Agenda

1. Agenda Supply Chain Management: Myth vs Reality Supply Chain Management: An Analytical Perspective Strategic Sourcing Sales & Operations Planning (S&OP) Unification of Marketing and SCM SCM and the Green Movement 1

2. Strategic Supply Chain Design Analytical Tool Computer-Based Mathematical Model of Entire Supply Chain Crosses Organizational and Functional Boundaries Relevant History From the Early 1970s (“Warehouse Location Models”) Today Often Called a Network Design Tool • This perspective is far too limited • Too much emphasis on location questions • True situation • Comprehensive strategy • Considerable tactical power 2

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4. Intermediate Product Production Lines Finished Product Production Lines Multiple Stages of Production Raw Materials In Finished Products Out Process 1 Process 2 Production Line 1 Production Line 1 Production Line 2 Production Line 2

5. Overall Objective To find the set of facilities and transportation links and associated product flows that either minimizes total costs or maximizes total profit… Subject to the Following Restrictions (Constraints): Procurement availability limits Manufacturing capacity limits DC throughput limits Storage limits Inventory targets Customer service limits Other transportation link restrictions Energy consumption limits Carbon emission limits Solver Engine: Mixed Integer Linear Programming

6. Classic Issues: Structure, Ownership, Mission • Number and Location of • Raw Material Suppliers • Plants/Vendors/Copackers • Production Lines/Processes • DCs • Transportation Links and Flows • Inbound: suppliers to plants • Transfers: between facilities • Outbound: DCs to customers • Facility Ownership Issues • Owned, leased, public, 3PL • Outsourcing • Facility Mission Issues • Commodities procured, manufactured, distributed per location • Costs and capacities

7. Beyond Location: Critical “What If” Issues • Business Decision/Policy Issues • Supply Chain/Marketing Integration • S&OP • Energy/Carbon Footprint/Sustainability • Supply Chain Vulnerability/Hardening • Strategic Sourcing • Customer Profitability (Cost-to-Serve) • Mergers and Acquisitions • Master Capacity Planning • Transportation Policy • International Trade • Long Range Planning • Seasonal Demand/Supply • Product Introductions/Deletions Strategy is About MUCH More Than Locations!!

8. Summary of Inputs • Network Description • Commodities • Raw materials • Intermediate products (WIP) • Finished products (typically aggregated from SKU level) • Locations • Raw material suppliers • Plants/vendors/co-packers • Drill-down to lines/processes • DCs/pools/cross-docks/ports • Drill-down to lines/processes • Customers (typically aggregated from ship-to level) • Other • Customer channels • Time periods • Customer Demands • Table by customer/channel/finished product/time period

9. Summary of Inputs (cont) • Transportation Costs • Inbound (supplier to plant) • Transfer (between facilities) • Outbound (to customer) • Facility Data (technically optional but critical) • Mission data (eligibility of commodities) • Procurement costs, capacities & violation penalties • Manufacturing costs, capacities & violation penalties • DC location costs, capacities & violation penalties • Bills of material • Inventory targets and holding costs • Lock open/close options • Other (optional) • Duties, taxes, currency conversions • Selling prices (needed for profit max studies) • Customer service limits • Data scaling options • Energy usage and carbon emission factors & constraints

10. Thoughts About Inputs • So…Where Are You Going to Get This Stuff? • Demand and historical flows: transaction histories • Transportation: typically left to the specialists • Duties and taxes (say what?)…go find a specialist (if you can) • Facility: ah, there’s the rub • Facility Data • Types of costs • Fixed • Variable (per unit of network flow) • Step functions (CAUTION)

11. Thoughts About Inputs (cont) • Procurement • Fixed costs: unlikely • Variable costs (by raw material) • Capacity limits • Source: typically right from the contracts • Manufacturing • Overall plant • Fixed costs • Variable costs • Drill down to production line/process • Fixed costs • Variable costs (by intermediate and finished product) • Capacity limits (by line and by line/IP and line/FP) • Line rates (by line/IP and line/FP) • Bills of material • Sources: accounting, ABC, engineering, experts, statistical analysis • Distribution Center (also cross-docks, pools, ports) • Fixed costs • Variable costs (by product) • Capacity limits (throughput, storage, SKU count) • Sources: accounting, ABC, engineering, experts, statistical analysis

12. Final Thoughts About Inputs • ABC Costing is a Powerful Leg Up • Strategic decisions deserve the best possible inputs • Not a necessary condition but it sure helps. To wit… • Data Accuracy is of Utmost Importance • These are boardroom issues • Millions are routinely at stake • Defending the numbers is inevitable. To wit… • When The Opposition Rears Its Head (AND IT WILL) • Not demand data (unassailable if transaction-based) • Not freight costs (mystery mercifully left to the experts) • Not duties and taxes (even greater mystery left to the experts) • Facility costs and capacities (everyone is an expert) • Your Model Will Appreciate Accuracy As Well • Major consulting/support challenge: cookie cutter models • Tremendous influence on optimization algorithm performance

13. Agenda Supply Chain Management: Myth vs Reality Supply Chain Management: An Analytical Perspective Strategic Sourcing Sales & Operations Planning (S&OP) Unification of Marketing and SCM SCM and the Green Movement 13

14. Unification of Marketing & Operations Evolution of Network Tools & Perspective • Finished goods distribution • Integrated logistics • Supply chain management • Unify procurement, manufacturing, and distribution Integrate Remaining Silo: Marketing • Managerial objective: rigorous development of corporate strategy • Mathematical (and managerial) objective: profit maximization Expand Target Audience to Senior Management • Above the pay grade of CLO and CMO • Direct impact on C-level metrics 14

15. Unification of Marketing & OperationsThe Rationale Intense Pressure to Maximize (Protect?) Profit Intense Competition Across Functions For Limited Resources The S&OP Message Is Valid: Need For Cross-functional Business Process Integration. BUT… Typical Weaknesses of S&OP • Demand given via forecast from marketing • Limited supply chain scope: often manufacturing only • No ability to redesign and/or rebalance entire network • Weak supply/demand synchronization methodologies • Typical procedure: “warring spreadsheets” 15

16. Unification of Marketing & OperationsThe Solution Start With Comprehensive Supply Chain Design Perspective BUT: Traditional Analytics: Demand is Given Suppose We Relax The Assumption Of A Fixed Forecast… Add Marketing Campaigns or Initiatives • Can represent any marketing activity • Advertising campaigns • Coupon distribution and/or product samples • Sales force adjustments • Typically customized by channel and brand • Composition • Budget: fixed and variable costs • Overall & market-level activity limitations (min/max limits) • Response coefficients by product (projected lift) Add Selling Prices 16

17. Unification of Marketing & OperationsThe Solution Analytics Response • May optionally “buy” additional demand • Must pay for • Marketing campaign • Full supply chain fulfillment costs Will Accept IF Profitable and IF Feasible Will Reject If Unprofitable and/or Infeasible Objective: Profit Maximization Final Result: Profit Max Corporate Strategy 17