Supply Chain Management PDF

Laia Santos Bonfill 04/10/2024 Supply Chain Management INTRODUCTION UNDERSTAND SUPPLY CHAIN MANAGEMENT What is Supply Chain? Supply Chain → all stages involved directly, or indirectly, in fulfilling a customer r...

Laia Santos Bonfill 04/10/2024 Supply Chain Management INTRODUCTION UNDERSTAND SUPPLY CHAIN MANAGEMENT What is Supply Chain? Supply Chain → all stages involved directly, or indirectly, in fulfilling a customer request. - Customers are an integral part of the supply chain. - Each stage is connected through flows of: products, information and funds. - All stages may not be present in a supply chain. - Within each company, the supply chain includes all functions involved in fulfilling a customer request. - Most Supply Chain = Network = Several players / stage. —------------------------------------------------------------------------------------------------------------------------ VIDEO What is Supply Chain Management? Product Cost Example: Let’s take a simple product like a bottle of water (clean water, a plastic bottle, a plastic cap, and a label). Buying them at the store or vending machine might cost you about a 1,50$. 1  Laia Santos Bonfill 04/10/2024 How much do you think is the profit? 1,40$ → NO, 1,25$ → NO, 1,00$ → NO, 0,75$ → NO Most common consumer misconceptions → product cost is not equal to material cost To know how much profit you have, you need to imagine what it took for that bottle of water to get into your hands. Supply chain management: → The management of the chain of supplies —------------------------------------------------------------------------------------------------------------------------ What are the objectives of Supply Chain Management? 1. Primary purpose of any Supply Chain → SATISFY THE CUSTOMER NEED 2. Secondary purpose → GENERATE PROFIT FOR ITSELF Max (Supply Chain surplus) = Customer value - Supply Chain cost - Customer value = Value of the final product to the customer - May vary from each customer = Maximum amount a customer is willing to pay. - Supply Chain cost = Cost the entire Supply Chain incurs in filling the customer’s request. Importance of Supply Chain decisions? There’s a close connection between: - The management & design of Supply Chain flows: - Products, information, and funds - The success of a company. It is crucial to adapt the management of its Supply Chain to a changing environment!!! Decision phases The success of the management of a Supply Chain requires many decisions related to the flows (products, information, and funds). Each decision should be made to improve the Supply Chain surplus, and depend on: - The frequency of each decision - The time frame during which the decisions made apply 2 Laia Santos Bonfill 04/10/2024 Supply Chain decisions fall under 3 categories: SC Strategy - DESIGN - Time frame during which the decisions made apply: Next years → 1-5 years - Take uncertainty into account Anticipate market conditions over the following few years. Way we are going to configure our networks → WHAT IS DECISION PHASE? WHAT WE CHOOSE? ERP → Enterprise resources Planning. OBJECTIVES: 1. What the chain's configuration will be. 2. What process each stage will perform. EXAMPLES: 1. In-house vs. outsource 2. Location of production & warehousing facilities 3. Modes of transportation 4. Type of information systems to be used SC Tactics - PLANNING - From the information known try to make better information based in the previous one. - Time frame during which the decisions made apply: Quarter → Year - Incorporate the flexibility built into the strategy phase, and exploit it to optimize performance. - Include uncertainties in: demand, exchange rate, competition over the time horizon How much stuff do I have? What Do I need? How can afford it? OBJECTIVES: 1. Max (SC surplus that can be generated over the planning horizon), given the constraints established during the design phase. EXAMPLES: 1. Which markets will be supplied by which locations 2. Subcontracting of manufacturing 3 Laia Santos Bonfill 04/10/2024 3. Inventory policies to be followed 4. Target production quantity, timing & size of marketing/ price promotions SC Tactics - OPERATIONS Operation decisions → decisions that you have to take daily. - Time frame during which the decisions made apply: Weekly → Daily - Exploit the reduction of uncertainty & optimize performance Decisions day to day. Allocation based on the margin that they receive. OBJECTIVES: 1. Handle the customer orders in the best possible manner. - Supply Chain → configuration = fixed - Planning policies = fixed EXAMPLES: 1. Allocation of inventory or production to individual orders a. Allocate a shipping mode to the order b. Set a date by which an order is to be filled 2. Generate pick list at warehouses 3. Set delivery schedules of trucks 4. Place replenishment orders Process view: Supply Chain = - Sequence of processes & flows - Take place within & in between stages Processes performed in a Supply Chain can be viewed in different ways: A. Push/Pull view = the processes in SC = divided in 2 categories, depending on whether they’re executed in: - Response to a customer order = Pull → wait for the customer to get the product. Wait for the order to come in, and produce it based on the order made. - Anticipation of customer order = Push → Based in anticipation, not waiting for the order to produce, forecast the demands and produce based on that forecast. B. Cycle view = the processes in SC = divided into series of cycles - Performed at the interface between 2 successive stages in SC C. Supply Chain Macro process in a firm 4 Laia Santos Bonfill 04/10/2024 A. Push/Pull view: All Supply Chain processes depend on the timing of their execution relative to a customer order. - Push process: initiated in anticipation of customer order based on forecast = speculative process - Boundaries: Uncertain environment (customer demand is not yet known) - Pull process: initiated in response to the customer order - Boundaries: Constrained by inventories & capacity decisions This view is useful when considering strategic decisions However does exist some alternative in between this two processes views: Make-to-stock: Forecasts demand to determine how much stock should be produced. - If demand for the product can be accurately forecasted, the MTS strategy can be an efficient choice. - E.g.: supermarket, cause you expect the product to be there. Assemble-to-order: Customer orders are produced quickly and are customizable to a certain extent – MCDONALDS - Requires that the basic parts for the product are already manufactured, but not yet assembled. - Once an order is received, the parts are assembled quickly and sent to the customer. Make-to-order: Only manufactures the end product once the customer places the order. - This creates additional wait time for the consumer to receive the product - But, allows for more flexible customization. Engineer-to-order: Designs and manufactures a product based on very specific customer requirements. - Because the end product tends to be complex. - E.g.: Architect who decides with the client the type of house that they want, designing together. 5 Laia Santos Bonfill 04/10/2024 Mc Donald’s example: the process use will depend on the schedule, due to taking into account which are the busiest hours, in those cases it would be “make to order” because they know that this burgers will be sold, so they produce and amount of them despite that they haven’t been ordered, however for other type of product they will apply “assemble to order”. B. Cycle view: 5 stages / 4 process cycles. Scale of orders: # of orders increase & order size decrease. Demand uncertainty: Sharing information & operating policies becomes more & more important as we move further from the end customer 6 Laia Santos Bonfill 04/10/2024 A cycle view of the Supply Chain clearly defines: - The processes involved - The owners of each process This view is useful when considering operational decisions Each cycle is a multiple process. Equivalent to the Supply Chain Operations Reference model. Planning acts as a glue with all those processes, linking all the different parts of the process (we will see all those parts of the process). C. Macro processes: All Supply Chain processes within a firm can also be classified under Suppliers Firm Customer 7 Laia Santos Bonfill 04/10/2024 8 Laia Santos Bonfill 04/10/2024 SOURCING The Role of Sourcing in a Supply Chain Procurement (= Purchasing): is the process by which companies acquire raw materials, components, products, services, or other resources from suppliers to execute their operations Sourcing: entire set of business processes required to purchase goods and services Outsourcing: supply chain function being performed by a third party. Benefits of Effective Sourcing Decisions: - Higher quality and lower cost - Better economies of scale - Reduced the overall cost of purchasing - Design collaboration resulting in easier manufacturing and distribution, lower overall costs - Facilitate coordination with the supplier and improve forecasting and planning, lower inventories, improved matching of supply and demand - Appropriate sharing of risk and benefits can result in higher profits for both the supplier and the buyer - Lower purchase price through the use of auctions In-House or Outsource? A third party may be able to provide a sustainable growth of the surplus by aggregating to a higher level than the firm itself. The growth in surplus: - Comes from aggregating capacity, inventory, in-bound or out-bound transportation, warehousing, procurement, information, receivables, or relationships to a level that the firm cannot achieve on its own. - May also occur if the third party has lower costs or higher quality because of specialization or learning. Little by little trying to focus in the essential of their activity, initially they used to do their transportation by themselves, but know we can see that this is a case of outsourcing, due to not only aggregating, but also cause they are not specialize in transportation. Outsourcing questions: 1. Will the third party increase the supply chain surplus relative to performing the activity in-house? 2. To what extent do risks grow upon outsourcing? 3. Are there strategic reasons to outsource? Asking if the transportation is a part of the essence of the company. Decisions based on supply chain surplus and risk incurred 9 Laia Santos Bonfill 04/10/2024 Factors Influencing Growth of Surplus by a Third Party The gain of the firm by outsourcing to a 3 rd party will depends on: Scale: Large scale it is unlikely that a third party can achieve further scale economies and increase the surplus. Uncertainty: If requirements are highly variable over time, third party can increase the surplus through aggregation. Specificity of assets: If assets required are specific to a firm, a third party is unlikely to increase the surplus. This are the three factors that have to be taken into consideration in terms of outsourcing (IMPORTANT) A firm gains the most by outsourcing to a 3rd party if its needs are small, highly uncertain, and shared by other firms sourcing from the same 3rd party. Risks of using a Third Party 1. Inability to meet demand on time 2. Underestimation of the cost of coordination 3. Loss of internal capability and growth in third-party power 4. Loss of supply chain visibility 5. The process is broken 6. Reduced customer/supplier contact 7. Leakage of sensitive data and information 8. Ineffective contracts 9. Negative reputational impact Total Cost of Ownership - Supplier performance should be compared based on the impact on total cost of ownership. - In addition to acquisition costs, ownership and post-ownership costs should also be considered. - In many instances, a higher acquisition cost is more than compensated for by lower ownership and post-ownership costs. 10 Laia Santos Bonfill 04/10/2024 Acquisition cost: → supplier price Ownership cost: → inventory cost. Post- ownership: → environmental cost. All of these cost are a very important impact and are underestimating in negotiation. Supplier Selection – Auctions and negotiations Auctions Are best used when the quantifiable acquisition cost is the primary component of total cost. - Are not appropriate if ownership or post-ownership costs are significant. ELEMENTS OF AUCTIONS: - When unit price is important, buyer must specify performance expectations - Qualify potential suppliers - Suppliers bid on requirements - Setting up auctions when not all attributes can be quantified is difficult - When there are many important non-price attributes, use direct negotiations. Bargaining surplus → the difference between the values of the buyer and seller The goal of each negotiating party is to capture as much of the bargaining surplus as possible - Have a clear idea of your own value and as good an estimate of the third party’s value as possible. - Look for a fair outcome based on equally or equitably dividing the bargaining surplus - A win-win outcome Sharing Risk and Reward in the Supply Chain Independent actions by two parties often result in lower profits than could be achieved. 11 Laia Santos Bonfill 04/10/2024 Risk sharing Stronger firms tend to push risk on to supply chain partners Reward sharing A buyer may want performance improvement from a supplier who otherwise would have little incentive to do so. A shared-savings contract provides the supplier with a fraction of the savings that result from performance improvement. Effective in aligning supplier and buyer incentives when the supplier is required to improve performance and most of the benefits of improvement accrue to the buyer. Win-win collaboration. Designing a Sourcing Portfolio: Tailored Sourcing Options with regard to whom and where to source from - Produce in-house or outsource to a third party - Will the source be cost efficient or responsive - Onshoring, near-shoring, and offshoring offshoring, → the practice of outsourcing operations overseas, usually by companies from industrialized countries to less- developed countries, with the intention of reducing the cost of doing business. Near shoring → the practice of transferring a business operation to a nearby country. Onshoring → or reshoring, is the process of bringing back the production and manufacturing of goods to the company’s original country. Tailor supplier portfolio based on a variety of product and market characteristics. Firms must consider a tailored sourcing strategy that couples responsive onshore or near-shore sources with low-cost offshore sources. The responsive onshore sources should focus on high-value products with high demand volatility. Whereas the low-cost, offshore sources should focus on lower-value, high-volume products with high labor content. 12 Laia Santos Bonfill 04/10/2024 THE ZARA CASE - FASHION VS STANDARD PRODUCTS Fashion VS standard products. Faster production is their competitive advantage. It is possible to analyze two different type of supply chain: - Standard: manufactures their products and takes too long to finish them, but can afford because they know pretty much how much of this product they are going to sell. Basic products e.g. white t-shirt. - Fashion products: for those products, they are manufactured or produced either in Spain or in Portugal and all the fabrics are from suppliers close to them, they put them in trucks in Europe. They produce a small number of products, they start selling and if they sell a lot they will produce more and more. Also it is possible to perceive the other way around, because if the product is not being sold they will reduce the production of it. 13 Laia Santos Bonfill 04/10/2024 14 Laia Santos Bonfill 04/10/2024 MAKE ZOPA strategy → Zone of possible agreement History of manufacturing Artisan → Industrial Revolution → Mass production → Lean production → Mass customization. 1. Hundreds of years ago, most goods were made by individual craftspeople or artisans. 2. Early concepts like “labor specialization” (Adam Smith), in which an individual was responsible for a single, repeatable activity 3. Standardized parts (Eli Whitney) helped to improve efficiency and quality. 4. In the early 20th century, the era of “Scientific Management” came about. In which concepts such as: time and motion studies (Frederick Taylor) and Gantt charts (Henry Gantt) allowed management to measure, analyze, and manage activities much more precisely. 5. The really big advancement came in the early 1900s with the area of mass production (push process). The subsequent concepts where applied - The moving assembly line (e.g. Ford Motor Company). - Economies of scale (produce large quantities of the same item to spread fixed costs). - Statistical sampling 6. In the 1980s, organized by the Japanese afther the second world war when resources where scarce, we started hearing about the new concept of Just in Time (pull process) - Method of keeping the minimal inventory of material (and information) – Not to much, nor to little 7. Finally, additional (statistical) concepts and tools emerged Lean Philosophy Lean is a team based effort of continuous improvement in identifying and eliminating waste”. Centered on making obvious what adds value (to the customer) by reducing everything else. Its management philosophy derived mostly from the Toyota Production System (TPS). Renowned for its focus on reduction of the original Toyota seven wastes to improve overall customer value. As waste (muda) is eliminated, quality improves while production time and cost are reduced. 1. DEFINE THE VALUE: Define the value from the customer point of view and refer to a particular product and a process. 15 Laia Santos Bonfill 04/10/2024 2. VALUE STREAM Identify and map all tasks that atr performed to deliver products or services to clients. Identify value-adding and non-value-adding tasks from a client perspective. 3. ENSURE A FLOW Organize a process in a way allowing for uninterrupted delivery of a value to the customer. Eliminate wastes from a process! 4. ADJUST TO CLIENT NEEDS. Eliminate inventory and tasks performed “in advance”. Organize work to do only what is required and only if it is required. 5. AIM AT PERFECTION. Continuously improve a process through identification and elimination of wastes. Aim at perfection! 8 types of Waste 1. Inventory waste: a. Inventory = buffer between: suppliers, manufacturers, and customers b. It is needed to compensate for: i. Lead times (e.g. transportation, manufacturing, etc.) ii. Variability in the system (e.g. forecast error, late deliveries, setup time, scrap (or error), quality problems, and downtime c. There are 4 types of inventory, that cost money to maintain (holding or carrying costs) i. Raw materials: purchased materials & components ii. Work-in-process (WIP): where transformation process has started, but not yet completed iii. Finished goods: Saleable products iv. Materials, repairs, and operation (MRO): equipment spare parts and supplies d. Businesses need some inventory, and have to make tradeoff between: 16 Laia Santos Bonfill 04/10/2024 i. Cost of carrying inventory (range from 15 to 30% of product value – Cost of capital, taxes, storage, insurance, handling, labor, obsolescence, damage). ii. Customer service, that determines how much. 2. Transportation (or movement) waste. a. Material may be moved from one place to another on the shop floor: i. Put on storage rack ii. Temporary location (filling stocking) b. Excess of those movements = waste c. Concept of “Layout and visual workplace” are very important. i. It can be sometimes very obvious that you just learned to live with it (e.g. copier being too far from your desk). 3. Motion waste a. Having things you use close to you (and at waist level), and things you use less often further away (and higher up). i. Ergonomic b. Concept of “point-of-use storage”: having just enough material & information nearby, which can be replenished when needed from further away. 4. Waiting waste a. Time spent waiting on: supplies, materials, information, and people that are needed to finish a task. b. In most of the processes, a great amount of production or service lead time is spent waiting between the different steps. i. Most of the time, caused by the next step of the process. ii. It results in a larger amount of Work-in-process (WIP) inventory. 5. Overproduction (and over-procurement) waste a. Manufacturing, ordering or processing something before it is actually needed. b. The typical results are: i. Excess of inventory (Raw material, WIP, finished goods, and MRO) ii. Longer lead times Because batch sizes are iii. Greater amount of defects larger than needed iv. High storage costs c. Instead of Just In Time (JIT), it ends up being just in case! 17 Laia Santos Bonfill 04/10/2024 6. Over-processing waste: a. Happens when: too much time (or effort) is put into processing material (or information) that is not viewed as adding value to the customer. i. Can include: using equipment that may be too expensive, complicated, or precise to perform the operation. ii. Occurs when the company : 1. Receives unclear customer specifications 2. Include lengthy approval process 7. Defect (or error) waste a. In manufacturing the waste (or defects) primarily refers to: repairing, reworking, or scrapping materials. b. The are many causes of defects, such as : i. Poor processes ii. Too much variations iii. Supply issues iv. Insufficient or improper training v. Not properly calibrated tools & equipment vi. Bad layouts vii. Excessive handling viii. High levels of inventory. 8. Behavioral waste (or underutilized employees) a. Some add this 8th waste of behavior. b. This is critical to consider, as you need employee creativity & participation to eliminate the other 7 wastes. c. 50% of the companies (at least in the US) tend to fail their lean effort, because requires both: i. Top-down management commitment ii. Bottom-up groundswell of participation & ideas 1. Have to encourage team based continuous improvement mentality Six Sigma Statistics: Six Sigma: helps companies to reduce errors - Manufacturing process can be described by a sigma rating indicating its percentage of defect-free products (yield) it creates. - A six sigma process is one in which 99.99966% of all opportunities to produce some feature of a part are statistically expected to be free of defects (3.4 defective features / million opportunities) - The concept of Six Sigma was originated by Motorola in the early 1980th and now is used in many industries. 18 Laia Santos Bonfill 04/10/2024 - Motorola set a goal of "six sigma" for all of its manufacturing operations, and this goal became a by-word for the management and engineering practices used to achieve it. - Lean Six Sigma In service companies: Lean + Six Sigma = Faster process with lower cost and higher quality - Around the year 2000, lean manufacturing began to move from the shop to the office. As it came apparent that waste was everywhere, and the offices shared the same characteristics of manufacturing, - As much as 60 to 80% of a product (or service) lead time can be found in the office environment (customer service, order management, …) - Benefits of lean offices include: - Simplified process - Improved utilization of personnel - More flexibility & responsiveness - Reduce: lead time, errors, extra processing, and transactions DMAIC Methodology = SIGMA Methodology 19 Laia Santos Bonfill 04/10/2024 DEFINE: - Project - Process mapping, SIPOC - Voice of the customer Definition of the project scope, deliverables, team and project planning. 20 Laia Santos Bonfill 04/10/2024 SIPOC → Suppliers Inputs Process Outputs Customers: Leads to insight concerning the process High Level Process Mapping: - Very effective communication tool - Defines boundaries and provides uniform vision Process classification - CORE BUSINESS PROCESSES : - Have a direct impact on the customers of the business. E.g. production, marketing, order execution - SUPPORT BUSINESS PROCESSES : - Enable the core processes to work effectively. E.g. maintenance, IT, purchase - MANAGEMENT PROCESSES : - Guide, direct and control the core and support processes. E.g. planning, budgeting & controlling, strategy 21  Laia Santos Bonfill 04/10/2024 —------------------------------------------------------------------------------------------------------------------------ Example: —------------------------------------------------------------------------------------------------------------------------ Stakeholder Analysis Identify the stakeholders concerning the project and evaluate if they have a positive or negative stake → Input for team composition and communication plan. —------------------------------------------------------------------------------------------------------------------------ Example: Stakeholder analysis for a Milk Company: —------------------------------------------------------------------------------------------------------------------------ 22 Laia Santos Bonfill 04/10/2024 Process Mapping 1. Define Input and Output 2. Determine the boundaries of the process 3. Determine the main sub-processes 4. Work-out the most important sub-processes 5. Verify the activities in practice 6. Indicate where possible measurements can be done Split processes in sub-processes 23  Laia Santos Bonfill 04/10/2024 - Avoid too complex flow charts - Level of detail depends on scope of project —------------------------------------------------------------------------------------------------------------------------ Example: —------------------------------------------------------------------------------------------------------------------------ —------------------------------------------------------------------------------------------------------------------------ Example DEFINE: You are working for a coffee shop, a regular one, just at the corner of the street. Your speciality is great coffee! You are serving all kinds of clients so the process may look different, however usually it starts when. START → Client enters the coffee shop and stops when: STOP → Client receives ordered coffee. 24  Laia Santos Bonfill 04/10/2024 Your process is divided into several stages determined by your structure as well as layout of the coffee shop: While the coffee making stage is divided into the following steps: Recently, the number of client complaints raised, you are losing clients and your turnover is dropping. Luckily based on quick research you are able to identify the problem, unfortunately you do not know what the source is of the problem and how to fix it! Therefore you decided to improve your process using Six Sigma. Ready for kick-off? Problem you face in the process → Clients are waiting too long for the coffee —------------------------------------------------------------------------------------------------------------------------ Determination of the Requirements: - KANO MODEL Consists classifying customer needs. 25 Laia Santos Bonfill 04/10/2024 - Selection of the external CTQ’s CTQ’s → Critical To Quality = property of a product or service that is relevant to a customer. Selection of the Customer Requirements Examples: - Timeliness of delivery - Good image quality of a display - Operational Costs. - VOC - Voice of Customer What does your customer want? QUALITY Product or service feature, attributes, dimensions, characteristics relating to the function of the product or service, reliability, availability, taste. effectiveness, freedom from defects, rework or scrap. COST Prices to customer (Initial plus life cycle), repair costs, purchase price, financing terms, depreciation, residual value. DELIVERY Lead times, delivery times, turnaround times, setup times, cycle times, delays SERVICE & Service requirements, after-purchase reliability, parts SAFETY availability, service, warranties, maintainability, customer-required maintenance, product liability, product/service safety. CORPORATE Ethical business conduct, environmental impact, RESPONSIBILITY regulatory and legal compliance. 26 Laia Santos Bonfill 04/10/2024 Example: Smartphone manufacturing process Quality : 4G, camera, gps, … + it needs to work and stay working for at least 2 years Cost : low production cost, but also low repair cost,.... Delivery : delivery in 1 week Service & safety : spare parts available 2 years after, do not ignite Corporate responsibility : limited environmental impact, no child labor in factory,… Listening to the Different Voices: · List of customers · Identification sources of data · Identification of customer needs · Critical-To-Quality requirements · Specifications for each CTQ 1. Identify customers and determine what you need to know (LIST OF INTERVIEWS) 2. Collect and analyze reactive system data, fill the gaps with a proactive approach. (DATA GATHERING) 3. Analyze data to generate a key list of customer needs in the customer’s language (DATA GATHERING) 4. Translate the customer language into CTQs 5. Set specifications for CTQ’s 27 Laia Santos Bonfill 04/10/2024 OPERATIONAL EXCELLENCE & CEO (charla) Here is a detailed and structured summary of the presentation titled "Operational Excellence & CEO": Presentation Summary 1. Introduction and Speaker’s Experience Speaker: Peter Heerwegh Career Path: ○ Extensive background in operational excellence, people leadership, and manufacturing. ○ Held roles such as COO, Technical Director, Operations Director, and ultimately CEO in various industries. Philosophy: ○ Leadership as a continuous learning process. ○ Enjoying milestones as "summits" while appreciating the journey. 2. Key Themes Covered A. Operational Excellence Frameworks and Tools: ○ Lean Methodology (e.g., 5S, DMAIC, Six Sigma). ○ Importance of waste reduction and continuous improvement. ○ Focus on metrics-driven targets and fostering a culture of improvement. Historical Insights: ○ Originated from Toyota’s practices (Jidoka, Just-in-Time). ○ Evolution through frameworks like "Lean Thinking" and "Lean Six Sigma." Challenges in Manufacturing: ○ Issues such as low efficiency, high waste, staff demotivation, and lack of direction. ○ Strategies to address these challenges, emphasizing leadership and teamwork. B. Leadership Principles of Leadership: ○ Self-awareness: Laugh at oneself and turn weaknesses into strengths. ○ Respect for everyone, regardless of position. ○ Open communication and transparency—no "umbrella culture." Key Leadership Behaviors: ○ Learn from the past without criticism. ○ Stay calm under emotional situations and maintain focus on facts. ○ Empower employees by encouraging initiatives and accepting mistakes as learning opportunities. ○ Build trust and structure within the organization. 28 Laia Santos Bonfill 04/10/2024 C. Transition from Operational Excellence to CEO Journey to CEO Role: ○ Leveraging technical expertise, operational insights, and business acumen. ○ Continuous learning through diverse experiences and formal training (e.g., Lean Six Sigma Black Belt, international programs). ○ Viewing leadership as influencing the broader business, not just operations. Key Takeaways for Aspiring CEOs: ○ No fixed recipe for becoming a CEO. ○ Think beyond one’s domain—understand the business as a whole. ○ Learn from different business models and industries. ○ Consider starting a side business for broader insights. 3. Case Study: Konings Group Company Evolution: ○ Transitioned from a small distillery to a global co-packing beverage company. ○ Currently operates 7 plants across 4 countries with diverse product offerings. Operational Excellence Initiatives: ○ Focused on cost transparency, productivity improvement, and reliable manufacturing. Leadership Influence: ○ The speaker rejoined the company during its transformation phase, implementing strategic improvements. 4. Personal Philosophy and Leadership Style Values: Respect, Added Value, Fun. Leadership Motto: ○ “The journey is as important as the destination.” ○ Embrace challenges like waves—surf them to move forward. Advice to Leaders: ○ Always analyze, decide, adjust, and enjoy the process. ○ Celebrate both personal and team achievements. 5. Key Takeaways for Aspiring Leaders Focus on building a broad skillset: technical, managerial, and strategic. Develop a deep understanding of customer needs and business strategies. Cultivate a growth mindset and be open to learning from diverse environments. This summary captures the presentation's focus on transitioning from operational excellence to top-level leadership, emphasizing the importance of continuous learning, strategic thinking, and collaborative leadership. 29 Laia Santos Bonfill 04/10/2024 Here is a comprehensive, detailed summary of all the information from the uploaded presentation, maintaining the content and sequence as presented in the slides: Full Presentation Notes: "Operational Excellence & CEO" 1. Title Slide Presentation: ICHEC – From Operational Excellence to CEO Speaker: Peter Heerwegh Date: 21/10/2024 2. Agenda 1. Speaker's Experience: ○ Manufacturing ○ Operational excellence ○ People leadership 2. Pathway to CEO Role: ○ Transitioning from an operations/supply chain position. 3. Speaker’s Career Overview Career milestones from 1993 to 2024: ○ 1993: Graduate engineer. ○ 1997-2002: Roles in technical and project management. ○ 2004-2012: Manufacturing director (Puratos, PepsiCo). ○ 2012-2020: Plant and operations leadership (Cargill, Qualiphar). ○ 2020-2024: Group CEO roles (Konings, Andros Belgium). ○ Additional: Board member and owner of Magic Chocolates. Career highlights: ○ International experience and expertise in manufacturing, ERP implementation, and process optimization. ○ Diverse exposure to industries, including beverages, pharmaceuticals, and consulting. 4. Konings Group Overview History: ○ Founded in 1946 as a distillery, later expanded to beverages. ○ Acquisitions: Borgloon (2011), Breda (2015), Boxford (2016), Beaucaire (2018). ○ Entered hand sanitizer production during the 2020 pandemic. 30 Laia Santos Bonfill 04/10/2024 ○ Expanded to a Genk plant (2023). Key Figures: ○ 7 plants, 20 filling lines across 4 countries. ○ Revenue: €330+ million (2023). ○ Employees: 800+. ○ 150 million Capex investment over 10 years. Capabilities: ○ Production of alcoholic and non-alcoholic beverages in various formats (cans, glass, PET, Tetra Pak). 5. Operational Excellence Core Concepts: ○ Focus on Lean, Total Productive Maintenance (TPM), and Six Sigma principles. ○ Goal: Achieve measurable improvements in cost, efficiency, and culture. Lean History: ○ Originated from Toyota’s Jidoka and Just-in-Time systems. ○ Introduced to the West through books like Lean Thinking (1996) and Toyota Way (2001). ○ Combined with Six Sigma (Motorola, 1986) to enhance quality and speed. Practical Applications: ○ 5S, waste reduction, DMAIC cycles, and operational behavior change. Challenges in Manufacturing: ○ High absenteeism (12.5%), inefficiencies (30-40%), and employee demotivation. ○ Solutions: Strong leadership, aligning people with organizational goals, and targeted interventions. 6. Leadership Philosophy Key Values: Respect, Added Value, Fun. Leadership Behaviors: ○ Stay humble and self-aware. ○ Encourage collaboration and clear communication. ○ Balance detailed focus with a "helicopter view." ○ Take responsibility for decisions and adjust as needed. Approach: ○ Learn from the past without criticism. ○ Empower employees by fostering initiative and accepting mistakes. ○ Celebrate both individual and team achievements. 7. Transition to CEO Role 31 Laia Santos Bonfill 04/10/2024 Building Blocks: ○ Technical expertise, including engineering and quality management. ○ Business acumen from managing budgets, operations, and sales. ○ Leadership experience in diverse industries and global markets. Training: ○ Formal education: Engineering degree, business economics, marketing, and negotiation training. ○ Professional certifications: Lean Six Sigma Black Belt, APICS CSP, and more. Key Lessons: ○ There’s no fixed recipe for becoming a CEO. ○ Develop a broad perspective by exploring entire business models. ○ Build networks and seek learning opportunities across different industries. 8. Personal Growth and Philosophy Continuous Learning: ○ Regular training in leadership, strategy, and technical skills. ○ Reflects on every career milestone as a "summit" to be appreciated. Climbing Metaphor: ○ Leadership is like climbing: Train consistently. Face challenges step by step. Enjoy the journey, not just the summit. 9. Takeaways for Aspiring CEOs Focus on adding value to the business beyond your domain. Foster curiosity and learn from various industries. Embrace challenges as opportunities for growth. Balance professional goals with personal fulfillment. 10. Closing Contact Details: ○ Email: [email protected] | [email protected] ○ LinkedIn: [Peter Heerwegh] ○ Facebook: Peter Goes Climbing Let me know if you need specific sections expanded or more analysis of any part! 32 Laia Santos Bonfill 04/10/2024 IA IN THE SUPPLY CHAIN CONTEXT (charla) Stephane verscheure - Chief digital officer Sauermann group Use cases of AI in supply chain: PLANNING - Demand forecasting - Pricing optimization - Sustainability planning SOURCING AND PROCUREMENT - Supplier relationship management - Procurement - Spend analysis and cost optimization MANUFACTURING - Inventory management - Risk management - Predictive maintenance - Warehouse optimization - Production planning and scheduling - Quality control SUPPLY CHAIN AUTOMATION - Fleet tracking and monitoring - Route optimization - Order fulfillment - Supply chain visibility Origin and evolution of AI 1642 → Pascaline 1946 → computer ENIAC 1950 → Computing machinery & intelligence : Alan Turing 1956 → Artificial intelligence” : Dartmouth conference (statistical IA) 1956-1973 → “The IA” (statistical/logical tools) 1990 → Internet & deep learning (calculus power) 1997 → Deep blue & kasparof 2012 → ImageNet : Deep learning (KAT 100 000)(98%) 2016 → Deepmind(google) : Alphago soft (“go”) : Lee Sedol 2022 → Chat GPT (Open AI/Microsoft) (milliards of data & bias)(1 million users/5 days & 100 million in 2 months) 33 Laia Santos Bonfill 04/10/2024 Definition of IA The parrot algorithmic: - Techniques used by computers to simulate or mimic the human brain. NLP/RPA/ML - Our brain develops intelligence with its environment and intelligence is an inseparable whole. Intelligence is the ability to process information which will inform your future decision-making abilities: How could machines learn like animals and humans? 34 Laia Santos Bonfill 04/10/2024 Fears and demystification “AI will replace humanity” AI: no intelligence/consciousness/EQ/common sense - Mathematical algorithms for searching patterns - No ambitions, self-interest, lie, or have free will AI is a set of powerful tools (assistant) AI’s limitations : hallucinations or errors based on feed Control & responsibility remain with humans Job displacement fears are exaggerated - (creativity & complex decision-making) Ethical and legal questions (copyright,sources,confidentialité) AI as a solution to its own problems (cyber topics) AI Will never … replace the Human brain - Millions of applications to cover the brain domain with level 100 35 Laia Santos Bonfill 04/10/2024 Identify predictions with machine learning and deep learning - RED sport car & Stephane Plaza expertise. - Supervised (90%) and non-supervised learning (10%) Size of the learning set? Bias : safety rail or zebra… Ex : Ariane computer vs human brain 36 Laia Santos Bonfill 04/10/2024 GEN AI = ex of deep learning : how does it “generate” text? - Based on questions and fragments of sentence, the system looks for the next word based on the likelihood of usage. Ex: The Capital of Belgium is … the bot doesn’t have any idea of the accuracy of the answer… but it will always answer something even wrong(hallucination). Limitation : unable to not respond, change topic, have its own style, commit, create, show interest , self thinking. There is a need for consulting our data The Natural Language Processing helps anybody to express a need and have a response from the computer bot. - Use LLM Platform As A Service (GPT/Openai on azure/ChatGLM(Saas) /etc…)… data link between your data warehouse - Use our own infrastructure and use private cloud deployment on a new server. Rent of a LLM and pay by Api call. More expensive. - Application : synthesis,classification,analysis of feeling,translation,content generation,planification. LLM+ search engine + knowledge management : Bing de microsoft. The “art of prompt” or how to communicate with your computer A prompt is a set of instructions written in your language. 37 Laia Santos Bonfill 04/10/2024 Role →Act as a consultant of the big 4 Context → Look at all white papers you find about AI Published in the year 2024 only. Filter all papers talking about AI jobs And select the 5 more relevant about AI job benchmarks. This search is important because I will use it to inspire students to invest time and study in AI. So it’s important you use an attractive young vocabulary to build your short introduction pitch. Format → Build a table where we can see in column the job title,in column 2 the short description of the activity,in column 3 the soft skills needed You will have to select max 5 jobs and don’t exceed 300 words in your post Command → Make it very professional and concise. Challenges for GEN AI adoption: - Too much AI tools - Errors % (chat GPT3)(40%) - Costly & Uncertain ROI - Data privacy and security concerns (free tools) - Talent shortage & training - Lifecycle of a project LLM - Cultural resistance and change management (fear) Typical activities identified at Sauermann Group (perplexity ai,open ai api…) - Brainstorming support - Sales prospection - Meeting analysis and reporting - Internal training (RAG) (bot) - Marketing content creation - Coding guidance - Predictive maintenance L’homo analytics Digital savvy + process and problem solving + analytical mindset 1. The rise of big data and advanced analytics has made analytical skills increasingly valuable in many fields 38 Laia Santos Bonfill 04/10/2024 2. AI and machine learning technologies are enabling more sophisticated analysis than ever before. 3. There’s a growing need for humans who can work effectively with AI systems and interpret their outputs. 4. The term may reflect how analytical thinking and data-driven decision making are becoming central to many aspects of work and life. 5. It could suggest that humans are evolving (metaphorically) to become more analytical in nature due to the demands and opportunities of the AI era. AI transform the workforce… we are more efficient Ai in supply chain Use case E2E visibility/LLM 1. Use case 1: Hubble platform Realtime questioning about products, documents and flow in the supply chain. Machine learning in sales forecasting: Garvis 2. Use case 2 Industry B2B: Sauermann group and logility Garvis. 39 Laia Santos Bonfill 04/10/2024 Capture sales impact based on past events and build future based on recurring events. Division pump example : +5% Division instruments : Doesn’t work till now with erratic distribution Machine learning in supply chain: proOrder saas 3. Use case 3 retailers: Leroy Merlin and VEKIA - Anticipate future sales - Optimize delivery processes & procurements proposal - Reduce storage costs significantly - Improvement of stock Forecast : 90% - Reduction 8% stock (3 years) - Improvement productivity : 10% - Detection of false stock NLP and RPA with SAP 4. Use case 4 industrial B2B: Belimo Creates sales orders from unstructured data (e-mails) Succeed to manage automatically 80% of all emails received (extract customer details,product sku, qty and prices) Create a new internal sale approvers Role. Improve productivity by 30% Reduction in sales order processing : 65% Reduce errors by reducing manual data entry Vision sensor 5. Use case 5 industrial: Sauermann group - Succeed to find automatically100% of all defect for electronic card - Gain in quality & efficiency - Improve productivity throughput - Allow control before manufacturing - Maximize quality output 40 Laia Santos Bonfill 04/10/2024 2015-2023: Autonomous vehicles and transportation Ex : SAFE AI- Autonomous trucks In mining - Safety,assets max., - Operational efficiency - Autonomous warehouse - Robot (Amazon) - Proteus - Handling systems (cardinal & sparrow,sequoia) Other AI projects Sourcing : Find new sourcing on the web Contract management and comparison Implement RAG (Retrieval Augmented Generation: building your own database chat GPT 41 Laia Santos Bonfill 04/10/2024 - Ex of RAG apps : Virtual assistant/(Q/A)/code generation/customer support/legal document analysis CSDDD (Corporate Sustainability Due Diligence Directive) : Ensure that your supply chain is respecting this new regulation : Test with Scrioo. Dangers of AI - Bias - Cybersecurity threats - Data privacy issues - Environmental harms - Existential risks - Intellectual property infringement - Job losses - Lack of accountability - Lack of explainability and transparency - Misinformation and manipulation - If it’s free… you are the product MAKE AI GOVERNANCE an enterprise priority AI in 2034: The future of IA by IBM - Big questions related to → Energy/value for cost/Adoption - Over 60 countries have developed national AI strategies - Multimodal AI ( integrate text,voice,images to more intuitive interactions) - Democratization of AI (develop without deep technical knowledge) - Hallucination insurance against unexpected,inaccurate AI outputs - AI in the c-suite (predictive modelling and scenario planning) - Quantum computing (conventional computing infrastructure near their limits) + bitnet models + specialized hardware - Regulations and AI ethics - DATA usage/shadow AI,data governance & proprietary data - Societal evolution as a result of AI - Climate concerns/job disruption/deepfakes and misinformation/Emotional and sociological impacts Conclusion - Human stay at the center. - Data(clean)is the starting point… information… knowledge…wisdom… - IA is an opportunity to convert data into value. - IA is a digital assistant not a manager. - IA helps to reduce manual task, stimulate creativity & find information without coding(NLP) - IA will transform jobs for sure & it is coming from a so quick massive adoption - Empower employees with new knowledge (LLM) in all disciplines - Language skills & information - coding 42 Laia Santos Bonfill 04/10/2024 STRATEGY AND S&OP Introduction to Supply Chain Strategy: “Supply chain strategy is about the nature of raw materials procurement, transportation, manufacturing & distribution to the customer, both within the walls of the enterprise as with its supply chain partners (3PL, suppliers, customers).” Supply chain strategy, like other functional strategies, should be aligned with the business strategy. → Depending on the business strategy, SCM has a different importance and power in an organization. → Supply Chain Strategy provides the determinants how the Supply Chain contributes to the overall business strategy. How to improve my EBIT level? 1. Continuous pressure on prices. 2. Increasing competition 3. More and more demanding customers 4. Remain or improve current service levels 5. Provide high quality products or services. Competitive strategy captured in a comprehensive and easy-to-explain model. The three value disciplines have a number of distinct characteristics 43 Laia Santos Bonfill 04/10/2024 Which competitive strategy fits? Best Product → Product leadership Innovation and product development are core Entrepreneurial spirit, loosely knit business structure Result-driven system that encourages creativity Imagination and out-of-the-box thinking are stimulated Best total cost → Operational excellence End-to-end streamlined processes Standardization is key with central control Tight management system focused on efficient transactions and compliance to norms Reduce waste and promote efficiency Total cost: own + customer/supplier interaction Best total solution → Customer intimacy Solution development and relationship management Decision making delegated to level close to the customer Management system and culture stimulates customer specific solutions Make strategy explicit: Categorization of critical success factors Every company wants to be successful, to be the best. However, choices need to be made on what competencies does a company want to be the best ? More specifically: What competencies do we want the customer to appreciate compared with competitors? (Critical Success Factors) Competitive Priorities ORDER WINNERS: Those abilities make your customer prefer you over your competitors (assuming you are above the threshold value) ORDER QUALIFIERS: Those abilities get you into the game: “Thresholds of Excellence”, but offer no competitive advantages. NON-ISSUES: Those abilities do not really matter in your market. 44 Laia Santos Bonfill 04/10/2024 HOW TO UNDERSTAND ORDER QUALIFIERS? From competitive strategy to supply chain strategy: Competitive strategy defines operations strategy. Competitive strategy → Critical success factors → Supply Chain strategy: - ASSETS/RESOURCES: - Size → how much capacity? Tight or excess capacity profile? - Timing → when to increase/decrease capacity? Leading or lagging strategy? - Type → what type of resources do we need? Level of automation? - Location → where should resources be located? - PROCESSES: - Demand → how do you shape demand to available supply → dealing with promotions 45 Laia Santos Bonfill 04/10/2024 - Supply → sourcing strategy - local or offshore sourcing - suppliers relationships - Technology → product and process technology. IT - systems, transportation - Innovation → what and have to innovate? Market characteristics and Supply Chain Segmentation Look for coherent market chunks with similar supply chain characteristics and create different supply chains where possible/relevant. The theory of Strategic Fit: Supply chain strategy, like other functional strategies, should be aligned with the competitive strategy. “Supply chain strategy is about the nature of raw materials procurement, transportation, manufacturing & distribution to the customer, both within the walls of the enterprise as with its supply chain partners (3PL, suppliers, customers)” 46 Laia Santos Bonfill 04/10/2024 STEP 1: Strategic fit begins with an understanding of the customer and the demand uncertainty. Customer needs can vary considerably. Think about a shopper looking for milk… Uncertainty in the supply chain originates both on the demand and the supply side. 47 Laia Santos Bonfill 04/10/2024 STEP 2: Build an understanding of the capabilities and characteristics of your supply chain. Segmenting the Supply Chain: Efficient vs. Responsive 48 Laia Santos Bonfill 04/10/2024 Sales and Operation Planning General definition for S&OP Building the essential link between your business planning and operational execution: 49 Laia Santos Bonfill 04/10/2024 INVENTORY MANAGEMENT: What is it about? A board meeting: different views on inventory… Inventory value has been decreasing, but the tide is turning. Inventory is a symptom; managing it is about identifying and improving the root causes. The primary question to start is: - To determine whether it is possible to remove some of the rocks in the water. - Determine a potential associated with the removal - Assign ownership to the removal actions 50 Laia Santos Bonfill 04/10/2024 To make this possible, we: - Create insight in the fundamental inventory drivers - Want to understand the environment in which inventory management is operating. On different levels decisions are to be taken in the area of inventory management: The key is to maintain “Optimum” inventory levels at every location in the supply chain network. Having the right product, in the right quantity, at the right time, in the right place to meet manufacturing and customer demands directly adds to the top line and button line. Revenue: - The right product always available for the customer, when they want it, in the quantities they want, leads to increased sales. - Greater ability to do promotions, leads to greater sales 51 Laia Santos Bonfill 04/10/2024 Cost: - Optimal lot sizing increase production efficiency, reducing COGS - Optimizing buffer stocks results in higher inventory turns, has direct impact on RONA Five main types of inventory: 1) RAW MATERIAL AND COMPONENTS → any material inputs acquired by a company to be used in manufacturing (purchased or produced) 2) WORK IN PROCESS (WIP) → materials in the factory that are in various stages of completion (during manufacturing / assembly) 3) FINISHED GOODS → An item/product that is ready to be sold and delivered to a customer 4) CONSIGNMENT STOCK → Goods that are placed at a customer’s location without receiving payment until after the goods are used or sold 5) MAINTENANCE, REPAIR, AND OVERHAND (MRO) → Often low cost goods, but numerous items/parts Our approach to inventory management: A methodology that has been proven in the course of many projects, in large and smaller companies. 52 Laia Santos Bonfill 04/10/2024 The operational point of view: Inventory policies: 1) Periodic replenishment → you go every friday to buy to 4L milk Following a fixed schedule, orders are made to replenish the stock to a fixed level. 2) Reorder point → when you have less than 2L mil, you buy 2L milk. A fixed order is made when the stock goes below a threshold Requires a constant accurate view on your inventory quantity. 1) Physical determination on the ground 2) Two bin system 53 Laia Santos Bonfill 04/10/2024 Inventory policy comparison: Reorder Points (s, Q) → Continuous: - Limitation and prerequisites - Continuous review system - Order can be made on a continuous basis - Advantages - Can deal with a high variability demand - Protection against stock out Periodic Replenishment (R, S) → Discrete - Limitations and prerequisites - Low variability demand - Higher safety stocks - Advantages - Appropriate if low holding costs - Simple to group SKUU orders for one supplier - Reduce the amount of analysis needed 3) Periodic replenishment and reorder point (R, s, S) Following a fixed schedule, orders are made to replenish the stock to a fixed level. DESCRIPTION: - Order are done on a periodic schedule - Stock must be below a threshold (reorder point) to trigger an order. ADVANTAGES: - Limit small orders - Useful for low value SKU The financial point of view: Inventory related costs: Ordering costs: Costs of placing a production or a purchase order - Handling costs (reception, stock intake,…) - Change-over cost in production (labor, energy, waste,…) - Administrative costs (system transactions, order follow-up, payments,…) 54 Laia Santos Bonfill 04/10/2024 In a distribution environment : - Signalling the need of restocking - Decision on the order size and searching the data - Shipping, preparation of price requests and treatment of tenders - Placing the order and determination of delivery and payment conditions - Order confirmation-treatment - Monitoring the fulfilment of agreed conditions - Receipt, inspection and storage of goods - Financial settlement of the transaction and control of the procedure (incl. disputes & complaints) - Treatment of customs and freight matters In a production environment : - Administrative issues and technical preparation of the production order - Work order release and order preparation - Material availability checks - Verifying and printing routing files - Preparation of picking lists - Preparation of technical drawings - Cost of order fulfilment - Supply of materials, semi-finished products, components and tools - Internal transport - Setting up machines (including lead time and material loss) - Switching and conversion costs (e.g. cleaning) - Bringing the goods to the warehouse, including remaining material - Accounting costs / post calculation Carrying costs: Costs to keep an amount of inventory in stock during a period of time (one year for example) - normally expressed as a percentage of the cost price of the article The cost of carrying an item during a period of time → (e.g. one year). Usually expressed as a percentage of the value of an item. - Money tied up in inventory (Capital costs) - Storage costs - Obsolescence - To a lesser extent : - Insurance cost - Tax elements linked to inventory (country dependent) - Administrative registrations -... Stock-out cost Penalty cost : cost of not having the product available when required Stock-out costs are penalty costs, and can be understood in multiple ways : - In case of backorders allowed : backorder costs 55 Laia Santos Bonfill 04/10/2024 - In case backorders not allowed: lost sales costs - Loss of customer goodwill/confidence - Negative publicity However, it is always very difficult to assess the cost of lost customer confidence The impact on the longer term is nearly impossible to assess How much inventory should we hold? 1) Order Quantity - Wilson formula (EOQ) - 1913 → Ford Harris creates a formula to optimize stocks in a production system - EOQ → Economic Order Quantity - Formula is known as “Wilson Formula” a consultant who used it - Total supply chain costs = holding costs · average inventory + transaction costs · number of transactions + purchase price · demand 56 Laia Santos Bonfill 04/10/2024 OBJECTIVES → minimize supply chain cost = holding + transaction cost - Holding cost = holding cost per unit · average units in stock - transaction cost = cost of a transaction · amount of transactions HOLDING COST: 𝑯𝒐𝒍𝒅𝒊𝒏𝒈 𝑪𝒐𝒔𝒕𝒔 =𝒉 x 𝑸/𝟐 h = Holding costs for one unit → Calculated either as: - Fixed value - % of SKU value Q = Order Quantity - Q / 2 = Stock average TRANSACTION COST: 𝑻𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏 𝑪𝒐𝒔𝒕 = 𝑲 x 𝑫/𝑸 K = Fixed cost of a transaction D = Demand Q = Order quantity 57 Laia Santos Bonfill 04/10/2024 - D / Q = Amount of transactions ECONOMIC ORDER QUANTITY (EOQ) 𝑆𝑢𝑝𝑝𝑙𝑦 𝑐ℎ𝑎𝑖𝑛 𝑐𝑜𝑠𝑡𝑠 = Holding + Transaction + Purchasing costs =ℎ x 𝑄/2 + 𝐾 x 𝐷/𝑄 + c* D Objective → find the optimal Q, to minimize the supply chain costs LIMITATIONS: - No demand variation - No delivery delays - No capacity constrain - No stock-out 2) Safety Stock How much safety stock is required to buffer against the uncertainty? CUSTOMER SERVICE: - Lead time is the time to deliver your customers - Service level is the probability of not having stock-out during the lead time SUPPLY CHAIN COSTS: - Inventory cost - Transportation cost 58 Laia Santos Bonfill 04/10/2024 - Production costs How much safety stock is required to buffer against the uncertainty? 59 Laia Santos Bonfill 04/10/2024 60