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Our Path to Demand Driven Supply Chain

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Our Path to Demand Driven Supply Chain Our path to Demand Driven Supply Chain Manohar Madhira Chris Sakchalathorn Ali Khaki Software giant, has a Supply Chain? Why? Microsoft’s Hardware Journey Microsoft Softcard Microsoft Mouse Microsoft MacEnhancer Microsoft MACH 20 for Apple II 1983 1985 1988 1980 Microsoft Keyboard Microsoft Sidewinder Microsoft Xbox Microsoft Xbox 360 1994 1996 2001 2005 Microsoft Hardware story (courtesy pcmag.com and pcworld.com) Microsoft Confidential Microsoft’s Hardware Journey Microsoft Zune Microsoft Surface 1.0 Microsoft Kinect 2006 2007 2010 Microsoft Hardware story (courtesy pcmag.com and pcworld.com) Microsoft’s Hardware Journey Custom Controllers Hololens Xbox Family Surface Surface Surface Surface Pro Studio Surface Laptop Hub Book Background about operations MSC Functions and Numbers >290M >31,000 Units Manufactured & Shipped Number of Active SKU’s ~$11B >600+ Total Amount of Annual Spend Number of Suppliers (includes component suppliers) 13 52 Number of Manufacturing Number of Distribution Centers Locations 3M+ 3.5M+ Est. FY16 Number of Retail and Est. FY16 Deliveries Commercial Sales orders 191 30K+ Countries Served Number of Outlets (Carriers, Retailers and MS Stores) Last Updated: February 2016 Microsoft Confidential Changing Landscape Earlier 2015 Pressures Opportunities One major event every Multiple events and COGS Growth YOY Build to Order year – The Holiday Season markets 15% to 33% Inventory Mass Customization New product every 2-3 Multiple new obsolescence years products every year 3-5 years average shelf Shelf life 1-2 years life Coping Mechanisms Build exactly to forecast COGS as % of revenue: COGS as % of 20% revenue: 35% Allocate product and capacities based on forecast / statistics Manohar’s Personal Story 2014 Daughter Microsoft Perfect Gift 2 Months later 1 2 3 Lenovo Yoga 1DSC – One Devices Supply Chain 1DSC – Operating System for the Hardware Supply Chain Engineering Customer Repair units Envision Activation Receive R & D Plan Deliver Purchase Fulfil to a Product Customer units Capture Optimize Product, Manufacture Product to Contact customer & Predict LIFECYCLE Issues feedback Source parts Channel support to resolve Supply Chain Partner Systems SC Partner Universal Stores Connect Collaborative MS Sales Make Portal Supply Chain CM-PLM CM-SFCS Deliver WMS TMS Supply Chain Collaboration Device Telemetry MS Store / CSS Jarvis Entitlement Design Tools SAP MAX (Supply Chain Analytics) Integration SUPPLY CHAIN OS Plan & Optimize Network HD Insight Event Hubs MS Product CAD 1PDM Plan Source Deliver Trade Care NPI Sourcing Planning Manufacturing GSC Returns / Care Quality Financial performance • Functional End to • Spend • Demand Accuracy • Functional End to • Sales vs Forecast • Return Rate • Factory quality • P & L End First Pass End First Pass Yield • Supplier Quality • Supply Fulfillment Yield • Inventory Health • CSAT • Field quality • Inventory • Supplier • Inventory Risk • Functional OBA • On time Delivery • TAT • Repair quality • OPEX Compliance ANALYTICS • Quality excursions *1DSC Infrastructure Intelligent Supply Chain Engineering Customer Repair units Envision Activation Receive R & D Plan Deliver Purchase Fulfil to a Product Customer units Capture Optimize Product, Manufacture Product to Contact customer & Predict LIFECYCLE Issues feedback Source parts Channel support to resolve Supply Chain Data External data Digitized Infrastructure • Data first Advanced Analytics and • Man – Machine harmony Machine Learning • Analytical not Socia Environmenta Economic operational l l Algorithmic decisions Intelligent Supply Chain Cloud Data Driven Organization Demand Driven Supply Chain Design and Development 2015 Oct 2014 -> July 2015 Aug 18 Aug 26 Adhoc analysis of stock out 30 min conversation 1st workshop with impacts with Shane Kolar, Sr CTO, IT GM, Possible solutions Director, Planning on Planning Team Excel simulation of TOC logic how TOC could offer a robust solution Aug 28 – Sep 13 Sep 14-18 Sep – Dec Dec 16 Analysis of current Joint workshop with System System Changes data GRL, Illumati, development live in production 1st version of Microsoft Planning and testing with BTO, BTA simulator and IT Teams on Simulation logic system design refinement Implementation and Adoption 2016 Jan - Mar April - July End of August Pilot runs for BTO Change Mostly Pilot runs for BTA for Management implemented for few product lines Finished Goods Results Highest ever Inventory Turns for Microsoft Working Capital Savings ~ $250M Service Levels Up ~ 5% TOC Based SupplyTOC-based Chain SCM Solution Solution DesignDesign using S&T Tree 1DSC Strategy and Tactic Tree Simulation Model Hybrid TOC Model Demand is king, forecast is guide RRLT Demand On Order 70 300 1 Set on-hand + on-target quantity target Set initial 900 300 Target Based on total demand within lead time 850 800 300 0 On hand 2 Replenish Place orders whenever product On-Hand + On-Order falls below target - PO for 75 75 units 3 Adjust a Could we have stocked out? Increase target Target Increase target if stock was in Red for a lead 1200 time duration (Too Much Red - TMR) b Do we have too much? Reduce target if stock was in Green for a lead Reduce target 600 time duration (Too Much Green - TMG) c Is forecast from step 1 significantly different Forecast 1800 Target 1800 from TMR, TMG or current target? TMR 1200 Adjust to forecast Forecast 1500 Target 1200 TMR 1200 Special Situations Launch Business 100% Subcontracting model - Forecasting needed to continue procurement - Priority communication challenges Varying and long lead times - Product life cycle – 1 to 2 years - Component lead time – 3 to 4 months Demand peaks 5 to 10 x normal run rates Frequent Demand peaks Design and Development Cycle Analyze Patterns Implement in Simulate SAP Rules Collaborative Supply Chain Supply collaboration MS Planner performs CM reviews and Benefits planning in Simulation commits to Forecast enviroment CM • Better traceability with MICROSOFT automated waterfall reporting • Discussion focused around Planning in CM systems CM to Review exceptions Simulation to ingest Commit plan • High automated process Environment forecast to Forecast Variances • Scalable to multi-tier • Better visibility of consignments parts to CM as same process is being MS transmits forecast CM reviews and leveraged to Vendor commits to Forecast MICROSOFT/CM MICROSOFT/CM • Color coding to denote priority Ariba T2/T3 Supplier Orchestration 2b. Receive Consigned Material Forecast Microsoft Tier 2/3 Suppliers Native Outbound 3b. Send Forecast Commit Transactions (via Ariba Portal or B2B) cXML ECC 4b. Receive Standard PO Ariba Native Intbound Network 5b. Send PO confirmation Transactions cXML 6b. Send ASN APO 4d. Copy of PO 10b. Goods Receipt 6f. Copy of ASN Tier n-1 Supplier / CM Microsoft Status: Ariba Supply Chain Collaboration Status: Scorecard: . Ariba Network is the . Efficiency and Speed Gains: backbone for Xbox and . Supplier Supportability process Surface line of products improvement: 90%+ (1-2hrs to supply chain ~5min) . As of 3/17/17: 46 enabled . Planner’s Efficiency suppliers out of which 35 improvement: 95%+ (order transacting suppliers follow-ups/expediting reduced transmitting 118K+ of from 1-2 days to 1-2 hours) purchase orders worth . $3.5Bil+ Supplier On-Boarding time improvement: 75% (on-boarding time reduced from 3-4 months to 3- 4 weeks) Microsoft Planning Team quote: ”Today we successfully received automated (via Ariba) supportability from the supplier which took ~5 mins to approve, updated PREQS and create PO’s (vs. 1-2 hours leveraging the previous process)” Future Microsoft – E2E Supply Chain Process Overview Level 1 Alerts and Case Management S&OP and Demand Forecast Segmentati Forecast Segment Planning (PFAM) on (SKU / DC) Forecast Net Unconstrained Net Supply Aggregated Disagg** Priority Consumpti Net Requirement Requirement Requirement with Planning* Calculation Planning on* (SKU / DC) priority Rough Cut Constrained Demand Response Demand Build Plan Supply match Create Purchase Capacity Planning with Planning Prioritization collaboration based on Requisition Planning prioritization Priority Build Plan Supplier PO Production Collaboration collaboration Commit Confirmation Order Status Segment Goods Component Purchase Execution ASN Receipt Consumption Order Segment Location/ Sales Order* Allocation Order Back Order Allocation Product (Availability (Channel) Processing Consumption Confirmation Substitution Check) Planning * BTA/BTX/ATO/CTO ** Based on Shortage Calc © 2016 SAP SE or an SAP affiliate company. All rights reserved. 27 Future Architecture - IBP Current: Manual, Subjective & Siloed After: Integrated, Objective & E2E SubtitleDemand PlanningHere Supply Planning & Subtitle HereExternal Data Collaboration Sell thru & Sell thru & Promotion Planning CM • Body contentPromotion here Planning • Body content here • Body content here CM • Body content here Demand PoS Planning Tier2..n Tool Tier2..n Tier2..n SAP SAP Consensus Tier2..n Demand S&OP Supply Forecast PLM Plan Decisions Plan Integrated Business Planning Independent Planning S&OP Decisions Financial Forecast PoS PLM Financial Forecast Master Data Historical Data Path forward Simulation model to test rules at each implementation Expand solution to component purchases Expand solution to exchange and B-SKUs Systemically communicate Build Priority with Suppliers SAP Ariba Work with SAP to include TSL priorities SAP IBP into Response and Supply Modules Demand Driven MRP implementation in SAP .
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