Supply Chain Videocast Using Supply Chain Modeling to Improve Operations and Outperform the Competition The PriceSmart Story Todays Panel Frank Diaz Senior Vice President, Distribution & Logistics PriceSmart Toby Brzoznowski Executive Vice President LLamasoft Broadcast Made Possible By: Agenda Presenter Introductions The Value of Supply Chain Design PriceSmart Case Study Tips for Building a Supply Chain Design Team Wrap-Up The Supply Chain Challenge Volatility and Change is the New Normal INTERNAL FACTORS EXTERNAL FACTORS SERVICE & PERFORMANCE METRICS How does a change in inventory policy effect my service rates? How many shipments will be late? Am I at risk of hitting capacity constraints? Will this new schedule improve throughout? With Volatility and Change Come More Questions To Answer PRODUCT FLOW How much does it cost to serve each customer? Which ports should I be using? Should I consolidate my inbound through a cross-dock? TRANSPORTATION How many routes & assets do I need? What if I change delivery frequency? How can I reduce my empty miles? Can I combine inbound and outbound shipments? INVENTORY How much inventory do I need? How much does it cost to increase my service levels? Where should I stock each product? PRODUCTION FOOTPRINT When should I pre-build? Where should I make each product? Do I have the right balance of capacity? Should I be outsourcing production? NETWORK STRUCTURE Should I lease of build new sites? Who should source each customer? When do I need more capacity? How do I consolidate assets? PRODUCT DEMAND How are customers buying our products? How should I segment different customers and products? There is Seemingly No Limit to the Questions An Integrated Supply Chain Design Platform Enables Businesses To Visualize and Analyze the Current Supply Chain Operations Validate Potential Supply Chain Changes and Continuously Test New What-If Scenarios Optimize the Supply Chain for the Right Balance Between Cost, Service, Sustainability and Risk Rapidly Respond to Unplanned Disruptions, Market Fluctuations or New Business Strategies Supply Chain Design Drives Significant Cost Savings Making Your Supply Chain a Competitive Advantage 2015 University of Michigan Study SC Design COEs Impact Ajit Sharma, Ross School of Business < $ 1 Mn. $1 $10 Mn. $10 $50 Mn. $ 50 Mn.+ 2015 SummerCon Survey SC Design Project Impact 94 Respondents PriceSmart Case Study Price smart iuhguhsdf sdfiohsdoifhiodf Who is PriceSmart? Represents an industry generating over $200B in annual sales PriceSmart currently operates 37 clubs in 12 countries throughout Latin America and the Caribbean PriceSmart currently holds over 1 Million active membership accounts COLOMBIA Retail Markets Served Headquartered in San Diego, PriceSmart operates 32 warehouse clubs in 12 countries and 1 US territory across Latin America and the Caribbean Market Import Logistics Import merchandise is primarily processed through cross-dock DCs to consolidate and complete final assembly for warehouse-club delivery. Supply Chain Enablement Although Merchandising is our core business, supply chain logistics management has developed into a core competency and key differentiator Aligning Supply Chain with the Business Achieving alignment to overall corporate goals and objectives through the linking of business drivers and supply chain logistics performance to help yield superior results and a competitive advantage in the marketplace Institutionalized within Logistics through functional mapping and key performance indicators Business Drivers Logistics Business Drivers Sales, Ops Margin and Net Profits Total Logistics Costs as % of Sales US Inventory Investment, Turns and In Stocks Transit Performance as % of Plan Strategic Supply Chain Agenda Enable Company Growth; Current and Future Networks Manage Growth Effectively; Faster and Cheaper Enhanced Agility and Responsiveness; TechnologyBased Supply Chain Planning and Execution Challenges Scope Identify how future growth impacts Dry Product supply chain and how to optimize it: When is more capacity needed? Where is it required? How much capacity? What is the best way to address this? How to gain visibility on this? Anticipation? Generate a repeatable process that allows to analyze these variables periodically and gain visibility and insight on future network structure Analyze current and future operation for Dry Products in the whole supply chain 2017 2012 Dry products network Business growth in next 5 years Value added look at All clubs in Central America, Colombia & Caribbean. All DCs in the network including Cold Chain & Colombia virtual ones. Regional, Local, and Global Vendors (VDS) PriceSmart: Challenges and Scope What are the proper inventory policies? What is the most robust design? SCENARIO & SENSITIVITY What if we define regional DCs from scratch? What is best inventory holding strategy? GREENFIELD ANALYSIS CURRENT OPERATIONS Analysis of Existing Supply Chain FUTURE OPERATIONS Strategy for New Supply Chain How to turn data into supply chain information? STRUCTURE Database Cleansing & Completion What is the current supply chain profile? VISIBILITY Baseline Model Build Model Profiling Information consolidated Baselin e Built Baseline Validation Scenari os Built Scenarios Validation Continuous Use Data Request Scoping Session TIMELINE Optimized Baseline Build Greenfield Analysis Model RDC Selection Segment Flows & Increase Volume/Capacity PriceSmart: Supply Chain Design Approach DPY RSV PKG Inside the Club Current DCs Clubs Intl./US Vendors Regional DC The replenishment frequencies and the Club storage capacities are key elements are key elements that determine the timing when the RDC should be opened. RDC Operation Local /Regional Vendors PriceSmart Modeling Approach Hybrid Model The PUSH Buyers push product through the system, given opportunities of scale & discounts from the suppliers & try to take into account required mix from the operation The PULL Stores demand what the customer demands, which are products that should be in the network in order to satisfy this demand Network Balance out the imbalances between the PUSH and PULL behaviors Spill Over Concept Excess product being pushed towards the Stores & Customers will incur in spill over to another facility that has the space and processes in place to handle these situations. As excess builds up, needs for new facilities arise. As Stores are filled in, the next facility available upstream will gain inventory Buyers Network Customers Push Pull Buyers Push Pull DC Stores RDC Spill Over Key Concepts Through the increase of frequency of reorder and the resupply being equal, we can evidence the key points for improvement by: Reduction in Cycle Stock overall Reduction of the probability of stocking out Increase in resupply frequency, aligned with ordering frequency makes for better decision making Biweekly Resupply Weekly Reorder Demand Upstream Stock 1125 Units 250 250 Biweekly Resupply Demand Consumption InTransit On Hand 250 500 375 Weekly Resupply Weekly Reorder Demand Upstream Stock 875 250 Units Club PKG DC or VDR Club PKG DC or VDR Inventory and Frequency Assume an operation with 1000 units of product being consumed per month, with 50% buffer stock policy in place Operational Approach to Product Flow Used modeling to test scenarios based on different buying behaviors Single Club Approach Single Club Approach + RDCs Regional Approach + RDCs Price Smarts Visibility Analysis Data Analysis: PSMT VDS Dashboard Identify Opportunities: Set Business Parameters Quantify Potential QWs: Extract/Summarize Data Test Your Findings: SCG Models Analyze Savings & Impacts The Full Picture Follow your plan towards Implementation DC Club VDR Test different What-ifs SCG Scenarios Make a Decision Build a Plan RDC After the potential Quick Wins are quantified and summarized, we are ready to test our findings in SCG First Step: Visibility Analysis Build initial Baseline model Optimize & copy optimal solution Run IO & Copy solution Select proper Inventory Policy to populate Simulate model with policies Record Key Metrics Replenishment Frequency Days of Inventory on Hand Reorder Point Reorder Quantity 2012 DC Club Second Step: Demand Analysis & Inventory Right-Sizing Objective: Determine the optimal locations within the actual network where Regional Distribution Centers should be located, considering the implications for both dry and temperature controlled products. Considerations for determining the optimal locations: Actual DC Network Actual + Projected Club Network Actual + Projected Demand concentration (temperature controlled products) Linear Shipping Connectivity Index per Country Population growth rate per country Custom Clearance Efficiency Index per country Competitively Priced Shipments Index per country Price Smarts current business Dry & Temp. Controlled Products Network Third Step: Long-Term Capacity Planning A DC B DC Dry Products DC / RDC Region To be Opened On 2015 Throughput 2016 Throughput 2017 Throughput 2018 Throughput 2019 Throughput A DC X 2015 75.6M +9.8% +27.4% +38.5% +43.2% B DC XX 2016 N/A 59.6% 62.1% 64.7% 66.5% C DC Y 2017 N/A N/A 48.7% 70.5% 76.2% D DC XX 2019 N/A N/A 37.8% 41.6% 42.3% 15 2015 2016 2017 2019 2020 20 Today Period_003 Period_004 Period_005 D DC Period_001 Period_002 C DC *Regional Approach Third Step: Long-Term Capacity Planning PriceSmart: How Supply Chain Modeling Has Improved the Business Improvements to frequency and quantity of supplier purchases Optimal inventory allocation, and frequency of replenishment and overall cost reduction and cycle time reduction to hit stores Determine optimal location of regional distribution centers, based on costs, cycle time and actual logistics advantages from different countries in region Models continuously refreshed to assess impact of changes in the logic of managing orders from suppliers, especially in peak season. This guides the purchasing cadence, ensures optimal supply chain costs Tips for Building a Supply Chain Design Team You will lose team members Develop a continuous pipeline of talent University network Linked In Personal connections Within your organization Program management Business communication Financial analysis Implementation planning Telling the story What is expected in current role What is needed to get to next level Progression across departments and GEOs Understand whats important to the teams growth Clearly communicate a career path progression for the team Develop a coaching and professional development program Realize there is a continuous recruitment process Skills that go beyond technical and data mngt capabilities Onboarding Roles and responsibilities Career coaching, mentoring Training programs Skills matrix tracking Cross departmental training Find, Develop and Keep Supply Chain Talent Develop Talent Beyond Core Analytics Team roles and career path defined Pursue design mastery across a variety of technologies and techniques Realize that team members will move on Skills for design may not come from other departments Highlights Supply chain design is a critical capability for global businesses Its a process success takes time and doesnt happen overnight Building a roadmap and a center of excellence provides a means for continuous supply chain improvement and innovation Resources Frank Diaz, PriceSmart Contact Toby Brzoznowski Toby Brzoznowski, LLamasoft firstname.lastname@example.org Dan Gilmore, SCDigest email@example.com www.llamasoft.com Copyright SCDigest
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