Presented at ACS 2004 Symposium. ACS is an educational extension of APICS Region XI representing twenty-four APICS chapters from North Carolina, South Carolina

1. Solving For The Supply Demand Mis-Match: Strategy and Case Study Mark Kelly General Manager Modus Media International www.modus.com ACS 2004 Symposium “ Winning with Certainty in Uncertain Times” April 21 st – 23 rd , 2004 Myrtle Beach, SC – Kingston Plantation

3. The Product Life Cycle Exacerbates the “Demand” Problem Launch Date End of Life Units per period EOL Core Products Launch Build awareness Mass produce and distribute Ongoing Fulfillment to support demand (med volume) Support aftermarket (low volume) Trials/ New Products Illustration of a Product Life Cycle Replenishment Mode Train for use

4. Life Cycle Management Launch Date True End-Customer Demand End of Life Units per period Source: Austin and Lee, Supply Chain Management Review, Summer 1998, pp 24ff At Odds: the typical product life cycle and an inefficient Supply Chain

5. Life Cycle Management Launch Date Channel Orders True End-Customer Demand End of Life Units per period Source: Austin and Lee, Supply Chain Management Review, Summer 1998, pp 24ff At Odds: the typical product life cycle and an inefficient Supply Chain

6. Life Cycle Management Launch Date Channel Orders Production True End-Customer Demand End of Life Units per period Source: Austin and Lee, Supply Chain Management Review, Summer 1998, pp 24ff At Odds: the typical product life cycle and an inefficient Supply Chain

7. Life Cycle Management Launch Date 1 3 Channel Orders Production True End-Customer Demand 1 Production cannot meet initial projected demand, resulting in real shortages Channel partners over-order in an attempt to meet demand and stock shelves 3 As supply catches up with demand, orders are cancelled or returned End of Life Units per period Source: Austin and Lee, Supply Chain Management Review, Summer 1998, pp 24ff At Odds: the typical product life cycle and an inefficient Supply Chain 2 2

8. Life Cycle Management Launch Date 1 3 5 4 Channel Orders Production True End-Customer Demand 1 Production cannot meet initial projected demand, resulting in real shortages Channel partners over-order in an attempt to meet demand and stock shelves 3 As supply catches up with demand, orders are cancelled or returned 4 Financial and production planning are not aligned with real demand; therefore, production continues 5 As demand declines, all parties attempt to drain inventory to prevent write-off End of Life Units per period Source: Austin and Lee, Supply Chain Management Review, Summer 1998, pp 24ff At Odds: the typical product life cycle and an inefficient Supply Chain 2 2

10. Traditional supply chains amplify instability of demand at each stage WIP WIP Suppliers Primary Manufacturing Secondary Manufacturing Regional Warehouse Distributor Retailer Customer The “Bullwhip” Effect Why is this?

15. Top 7% of SKUs account for 80% of units sold !!! Typical ABC SKU Stratification SKUs Cum.%Units 1-2 3-44 45 - 142 143 - 558 22% 80% 95% 100% Example SKU Stratification % SKUs .004% 7% 18% 75% % Units 22% 58% 15% 5% # of SKUS Cum % Volume 100 90 80 70 60 50 40 30 20 10 0 0 25 50 150 200 75 100 125 300 400 450 500 550 A SKUs B SKUs C SKUs

16. Volume AND Variability SKU Profiling is Better! Volume Variability Profile Variability (Standard Deviation) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 0 100 200 500 1000 2000 3000 10000 Average Weekly Volume

19. The Million Dollar Question: How Do You Know The Min Max Levels for Build to Order SKUs?

20. How Do You Know The Right Levels? SL max = Maximum Stock Level SL min = Minimum Stock Level QTY = Average Daily Demand in Units LT = Manufacturing or Purchasing Lead Time in Days SF = Service Factor as specified in Normal Demand Table NSD = Normal Standard Deviation as specified in Normal Demand Table Dig out your Operations Management book and do the math… or develop a program to calculate it for you automatically!!! The “normal demand” rule shown above is an example of one type of planning rule to set target inventory levels.

22. Example of Tiered Mfg/Dist Strategies FG inventory for maximum order quantity projections only. Order > set order quantities have longer lead time Make to Order Assembly Line or Automation D Non Stocking SKU; Make to Order Make to Order Cellular Manufacturing On Demand Manufacturing* C Fill from FG Stock Kanban / Min-Max Build to Order Assembly Line or Cell B Fill from FG Stock Build to Forecast (comp inventory on hand) Rate Based/Level Loading Assemble Line or Automation A Possible Distribution Strategies Possible Manufacturing Strategies Volume

23. What are the Right Building Blocks for Your Supply Chain? Planning Manu- facturing Distri- bution Trans- portation

26. Case Study

27. Software Computing Hardware Telecom EMS / ODM Modus Plans, Sources, Makes, Delivers and Handles Returns for Blue-Chip Clients

38. Results -- Resolving the Tension Between Inventory and Service Level IRG planning tool & processes applied part availability issues resolved in 45 days

39. Overall Impact of Efforts After 1 Year

40. © 2003 Modus Media International, Inc. All rights reserved.

41. Client Satisfaction “Sampling” Sun Micro 2003 Meritorious Vendor Award Intuit Inc. Supplier Award for Supply Chain Excellence Microsoft 2003 Value Excellence Award Handspring 2003 Supply Chain Award SanDisk Continuous Improvement Award Retail Quality 2003 Macromedia 2003 Supply Chain Award Adobe 2004 Partner Award Intuit 2003 Supply Chain Excellence Award

42. Solving For The Supply Demand Mis-Match: Strategy and Case Study Mark Kelly General Manager Modus Media International www.modus.com ACS 2004 Symposium “ Winning with Certainty in Uncertain Times” April 21 st – 23 rd , 2004 Myrtle Beach, SC – Kingston Plantation