ISM Chemical Group 2006 Mid-Winter Conference February 24, 2006 Friday 9:45a.m. 1 Next Stage SUPPLY CHAIN MANAGEMENT Presenter: Marilyn Gettinger, C.P.M. New Directions Consulting Group 908-709-0656 [email protected] 2 Next Stage SUPPLY CHAIN MANAGEMENT • Define Supply Chain Management • Historical view • Next Stage Here • New-School Supply Chains • The Four Pillars of SCM Excellence • Supply Chain Drivers • The Resilient Supply • The New Language • The Global Supply Chain • SCM Models • SCM Benchmarking – A Better Way • 18 Best Practices for Risk Management • Winning Supply Chain Strategies • The Ten Rules of SCM Excellence • Eight Key SCM Processes • The Top Ten Mistakes • Excellence in Procurement • SCM and the Future 3 Supply Chain Management • SCM considers all interdependent functions within an organization and all external organizations involved in the process of making a product or service available for use or consumption. It is an orchestrated network that creates value for the consumer through the streamlining of the process that purchases, stores, converts, and ships to the customer and meets required expectations of the customer 4 Supply Chain Management • Identifies the processes necessary to meet customer expectations • Engineers SCM processes as the core of the business • Moves from silo to a team philosophy • Integrates internal processes • Integrates external processes • Defines metrics 5 More Than A Decade 1992 Exchanges Lean Manufacturing/JIT Integrated Products and Process Development Third-Party Logistics MRP II Product Data Management CRM Supplier Integration Manufacturing Outsourcing ERP PLM CPC e-Procurement e-Fulfillment Warehouse Management TQM Integrated SC Advanced Planning and Scheduling Manufacturing Execution Systems Collaboration 6 Supply Chain Staircase Full Network Value Chain Collaboration Partner Collaboration Corporate Excellence Enterprise Integration Connectivity Total Business System External Inter-Enterprise Intra-Enterprise Functional/Process Unit 7 Supply Chain Barrier Breakers • Those who used the supply chain to “change the game” • Those who partnered with the unusual • Those who changed the cost structure to cut costs • Supply chain initiatives – Cut costs – Improve efficiencies – Enhance customer service and revenue generation – Improve competitiveness 8 Next Stage Here 1 • The front end of the supply chain will become as important as the back end in maximizing total economic yield. 3 2 Tier 1 Buying Organization Customer Tiers 9 2 Next Stage Here • As companies migrate from internal-only to extended supply chains, collaboration will become the most strategic capability. 3 • Assets and functions not core to value delivery will be divested to specialists that can make more money on them. – Profit-sharing 10 4 Next Stage Here • The greatest margin potential will occur after the product ships, as service and support become as important as the product itself. – Bundling great products with strong service offerings – Total cost of ownership focus – Delivery of the initial product but also an ongoing stream of products and services to the customer 5 • The ability to integrate new and innovative capabilities with corporate business models will drive higher levels of value creation. – Rapid and “virtual” partnering 11 Next Stage Here • Target emerging customer and channel needs • Integrate the front and back end of the supply chain • Achieve real collaboration with partners …to exploit new revenue opportunities …to maximize longterm customer revenues …to create many more business model options 12 Next Stage Here • Deploy supply chain assets • Tie new service offerings to the product • Integrate needed capabilities from multiple parties • …to those most qualified to make money on them • …to capture increasing revenues • …to create the most compelling value proposition 13 New-School Supply Chains Use the Supply Chain to Grow revenue Increase market share Create competitive advantage Target opportunities for New value-added service Invest in very specific opportunities Create a distinct business model Use new capabilities to change the customer relationship 14 The Four Pillars of SCM Excellence Human Resources Organizational Design Information Technology Organizational Measurement 15 Pillar of Excellence • Supply chain professionals who: – View the supply chain holistically in terms of linked processes – Manage critical relationships – Understand the business model – Engage in statistical analysis and fact-based decision making – Practice advanced cost management – Understand electronic business systems • Organizational design includes: – Centrally coordinated supply teams – Executive responsibility for coordinating supply chain activities – Co-location of supply chain personnel with internal customers – Cross-functional teams to manage supply chain processes – Supply chain strategy coordination session between business units – Executive buyer-supplier council to coordinate supply chain activities 16 Pillar of Excellence • Real-time and shared information technology systems that support: – Demand planning, order commitment, and scheduling – Distribution and transportation planning – Order management – Material replenishment – Production management • Supply chain measures that: – Use data from sources visible throughout the organization – Quantify what creates supply chain value – Use targets that change over time – Rely on benchmarking to establish performance goals – Link to business goals and objectives – Feature efficiency and effectiveness – Include assigned ownership and accountability 17 Supply Chain Drivers • • • • • Growing by reaching new markets Improving customer service Differentiating from competitors Improving cash position Enhancing productivity 18 The Resilient Supply Chain • Transportation channel management • Multiple supply bases • Strong management of trade-off areas Awareness, Prevention, Remediation, Knowledge Management 19 The New Language • Event Management – Monitoring, notifying, simulating, controlling, measuring • Portfolio Management • Enablers • Dashboard 20 The Global Supply Chain • Travel + communication + inventory + unit cost + inland transportation+ pier costs + documentation + inspection + ocean freight + insurance + C-TPAT+ CSI + Letter of Credit + Documentation + Customs duties + import licensing + training and developing + harbor fees + customs inspection fees + bonded warehousing 21 SCM Models • DMAIC – Define, Measure, Analyze, Improve, Control • SCPM – Supply Chain Process Management Solutions • SCOR - Supply Chain Operations Reference • DDSN - Demand-driven supply network • DODSC -Dynamic On-Demand Supply Chain Map 22 SCM Models • Scor Model – Plan – plan how to use supply chain resources over a period of time – Source – Procurement, delivery, receipt, and transfer of raw material items, submissions, product, or services – Make – Adding value through mixing, separating, forming, machining, and chemical processes – Deliver – Finalizing the product prior to the receipt of a firm customer order 23 SCM Models • SCOR Model – Top Level – scope and content – Configuration level – 19 process categories – Process Element Level – Decompose processes, identify standards, best practices, and software suppliers, etc. – Define and implement new supply chain processes 24 SCM Models • DDSN – Demand-driven supply network • A system of technologies and processes that sense and react to realtime demand across a network of customers, suppliers, and employers • Demand forecast accuracy, perfect order fulfillment, supply chain costs, cash-to-cash cycle time • S&OP, RFID, CRM 25 SCM Benchmarking – A Better Way • • • • • • • Top 20 KPI’s Logistics Manufacturing Procurement New Product Development Customer Order Management Supply Chain Diagnostics 26 18 Best Practices for Risk Management • Suppliers and SCM risks • Suppliers’ disruption plan in place • Disruption costs and resolution in cost factor • Critical supply relationships • Global inventory visibility • Major disruption debriefing • Early warning systems • SC intelligence and supply base locations 27 18 Best Practices for Risk Management • Inventory buffers in distribution channels • Buffer material by level of criticality • Decision-making capabilities • Electronic sharing of information and visibility of material flows • Predictive analysis systems • Damage-control plans • Cost trade-offs of risk decisions • Near real-time databases 28 Winning Supply Chain Strategies • Top management commitment • Supply chains and business strategies • Integrated operating models • Rigorous execution and adaptation • Innovation into operating models – Outsourcing, internal/external integration – Supply to Demand 29 The Ten Rules of SCM Excellence 1. Be visible on-demand, real time data as to exactly what is happening in the supply chain 2. Let’s get lean The lean supply chain produces just what and how much is needed, when it is needed, and where it is needed 3. The Metric Reloaded Measure the right things 4. Metrics that Matter SCOR – Customer – order fulfillment Internal – (warehouse costs) Shareholder – revenue and profit Balanced Scorecard – Financial – costs Customer – fill rate, ontime delivery Internal – Forecast error Training – Training hours Certifications 30 The Ten Rules of SCM Excellence • 5. Managing the Measure – Define, collect, create – Data collection processes and tools • 6. Know Where You Stand – Benchmarking • 7 Planning: Putting Strategy Before Technology – Companies with “best in class” planning systems have supply chains that are up to 40 percent more efficient than those with poorer planning. • The Performance Measurement Group • 8. Managing Risk – Long, medium, and short-term – Decision maker roles identified – Data decision systems – Supplier relationships – Contingency planning • 9. Take advantage of technology – Select the correct technology 31 The Ten Rules of SCM Excellence • 10. Control Costs – Fewer suppliers – Collaboration with suppliers – Hidden costs – Improve velocity, visibility, and product development cycles and reduce inventories 32 Eight Key SCM Processes • • • • • • • 1. Customer Relationship Management 2. Customer Service Management 3. Demand Management 4. Order Fulfillment 5. Manufacturing Flow Management 6. Supplier Relationship Management 7. Product Development and Commercialization • 8. Returns Management 33 The Top Ten Mistakes • Managing a chain belief • Doing business as usual but calling it supply chain • Having the wrong idea about “control” • Thinking of transformation – enabling technology • Pursuing “real time” visibility at all costs • Failing to synchronize the supply chain 34 The Top Ten Mistakes • Practicing supply chain “monotheism” • Misreading the level of employees’ skills • Confusing globalization with global brands and cross-border trade • Thinking that supply chain transformation is a simple process 35 Excellence in Procurement • Value Creation – Innovation and growth – Value chain optimization • Core competencies • External partners for non-core competencies • Risk management and supply continuity • Advanced cost management techniques – Complexity reduction, tiered sourcing, supplier tiering, design to cost, target costing, collaborative cost reduction, best shoring, valuebased sourcing – A.T. Kearney 36 SCM and the Future • Manage the supply chain flow • Paperless and “near laborless” – Artificial Intelligence – Robotics • The Learning Organization • Two types of carriers – line haul and “last mile” • Transportation infrastructure 37 Thank You • Best wishes for your supply chain success • Marilyn Gettinger, C.P.M. • President, • New Directions Consulting Group • 908-709-0656 • [email protected] 38