Consumer electronics and office equipment companies must react quickly to volatile supply and demand conditions. Rapid changes in technology compress product lifecycles. Many products last less than a year, with production cycles of only three months. Consumers have their pick of a large variety of new and existing products that are being aggres- sively marketed. It’s difficult to predict what they will choose to buy. Frequent retailer and manufacturer promotions disrupt buying patterns and put downward pressure on prices. Poor forecast accuracy can lead to excess inventory or write-offs. Or it can lead to stock-outs, resulting in lost sales and poor customer service. Adding to the uncertainty is accelerating growth in the Asia-Pacific region. This growth extends and strains supply chains, which can affect delivery reliability and increase risks. To achieve success in this kind of environment, all members of the supply chain need visibility into current and future events, along with the means to work together to solve problems and deal with delivery constraints as they arise. Therefore, it’s not surprising that retailers and original equipment manufacturers (OEMs) have been cooperating for years on programs such as vendor-managed inventory (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR). l

1. SOA Enabled Sales and Operations Planning Solution
for Electronics Industry
Methodology and CPFR / VMI Case Study
Henry Dao1
Redha Bournas2,
Kumar Keeranoor2
Shubir Kapoor3
Dhananjoy Bhattacharya4
Sanjay Panikkar4
Markus Ettl3
Paul Brody1
1
IBM Global Business Services
2
IBM Software Group
3
IBM Research
4
IBM Global Business Solutions Center

2. Table of Contents
1. Introduction ............................................................................................................................4
2. Industry Challenges................................................................................................................5
3. Solution Overview and Benefits ............................................................................................9
4. Solution Methodology..........................................................................................................12
4.1 Methodology Overview ....................................................................................................12
4.2 Step 1 - Developed Business Process Model and Mapped to CBM Model......................12
4.3 Step 2 - Developed Data Flow Models .............................................................................16
4.4 Step 3 - Developed Business Services Portfolio...............................................................17
4.5 Step 4 - Selected CPFR / VMI Sub-process as the Focus.................................................18
4.6 Step 5: Design and Implemented Proof of Concept..........................................................21
4.6.1 CPFR / VMI Solution Use Cases ...............................................................................21
4.6.2 CPFR / VMI Solution Reference Architecture ..........................................................23
4.6.3 CPFR / VMI Solution Implementation based on IBM SOA......................................24
4.6.4 Forecast Business Process Models .............................................................................26
4.6.5 Replenishment Plan Business Process Models ..........................................................31
4.6.6 CPFR / VMI Solution Functional Architecture and Components..............................35
5. References ............................................................................................................................39
List of Figures
Figure 1: When rapid response is critical, collaboration among organizational facilities and with
supplier, partner and customer systems must be automatic and event driven..........................6
Figure 2: The solution focuses on the key processes in demand and supply planning for CPFR
and VMI ...................................................................................................................................9
Figure 3: SOA adds incremental business benefits to CPFR / VMI ..............................................11
Figure 4: Solution Methodology ....................................................................................................12
Figure 5: CBM helps to connect business strategy with IT strategy..............................................13
Figure 6: CBM provides a framework for modeling an enterprise ................................................13
Figure 7: Intersection of CBM and business process defines the value creating business services
................................................................................................................................................14
Figure 8: S&OP process acts as an overarching process to orchestrate the critical processes ......15
Figure 9: S&OP process at Level 1 and Level 2 ............................................................................15
Figure 10: The components that support S&OP processes have been highlighted in the
Component Business Model for Electronics Industry............................................................16
Figure 11: S&OP Data Flow Model...............................................................................................17
Figure 12: S&OP Business Services (Example) ............................................................................18
Figure 13: CPFR / VMI Process ....................................................................................................19
Figure 14: High Level CPFR / VMI Solution Design....................................................................22
Figure 15: S&OP Solution Reference Architecture .......................................................................24
Figure 16: SOA Implementation Process.......................................................................................26
Figure 17: Start Forecast Process ...................................................................................................27
Figure 18: Generate Baseline Forecast Process .............................................................................27
Figure 19: Generate Consensus Forecast Process - Part I..............................................................28
Figure 20: Generate Consensus Forecast Process - Part II.............................................................29
Page 2

3. Figure 21: Collaborate on Consensus Forecast Process – Part I ....................................................30
Figure 22: Collaborate on Consensus Forecast Process - Part II ...................................................31
Figure 23: Start Replenishment Plan Process ................................................................................32
Figure 24: Generate Baseline Replenishment Plan Process...........................................................32
Figure 25: Generate Consensus Replenishment Plan – Part I........................................................33
Figure 26: Generate Consensus Replenishment - Part II ...............................................................34
Figure 27: Collaborate on Consensus Replenishment Plan ...........................................................35
Figure 28: S&OP Solution Architecture Components ...................................................................37
Page 3

4. 1. Introduction
Sales and Operations Planning (S&OP) is the most fundamental process for reliable earnings and
growth in Supply Chain. A spring 2007 survey AMR research of 101 manufacturers and recent
discussions with 22 leading S&OP practitioners affirm that S&OP is more than a tool to balance
the local supply and demand. Increasingly, S&OP is becoming the engine that moves global
manufacturing business forward.
Despite the importance of the process, based on an Aberdeen’s whitepaper “Executive Sales and
Operations Planning: Process and Technology Strategies”, nearly 92% of the companies
indicated that they have an executive S&OP process in place. However, 62% of companies have
not gained any quantifiable financial benefit out of this process. Technology is one of the key
limitations identified in Aberdeen’s whitepaper.
S&OP is typical of the challenges that enterprises face today in integrating their business
processes across numerous partners and then accelerating performance of those activities.
Bringing product today is an extremely collaborative activity – within the enterprise and across
enterprise boundaries. The information required to run these processes smoothly resides in
multiple IT systems spread across firewalls and with incompatible standards of information.
Service Oriented Architecture is a framework and set of tools that, when applied correctly, can be
used to simplify the process of integration and help enterprises focus on managing the business
process, not the mechanics of integration.
The primary focus of this paper is to demonstrate our methodology of how to take a business
process and accelerate it using Services Oriented Architecture (SOA). The methodology we
demonstrated here can be applied to development of any SOA based solution. We selected the
S&OP process for the initial solution development since it is a critical process to be enabled. For
the development of actual software assets, we selected CPFR / VMI processes to focus on.
VMI is a streamlined approach to inventory and order fulfillment. VMI involves partnerships
between OEMs and customers that change the traditional ordering process. Through VMI, the
ordering process is driven by demand information sent by customers to OEMs instead of
purchase orders created by customers. VMI’s centralized link between OEMs and customers
enables faster, less complex transactions without creating individual lines of communication for
every business relationship.
CPFR is the sharing of forecasts and related business information among business partners in the
supply chain to enable automatic product replenishment. CPFR is designed to improve the flow
of goods from the raw material suppliers, to the manufacturer, to the retailers' shelves. It also is
designed to quickly identify any discrepancies in the forecasts, inventory, and ordering data so
that the problems can be corrected before they negatively impact sales or profits.
Our paper describes how we developed the SOA-based IBM solution which overcomes
limitations of existing collaborative planning; forecasting and replenishment (CPFR)/vendor
managed inventory (VMI) technologies to help consumer electronics and office equipment OEMs
address their supply chain challenges. The paper details the methodology used for the end-to-end
solution development.
Page 4

5. 2. Industry Challenges
Consumer Electronics companies must react quickly to constantly changing demand business
conditions across a vast extended global supply chain. In addition to managing their own
business plans, they must react continuously to a wide range of events:
o Supply constraints & cost changes
o Demand changes
o Competitive pricing actions
o Shortening product life cycle
To stay on top of things, they must not only react quickly but also work closely with a number of
key partners:
o Component suppliers
o Contract manufacturers
o Retailers
o Logistics companies
As a result, real-time collaboration is critical to the sales and operations planning process in
consumer electronics.
S&OP is the set of business processes and technologies that enable an enterprise to respond
effectively to demand and supply variability with insight into the optimal market deployment and
most profitable supply chain mix. It consists of the following processes:
Business and Financial Planning
Demand Planning
Supply Planning
Demand and Supply Matching
It is a monthly process that involves cross functional teams including sales and marketing,
operations, finance, customer service and engineering. It integrates the marketing plan, the sales
plan, the operations plan and the financial plan into a single business plan with:
consensus decision making
demand and supply balancing
senior management review
continuous improvement
S&OP strategies help companies make “right-timed” planning decisions for the best combination
of products, customers, and markets to serve. The typical planning period ranges from weeks to
as long as two years. When applied correctly, S&OP has the power to enable an enterprise to
achieve an immediate and significant increase in return on investment (ROI). It can have a direct
impact on profitability, performance, customer satisfaction, and the product portfolio.
Page 5

6. Recently, the S&OP Planning time has shrunk from quarterly and monthly cycles to weekly
updates based on daily monitoring of operations that can span three continents.
Client HQ Customer DCs
Customers
Suppliers
Contract
Manufacturers
Japan
Component Factory
Suppliers
Client DCs
Logistics Mexico
Factory Retailers
Companies
Other service
providers Asia
Factory
Figure 1: When rapid response is critical, collaboration among organizational facilities and
with supplier, partner and customer systems must be automatic and event driven.
S&OP requires rapid coordination between every part of the business as well as with the retailer,
component suppliers, contract manufacturers, logistics and other service companies. Information
across systems must flow just as quickly as it does across organizational boundaries.
For the solution development, the scope of Sales and Operations Planning processes includes the
following five sub-processes:
Sales and operations planning
Collaborative planning, forecasting and replenishment (CPFR)
Vendor managed inventory (VMI)
Collaborative marketing
Price monitoring
For the case study and solution development, we selected CPFR and VMI processes as the
primary focus.
Page 6

7. Sales & Operations Planning
Orchestrate
Business and Demand Supply Demand and
Financial Planning Planning Planning Supply Matching
Consensus VMI Consensus
Replenishment CPFR
Plan Replenishment
Plan
CPFR
VMI
Suppliers Manufacturer Manufacturer DCs Retailer DCs Retailers Customers
Pull Signal
Replenishment
Replenishment
Pull Signal
Figure 2: CPFR and VMI are the critical processes that integrate into S&OP processes
Many current VMI and CPFR programs lack the fully automated, event-driven processes that
enable timely collaboration on forecasts, demand plans and supply chain events. Even inside the
four walls of the enterprise, disparate technologies can make it difficult to communicate at the
same pace business information changes. Most OEMs rely on multiple departmental systems and
technologies. It’s enough of a challenge to automate shared processes among the siloed groups
involved in the S&OP process—sales and marketing, procurement, manufacturing and
logistics—let alone to extend collaborative processes to all involved players external to the
organization.
Without automation, cross-enterprise collaboration is hampered by inaccurate and dated
information. Lacking reliable replenishment information, retailers pad sales forecasts to increase
allocation of constrained products. In the absence of a commitment process for suppliers, the
order process is not really collaborative. And, without good planning tools, it’s hard to use
information from consensus forecasts effectively.
With early CPFR initiatives, the partner requesting the program (most often the retailer)
frequently specified the enabling technology, usually a proprietary solution. It became clear
that—if each new CPFR program involved implementation, integration and maintenance of
incompatible systems—the IT complexity and support costs for the OEM organization would
increase exponentially.
To address this challenge, in June 2001 a VICS working committee released an extensible
Markup Language (XML) specification to serve as a basis for standardization. Although a
promising first step, this move to standardization did not address CPFR program flexibility and
scalability.
Accelerating the CPFR adoption process first requires CPFR interoperability—where during any
peer-to-peer collaboration, one trading partner can use his or her CPFR application and the other
Page 7

8. trading partner can use another. These disparate applications should be able to work on privately
hosted networks, public exchanges or the Internet.
In addition, the OEM must be able to leverage its existing CPFR applications to quickly
implement new initiatives with additional supply chain partners and also be able to adapt the
applications as individual partner relationships evolve.
Page 8

9. 3. Solution Overview and Benefits
IBM Global Services developed an SOA-enabled solution that provides the interoperability,
standardization, flexibility and scalability necessary to help you realize the full benefits of VMI
and CPFR. Software decisions to support CPFR no longer need to be dictated by internal systems
and the technologies your trading partners have in place. In addition, CPFR implementations
needn’t be limited to one-on-one projects.
Create Joint CPFR / Plan Demand Plan Supply and Develop
VMI Business Plan Replenishment Plan
Retailer /
Distributor
POS/Data
Analysis
Retailers/
Distributors Sell-Through
Collaboration
Create Call and Replenishment
Develop Generate Sell- Plan
Joint Gather
Master Through Collaboration
Business Data
Agreement Consensus
Plan
Forecast
Manufacturers Adjust
Sell-
Through
Generate
Forecast
Replenishment
Plan
Manuf.
POS/Data Prepare for Prepare for
Analysis Sell-Through Replenishment
Collaboration Collaboration
System
Generate
Statistical Sell-
Through
Forecast (Daily)
Process Coverage
Figure 2: The solution focuses on the key processes in demand and supply planning for
CPFR and VMI
Essentially, the IBM solution provides four business services built on an SOA platform:
Statistical forecasting service—to generate a baseline forecast (SOA platform will allow
companies to plug in multiple forecasting solutions, not just the forecasting solution
described here but any solution, for example SAP APO, etc).
Forecast collaboration service—to generate a consensus forecast.
Inventory and replenishment analysis service—to generate a baseline replenishment plan.
Replenishment planning collaboration service—to generate a consensus replenishment plan.
With the SOA platform and Web Services, enterprises can plug in and use any of these services
in the CPFR or VMI process. Altneratively, other SOA-compliant services can be integrated into
the process flow with ease.
The IBM solution combines SOA and Web services for optimal benefit. Recently, there’s been
some confusion in the business world about these two elements. You can have one without the
Page 9

10. other, but it’s best to have both. SOA offers flexibility through componentization. But without
common connections, you’re limited in how far you can extend components and the composite
applications. Web services offer standardization and interoperability to enable access to
components and applications from the widest range of user devices, but you first need to have
capabilities to extend. With SOA and Web services together, you have the optimal IT flexibility
and responsiveness to support your changing business.
The IBM solution enables key capabilities in your S&OP process to be packaged into SOA
services and quickly implemented—allowing rapid integration to multiple systems and business
partners. You can combine and reuse pre-built service components to quickly develop and deploy
collaborative applications in response to marketplace conditions. Essentially, you eliminate the
need for duplicate CPFR systems. You’re able to:
Speed execution on CPFR agreements by building collaborative capabilities once and then
leverage them to speed execution on CPFR agreements with new trading partners
Offer new services to your customers without having to worry about the underlying IT
infrastructure
Improve alignment of the CPFR business process with actual operations.
The IBM collaboration platform is role based with security-enhanced sign-on. Your partners and
customers can only see their own information, helping to foster trust-based relationships.
Also because of the modular design, enterprises have maximum flexibility to determine the scope
of the solution. Solution architects can pick and choose the components they want to implement.
Enterprises can even outsource selected services to IBM Global Business Services.
For example, one IBM client in the electronics industry did not want to do advanced statistical
forecasting. IBM manages that step by generating a statistical baseline forecast as the starting
point of this company’s weekly S&OP process. Using information from point-of-sale (POS)
systems and promotion plans, IBM creates a forecast baseline that is used by the electronics
company in its collaboration with retail partners. Once the collaborative forecast is agreed upon,
IBM generates the detailed replenishment plan. This arrangement has allowed the electronics
company to focus on relationship management with its retailers. The average forecast accuracy
for products four weeks out has risen from 50 percent to approximately 90 percent at the retail
partner distribution center level of measurement.
IBM’s SOA solution has distinct capabilities to address CPFR / VMI challenges faced by
consumer electronics companies
Forecasting analytics developed by IBM Research proven with multiple client engagements
Inventory analytics developed by IBM research has built in optimization including price
protection expenses, inventory carrying costs, and customer service
SOA exception based and event driven collaboration platform for forecast and replenishment
plan
SOA and web service based standard modular design which could be adapted to specific
client situation or ERP environment
Implementing CPFR / VMI through an SOA architecture provides incremental benefits to
enterprises:
Page 10

11. Benefits CPFR / VMI Greater Value from SOA
Revenue Higher customer service
Provide a window into the Much faster integration of new partners and process changes in
future and thus enhanced an SOA architecture
Flexibility decision making Reuse of services reduces on boarding time by about 50%
Combine and reuse pre-built service components for rapid
Shorter customer order lead
Speed times
application development and deployment in response to
market change
Shorter supplier lead times Decreased system implementation time by 25%
Integrate historically separate systems, facilitate mergers and
More stable production rates,
Efficiency hence higher productivity
acquisitions of enterprises
Reduce cycle times and costs for external business partners by
moving from manual to automated transactions
Reduced transaction errors as data moves between systems,
some companies down to ZERO.
Increase IT Staff Productivity by 30%
Shorter customer order Offer new services to customers without having to worry
Service backlogs, about the underlying IT infrastructure
Lower finished goods inventories Eliminate duplicate systems, build once and leverage
Lower IT Costs by 15%
Cost Reduced obsolescence
100% Payback in 24 months
Reduced premium freight costs
Greater control of the business Improve visibility into business operations
Risk with known root causes
Figure 3: SOA adds incremental business benefits to CPFR / VMI
Page 11

12. 4. Solution Methodology
This section will describe the solution methodology and provide details for each step to show
how we developed this solution.
4.1 Methodology Overview
For the solution development, a five-step approach was followed. First we developed business
process models for the Sales and Operations Planning processes which included five processes.
After the process models were complete, we mapped the processes to Component Business
Models. Secondly, we defined the Data Flow Models for each process model, in which the data
elements and dependencies are determined. The third step was to define all the business services
associated with each level 3 business process and business components. The fourth step was to
select CPFR and VMI as the focus to narrow down the scope for solution development. Finally,
we designed and built a proof of concept by enabling CPFR / VMI processes with SOA and Web
Services. In Figure 4 below, the top-down five step solution methodology is shown.
Mapped Process S&OP Business
1 Models to CBM CBM
Process Models (WBI)
Developed Data
2 Flow Model Data Flow Models
Developed Business Services
3 Business Portfolio
Service Portfolio
Selected
4 CPFR/VMI sub- CPFR / VMI
process Business Services
as the Focus
Designed and Generate
5 Generate Generate Baseline
Built CPFR/VMI Generate Baseline Consensus
Consensus Replenishment
Forecast Replenishment
Proof of Concept Forecast Plan
Plan
Web Service Web Service Web Service Web Service
Figure 4: Solution Methodology
The design is focused on the modularity and standardization for flexibility. It is designed to plug
and play with other industry solutions.
4.2 Step 1 - Developed Business Process Model and Mapped to CBM
Model
Page 12

13. Component Business Modeling (CBM) is a method developed by IBM in 2004 that allows
organizations to identify opportunities for improvement and innovation by regrouping their
activities into a manageable number of discreet, modular, and reusable components. This enables
flexibility and provides for a clarified focus on the core capabilities needed to run the business
and drive business strategy.
CBM is applied at the intersection of business strategy and enterprise IT strategy to help the
client determine the area that creates the most value.
Business Strategy Enterprise IT
• Product centric • Process automation
• Customer centric • In/Out sourcing
• Supply chain centric • Systems investment
Key • What investments will provide me with competitive advantage?
questions for • On which areas should I focus my management attention?
CIOs and • Which functions should I consider out-sourcing? Which ones
CEOs should I keep in-house?
Figure 5: CBM helps to connect business strategy with IT strategy
CBM provides the framework for analysis, modeling the enterprise in logical components.
Business Functions
Total CBM Model
Design Mfg Sales Admin
Examples:
Strategy & Boeing bets on planes
Planning that sell for 10+ years
Level of Process Control
IBM must manage
Monitoring thousands of sales people
& Control
Lenovo must compete in a
low cost environment
Detailed Wal-Mart is an expert at
Execution low-cost procurement
Figure 6: CBM provides a framework for modeling an enterprise
The business process defines the physical tasks that are required for business execution within
each component. The intersection of components and business processes will define the business
services needed to create value for your enterprise.
Page 13

14. Potential
Production
Improve Forecast Accuracy Reduce Stock-outs Improve Inventory Turns Value Drivers
Aftersales
Service &
Business
Financial
Product /
Process
Process
Admin.
Admin.
Mktg &
Supply
Chain
Mgmt
Mgmt
Sales
Forecast Accuracy
Value
Material Availability
Finished Goods Inventory
Turns
KPI’s
(examples)
Forecast Bias On Time Delivery
Obsolete Inventory
Accountability Level
Direct
Develop Baseline Forecast
Develop Consensus Forecast
Develop Baseline Replenishment Plan
Develop Consensus Replenishment Plan Activities
(example)
Control
Business Component
Demand Planning Business
Services
Business Purpose
Execute
Activities
People
User Interaction Services Applications
(Connection, Routing, Broker, Transform ation..)
Infrastructure
Middleware (Rich Client, Web Server, Portal Server, Collaboration Tools, ...)
Business Process Services
Service Implementation
IT Applications
Middleware (Process Flow Engine, Rules Engine,...)
Integration
Business Function Services
Middleware (Application Server, ....)
Information Services
Middleware (DBMS, ETL, ...)
Figure 7: Intersection of CBM and business process defines the value creating
business services
We followed this concept. First, we developed business process models for the Sales and
Operations Planning processes including the following five processes up to level 3 process level
details:
Sales and Operations Planning
Collaborative Marketing
Price Monitoring
Collaborative Planning, Forecasting and Replenishment
Vendor Managed Inventory
Page 14

15. Sales & Operations Planning
Orchestrate
Business and Demand Supply Demand and
Financial Planning Planning Planning Supply Matching
$ Supply $ Retail
Price Price
Marketing Marketing
Opportunities Opportunities
from from Retailers
Collaborative Manufacturers Collaborative Price
Price Consensus
Marketing Marketing Monitoring
Monitoring Consensus VMI CPFR
Replenishment Replenishment
Plan Plan
CPFR
VMI
Suppliers Manufacturer Manufacturer DCs Retailer DCs Retailers Customers
Pull Signal
Replenishment
Replenishment
Pull Signal
Figure 8: S&OP process acts as an overarching process to orchestrate the critical processes
Below is the example of S&OP process showing level 1 and 2 steps. Each step shown in the
process map has been detailed out at level 3 with defined process, input and outputs.
Business / Demand Planning Supply Planning Demand and Supply
Financial Matching
Planning
Collaborate with
Customers Customers and Develop
Consensus Forecast
Finance Set CPFR
Financial VMI
Consensus
Goals Replenishment
Replenishment
Orders
Plan
Product Create
Marketing Price Baseline
Monitoring Forecast
Impacts
Supply Collab Mkt
Chain Countermeasures Develop Create Rough Develop
Unconstraine Cut Capacity Constrained
Planning
d Plan Plan Plan
Balance Reconcile
S&OP Supply with
Meeting and Financial
Participants Demand Plan
Allocate
Supply
Collaborate
Suppliers (high level)
with Suppliers
Figure 9: S&OP process at Level 1 and Level 2
Page 15

16. Then we identified the components that are critical in supporting the S&OP processes and
mapped each business component to S&OP processes. This mapping has been done for all five
business processes. Below is just an example showing S&OP process and related business
components.
Consumer Relationship Client Relationship Supply Chain (Manufacturing, Business Administration and
Distribution & Logistics) Risk Management
Online Strategy
Svcs)
Chain Strategy (eg Online
New Business Supply
New Business Supply
& Supply Chain Planning
Value Added Services Ops
Demand Generation and Market Partner Strategy (Channel, Supply Ops Corp Strategy & Planning
Making Services, etc.) Chain Planning
Planning
Strategy and
Strategy and
Category/ Brand Strategy Brand Strategy
Planning
Innovation
Innovation
and Functional
Solutions Dev
Services.
Strategy
Convergence
Development
New Market
Strategy
Platform
Competitor Analysis Procurement/ Sourcing Line of Business Strategy & Planning
Decisioning
Assembly/ Production and Asset Utilization/ Capacity Planning
Pricing Strategy Reuse Decisioning
Distribution/ Logistics Investment Decisioning
Decisioning
Market and Portfolio Coverage Model & Sales Forecasting & Demand Mgmt, SOP for Alliance and Outsourcing Strategy
Solutions Management Planning components
Online Program Mgmt
Decisioning Business Performance Mgmt
Monitor and Manage
Monitor and Manage
Mgmt
Fulfillment
Logistics & Parts
Reverse
Reverse
Chain Mgmt
Services Supply
Value Added
Software, Component, Platform Partner Mgmt (Channel, Assembly/ Production
Design and Development Services, etc.) Management Governance, Organization & Process
Design
Solutions/PLM/SLM (Design to end Demand Generation & Inventory Mgmt & tracking
of life planning) Aggregation (WIP, stock and in transit) Legal & Regulatory Compliance
Solution/Offering Mgmt Services Scenario Tracking Equipment Maintenance & Outsourcing Mgmt
Mgmt
Marketing/ Supplier Mgmt & Customization Tracking Treasury & Risk Mgmt Finance,
Renewal Program Mgmt Communications Accounting &
General
Customer Feedback & Issue Solutions/Services& Process Quality Control Ledger
Resolution Tracking
Optimization
Reverse Logistics & Parts Fulfillment
Reverse Logistics & Parts Fulfillment
Network Optimization
Product Catalog Classification & Warehouse & Transportation Value Added Services Supply Chain
Maintenance (End of life) Business Development Mgmt
Prototype Development & Testing Network Optimization Indirect Procurement/ MRO Buying
Sales Promotion & Execution
Facilities Mgmt
Solutions Development & Launch Collaborative Account Planning Partner Enablement
Execute
Execute
Customer Configuration Assembly/ Production
Execution
Services Delivery/ Solutions Human Capital Mgmt
Execution
Solutions Offering Mgmt (HW, SW Order Execution Purchasing & Contract
& Value added services) Execution IT Systems and Operations
After sales support (Call center, Reuse
field services)
Figure 10: The components that support S&OP processes have been highlighted in the
Component Business Model for Electronics Industry
As a result, the linkage between processes and business components are established. This
structure will allow different views of business services associated with each business process.
4.3 Step 2 - Developed Data Flow Models
After defining the processes at 3 levels of detail, the next step is to capture the information
dependency across the entire system of processes. Tracing along the detailed level 3 process
flow, the data entities which are consumed and produced at each task are identified. Following
this, an analysis is conducted on the dependencies between these data entities. A data entity is
dependent on another, if there is a task that uses the latter in the process of generating the former.
The dependency is captured graphically by an arrow that points from the latter to the former. The
data flow model for the entire system contains the graphical depiction of all possible
dependencies.
Page 16

17. For the S&OP example, the data flow model is as shown below.
CPFR/VMI: Demand Planning CPFR/VMI: S&OP: S&OP:
Collaborative
Replenishment Planning Supply Demand
Marketing: Develop
Master Generate Planning and
Identifying Consensus Sell- Generate
Agreement Supply
Opportunities Through Forecast Replenish
ment Plan Matching
Create Get Generate
Generate
Joint POS Consensus
Determine Criteria Statistical Sell-
Business Data Replenishme
for Triggering Through
Plan nt Plan
Opportunity Forecast
S&OP: Demand Total Develop
S&OP: Business / Consensus Unconstrained
Planning
Identify & Agree
Financial Planning Generate Forecast Plan
that Opportunity Generate Consensus
Set Reconcile
Exists Baseline Forecast
Financial with
Forecast Financial
Goals
Plan
Create Rough
Cut Capacity
Plan
Analyze
Balance
Countermeasure
Supply
Scenarios for
and
Retailer Collaborate on Develop
Demand
Market Constrained
Opportunities Identify Impact Identify Impact Plan
Analyze on S&OP on S&OP
Countermeasure Financial Goals Financial Goals
Scenarios for Collaborative Allocate
Manufacturer Marketing: Supply
Collaborating (high level)
Review Consumer
Price Monitoring: Price
Planning Against Criteria Price Monitoring:
Decide on Products, Monitoring
Collaborative
Criteria & Frequency Review Consumer
Process
for Monitoring Price
Against Criteria
Figure 11: S&OP Data Flow Model
4.4 Step 3 - Developed Business Services Portfolio
IBM's Service Oriented Modeling and Architecture (SOMA) techniques were used to identify
business services. As per SOMA, the service identification techniques include top down, bottom-
up and middle out techniques. We followed the top-down approach called domain decomposition
where business process decomposition is employed to identify services and flows (processes) and
functional area analysis were used to identify candidate component boundaries. The steps are as
follows:
Functional area analysis - decomposing business domains into functional areas is enabled through
the CBM introduced earlier. Each level 3 task is mapped to a CBM component in a step which is
identified as creating a “heat map”. This maps domains to CBM “competency” and functional
areas to CBM “hot business components”. This produced the alignment of functional
responsibilities of business to structured and automated IT.
The next step links process models with CBM components or, stated differently, decomposes the
processes into the identified domains (functional areas), hence linking process models with CBM
hot components. As a result, the services candidates fall into different CBM component based
Page 17

18. domains. Note that only a subset of the total number of CBM components may be involved in the
solution and hence in the domain decomposition.
The table in the figure below contains the candidate services for the S&OP example and also
illustrates their decomposition across the domains that are identified by the components in
column 1.
Components L1 S&OP Process L2 S&OP L3 S&OP Process Process Business Services Services Services Input Services Output
Process Description Description
Finance, 1.1 Business and 1.1.1 Set 1.1.1.1 Feedback (S&OP) Feedback loop from Get Financial feedback Data Retrieve the financial Financial plan
Accounting and Financial Planning Financial Goals S&OP process if plan adjustment data adjustment data
General Ledger there are any Get Price Monitoring Input Retrieve the price Price Monitoring Input
adjustments to the monitoring input
Corp. Strategy 1.1 Business and 1.1.1 Set 1.1.1.2 Develop volume & Determine sales Generate Volume & Price Collaborate to come up Financial plan Volume & Price Point
and Planning Financial Planning Financial Goals price points volume and price Point with sales volume & adjustment data,Price
points for product price point. monitoring input
lines
Corp. Strategy 1.1 Business and 1.1.1 Set 1.1.1.3 Set Financial & Set high level Generate financial plan This service will Volume & Price Point Financial plan
and Planning Financial Planning Financial Goals Annual Volume Plan volume and compute financial &
financial plans volume target for
product lines and
create the financial
plan
Line of Business 1.1 Business and 1.1.1 Set 1.1.1.4 Develop SKU plans Develop business Update financial plan with SKU This service is updating Financial plan Financial plan
Strategy and Financial Planning Financial Goals and volume plans financial plan with sku
Planning by SKU information
Line of Business 1.1 Business and 1.1.1 Set 1.1.1.5 Validate supply Validate Generate Supply Requirement Create the supply Financial plan Supply Requirement
Strategy and Financial Planning Financial Goals requirements to meet plan requirements for requirement
Planning supply to meet Reconcile Supply Requirement Retrieve the supply Supply requirement Supply requirement
business and capability information adjustment data
volume plan from the system and
validate requirements
for supply to meet
business and volume
plan
Line of Business 1.1 Business and 1.1.1 Set 1.1.1.7 Validate supply Validate that supply Reconcile Supply Avalibility Retrieve the supply Supply availability data Supply availability
Strategy and Financial Planning Financial Goals availability is still available to availability data from adjustment data
Planning meet the plan the system and validate
whether enough supply
is still available to meet
the plan
Finance, 1.1 Business and 1.1.1 Set 1.1.1.8 Generate baseline Generate baseline Generate Baseline Financial The format of baseline Financial plan Baseline Financial
Accounting and Financial Planning Financial Goals financial forecast financial forecast Forecast financial forecast is Forecast
General Ledger based on business different from financial
plan plan
Finance, 1.1 Business and 1.1.1 Set 1.1.1.9 Translate financial Translate financial
Accounting and Financial Planning Financial Goals forecast to units forecast into units of
General Ledger products
Finance, 1.1 Business and 1.1.1 Set 1.1.1.10 Quarterly review of Generate the financial Review the Baseline Financial Financial performance
Accounting and Financial Planning Financial Goals financial performance performance monthly/quarterly Forecast data
General Ledger financial performance
Finance, 1.1 Business and 1.1.1 Set 1.1.1.11 Monthly review of
Accounting and Financial Planning Financial Goals financial performance
General Ledger
Forecasting and 1.1 Business and 1.1.1 Set 1.1.1.12 Update Demand Update Demand Update Demand Requirement This service will be Financial performance Demand planning
Demand Financial Planning Financial Goals Planner based on financial Planner application invoked to retrieve the data requirement
Management plan with financial plan financial performance
data and update the
demand planning
requirement
Figure 12: S&OP Business Services (Example)
4.5 Step 4 - Selected CPFR / VMI Sub-process as the Focus
To focus on the most important processes and narrow down the scope for solution development,
CPFR / VMI processes have been selected.
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19. Create Joint CPFR / Plan Supply and Develop
Plan Demand
VMI Business Plan Replenishment Plan
Retailer /
Distributor
POS/Data
Analysis
Retailers/
Distributors Sell-Through
Collaboration
Create Call and Replenishment
Develop Generate Sell- Plan
Joint Gather
Master Through Collaboration
Business Data
Agreement Consensus
Plan
Forecast
Manufacturers Adjust
Sell-
Through
Generate
Forecast
Replenishment
Plan
Manuf.
POS/Data Prepare for Prepare for
Analysis Sell-Through Replenishment
Collaboration Collaboration
System
Generate
Statistical Sell-
Through
Forecast (Daily)
Process Coverage
Figure 13: CPFR / VMI Process
As a result, the business services associated with these processes have been selected for
implementation. The services are listed below.
Business Services for Plan Demand
Get sell-through history
Generate baseline sell-through statistical forecasts
Capture forecast variance exceptions
Update baseline sell-through statistical forecasts
Get baseline sell-through statistical forecasts
Get sell-through History
Generate sell-through exceptions
Notify identified exception
Generate sell-through consensus forecast
Notify sell-through consensus forecast
Business Services for Plan Supply and Develop Replenishment Plan
Get sell-through forecast
Get Replenishment Plan Data
Generate Replenishment Plan
Get Replenishment Plan
Get Replenishment Vital Data
Generate Replenishment Exceptions
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20. Generate consensus replenishment plan
Notify consensus replenishment plan
For the CPFR/VMI solution development, we leveraged assets from a business partner collaboration system that was
developed for IBM's System x hardware brand. The collaboration system enables optimized “recommended-
buy” decisions as a first step towards establishing an efficient auto-replenishment process between IBM
and its largest resellers. It comprises a web-based visibility dashboard that provides real-time visibility to
channel inventories, innovative forecasting and inventory analytics for optimized replenishment decisions,
and proactive alerting of stock-out and excess inventory situations based on up-to-date reseller inventory
and sales information. The integrated channel forecasting and inventory management capabilities are
improving operations with business partners in terms of inventory utilization, price protection cost, and customer
serviceability.
The key strategic capabilities of this new collaboration system include:
• Single point of standardized reporting for channel managers and business partners
• Customized inventory decisions based on statistical forecasting and risk-optimized recommended
buy using variability of historical sales out & inventory data
• Proactive buy/sell headlights to business partners
• Automatic alerts on aging inventory / price protection risk for more effective demand conditioning
• Fully automated data extraction from EDI / BIDS for timely views of daily sales and inventory
transactions
• Web-based access to IBM and business partner data for channel collaboration
• Robust product transition planning
Business benefits include
• Less inventory in the channel while maintaining high product availability
• Improved cash flow and budgeting for IBM due to reduced price protection expenses
• Reduced strain on manufacturing by smoothing the flow of orders results in better supplier
collaboration
• Lower inventory carrying costs for channel partners
• Fewer inventory write-offs for channel partners
For this solution development, we also leveraged the asset from The Supply Chain Control Tower
solution. The Supply Chain Control Tower solution addresses challenges confronting enterprises
centering on visibility, control and coordinated orchestration of increasingly dynamic, extended
and complex supply chains. IBM, which already has a Supply Chain solution offering in the
market place has introspected to revamp the existing architecture in order to make it flexible,
using the Service Oriented Architecture (SOA). The IBM enterprise Supply Chain Control
solution includes the following main functions:
• Event Management Support
• Real-time decision making using analytics
• Consolidated, accurate and consistent view of all customer and supply chain data, alerts
and events in real-time
• Execution of supply-demand matching in real-time
• Supplier collaboration dashboard
• Supplier performance dashboard
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21. The technology underlying this solution is based on the following components: 1. WebSphere
Portal which provides a role based desktop single common user interface to all users to access all
applications and information 2. WebSphere Process Server for process choreography using open
standards BPEL and open standards Web Services to integrate with various ERP systems such as
SAP R3, SAP BW and i2, and 3. Open standards protocol (OAGIS) to integrate with client
legacy systems.
4.6 Step 5: Design and Implemented Proof of
Concept
In this section, the design and implementation methodologies of the S&OP solution are
presentation. The approach is based on “business modeling driven implementation”; specifically
the IBM SOA business modeling driven implementation is used. The implementation steps
described below assume the solution services and processes that meet the customer requirements
have been identified using the IBM Component Business Modeling process as described in prior
sections.
4.6.1 CPFR / VMI Solution Use Cases
The S&OP solution focuses on the forecast and replenishment plan processes. For either process,
the objective is for the OEM and partner (retailer or distributor) to agree on a consensus plan. The
essential high-level process implemented in the S&OP solution is depicted in Figure 14 below.
Based on the generic CPFR/VMI business process shown in Figure 13 above, we developed a
specific business process flow for the S&OP solution implementation which is depicted in Figure
14. All the business services identified in the prior section were incorporated in the business
process flow of Figure 14. The scenarios are described in detail below.
Scenario 1: Consensus Forecast Calculation and Collaboration Scenario
In this scenario, a baseline forecast for a Stock Keeping Unit (SKU) is calculated using an IBM
proprietary forecast analytics engine based on Point of Sale (POS) input data. This baseline
forecast is then compared against the supplied business partner forecast for the same SKU. If the
absolute value of the difference is greater than a pre-set tolerance, an alert is generated to trigger
a Portal collaboration between OEM personnel and the business partner. The OEM personnel and
the business partner collaborate on the forecast until they reached a consensus forecast.
Scenario 2: Consensus Replenishment Plan Calculation and Collaboration
In this scenario, a baseline replenishment plan is calculated using an IBM proprietary inventory
analytics engine based on the consensus forecast as input. For a given SKU, if the difference
between any calculated re-order point and the sum of the actual “On Hand”, “In Transit” and
“Backlog” business partner inventory is greater than zero, then an alert is generated. This alert
will then trigger a Portal collaboration between OEM personnel and the business partner to
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22. collaborate on the replenishment plan until a consensus is reached. At this time, the consensus
replenishment plan is communicated to the ERP system.
Consensus
Forecast
ERP
(POS, Email Notification Record 1
Master Data)
Collaborate on
Consensus
Forecast
Forecast
OEM Scheduler OEM Scheduler
Develop Partner Staff
Retrieve Baseline
POS Data Forecast Baseline Consensus
Forecast
Forecast Forecast
OEM Scheduler Forecast
Analytics Engine
Consensus
Replenishment
Plan
Email Notification Collaborate on Record Consensus
Consensus Replenishment Replenishment ERP
Forecast Plan Plan
OEM Scheduler
Calculate Re-order Partner Staff OEM Scheduler
1 Points and Buy Inventory /
Recommendations Replenish-
Baseline
ment Consensus
Replenishment
Replenishment
Inventory Plan
Plan
Analytics Engine
Figure 14: High Level CPFR / VMI Solution Design
The inventory analytics engine determines the required inventory stocking levels for a vendor-
managed inventory policy in the presence of price protection. Price protection is a common
business practice, especially in the high-tech industries. It is meant to counteract the so-called
double marginalization effect, which is particularly significant when firms are facing high
technological obsolescence. Price protection is perceived by distributors as a fair and necessary
mechanism where OEMs decrease the effects of brutal price erosion on the operations of
distributors. In order to understand how price protection works, consider a simple example of full
price protection: assume that a distributor starts with zero inventory and places an order for 100
units at $800 per unit. At the end of the price protection period (typically 4-6 weeks), the
distributor is left with 30 units after a demand of 70 units is satisfied. At this point, the OEM cuts
the wholesale price to $700 per unit, redcucing the value of the retailers inventory by $100 per
unit. The price protection credit given to the distributor is the product of the unsold inventory and
the price decrease, or $3000 dollars in this example.
To exercise price protection contract, an OEM evaluates its distributors’ purchases over the price
protection period at the time of a price change, and compares the purchase quantity to the
distributor's current inventory holdings. Whichever is smaller is the price protected quantity.
The OEM issues the distributor a credit equal to the product of that quantity and the price
decrease. Clearly, by offering price protection, a significant portion of risk originally faced by
distributor, due to decreasing costs and prices, is removed, which intuitively would provide an
incentive to the distributor to stock more. The analytical model describes the tradeoffs faced in
this environment. Given market-imposed price-protection periods, the model evaluates the
performance of decentralized models under demand and cost and price uncertainty. The model
assumes that the OEM (or vendor) controls the up-to levels at the distributor and acts to minimize
his individual cost. The distributor is a passive player that serves demand from the stock (if
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