Analysts and supply chain practitioners have been discussing the concepts of a demand-driven supply chain (DDSC) for a decade. The concept of demand-driven supply chains is highly relevant to CPG businesses and the methods to get there can be evolved with varying degrees of emphasis placed on demand-side and supply-side initiatives. This paper emphasizes the importance of an integrated demand and supply approach improving Supply Chain Visibility.

Corporate Supply Chain (CSC) is a cross-functional area in many industries across the globe. This involves integration of production planning, dispatch order generation and logistics planning and suppression with normal logistics embroiled with primary distribution i.e. flow of material from manufacturing locations to Distribution Centers (DC).

This post deals with a study conducted for a Consumer Packaged Goods (CPG) company having 13 production locations and 22 DCs and Carrying & Forwarding Agents (CFA). There are 36 packing lines in all over manufacturing locations and each line packs different varieties of Stock Keeping Units (SKU). The CSC activities here are concentrated on the middle of the classical supply chain activities. An attempt has been made to streamline the planning activities and to integrate production logic with the logistics by considering total cost concept and constraint planning. Simultaneously an optimization technique has been proposed to support the planning logic developed.

In the existing setup the production plans in the CSC are prepared considering the rated capacities (capacities available when one SKU is run continuously on the packing line for one shift) of the packing line. The rated capacities and the number of shifts available per day are defined by considering the bottlenecks existing at the manufacturing and packing lines. However, since the rated capacities were calculated considering a single SKU per packing line the production plan was not getting converted into actual production and production clips were executing all the times. Hence a Rough Cut Capacity Planning (RCCP) logic was provided by considering packing line breakdowns, lunch breaks, packing line change over times and giving due weight-age to the demands of the SKUs getting packed on the same packing line.

An attempt has been made to formulate a dispatching policy on the basis of a decision matrix to allocate production plans to different manufacturing locations in order to integrate production logic with logistics plan. Total Cost Concept is the basis to decide upon the cost of manufacturing of an SKU at a given manufacturing location and the cost of delivering it at a DC over a certain planning horizon. The total Cost includes manufacturing cost, tax rates, freight rates, and inventory carrying costs from manufacturing location to DC location. Thus logically the priority of dispatch to a DC should be governed by the concept of least cost. This can be achieved by solving the conventional transportation problem using least cost approach.

However, this straightforward approach would neglect the influence of certain non-quantifiable factors (ex: Geographical Benefits, Labor Efficiency, Technological Standards, Warehousing etc.), existing both at manufacturing end and at the DC end. It therefore becomes important to integrate these non-quantifiable parameters with the total cost. Hence total cost has been modified taking into consideration the non-quantifiable factors.

The transportation model is solved with these modified cost elements as inputs and the final solution of the quantity of SKUs dispatched by a particular manufacturing location, manufactured at it at a particular period, to a particular DC in a particular period has been suggested. In addition at various manufacturing locations the capacity utilization was also determined which forms an integral approach of such a logistics system. The outcome is a decision making system integrating production logic with the logistics system enabling demand driven supply chain for improved supply chain visibility.

Related post: Retail and CPG Supply Chain Excellence with IoT

You can contact the author Kishor Akshinthala at Kishor.akshinthala@gmail.com for further discussions.

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