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Supply Chain Analytics

We all have a fair idea about the supply chain. In a layman term, we can say that the supply chain analytics helps in improving the operational efficiency and effectiveness by providing “data-driven” decisions at the operational and strategic level.

There are four types of analytics which one can perform to boost the performance of a supply-chain enabled business:-

Kartik had a mild migraine a few days ago, he ignored it and continued with his daily routine. After a few days, he found out that the pain is getting worse with time, He consulted Dr.Nikhil, who first asked for his medical history/reports i.e. Weight, Sugar-level, Bloop pressure, etc.
Then he looked into the reports and tried to diagnose the reason behind this abrupt pain.
The ache was there all the time which made Doctor believe that it is bound to happen in the future, so after looking at all the major points, Nikhil prescribed some medicine to Kartik.

What is what?

Reports ~ KPIs of the industry and business i.e. Descriptive Analytics
Diagnosis ~ Looking for reasons for the numbers present in the report i.e. Diagnostic analytics
Prediction of future pain to Kartik ~ Predictive analytics
Prescribing medicine ~ Looking at all the past behavior and KPIs, we do Prescriptive analytics

1. Descriptive analytics – So, you have some historic data and you need to find the performance of KPIs, this type of analysis is called descriptive analysis. The descriptive analysis helps us in finding answers to questions like How many products were sold, the performance of products in different stores, the performance of stores in terms of revenue, etc.

Basically, it gives you a gist of the current state of a company

2. Diagnostic analytics – On one hand, the descriptive analysis tells you about the KPIs of the company, whereas the diagnostic analytics tells you a lot about the underlying issue. If the descriptive analysis tells you that
Product A is not performing well in the Whitefield Store of Walmart, then the diagnostic analysis will aim at finding the underlying reasons for the same.

3. Predictive analytics –

“Do you understand the difference between Forecasting and prediction?”
Forecasting is the use of historic data which holds some pattern, to give a number for the future i.e. you are basically extrapolating the past pattern to get the numbers for the future. Whereas prediction is a more vague term which takes the changes of future in the account.

When I go through the last 40 months of data to estimate the number of joints rolled by Aman in the next month, then this is a case of forecasting. But, if I read the palm of Ramesh and tells him his future by considering the present and future behavior of the stars, then it’s a prediction.

Predictive analytics uses statistical techniques to estimate the likelihood of future events such as stock-outs or movements in your product’s demand curve. It provides the foresight for focused decision making that avoids likely problems in the future.

4. Prescriptive Analytics – Now it’s the time to have an overview of all the analytics components and provide solutions which can improve the performance of the business. This is done by prescriptive analytics.

Descriptive talks about the KPIs, diagnostic tries to find out the reason behind these numbers, predictive wants to know the performance of the business by looking at the historic and futuristic actions, prescriptive provides the final prescriptions !!

Components of Supply Chain Analytics:-

Overall, supply chain analytics can be divided into 5 parts:-

1. Inventory Management – This part looks after the “store-house” of a company. The major parts of analytics here are

a. Inventory Cost Optimization
b. Optimal Stocking
c. Stock-out Prediction

2. Sourcing – How to full fill the demand

a. Optimized Order Allocation
b. Arrival time optimization
c. Sourcing cost analysis

3. Vendor Management – How to optimize vendors for your company

a. Fault Rate Analysis
b. Profitability Analysis
c. Vendor Scorecard

4. Returns Management – What to do if a product is returned?

a. Returns tracking
b. Salvaging optimization
c. Cost Recovery Analysis

5. Network Planning – How to optimize the transport network to maximize profit?

a. Trailer Utilization
b. Freight Cost Optimization
c. Vehicle Routing

What are the five stages of Supply Chain?

You can divide the whole Supply chain process in 5 stages
a. Plan – Every company needs a strategy on how to manage the resources in order to achieve their customers demand for their products and services
b. Source – To create their products, companies need to be very careful when choosing suppliers to deliver their goods and services needed
c. Make – In manufacturing the supply chain manager should always schedule the activities that are needed for the production, packaging, testing and preparation for delivery.
d. Deliver – This part is mainly referred to as logistics by the supply chain management. In this case companies coordinate receipts of orders, pick carriers to get products to customers and develop a network of warehouses.
e. Return – In many companies this is usually where the problem is – in the supply chain. The planners should create a flexible and responsible network for receiving a flaw and excess products sent back to them (from customers).

Common Terminologies in Supply Chain

1. Back Ordering – When you don’t have product in your inventory and the product has already been ordered by a customer. In this case you give the order to a supplier. This is called Back-Ordering

2. Blanket Order – It is a large purchase order registered by the end user which the supplier has to supply in a span of few days where the dates are not fixed. It’s just like saying “I need 5000 Light candles before October 31st”. This will ensure a large order aiming for a good amount of discount before a festive or high demand season

3. Consignment –  This term has more than one meaning. Most often it means the act of placing your goods in the care of a third-party warehouse owner (known as the consignee) who maintains them for a fee. In addition to storing the goods, the consignee may sell or ship them to customers on your behalf for a fee. As a separate meaning, consignments can also refer to individual shipments made to the consignee.

4. Drop Shipment – You create a website and listed few things which are present in a nearby store. As soon as an order is placed on your website, you give the order to the nearby mart to deliver it to the customer’s place. Your profit is the difference between price paid by the customer and delivery+product cost of the mart. Here you do not need an inventory, in fact you do not need any store house or capital investment to start an e-commerce business

5. Groupage –  This is a method of grouping multiple shipments from different sellers (each with its own bill of lading) inside a single container. This is done when individual shipments are less than the container load or in other words are not big enough by themselves to fill up an entire container. This way, the freight cost is split between these sellers.

6. JIT – Just-in-time is an inventory optimization method where every batch of items arrives ”just in time” to fulfil the needs of the next stage, which could be either a shipment or a production cycle.

7. Landed Cost –  The total cost of ownership of an item. This includes the cost price, shipping charges, custom duties, taxes and any other charges that were borne by the buyer.

8. Waybill: A document prepared by the seller, on behalf of the carrier, that specifies the shipment’s point of origin, the details of the transacting parties (the buyer and seller), the route, and the destination address.

You can look for more definitions and KPIs related to Supply chain. But, this is a decent way to start the exploration.

We will deal with implementing a simple Supply Chain problem using PuLP in Python in our next article.

Keep Learning 🙂

The Data Monk

About TheDataMonkNewbie

I am the Co-Founder of The Data Monk. I have a total of 4+ years of analytics experience with 3+ years at Mu Sigma and 1 year at OYO. I am an active trader and a logically sarcastic idiot :)

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