Most business rules are defined before the rise of technology, but as the world has become more modern, these business rules must change and be adapted accordingly. However, orthodoxies have remained until the present day simply because no-one ever thought of changing them.
In supply chain management (SCM), business rules must constantly be updated for companies to keep their competitive advantage. This presentation will address how a complex SCM system can be efficient for all by overcoming orthodoxies and acknowledging that a great global optimum isn’t the sum of great local optimums. However, the goal is to seek a great global optimum in the system.
The focus is on end-to-end SCM. Therefore, the system includes manufacturers, distributors and retailers and goes all the way to the store shelves, where the consumer will buy a product. The assumption is that "while the consumer hasn’t bought, no-one hasn’t sold in the entire supply chain”; if the consumer didn’t by anything, we would merely be talking about a shift of inventories, a situation that could mean for the supply chain to get stuck if the inventories aren’t consumed at the points of sale.
This presentation will demonstrate that the whole system can operate according to real demand (consumption) after the rise of technology and show the contrast how business was done before versus how it should be done now. We will compare a push versus a pull system; a great local optimum versus a great global optimum; piling up inventories at retailers and stores versus keeping balanced stocks at manufacturers and throughout the supply chain; replenishment per order versus automated replenishment that can even be done by the suppliers; individual versus automatic transactions; trade marketing and commissioning per sell-in versus per sell-out; a product mix made by retailer’s category manager versus by collaboration among retailers’ staff and brand owners; and production made to stock versus made to be availability.
One of the most important points is that business rules in the supply chain should be made collaboratively with integrated metrics that aren’t conflicting to ultimately obtain intelligent SCM. Only then we can move away from a push-based model that leads to high inventories so that products are available at points of sale, but not according to real demand. This shift of inventories ties up cash for everyone and if the consumer doesn’t buy according to what has been pushed by manufacturers to the retailers, ignoring what the consumer actually wants.
What companies must achieve is working with a pull-based. And it is technology that permits for everyone to have the information available to accurately plan demand and replenishment.
Integrated and aligned metrics include measuring the performance and guaranteeing the effectiveness of each entity on one hand; measuring the performance in and guaranteeing the effectiveness of the whole optimum on the other hand. But we must bear in mind that the sum of the local optimum is not reflecting onto the system as a whole.
Technical solutions that support a supply chain system’s to operate most effectively will consider to minimize cash flow deficits and lost sales, while reducing overstocks, with algorithms that consider out-of-stock risk and profit, as well as days with overstocks and cost of inventory per day. These are also known as the Throughput Value Day (TVD) and Inventory Value Day (IVD).
In summary, this presentation will illustrate examples of how SCM systems worked before and after technology, as well a graphic illustrations of the algorithm that help overcome orthodoxies that hinder effective and profitable SCM, to become a pull-based system with replenishment being based on real consumption. And the one constraint that must be overcome is the change of business rules along the supply chain. This includes that in a pull-model, supply chain officers’, buyers’ and sales people’s performance measurement must also be changed.
Miguel Abuhab is a mechanical engineer graduate from ITA – Aeronautical Institute of Technology, and visionary who moved from Sao Paulo, to Joinville SC, in Southern Brazil, to work at Consul, now owned by Whirlpool.
His charisma, leadership and entrepreneurship led Abuhab to be a pioneer in changing the regional development of technology, by creating in ovation, education and generating new jobs.
He founded Datasul in 1978, the largest ERP software company in Brazil, which later merged into TOTVS; in 1999 he founded NeoGrid, a provider of supply chain management (SCM) software solutions. He has since become a SCM expert in many market segment (consumer goods, pharmaceutical, fast –fashion) for replenishment, visibility at point of sale and integration with NeoGrid solutions.
Miguel is an advocate of Eliyahu Goldratt’s ideas and the Theory of Constraints, which he applies at NeoGrid. He participates actively in networking through the Goldratt Group, which got him close to the applications with exceptional success stories. He is also a founding member of the theory of Constraints International Certification Organization (TOCICO).