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22 The PCB Magazine • July 2015 Supply Chain Design This is where the magic really happens in a supply chain: the demand management and variability modeling that makes everything come together. And while the modeling is ba- sically operations management math prob- lems, the key is how they are applied to the real world. The underlying principle of supply chain programs is the realization that all fore- casts are wrong, 100% of the time. Otherwise they would be facts. With that understood, it all comes down to a cost/benefit analysis; a cus- tomer wants a particular service level and there will be a cost to support it. For example, a cus- tomer may expect a 95% service level, which means that they expect their suppliers to be able to meet their inaccurate forecast, including push-outs and pull-ins, 95% of the time. Exact- ly how much variability is in their forecast and their lead-time will drive the appropriate supply chain program, and by extension, how much inventory will be needed in the supply chain pipeline. The biggest impact on how much in- ventory will be required is the supplier's lead- time to produce the product. There is a cause & effect direct correlation between a supplier's lead-time and how much inventory will need to be maintained. Figure 4 identifies the critical supply chain design inputs from both the cus- tomer and model needed to develop the "right" supply chain program. There are two basic types of planning phi- losophies: traditional push planning and Lean pull systems. Push planning is forecast driven and focused on what is: 1) estimated to be needed; 2) at lead-time 3) in advance of actual demand. The pull approach means that inventory is not ordered based on net time-phased future needs and is engineered to provide the flexibility necessary for service level drop-ins and other unscheduled changes. The mantra of a pull system is "Plan to forecast, buy to consumption." Benefits of Pull • Avoids building inventory in anticipation of demand which may not occur • Caps worst-case inventory level where push cannot • Eliminates nearly all (90%+) change message traffic and MRP nervousness on both buyer and supplier ends • Smoothes out order quantities to reorder quantity (ROQ) increments and multiples • Synchronizes directly to downstream demand signals • Supports the designed-for level of variability whether from the demand or supply ends of the chain • Minimizes expediting inside lead-times It is always a very interesting first discussion with a supplier when explaining that a supply chain program will actually save them money; even the most skeptical supplier has become a fan when they see the true reduced cost of do- ing business while executing under a properly designed supply chain program. Figure 4: supply chain design. SUPPLy CHAIN IN THE 21 ST CENTURy continues Feature