Supply Chain Management
At fundamental level Supply Chain Management is management of flow of goods and services from procurement of raw materials, production at various stages and movement of intermediates to the delivery of products at final destination to satisfy customer demand. A great Supply Chain Management has to be customer-centric ensuring that customer is never unhappy instead he is delighted..
Supply Chain Management to Value Chain Management
But supply change management is not procurement, production and distribution of goods only. Its ensuring entire flow of goods and services to maximize quality,delivery, customer experience and above all profitability. Its failure to address this critical goal of profitability resulted into failure of many solutions which focus only reduction of costs thereby ignoring far away markets and products which can offer higher net realization and thereby profitability. That’s where sub-optimal decisions are made defeating the ultimate goal of enterprise value maximization.
Value Chain Planner for Enterprise Value maximization
KamatSoft Value Chain Planner comprehensively meets this goal comprehensively modelling entire value chain for EBIT(Earnings before interst and taxes)maximization with superlative customer service. This ensures that supply chain planning results into optimal decisions like incurring higher logistics costs if net sales realisation is higher that supplying nearby markets where net sales realisation is lower or producing those goods which have higher production costs and longer production times, if prices are higher enough to justify those costs. Of course these decisions can not be taken in isolation. So value chain planner models complete supply chain with suppliers, production capacities, job workers, raw materials, intermediates and finished goods which may be produced at different locations to come with optimal plan. This requires using mixed integer programming, mathematical programming involving millions of variables and equations which work as constraints. Given modern multi-threaded CPUs this optimizations are solved in 20-30 minutes for planning multi-divisional supply chain.
Value Chain planning can be done monthly or event weekly to respond quickly and proactively to emerging situations.Value Chain plan covers revenue, follows standard accounting principles for valuation of inventory, raw material costs, production costs, selling expenses. It also incorporates fixed expenses which are typically absorbed based on production hours. Solution maximizes EBIT subject to hard constraints like production capacity, forecast and soft constraints like meeting customer service levels, management targets and so on. It also shows the costs different constraints so that management can make informed decisions for value maximisation subject to maintaining higher levels of customer services, introducing newer products where margin may be lower at present and so on.
Value Chain Planning is holistic planning
Value Chain planning is in fact holistic planning of total supply chain. Every Value Chain plan can be looked as Demand Plan, Production Plan,Raw Material Plan and Logistics plan for raw materials, intermediates and finished goods with revenues, variable costs, contribution, fixed costs resulting into EBIT.
Plan itself can be for any user defined period like monthly, quarterly or annual basis. It can also be used for strategic or tactical basis for optimizing or scenario evaluation. Planning itself can be done based on single period or multi-period (like annual plan divided into 12 months with inter-period inventory adjustments for seasonal businesses).
Monitoring Performance Against Plan on Real Time Basis.
But planning is not end in itself. Further measuring performance against the plan can’t be done at the end of period. Performance against the plan has to be monitored on real time basis. And this performance has to be tracked at EBIT level and not for quantities alone. Value Chain Planner provides this capability on real time basis so that corrective action can be taken pro-actively and if desired revised plan can be worked out.
KamatSoft Value Chain Optimization is powerful tool for comprehensive EBIT maximization for large multi-divisional company generating millions of variables and equations. You can refer to our value chain optimization presentation for learning more about value chain planner, its capabilities, constraint modelling used, Modelling of EBIT in terms of revenue, costs, fixed costs, Report for generated for value chain planner.