Global consumer goods companies manage multiple legal entities to purchase, produce and distribute their products around the world. Each entity is linked to another through inter-company trading. The products move across companies from its point of purchase to its point of sale. A global master plan must be generated to minimize inventory and maximize customer service. This requires a careful and timely coordination of planning activities across the global network.
Most companies centralize their purchasing functions in their main entity to use economics of scale. They can place a large purchase order to the vendor for all their demand across the world. In another blog (Please refer to this blog) we discussed how this global purchase order can can be split into pieces to satisfy regional demand. We also reviewed in another blog (Please refer to this blog) how the supply can be allocated to different channels and customer within a region. This blog will get into how to determine the timing and quantity of the global purchase or production.
Let’s examine a global brand headquartered in the USA managing the centralized purchasing function. Let’s assume that this company has entities in Netherlands (NLD) servicing the European market and China (CHN) servicing the Asian market. Both NLD and CHN companies aggregate their demand across their channels and place their purchase orders to the main USA entity. USA entity then aggregates the demand coming from NLD, CHN with its own channels. The summation of all this demand is the base of the global purchase.
Note that this aggregation needs to take account of the firm supply. If there is on hand inventory or firmed purchase orders anywhere in the supply chain, they must be netted out of the gross demand. This calculation will also consider the purchase, production or transfer lead times. More over, the sequence of the planning process is important as well. For the example above, NLD and CHN need to complete their planning first to place a net order to the USA entity. USA entity then need to run its planning to place the global purchase order. Thus, plans run from the upstream entities to the downstream entity.
The next step is the communication of the responses (supply commitments) against the requests (netted demand). This happens in the opposite direction from downstream entity to the upstream entities. As the supply gets allocated against the demand, the results can be fed upstream. The demand is pegged to the supply. In case of shortages, the goods are allocated based on business rules. Delays are highlighted. Projected excess inventory is identified earlier so that actions can be taken proactively.