Question

1) Saint Gobain High Performance Plastics produces architectural plastics for projects such as radar domes and large pavilion-style architecture. They also produce robust industrial plastics for applications such as conveyer belts in hostile environments such as extreme temperatures, extreme temperature changes or constant exposure to various kinds of radiation. Saint Gobain offers a portfolio of standard products to the marketplace to support customer projects. St. Gobain products are built on a make-to-order basis with an average lead time of three weeks.   Saint Gobain also has the capability to design one-off products to customer specifications; these engineer-to-order products represent a small fraction of the business (less than 10%) but they are high profit margin sales.

Their manufacturing process is highly capital-intensive consisting of three types of equipment:

•           Industrial looms for weaving the substrate weave for their products out of various types of thread. There are a relatively small number of different substrate weave and the each form of substrate weave can be used in multiple products. Set up times and tear down for product change overs for the looms are typically in the range of two hours. Substrate is manufactured in quantities to meet the requirements of the Tower operations and is stores in rolls.

•           ‘Towers’ – five-story high, purpose built machines that are used to apply coatings to the substrate weave and then bake the coatings to create the plastic. Each of the St, Gobain product offerings requires a different coating. Because of the long (on average four hours) set-up and tear down times required for product change overs, these machines produce thousands of yards of product per run which are stored in rolls.

•           Cutting Operations: The rolls are then cut to customer specifications which are provided at time of order. Set-up times for the cutting operations are relatively short; typically less than an hour and the run times for the cutting phase of a customer order is typically less than three hours.

One key customer segment for Saint Gobain is the food preparation industry; they have a line of products that are FDA approved as “cook safe”. To-date these “cook safe” plastics have only been marketed to industrial firms in the food processing business. Saint Gobain has a new opportunity. McDonald’s has invited Saint Gobain to bid on the manufacture of the “grill sheets” that would be used in cooking the hamburgers in every one of the growing network of more than 37,000 McDonald’s restaurants worldwide. Grill sheets are reusable non-stick cooking surfaces that prevent the hamburger patty from sticking to the grill during cooking. St. Gobain’s design engineers have reviewed the specifications and are certain that one of the existing “cook safe” formulations can be applied with only minor changes to the Tower set-up and processing. The specification calls for one grill sheet per grill with a useful life of at least three months in a commercial application. Most McDonald’s restaurants have two grills.

One key requirement of the McDonald’s bid would be that Saint Gobain would commit to same day shipment to McDonald’s 3PL partners for McDonald’s orders.

Evaluate the supply chain impact of this new opportunity by identifying potential changes to the (a)PLAN, (b)MAKE, and(c) DELIVER processes that would be required in order to execute on this opportunity? (d) What are the inventory impacts of your recommendations?

Answer 1

The supply chain operations reference model (SCOR) is a management tool used to address, improve, and communicate supply chain management decisions within a company and with suppliers and customers of a company The model describes the business processes required to satisfy a customer’s demands. It also helps to explain the processes along the entire supply chain and provides a basis for how to improve those processes.

Plan

Demand and supply planning and management are included in this first step. Elements include balancing resources with requirements and determining communication along the entire chain. The plan also includes determining business rules to improve and measure supply chain efficiency. These business rules span inventory, transportation, assets, and regulatory compliance, among others. The plan also aligns the supply chain plan with the financial plan of the company.

Source

This step describes sourcing infrastructure and material acquisition. It describes how to manage inventory, the supplier network, supplier agreements, and supplier performance. It discusses how to handle supplier payments and when to receive, verify, and transfer product.

Make

Manufacturing and production are the emphasis of this step. Is the manufacturing process make-to-order, make-to-stock, or engineer-to-order.The make step includes, production activities, packaging, staging product, and releasing. It also includes managing the production network, equipment and facilities, and transportation.

Deliver

Delivery includes order management, warehousing, and transportation. It also includes receiving orders from customers and invoicing them once product has been received. This step involves management of finished inventories, assets, transportation, product life cycles, and importing and exporting requirements.

Return

Companies must be prepared to handle the return of containers, packaging, or defective product. The return involves the management of business rules, return inventory, assets, transportation, and regulatory requirements.

Benefits of Using the SCOR Model

The SCOR process can go into many levels of process detail to help a company analyze its supply chain. It gives companies an idea of how advanced its supply chain is. The process helps companies understand how the 5 steps repeat over and over again between suppliers, the company, and customers. Each step is a link in the supply chain that is critical in getting a product successfully along each level. The SCOR model has proven to benefit companies that use it to identify supply chain problems. The model enables full leverage of capital investment, creation of a supply chain road map, alignment of business functions, and an average of two to six times return on investment.

As the owner/manager of a business you would have experienced the difficulties in getting the balance right between providing customers with a high level of service while targeting a specific inventory value or stock turn.

So why is it so difficult?

The main purpose of carrying inventory is to provide customers with an expected level of product availability. In other words, you need the right products in stock at the right time.

That would be simple if:

• You knew exactly how many of each product your customers will be asking for in the next cycle (this requires an accurate forecast)
• Your supplier lead time information is accurate
• You know when it is time to order and how much to order
• You trust your suppliers to deliver on time

WHAT ARE THE ISSUES?

Losing a sale due to one or two stock-outs may seem relatively trivial; losing a customer has huge consequences as you may never get that customer back and you have strengthened your competitor’s position.

So stock-outs pose the biggest risk and typically result in over-ordering and over-stocking as inventory levels are increased for all items when only a few have been stocking out.

So a product that was not stocking out has its inventory levels increased, tying up additional working capital with no improvement in service on that product.

Pressure is now put on the value of the inventory and buyers/planners are instructed to reduce inventory. By reducing ordering across the board, cracks start to appear and you start experiencing an unacceptable level of stock-outs.

And so the cycle repeats.

Without the ability to compute the appropriate level of inventory to hold for each item in each location based on its inventory risks, you will continually oscillate between too much inventory and poor service.

WHAT ARE THE INVENTORY RISKS?

There are inventory risks on both sides of your business – on both the supply side and the demand side.

Supply side inventory risks

There are three components to the supply side inventory risks – the reliability of the suppliers delivery to their agreed lead time, their adherence to the quantity ordered and the spread of the deliveries in terms of days early and days late.

• Delivery – if your supplier continually delivers early, you have more chance of generating excess inventory; if your supplier continually delivers late, you have more chance of stocking out.
• Quantity – if your supplier continually delivers more than you ordered, you have more chance of generating excess inventory; if your supplier continually delivers less than you ordered, you have more chance of stocking out.
• Reliability – if your supplier agrees a lead time of 12 days but sometimes delivers in 18 days and sometimes in 8 days, you swing from having too much to stocking out. The wider the gap between early and late deliveries, the bigger the level of uncertainty and risk.

• You may now be inspired to start focusing on suppliers. How do you know which suppliers are problematic and where to start? The likelihood is that nothing will be done. This increases the risk further.

  Demand side inventory risks

  Demand side inventory risks relate to how well you are able to forecast demand in your business. While computing forecast accuracy is important, it is even more important to understand the impact of the direction of any error.

• Inaccurate forecasting – while you may not think you are actually forecasting in your business, whatever you use to determine what to order is in essence your forecast. How well you do has a significant impact on your ability to minimise stock-outs and reduce inventory simultaneously.
• The importance of the direction of any error – if you over-forecast demand (you believe you will sell more than you actually end up selling), then by buying to that forecast you are more likely to generate excess inventory. If you under-forecast demand (you end up selling more than you thought), you will run a much bigger risk of running out of stock.

• Forecasting is a critical component of ensuring that you have the right stock in the right place at the right time, but it is time consuming, difficult to get right and needs to be constantly monitored. Factors to consider for effective forecasting include:

• Using a computer to generate forecasts for every item, resulting in great forecasts for the bulk of your items
• Identifying the small percentage of items that require manual intervention
• Manually forecasting new items for a few months, as they have no sales history
• Modifying forecasts for items where we have gained or lost customers
• Monitoring how sales are tracking the forecast during the mont