /
Logistics
Procurement /
Purchasing
Production Planning
Sales Forecasting Customer service

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Finding the strategic fit for the
Supply Chain

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The successful supply chain strategy cannot be developed apart from
overall strategy for the firm
Product
Developme
nt Strategy
Supply Chain Strategy
▪ Manufacturing
▪ Inventory
▪ Lead time
▪ Purchasing
▪ Transportation
Marketing and
Sales Strategy
Information Technology
Strategy
Finance Strategy
Human Resources
Strategy
Competitive Strategy / Landscape
Source: Sunil Chopra, Supply Chain Management

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There are 2 things that you have to decide on to achieve the
strategic fit
Understand the customer and
implied uncertainty of the
demand
Decide on the responsiveness
of the supply chain required
to compete on the market

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strategic fit
demand

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When we talk about uncertainty of the demand we have many
different options
Low implied demand
uncertainty
▪ Purely functional
products:
commodities like
petrol
Somewhat certain
demand
▪ Established goods:
toothpaste, yogurt,
Mars bars
Somewhat uncertain
demand
▪ New models of
existing goods:
Samsung 9, iPhone
9
High implied demand
uncertainty
▪ Entirely new
products: AI

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Uncertainty level influences many aspect like margin, forecast error,
stock out rate and markdowns
▪ Product margin
▪ Average forecast error
▪ Average stock out rate
▪ Average forced season-end
markdown
▪ Low
▪ 10%
▪ 1% to 2%
▪ 0%
▪ High
▪ 40% to 100%
▪ 10% to 40%
▪ 10% to 25%
Area
Low Implied
Uncertainty
High Implied
Uncertainty

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strategic fit
demand

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When we talk about responsiveness of the demand we have many
different options
Highly efficient
▪ Integrated steel mills:
Production scheduled
weeks or months in
advance with little
variety or flexibility
Somewhat efficient
▪ Slow Fashion using
Push model:
a traditional make-to-
stock manufacturer
with production lead
time of several weeks
Somewhat responsive
▪ Most automotive
production: delivering
a large variety of
product in a couple of
weeks
Highly
responsive
▪ Dell: Custom made PCs
and servers in a few
days

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As you may have guessed. Responsiveness is expensive. Efficiency is
much cheaper
High
Low Cost
Low
High
Responsiveness

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Let’s now put responsiveness and demand uncertainty on 1 graph
Responsive Supply
Chain
Responsiveness
spectrum
Efficient Supply
Chain
Certain
demand
Implied
Uncertainty
Spectrum
Uncertain demand

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Comparison of efficient and
responsive supply chain

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Let’s compare Efficient and Responsive Supply Chain
Efficient Supply Chain
▪ Supply demand at the lowest cost
Responsive Supply Chains
▪ Maximize performance at minimum
product cost
▪ Lower margins because price is
a prime customer driver
▪ Minimize inventory to lower cost
▪ Lower costs through high utilization
Primary goal
Product design strategy
Pricing strategy
Manufacturing strategy
Inventory strategy
Lead time strategy
Supplier strategy
Transportation strategy
▪ Greater reliance on low cost models
▪ Select based on cost and quality
▪ Reduce but not at the expense of costs
▪ Respond quickly to demand
▪ Create modularity to allow postponement
of product differentiation
▪ Higher margins, as price is not
a prime customer driver
▪ Maintain buffer inventory to meet
unexpected demand
▪ Maintain capacity flexibility to meet
unexpected demand
▪ Greater reliance on responsive models
▪ Select based speed, flexibility,
and quality
▪ Aggressively reduce even if the costs are
significant

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Type of products vs type of
Supply Chain

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When we talk about types of supply chain that you should have you
can also use the Hau Lee’s Uncertainty Framework
High (evolving
process)
Supply uncertainty
Low (stable
process)
Low
(functional
products)
Demand
Uncertainty
High (innovative
products)
Efficient supply chain
▪ Grocery
▪ Basic apparel
▪ Food
▪ Gas and oil
Responsive supply chain
▪ Fashion apparel (fast
fashion)
▪ Computers, iPhones
▪ Physical books that are
new
Risk hedging supply chain
▪ Hydroelectric power
▪ Some food produce
Agile supply chain
▪ Telecom
▪ High-end computer
▪ Semiconductors
Source: Chase, Jacobs, Aquilano, Operations Management for competitive Advantage with global cases

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Those 4 types of supply chain differ in goals and tactics
Goal
▪ Use tactics that provide highest cost
efficiency
Tactics used
Efficient supply chain
▪ Eliminate non-value activities
▪ Pursue scale economies, do things in bulk
▪ Optimize capacity utilization especially of transportation modes and
warehouses
▪ More push than pull
▪ Use tactics that enable you being
responsive and flexible to the changing
and diverse need of the customersResponsive supply
chain
▪ Keep close the suppliers
▪ Operate on short lead times
▪ Use build-to-order and mass customization process
▪ More pull than push
▪ Use tactics of pooling and sharing
resources in order to minimize the
impact of disruptionRisk-hedging supply
chain
▪ Keep higher safety stock
▪ Share stocks
▪ Provide info on the stock availability and transfer it or transfer
customers to the place where the stock / capacity is available
▪ Use tactics that enable you being
responsive and flexible to the changing
and diverse need of the customers and
at the same time by pooling and
sharing resources enable you minimize
the impact of disruption
Agile supply chain
▪ Use tactics for risk hedging on the supply side
▪ Use tactics for responsive supply chain on the demand side
Source: Chase, Jacobs, Aquilano, Operations Management for competitive Advantage with global cases

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While analyzing stock-outs we should divide them into three groups to
be able to estimate in a better way their influence on our profit and
planning
Initial
budget
Customer
walks away to
another store
Customer
postpones the
purchase
Customer buys
a substitute
at a lower price
Real purchases
performed
by customers
X% lower
sales due
to stock-outs
100

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In Supply Chain a lot of attention goes to stock level. It depends on the
cost of lost sales and inventory cost
Cost of keeping stocks**
%
Cost of lost sales*
%
Computers
Newspapers
Clothes
Tendency to keep insufficient
level of stocks
Tendency to produce more than
the expected demand
*Lost margin
**Marginal production cost minus residual unit price which could be achieved during sales
Lost sales …Inventory cost

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How to tackle the uncertainty
(buffering)

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Variability of demand means that you have to buffer with one of 3
things
Ballpoint Pens
▪ Can’t buffer with time (who will
backorder a cheap pen?)
▪ Can’t buffer with capacity (too expensive,
and slow)
▪ Must buffer with inventory
Ambulance Service
▪ Can’t buffer with inventory (stock of
emergency services?)
▪ Can’t buffer with time (violates strategic
objectives)
▪ Must buffer with capacity
Organ Transplants
▪ Can’t buffer with WIP (perishable)
▪ Can’t buffer with capacity (ethically
anyway)
▪ Must buffer with time
Source: Wallace J. Hopp, Mark L. Spearman, 1996, 2000

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The primary goals of Supply Chain are: minimization of costs with
assumed optimal service level and maximization of elasticity
Costs
minimization
Maximization
of elasticity
Optimization
of customer
service level
▪ Delivery time accuracy
▪ Delivery flexibility
▪ Service time
▪ Products quality
▪ Reaction speed
▪ ‘Time to market’
▪ Operational costs
▪ Fixed assets
▪ Stock level

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There can be different specific KPIs on every stage
Customer service level
Supplier Producer Distributor
Point of
sales
Customer
Production plan
vs. production
Finished goods
availability
Resources and materials
stock level
Finished goods stock
level
Material
availability
Fully /
without mistakes
In time
Availability on
shelf
Time accuracy of
deliveries
Length of filling
the order process
Raw materials
price level
Raw materials
quality
OEE
x =
Sale vs. plan

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How much Supply Chain costs

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Supply chain cost may represent significant percentage of total costs in
many industries
100
75
50
25
0
Engineering
Airline industry
Food industry
Motor industry
Health service
Electronics/domestic appliances
Chemical industry
Banking
Media

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Impact of Supply Chain on
ROCE

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The course is organized into 8 sections and I will be adding new soon
▪ Distribution
▪ Planning
▪ Depot management
ROCE
Operating profit
Capital employed
Costs
Revenue on sales
Fixed assets
Current assets
▪ Distribution
▪ Planning
▪ Distribution
▪ Depot management
▪ Planning
▪ Purchasing
Medium
Low
High
+
–
/
▪ Purchasing
▪ Distribution
High
Area of impactRelative impact
A
C
D
B

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Operating costs
Production costs
S&M costs
Distribution costs
Administrative costs
Materials
Energy
Remuneration
Maintenance
Other
Transport
Packaging
Warehouses
Other
Other
+
+
+
▪ Logistic assets maintenance cost f.e. depots, fork lift
trucks, cars, etc.
▪ Cost of material purchase POS
▪ Cost of materials and raw materials purchase
▪ Consumption, level of waste materials (specifications)
Hypothetical determinants
▪ Cost of energy purchase
▪ Energy consumption (production planning )
▪ Employment scale (production planning, distribution,
depots)
▪ Cost of spare parts purchase
▪ Cars exploitation
▪ Routes planning
▪ Cost of purchase og logistic services
▪ Cost of packaging purchase
▪ Level of pallets return / recovery
▪ Cost of administrative materials purchase
A

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Sales
Sales volume
Prices
x
▪ Level of customer service
▪ Operating costs
▪ Availability of products on different
distribution system stages
✓ Producer’s depot
✓ Distributors
✓ Point s of retail sale
▪ (planning, purchasing, distribution)
B

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Capital employed
Fixed assets
Working capital
+
▪ Stock level
▪ Purchasing policy / strategy
▪ Payment maturities / purchasing policy
▪ Distribution assets (i.e. warehouses)
▪ Warehouse equipment
▪ Quote-to-cash
▪ Accuracy of invoicing
+ Other receivables
+ Raw materials and packaging
+ Finished goods
- Trade liabilities
Tangible fixed assets
Long-term investments
Intangible
+
- Other liabilities
+ Trade receivables
+
▪ Stock level
▪ Distribution model
C
D

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Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Retailer
Distributor
Manufacturer
Supplier
Cycles Stages
Customer

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Push/pull view of supply chain processes (L.L. Bean)
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
L.L. Bean
Manufacturer
Pull
processes
Customer
Procurement Cycle
Supplier
Customer
Order
Arrives
Customer
Order Cycle
Replenishment
Manufacturing
Procurement
Cycles
Push
processes

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Push/pull view of supply chain processes (DELL)
Customer Order and
Manufacturing Cycle
Manufacturer (Dell)
Pull
processes
Customer
Procurement Cycle
Supplier
Customer
Order
Arrives
Customer
Order and
Manufacturing
Cycle
Procurement Cycle
Push
processes

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Types of consulting projects
done in Supply Chain

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There are 6 typical supply chain project that you will perform for your
customers
Operational Audit
Performance
Improvement
Creating the Supply
Chain Strategy
Division Integration
New business
development

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Distribution model - general
information

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Introduction to Distribution
Model

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Distribution is the physical part of the supply chain. Its
aim is to get the right products to the factory or
customers on time, unharmed, fast while keeping as little
inventory as possible

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In this section you will learn 5 things
Goals of Distribution Model Basic laws of distribution
Where you can find savings
in distribution
Typical problems in
Distribution
Different types of
distribution

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Goals of Distribution Model

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The primary goals of distribution are cost minimization and proper
execution of orders
Costs
minimization
% of order
execution
Cost related to
the inventory
▪ Cost of warehousing
▪ Cost of frozen capital
▪ Cost of lost sales
▪ On Time
▪ In Full
▪ Free of Error
▪ Minimize the cost per
unit of transportation

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For transportation we have simple goals that can be measured using
the OT-IF-EF framework
IFOT% order execution EF
90%90%72,9% 90%
▪ Delivered on time ▪ In Full – meaning
the exact number
as it was supposed
to be delivered
▪ Error Free –
exactly what was
asked for with all
accompanying
documents

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You would also look at the cost per unit. I recommend decomposing it
so you can say more about the drivers of this cost
COST
TONNE
= COST
km or miles
LOAD
x x
TONNE
km or miles
LOAD
▪ Here you want
to minimize the
cost of 1 km
▪ Here you want
to minimize the
number of km
that a single
shipment (load)
has to go
through
▪ Here you want
to increase the
usage of the
shipment (load)
– have more
tons there

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Inventory
Costs
Transpor-
tation Cost
Facility Costs
Response time
Total
Logistics Cost
Number
of Facilities
Number
of Facilities
Number
of Facilities
Number
of Facilities
Relationship between Number of Facilities
and Facility Costs
Variation in Logistics Cost and Response Time
with Number of Facilities
and Inventory Costs
and Transportation Costs

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Different types of distribution

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There is no idle distribution scheme. Each and every has its pros and
cons
Suppliers Retail Stores
Direct shipping
Direct shipping with milk run

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cons
DC
All shipment via DC
DC
Milk runs from DC

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cons
Pros
▪ No intermediate warehouse
▪ Simple to coordinate
Cons
▪ Lower transportation costs for small lots
▪ Lower inventories
▪ Lower inbound transportation cost
through consolidation
▪ Lower outbound transportation cost for
small lots
▪ Very low inventory requirement
▪ Lower transportation cost through
consolidation
Direct shipping
Direct shipping with milk
runs
All shipments via central DC
with inventory storage
All shipments via central DC
with cross-dock
Shipping via DC using milk
runs
Tailored network
▪ Transportation choice best matches
needs of individual product and store
▪ High inventories (due to large lot size)
▪ Significant receiving expense
▪ Increased coordination complexity
▪ Increased inventory cost
▪ Increased handling at DC
▪ Further increase in coordination
complexity
▪ Increased coordination complexity
▪ Highest coordination complexity

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Where you can find savings in
distribution

67
In distribution there are number of standard places where you can
find savings
Warehousing
Distribution
Logistics
Cost per kilometer
Truck utilization
Frozen capital
Warehousing space
Number of kilometers
Waste in transport
Waste in warehousing
Allocation of equipment
Stock outs
▪ Consolidate transportation contracts and negotiate prices
▪ Change trucks
▪ Reduce fuel consumption
▪ Check of real km with the planned ones
▪ Move orders to another distribution center/plant
▪ Change routing
▪ Sell return trips
▪ Consolidate transports to the same direction / region
▪ Introduce second level in trucks
▪ Improve of pallets controls
▪ Improve the control of expiry date
▪ Introduce FIFO
▪ Improve security checks
▪ Reallocate resources to other locations
▪ Centralize warehouses
▪ Negotiate price
▪ Reorganize warehouses
▪ Find optimal levels of stocks with respect to loss revenue
due to stock out and cost of frozen capital

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Typical problems in Distribution

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There are a few typical problem usually occur in logistics
Potential Problem
▪ Lack of control over the flow of goods in
distribution channels
Analysis needed
▪ Not optimal distribution model (distribution
channel structure, location, distribution centers
number. Analysis of distribution stage etc.)
Logistics
▪ Employed resources (people, cars, fork lift
trucks etc.) are higher than needs
▪ Low usage of cars
▪ Low planning of car routes
▪ Low customer service level (OTIFEF)
▪ Low level of returnable packaging return
▪ Level of control over goods in distribution channels (access to
stocks in warehouses in specific channels)
▪ Identification of alternative distribution models (Best practices
analysis, Competition analysis)
▪ Analysis of employed resources usage (f.e. Number of
shipments per one car, number of loading per one fork lift
truck etc.)
▪ Analysis of cars utilization (number of goods transported vs.
cars capacity)
▪ Analysis of car loading methods
▪ Analysis of car packing / palletizing methods
▪ Low customer service level (OTIFEF)
▪ Analysis of OTIFEF (execution of dispatch on ticme, fully,
without mistakes)
▪ Analysis of routes planning process, random analysis of real
routes
▪ Packaging sent vs. returned

70
There are a few typical problem usually occur in stock management
Potential Problem
▪ Not optimal stock level (too less – shortages,
too much – risk of outdating, frozen capital,
wrong exploitation of depot etc.)
Analysis needed
Stock
management
▪ Analysis of the lever of order realization (number of executed
vs. number of accepted ) – Analysis of lost sales
▪ Analysis of products availability within last months
▪ Analysis of stock level vs. average monthly sale (sale coverage
with stocks, outdating risk)
▪ Analysis of the way in which stock level are evaluated
▪ Low usage of warehouse space ▪ Stocks levels vs. warehouse capacity (number of pallets stored
vs. theoretical number of pallet places), Analysis of warehouse
organization
▪ Employed resources (people, cars, fork lift
trucks etc.) are higher than needs
▪ Analysis of the usage of employed resources (i.e.. number of
loadings per one forklift, etc.), benchmarking between
warehouses / production plants
▪ High warehouse losses (shortages, damages,
utilization etc.)
▪ Analysis of warehouse losses costs and reasons
▪ High value of spoiled goods (f.e. outdated) ▪ Analysis of costs related to spoiled goods

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Consultants
$190
$15

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Sales forecasting and customer
service - general information

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Introduction to sales forecasting
and customer service

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Sales forecasting is about predicting the future demand.
You want to figure out ahead of time how much products,
what products and when the customer will need

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Goals of sales forecasting
Sales forecasting and
customer service value
drivers
Typical problems in sales
forecasting and customer
service

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Sales forecasting
Production
planning
Procurement plan
Resource planning
Corporate budget
Target setting for
sales force
Negotiations and
contracting
Maintenance
planning
Sales forecasting is important part of the supply chain as it will
influence all other elements

77
Goals of Sales forecasting and
customer service

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The primary goals of sales forecasting is to guess what the customer
will need but also make sure that you can achieve planned EBITDA
Achieve
budgeted
EBITDA
Keep or grow
shares in the
market
Minimize capital
employed
▪ Try to keep as little as possible
inventory in the system
▪ Try to minimize required assets
▪ Have the stock on-time
▪ Have the stock in the right place and
quantity
▪ Balance lost sales with costs
▪ Plan the amount of goods in the system
that will allow the firm to achieve the
assumed goals

79
Sales forecasting and customer
service value drivers

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We have number of drivers through which sales forecasting can
influence the EBITDA of the company
Sales forecasting
Accuracy and frequency
of sales forecasting
Order lead time
Number of complaints
CRM capabilities
Availability
of customer service
Driver Impact on
▪ Number of stock-outs, back-
orders, production costs,
shrinkage and waste
▪ Client satisfaction,
▪ Ability to win new contracts
▪ Ability to win early/ late orders
(especially in FMCG)
▪ Client retention ratio , ability to
win new clients
▪ Client loyalty , ability to win new
clients, operating costs

81
Typical problems in Sales
forecasting and customer service

82
There are a few typical problem usually occur in Sales Forecasting
Potential Problem
▪ Low accuracy of sales forecasts
Analysis needed
▪ Low stability of sales plans, frequent changes
Creating the
sales forecast /
plan ▪ Low level of detail planning
▪ Short planning horizon
▪ Not optimal customer service process
▪ Time of accepting orders („panic orders”)
✓ Logistics parameters (orders scale, delivery
time)
✓ Time of passing orders to its execution
▪ Unstable inflow of orders during the month
▪ Real sales vs. sales plan (for SKU)
▪ % of coverage by sales plan real sales (i.e. for customers)
▪ Sales planning process analysis (who, when, input data etc.)
▪ Number and scale of plan corrections a month/week
▪ Level of detail planning vs. procurement/production needs
▪ Sales planning horizon vs. production planning horizon
vs. „lead time” and stock management model
▪ Analysis of customer service process (process mapping)
✓ Number of orders accepted in particular hours / time of day
✓ Average scale of deliveries (total and for SKU), time of filling
the orders
✓ Time of accepting order vs. time of passing the order
✓ Analysis of sales within a month
▪ Analysis of sales by weeks
Receiving and
managing the
orders

83
Production Planning - general
information

84
Introduction to Production
Planning

85
In production planning you have to decide how to organize
production so that it is optimal not only from the point of view
of production but the whole supply chain

86
Goal of production
planning
Production Planning value
drivers
Typical problems in
Production Planning

87
Goals of Production Planning

88
The primary goals of Production Planning is to efficiently produce,
with low inventory and providing at the same time on time delivery
Efficiency
of production
High
Customer
Service
Low
inventory
▪ WIP
▪ Finished Goods
▪ Raw Materials
▪ High utilization
of machines
▪ Smooth production
▪ Low costs
▪ On time delivery
▪ Delivery according
to the order

89
Production Planning Value
Drivers

90
Several drivers related to production planning have impacts on value
generation
Production planning
Allocation of products to
machines/ production routes
Machine utilization
Batch order
Batch size
Driver Impact on
▪ Machine efficiency, throughput,
waste level
▪ Delivery time, throughput, costs
▪ WIP level, lead time, efficiency of
machines, waste level
▪ Waste level, efficiency of
machines (set up time), lead time
Variability
▪ Delivery time, throughput, waste
level

91
Typical problems in Production
Planning

92
There are a few typical problem usually occur in production planning
Potential Problem
▪ Production planning process not linked with
sales planning process
Analysis needed
▪ Production planning does not take into account
machine park abilities, production plan does not
optimize OEE, i.e.:
✓ Short production batches
✓ Frequent setups / losses of raw materials
✓ Products not ascribed to machines on which
their production is optimal
▪ Low stability of production plans
▪ Real production differs from production plans
▪ Short planning horizon
Production
planning vs
sales planning
process
▪ Analysis of production planning process (process mapping)
▪ Number and scale of plan corrections a month / week
Production
planning vs
production
▪ Analysis of the logic behind planning model used (production for
warehouses vs. production as a realization of orders)
▪ Analysis of production planning efficiency (impact on OEE):
✓ Analysis of planned downtime (frequency and length of setups)
✓ Analysis of production batches length in comparison with optimal
batches length and scale of orders / sale in regarded period
✓ Analysis of the level of shortages on different production lines / for
different length of production batches
▪ Production planning horizon vs. „lead time” and stock management
model
▪ Real production vs. production plan

93
Purchasing - general
information

95
Purchasing is extremely important part of the supply chain. It is
the stage at which you get the right materials or goods for your
business, hopefully at the right time and price

96
Goal of Purchasing Purchasing value drivers
Typical problems in
Purchasing

98
The primary goals of Purchasing is to buy what is needed at lowest
possible cost and keeping low inventory at the same time
On-time and free
of error
Minimize the
total cost of
usage /
ownership
Low Inventory
▪ WIP
▪ Finished Goods
▪ Raw Materials
▪ Take into account not only cost of purchasing but also all
related costs (i.e. waste, efficiency changes in production
▪ Take into account cost of warehousing and frozen capital
▪ On time delivery
▪ Delivery according to the
order

100
Several drivers related to purchasing have impacts on value generation
Purchasing
Reviewing specification of
purchased materials
Purchasing planning
Renegotiation of Contracts
Consolidation of suppliers
Driver Impact on
▪ Cost of goods sold (COGS)
▪ Waste
▪ Inventor
▪ COGS
▪ Waste
▪ Inventory
▪ Better prices
▪ Better prices and terms of payment
▪ Cash Flow
▪ Shorter lead times and Lower inventory
Centralization of purchasing
▪ Better prices and terms of payment

101
Typical problems in Purchasing

102
There are a few typical problem usually occur in Purchasing (1/2)
Potential Problem
▪ Purchasing planning process not linked to
production / sale planning process
Analysis needed
Purchasing
planning
process
▪ Analysis of purchasing planning process (process mapping)
▪ Analysis of materials and raw materials stock level vs. average usage
▪ Analysis of stock aging and identification of lingering stocks
▪ Not optimal stock level (too small – setups, too
much – risk of outdating, frozen capital, wrong
exploitation of depot)
▪ Analysis of materials and raw materials stock level
▪ Analysis of production downtime reasons
▪ Analysis of materials / raw materials availability
▪ Fragmented or too monopolized supplier base ▪ Analysis of suppliers for specific purchase items number
▪ Non-market prices for materials, raw materials
and services (purchasing power used to a small
extent)
▪ „Value stream” analysis
▪ Benchmarking between production plants / companies / direct and
indirect competition / other customers you have worked for
▪ Competitive offers analysis (sending offers to alternative suppliers)
▪ Analysis of optimal orders scale
▪ Analysis of prices in time / Analysis of reason of changes
▪ Specification or / and quality of materials, raw
materials and services not matched to needs
▪ Analysis of specifications, present level vs. required level, analysis of
competition specifications, analysis of specification change possibility
(f.e. by usage of optimizing units)
Suppliers
Materials

103
There are a few typical problem usually occur in Purchasing (2/2)
Potential Problem
▪ Insufficient control system / Inadequate tools:
✓ Insufficient control of deliveries quality
✓ Insufficient control of delivered raw materials’
quantity
✓ Insufficient control of raw materials’ prices on the
world’s markets
✓ Inadequate tools for control of purchasing budget
and expenses realization
✓ Lack of clear purchasing procedures
Analysis needed
Competencies
and Procedures
▪ Analysis of tools used to control
✓ Quality of deliveries
✓ Quantity of delivered resources
✓ Raw material prices on the world’s market
✓ Purchasing budget and expenses
▪ Analysis of purchasing procedure (process mapping)
▪ Databases of suppliers / purchasing items / specifications etc.
▪ Low competences of procurement department
employees
▪ Analysis of employees’ competences:
✓ Experience / knowledge of the suppliers market and industry
✓ Negotiation, analytical and organizational skills
▪ ‘Excess’ of purchasing procedures
▪ Not optimal organization and location of purchasing
department
✓ Too centralized / decentralized
✓ Weak purchasing position in comparison with
other departments (position in the organizational
structure)
✓ Function situated „far from Board of Directors”
✓ Wrong competences division inside department
✓ Lack of motivating system for traders
▪ Analysis of traders work time division
▪ Analysis of purchasing department organization
▪ Products introduction / change of products does not
take into raw materials stock level / materials stock
▪ Stock rotation vs. changes in products portfolio

104
Consultants
$190
$15

105
Retail - Examples of business
analyses of Supply Chain

106
Introduction to Retail section

107
This section will cover 3 things
Overview of the Retail
Supply Chain
Main Challenges in Supply
Chain
Cases of Business Analyses

108
Overview of Supply Chain in
Retail

109
Retail has become extremely competitive. Retail supply chain has
become extremely complicated due to having some of the
supplier far away, multichannel, increased importance of private
labels and bigger changes in external conditions

110
Retail supply chain is not only long and involves many parties but also
is fluctuating a lot

111
Main challenges in Supply Chain
in Retail

112
There are number of challenges in the Supply Chain in Retail
Managing suppliers
in Far East
Managing your own
brand
Long Supply Chain
and Long Lead Time
Local differences on
markets where it
operates
Automation
Increasing cost of
labor at your country
and China
Supply chain
activities in the
stores
More extreme
weather conditions
Multichannel
New retail concept
including
manufacturing
Big Data for Planning
and Allocation

113
Introduction to cases
for Retail

114
In this section I will show you examples of analyses that you will be
doing in retail for supply chain
Groceries – warehouse
optimization
Fashion – division of
products for 2 business
units
Kids ware -measuring the
costs and the capacity of
central warehouse
Convenience stores –
analysis of tariffs
Pharmaceuticals – how to
manage long tail
DIY – internal logistics
optimization

115
To see the cases go to my online course. Below a link with a nice
discount. You will find there the cases with calculations and Excel
provided.
Consultants
$190
$15

116
FMCG - Examples of business

117
Introduction to FMCG section

118
In this section consists of 3 parts
Overview of the FMCG
Supply Chain
Chain

119
FMCG

120
FMCG are all branded goods that you consume
frequently during the year. In this category we have food,
cosmetics and other similar products

121
FMCG supply chain is pretty complicated on the outbound side – the
distribution to end-customers

122
in FMCG

123
There are number of challenges in the Supply Chain in FMCG
Many suppliers
Dedicated
transportation
modes
Many Channels of
sales
Minimum Order
Quantity
Direct DistributionMultichannel
Local version of the
product
Shelf Life
Added value services
and products
Distribution through
Marketplaces
Customization

124
for FMCG

125
doing in retail for supply chain
Chicken Producer - Top-
down approach
Chicken Producer - Fuel
usage
Chicken Producer -
Overtime analysis
Juice Producer - Simulation
Optimal production batch
analysis - FMCG
2-stage production
planning

126
provided.
Consultants
$190
$15

127
SMCG - Examples of business

128
Introduction to SMCG section

129
Overview of the SMCG
supply Chain
Chain in SMCG

130
SMCG

131
SMCG are all branded goods that you consume
infrequently during your life. In this category we have
cars, domestic appliances and other similar products

132
SMCG supply chain is extremely complicated on the supplier side

133
in SMCG

134
SMCG supply chains have to face many challanges
Many suppliers and
sub-contractors
Short lead times
Focus on minimizing
Inventory
Flow of information
between partners
Multichannel
Lean manufacturing
principles applied to
Supply Chain
Automation
Modularization and
Standardization
Customization
Non-standard
transportation
modes
Supply Chain of
added services and
products

135
for SMCG

136
doing in SMCG for supply chain
Transportation mode vs
value density
Car Industry – Planning the
flow of finished goods
Kanban
Continuous flow in
production

137
For more on lean manufacturing and other related techniques
check my online course
Essential Lean Manufacturing for
Management Consultants
$90
$10

138
Commodity - Examples of
business analyses of Supply Chain

139
Introduction to Commodity
section

140
Overview of the
Commodity Supply Chain
Chain in Commodities

141
commodity

142
Types of
Commodities
Metals
(gold, silver, platinum)
Energy
(natural gas, oil)
Agriculture
(corn, rice, cocoa, sugar,
cotton, soybeans)
Hard commodities Hard commodities
Commodity is a basic good used in commerce that is interchangeable with
other commodities of the same type
Examples
Soft commoditiesSoft commodities
Livestock and Meat
(lean hogs, pork
bellies, live cattle)
Characteristics

143
Commodity chain is based on gathering resources, transforming them into
commodities and finally distributing them to consumers
Flow of
commodities
Production Processing Trading and consumptions
Processors Retailers
Transport Transport
Distributors
Description
Producers
Transport
▪ Depends on commodity
type we have different
types of Producers:
✓ Farmers
✓ Extractors
✓ Miners
▪ Depends on commodity type we can
have different type of processing:
✓ Refinery
✓ Slaughter
✓ Plantation mill
✓ Mine
▪ Depends on commodity type we
can sell products on:
✓ Local market
✓ International market

144
Main challenges in commodity
business

145
There are number of challenges in commodity business you
should take into consideration at during consulting projects
Price fluctuations
Changes in
regulations
Changes in duties
Appearance of
substitute

146
in commodity

147
There are number of challenges in Supply chain in
commodities you should take into consideration at during
consulting projects
Long and complex
supply chain
Limited shelf- life
2 stages (push&pull)
production planning
Limited geographic
distribution
Dedicated transport
modes
Supplier catchment
area
Customer catchment
area

148
for commodity

149
doing in commodity for supply chain
Managing capacity Customer catchment area Supplier catchment area
Plywood – finding the best
spot for your factory

150
Why you need to do
capacity management

151
Why do you need to manage capacity?
Factories take time to build
Market leaders want to build ahead of
time capacity no to loose market share
Cash flow management
You may want to increase your
responsiveness
New capacity = New technology
New capacity may help you lower your
cost
Managing capacity means also closing
down some facilities

153
When managing the capacity you will have to answer some questions
Managing capacity
What will be the operational impact of the
change in capacity?
When to create new capacity?
Where and what?
What capacities to close down?

154
Why do you need to manage capacity?
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
1 6 11 16 21
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
1 6 11 16 21
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
1 6 11 16 21
In the market Ahead of market (lead market( Follow the market (lag market)

155
The right approach to capacity will differ depending on the
market characteristics
In the market Ahead of market (lead market) Follow the market (lag market)
▪You want to preserve your share
▪Building too early the capacity is too
costly and you do not see extra value
in it
▪Growth of the demand is pretty
predictable
▪There is some value in
responsiveness (you may get higher
prices for shorter lead time)
▪Demand is pretty difficult to properly
predict
▪You can use this tactic to increase
your share in the market
▪Keeping extra fee capacity is
expensive
▪Margins in the business are low
▪The market is experiencing slow grow
▪Demand is pretty difficult to properly
predict

156
There are a few ways in which you can expand your capacities
What options you
have for capacity
increase
Subcontract some of the processes or
production
Squeeze more from current assets
Expand current facilities
Build new facilities
Buy existing facilities

158
Locations of some factories depends on the so called supplier catchment
area. You are looking for area where you have sufficient amount of
resources or suppliers
K K
K K
K
K
K
K
K
K K
K
K
K
K
K
K
K
K
K

159
Below some examples of businesses where the supplier
catchment area is crucial
Energy production
Production based on big usage of
specific mineral
Production based on natural
resources
Production based on specific
subcontractors
▪ Coal, oil, wind
▪ Salt, ceramic tiles
▪ Wood, paper, plywood, slaughter houses, food
processing
▪ Small domestic appliances, Silicon Valley

161
The customer catchment area is important in picking the right location for the
factory. Both B2B as well as B2C

162
If you want to standardize the work I recommend the following approach
Define on what
depends your
catchment area
Gather data
Draw catchment
area – how big it is?
See which customers
are within the
catchment area
Estimate the
demand and make
the decision

163
provided.
Consultants
$190
$15

164
You can also check the presentation with an overview of my
most favorite functions in Excel
Essential Excel for Business
Analysts and Consultants
A practical guide
presentation

165
Check what course will help you to be word class
Management Consultant
Top 10 courses that every
Management Consultant should
take
My super objective view
presentation

166
There are also some books that I highly recommend
Top 25 books that every
Management Consultant should
read
My super objective view
presentation

167
Subscribe to our channels:
www

168
If you want to check how in practice to manage a consulting
project a would recommend my presentation
How to manage a consulting
project?
A practical guide
presentation

169
You can also find some useful tips on Excel
Business modeling of offline
businesses in Excel
A practical guide
presentation

170
You can also find some useful tips on Excel
Retail for Business Analysts and
A practical guide
presentation

171
Check my extensive presentation on productivity hacks to see
how you can me 10x more productive
Management consultant
productivity hacks
How to be lazy and still get things done
presentation

172
Check my presentation on market research methods to
understand them properly
Market research
Practical guide for startups and entrepreneurs
presentation

173
Check my other presentations
5 examples of business /
financial models in Excel
Practical guide how to check whether the business makes
sense
presentation

174
Essential Lean Manufacturing for
Practical guide how to cut costs
presentation

175
What is an issue tree and how to
use it?
Practical guide with examples
presentation

176
Excel shortcuts for Management
Consultants and Business
Analysts
Practical guide how to work fast in Excel
presentation

177
You can also have a look at how to create a financial model in
Excel
Financial Modeling for Business
Analysts and Management
Consultants
Step by step guide
presentation

178
Check also my other presentations
Management Consulting
Presentations
Practical guide how to prepare a great presentation
presentation

179
Check my presentation that will help you get into consulting
How to get into consulting
Practical guide how to pass the case part
presentation

180
I recommend also looking at some techniques to improve
your business. Click on the cover below to go to the
presentation
How to become world class
analyst
A practical guide
presentation

181
Presentations
Practical guide how to prepare a great presentation
presentation

182
Production for Management
Consultants
Practical guide
presentation

183
Check also business modeling in Excel
Business models
Practical guide for startups and entrepreneurs
presentation

184
Check my presentation on starting and running consulting
company
How to create management
consulting presentations?
A practical guide
presentation

185
Check my extensive presentation on productivity hacks to see
how you can me 10x more productive
Management consultant
productivity hacks
How to be lazy and still get things done
presentation

186
If you need more detailed version on productivity hacks you
can check our course on productivity hacks
Productivity Hacks
$45
$15

187
Check my presentation on starting and running consulting
company
Start and run consulting
company
A practical guide
presentation

188
Check my presentation on restaurant business model to
understand it properly
How to open a successful
restaurant
A practical guide
presentation

189
Check my presentation on on-line models to understand
them properly
On-line Business Models
A practical guide
presentation

190
For more check also my on-line course
On-line Business Models in Excel –
Practical Guide
$45
$15

191
There is an interesting summary of ways to test cheaply
businesses
MVP – how to test your business
idea without building the
product
A practical guide
presentation

192
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