2000, Dow Corning Corporation. All Rights Reserved. 2000 Supply-Chain World Conference Presentation...

2000, Dow Corning Corporation. All Rights Reserved. 2000 Supply-Chain World Conference Presentation – T.A. Troup

Overview of Supply Chain Re-engineering Overview of Supply Chain Re-engineering Process at Dow Corning CorporationProcess at Dow Corning Corporation

Presented at2000 Supply-Chain World Conference

Chicago, Illinois

April 12, 2000

Timothy A. Troup, P.E.

Supply Chain Specialist

Dow Corning Corporation

Midland, Michigan


AgendaAgenda

• In the “Beginning”

• Dow Corning Case Study - Widgets Supply Chain

• Key Learnings & Recommendations


• Develops, Manufactures & Markets Silicones, Poly- crystalline Silicon & Related Specialty Chemicals.

• Products Are Used By Virtually Every Major Industry In The World.

• $2.6B Sales (1999) 5 Global Industry Business Units (IBUs) 5,000 Products 7,200 Active Patents Worldwide 8,000 + Employees Worldwide 45,000 Customers Worldwide 25 Major Mfg Locations On All 5 Continents

Dow Corning CorporationDow Corning Corporation


DCC Time Line of Supply Chain - ProgressDCC Time Line of Supply Chain - Progress

Pre-1990

1991-1992

1993-1995

1996- 1997

1998- 1999

1999- 2000

FunctionalOrganizationwith AreaControl

1stDow CorningBusiness toAnalyzeSupply Chain -Little Impact

Regional Pilot SupplyChain Studywith SomeSuccess, but limited in scope

Major GlobalSupply ChainProject withProven Processwith PRTM &Dow CorningSupply ChainOperations

Major Dow CorningReorganizationto SupportHorizontal &Supply ChainDrivenOrganization

2ndDow CorningBusinesswith DynamicModeling


Where Are We Today?Where Are We Today?

• WE’VE ADOPTED THE SUPPLY CHAIN COUNCIL’s ““SCOR” MODELSCOR” MODEL AS OUR SC MODELING STANDARD

(PLAN / SOURCE / MAKE / DELIVER)(PLAN / SOURCE / MAKE / DELIVER)

• WE’VE ACQUIRED & LEARNED HOW TO UTILIZE “PRTM's” SC ANALYSIS METHODOLOGYANALYSIS METHODOLOGY

• WE’VE GENERATED OUR OWN DOW CORNINGDOW CORNING SPECIFIC METHODOLOGYSPECIFIC METHODOLOGY & TOOL UPGRADES

• WE’VE GAINED SC ANALYSIS EXPERIENCESC ANALYSIS EXPERIENCE VIA

SEVERAL DOW CORNING SC ANALYSES


We Are Utilizing a “Process-Centered” We Are Utilizing a “Process-Centered” Approach to Supply-Chain ManagementApproach to Supply-Chain ManagementSupply-chain support elements must be present to achieve significant performance improvement

Operations Strategy Performance Targets and Benchmarks

AssetsDeliveryPerformance /

Quality

CostFlexibility and Responsiveness

PlanSource Make Deliver

Supply-Chain Management Processes

• Value Proposition• Core Competencies• Make/Buy Decisions• Capacity Rationalization

Organization and Decision-Making

Policies and Procedures

xxx xxxx xxxx xxxxx xxxxx

Information

Systems and Tools

Senior Management

Source:Pittiglio Rabin Todd & McGrath (PRTM)


Integrated Supply-Chain Management Links Integrated Supply-Chain Management Links Each Business Entity in the Supply ChainEach Business Entity in the Supply Chain

Supplier

Plan

Customer Customer’sCustomer

Suppliers’Supplier

Make DeliverMakeSourceDeliver Source

(internal or external) (internal or external)

Source DeliverMakeDeliver Source

The direct linkage of all a manufacturers product delivery processes to those of its customers and their customers and those of its suppliers and their suppliers

Plan“Manages supplier’s

supplier relationship”

Plan

“Manages supplier’srelationship”

Plan

“Manages customerrelationship”

Plan

“Manages customer’s customer relationship”

Source: Supply Chain Council SCOR Model

Dow Corning CorporationDow Corning Corporation


First We Must Identify the Primary Supply Chain(s) of First We Must Identify the Primary Supply Chain(s) of Interest From the Many “Threads” That Make up a Interest From the Many “Threads” That Make up a Network, or “Chain of Chains”Network, or “Chain of Chains”

Multiple SuppliersMultiple Production Operations within a

Business

Multiple Customers

SOURCE MAKE DELIVER

SOURCE MAKE DELIVER

Source Make DeliverSOURCE

MAKEDELIVER

SOURCE MAKEDELIVER

Source: Supply Chain Council SCOR Model


The Focus of Supply Chain The Focus of Supply Chain Management is to more effectively Management is to more effectively serve customers serve customers

... seamless fabric of information flow,... seamless fabric of information flow, physical distribution flow, and cash physical distribution flow, and cash

flow for the benefit of the end Customer. flow for the benefit of the end Customer.


Case Study - Case Study -

Global Widgets Supply Chain (GWSC)Global Widgets Supply Chain (GWSC)


Supply-Chain Improvements Are Identified & Framed Supply-Chain Improvements Are Identified & Framed Using the SCOR Model in a Three Phase ApproachUsing the SCOR Model in a Three Phase Approach

Identify the Need to Change

Identify the Value of Change

Obtain Measurable

Results

Pilot the

Changes

Performance Goals and

Phased Targets

Fact-Based Implementation

Plans

Implementation

Implementation of Best Practices and Systems Solutions

Pilot Projects

Rapid Roll-out of Success

Across Business

Continuous Improvement and Successful,

Sustainable Competitive Advantage

Gaps, Opportunities,

Value of Closing Gaps

Visioning Using SCOR

1.3 Value Proposition

1.5 Basis of Competition

Leveraged BenchmarkingUsing SCOR

Metrics

Supply-ChainMaturity

Assessment using SCOR Best Practices

1.1 Quantitative Dx

Phase 1 — Diagnostic & VisioningPhase 1 — Diagnostic & Visioning Phase 2Phase 2

Roll-out

Phase 3Phase 3

1.6 Implementation

1.2 Qualitative Dx 1.4 Visioning



Supply-Chain Analysis & Re-engineering StepsSupply-Chain Analysis & Re-engineering Steps

DIAGNOSIS (“AS IS” Supply-Chain)DIAGNOSIS (“AS IS” Supply-Chain)• Clearly Defined SC Scope & Critical Drivers• External Benchmarking• Value Proposition Evaluation• SC Mapping (Geographic (L-1), Process (L-2) & Key Metrics (L-2))• SC Workflow Decomposition Analysis• External Customer Interviews VISIONING (“TO BE” Supply-Chain)VISIONING (“TO BE” Supply-Chain)• Identify Critical Supply-Chain Attributes• Define Strategic “Basis of Differentiation”• Define “TO BE” Supply-Chain Structural Components• Define “TO BE” Process & System Upgrades Required• Prioritize Re-engineering Projects / Initiatives • Project Chartering & Economic Analysis

IMPLEMENTATION (Re-engineering the Supply-Chain) IMPLEMENTATION (Re-engineering the Supply-Chain)


• Benchmarking (Internal & External)

• Work Flow Processes & Structural Assets

• Visioning

• Re-engineering Projects & Economic Impacts

Supply-Chain Analysis & Re-engineering FocusSupply-Chain Analysis & Re-engineering Focus




• Visioning




HP Inkjet Supplies Business—CartridgesHoltraChem—Chemical Warehousing & DistributionICI—Paints/DecorativeJohnson & Johnson—Korea Ltd.Kimberly-Clark—Away-From-Home SectorMcNeil Consumer ProductsModus Media InternationalSonoco Products—High Density Film Products

Avon ProductsBASF—Automotive RefinishBASF—Plastic MaterialsBASF—Agricultural ProductsCarpenter Technology—Steel OperationsDow Chemical—Global Ion ExchangeDow Chemical—Specialty Plastics EuropeDow Corning—WidgetsGenCorp—Decorative & Building Products

Three Primary Characteristics of Widgets Supply-Chain Three Primary Characteristics of Widgets Supply-Chain Were Identified & a Custom Population was SelectedWere Identified & a Custom Population was Selected

Dow Corning – Widgets Characteristics Custom PopulationConformance

Chemical or Packaged Goods Sectors 100%

Make-to-Stock Manufacturing Strategy 100%

Use of Direct or Distributor Channels as Primary Sales Channels 90%

Source Pittiglio Rabin Todd & McGrath (PRTM)


Summary SCORcard for Widget BusinessSummary SCORcard for Widget Business

95%

3.6 days

25.9 days

88%

30 days

89 days

110 days

11.4%

$175K

57 days

74 days

1.8 turns

Europe Asia Americas

Supply-Chain Performance Versus Custom Population

0% – 20% 20% – 40% 40% – 60% 60% – 80% 80% – 100%

Key Perspectives Level 1 MetricsMajor

Opportunity DisadvantageAverage

or Median AdvantageBest-

in-Class

Delivery Performance to Request 99%

Order Fulfillment Lead Time (MTS) 1.0 days

Order Fulfillment Lead Time (MTO) 10.3 days

Perfect Order Fulfillment 99%

Upside Flexibility 3 days

Supply-Chain Response Time (MTS)* 48 days

Supply-Chain Response Time (MTO)* 57 days

Supply-Chain Management Cost 6.8%

Value Added per Employee $305K

Total Inventory Days of Supply 33 days

Cash-to-Cash Cycle Time 43 days

Net Asset Turns 3.1 turns

Delivery Performance/

Quality

Flexibility &Responsiveness

Cost

Assets

Cu

sto

me

r-fa

cin

gIn

tern

al-

fac

ing

99%

1.0 days

10.3 days

99%

3 days

48 days

57 days

6.8%

$305K

33 days

43 days

3.1 turns



Widgets Initial Value Proposition — EuropeWidgets Initial Value Proposition — Europe

Europe





in-ClassValue to“Median”

Value to“BIC”

Delivery Performance to Request Revenue Increase

Order Fulfillment Lead Time (MTS) $4M/yr $20M/yr

Order Fulfillment Lead Time (MTO) Operating Profit Increase

Perfect Order Fulfillment $0.6M/yr $3.1M/yr

Upside Production Flexibility

Supply-Chain Response Time (MTS)

Supply-Chain Response Time (MTO)

++ Increase CustomerSatisfaction

Supply-Chain Management Cost -$1.6M/yr -$10.8M/yr

Value Added per Employee N/A

Total Inventory Days of Supply -$1.6Mone-time

-$11.2Mone-time

Cash-to-Cash Cycle Time -$0.8M/yr -$1.7M/yr

Net Asset Turns N/A

Operating Profit/Year $3.0M $15.6M

Total BenefitOne-time Inventory Reduction $1.6M $11.2M

Delivery Performance/

Quality

Flexibility &Responsiveness

Cost

Assets





in-ClassValue to

“Median”Value to

“BIC”












-$11.2Mone-time


Net Asset Turns N/A



Cu

sto

mer

-fa

cin

gIn

tern

al-f

acin

g

S u p p ly -C h a in P e r fo rm a n c e V e rs u s C u s to m P o p u la t io n

K e y P e rs p e c tiv e s L e v e l 1 M e tr ic sM a jo r

O p p o r tu n ity D is a d v a n ta g eA v e ra g e

o r M e d ia n A d v a n ta g eB e s t-

in -C la s sV a lu e to

“ M e d ia n ”V a lu e to

“ B IC ”

D e liv e ry P e r fo rm a n c e to R e q u e s t R e v e n u e In c re a s e

O rd e r F u lf i l lm e n t L e a d T im e (M T S ) $ 4 M /y r $ 2 0 M /y r

O rd e r F u lf i l lm e n t L e a d T im e (M T O ) O p e ra tin g P ro f it In c re a s e

P e rfe c t O rd e r F u lf i l lm e n t $ 0 .6 M /y r $ 3 .1 M /y r

U p s id e P ro d u c tio n F le x ib il ity

S u p p ly -C h a in R e s p o n s e T im e (M T S )

S u p p ly -C h a in R e s p o n s e T im e (M T O )

+ + In c re a s e C u s to m e rS a tis fa c t io n

S u p p ly -C h a in M a n a g e m e n t C o s t -$ 1 .6 M /y r -$ 1 0 .8 M /y r

V a lu e A d d e d p e r E m p lo y e e N /A

T o ta l In v e n to ry D a y s o f S u p p ly -$ 1 .6 Mo n e -t im e

-$ 1 1 .2 Mo n e -t im e

C a s h -to -C a s h C y c le T im e -$ 0 .8 M /y r -$ 1 .7 M /y r

N e t A s s e t T u rn s N /A

O p e ra tin g P ro f it /Y e a r $ 3 .0 M $ 1 5 .6 M

T o ta l B e n e f itO n e -t im e In v e n to ry R e d u c tio n $ 1 .6 M $ 1 1 .2 M





in-ClassValue to


“BIC”












-$11.2Mone-time


Net Asset Turns N/A







in-ClassValue to“Median”

Value to“BIC”












-$11.2Mone-time


Net Asset Turns N/A







in-ClassValue to


“BIC”












-$11.2Mone-time


Net Asset Turns N/A




Key Perspectives Level 1 MetricsMajorOpportunityDisadvantage

Averageor MedianAdvantage

Best-in-Class

Value to“Median”

Value to“BIC”




Perfect Order Fulfillment $0.6M/yr$3.1M/yr





Supply-Chain Management Cost -$1.6M/yr-$10.8M/yr



-$11.2Mone-time

Cash-to-Cash Cycle Time -$0.8M/yr-$1.7M/yr

Net Asset Turns N/A

Operating Profit/Year $3.0M$15.6M

Total BenefitOne-time Inventory Reduction $1.6M$11.2M



Total Supply-Chain Management Cost — EuropeTotal Supply-Chain Management Cost — Europe

Order Management Cost Elementas % Revenue BIC Average

Europe

New Prod. Phase-In, Maintenance 0.03% 0.40% 0.25%

Create Customer Order 0.06% 0.30% 0.20%

Order Entry and Maintenance 0.05% 0.34% 0.74%

Program & Channel Management 0.10% 0.34% 0.84%

Order Fulfillment 0.07% 0.16% 0.20%

Distribution 0.62% 1.10% 1.24%

Transportation, Freight & Duties 1.32% 2.75% 4.06%

Customer Invoicing/Accounting 0.03% 0.19% 0.22%

Other 0.02% 0.08% 0.00%

Total Order Management Cost 2.31% 5.66% 7.80%

… as several order management cost elements are higher than average …

Material acquisition cost, however, is best-in-class

Material Acquisition Cost Elementas % Revenue BIC Average

Europe

Materials Management and Planning 0.27% 0.53% 0.50%

Supplier Quality Engineering 0.05% 0.07% 0.11%

Inbound Freight and Duties 0.26% 0.85% 0.00%

Receiving and Material Storage 0.25% 0.53% 0.35%

Incoming Inspection 0.03% 0.12% 0.02%

Material Process and ComponentEngineering

0.10% 0.15% 0.01%

Tooling 0.02% 0.21% 0.00%

Other 0.00% 0.00% 0.00%

Total Material Acquisition Cost 0.98% 2.45% 0.98%

Total Supply-Chain

Manage-ment Cost as % of Revenue

Definition: Total supply-chain management cost is the sum of supply-chain related MIS, Finance and Planning, Inventory Carrying, Material Acquisition, and Order Mgmt*Best-in-class is calculated based on those reporting data for all elements

5.77.8

2.8

1.02.5

1.7

1.81.9

1.3

0.40.5

0.3

1.10.9

0.8

0

2

4

6

8

10

12

14

Best-in-Class* Average Europe

MIS

Finance & Planning

Inventory Carrying

Material Acquisition

Order Management

Supply-chain management cost is substantially higher than best-in-class…%

6.8%

11.4% 12.2%

Inventory Carrying Cost Elementas % Revenue BIC Average Europe

Opportunity Cost 0.66% 0.99% 1.46%

Shrinkage 0.05% 0.10% 0.08%

Insurance and Taxes 0.06% 0.15% 0.10%

Total Obsolescence for RM, WIP,and Finished Goods

0.22% 0.55% 0.18%

Channel Obsolescence 0.01% 0.01% 0.04%

Field Service Parts Obsolescence 0.00% 0.00% 0.01%

Other 0.00% 0.03% 0.00%

Total Inventory Carrying Cost 1.00% 1.84% 1.87%

… and inventory carrying costs are high due to opportunity cost


Total Widget Supply-Chain Management CostTotal Widget Supply-Chain Management Cost

2.8

5.7

3.7

7.8

2.4

1.7

2.5

1.4

7.6

1.0

1.3

1.8

1.6

2.5

1.9

0.4

0.5

0.3

0.4

0.3

0.9

0.8

1.2

1.1

0.2

0

5

10

15

Best-in-Class

Average U.S. Europe Korea

Definition: Total supply-chain management cost is the sum of supply-chain related MIS, Finance and Planning, Inventory Carrying, Material Acquisition, and Order Management

Total Supply-ChainManagement cost as a % of revenue

MISFinance and PlanningInventory CarryingMaterial AcquisitionOrder Management

6.8%

11.4%

8.3%

12.2%

13.0%

Asia


… largely due to high receivables …

Cash-to-Cash Cycle TimeCash-to-Cash Cycle Time

Cash to Cash Cycle Time, Days

43

87

37

81

74

0

25

50

75

100

Best-in-Class*

Average Europe US Asia

Cash-to-Cash cycle time for U.S. is best-in-class; while Asia and Europe are higher than average …

Definition: Cash-to-Cash cycle time is inventory days of supply + days sales outstanding—average payment period for materials (time it takes for a dollar to flow back into a company after its been spent for raw materials)

*Best-in-class is calculated based on those reporting data for all elements

Days of Sales

Outstanding

44

71

46

87

53

0

20

40

60

80

100

Best-in-Class*


Payables for production material are average for Europe and U.S., but approaching

best-in-class for Asia

88

45 45

60

43

0

20

40

60

80

100

Best-in-Class


Average Payables Period for Production Materials,

Days

… and average inventory performance

Total Inventory Days of Supply

33

57

36

5461

0

20

40

60

80

Best-in-Class*



Examining performance by supply-chain process Examining performance by supply-chain process highlights opportunities in Plan and Deliver in Europe…highlights opportunities in Plan and Deliver in Europe…

Inventory Days of SupplySupply-Chain-Related Finance and Planning CostSupply-Chain-Related MIS Cost

PLAN

Forecast Accuracy ($)

Value-Added Productivity/Payroll Dollar

MAKE

Source/Make Cycle Time (MTO)

Upside Production Flexibilityby 20%

Source/Make Cycle Time (MTS)

Source/Make Cycle Time (MTS)

Upside Production Flexibility by 20%

Inventory Carrying Cost

Material Acquisition Cost

SOURCE

Average Payment Period

Sourcing Lead Time (MTS)

Sourcing Lead Time (MTO)

Sourcing Lead Time (MTS)

Total Supply-Chain Cost

Value-Added Productivity/Employee

Cash-to-Cash Cycle Time

OVERALL

Asset Turns

Total Supply-Chain ResponseTime (MTO)

Total Supply-Chain ResponseTime (MTS)

Total Supply-Chain ResponseTime (MTS)

Order Mgt. Cost

Days Sales Outstanding

DELIVER

Order Fulfillment LT (MTS)

Delivery to Request Date

Order Fulfillment LT (MTO)Order Fulfillment LT (MTS)

Perfect Order Fulfillment

Delivery to Request Date

Advantage

Disadvantage

World Class

MajorOpportunity

Parity

13

100

88

75

63

50

38

25

0

Percentile

Total Europe

Widget Div. #1

Widget Div. #2

Source: Pittiglio Rabin Todd & McGrath (PRTM)




• Visioning




European Supply-Chain Diagnostic ActivitiesEuropean Supply-Chain Diagnostic Activities

Supply-Chain ProcessWorkshops

• Overall supply-chain configuration (SCOR Level 2)

• Business Process Elements (SCOR Level 3)

– Deliver — Order Management– Deliver — Transportation and

Warehouse Management– Make– Source– Plan

Benchmarking

• Div. #1 and Div. #2 responses for “customer-facing” metrics

• Overall European data for “internal- facing” metrics

Internal Interviews

Xxx xxxxxxxxx

Xxx xxxxxxxxx

xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Xxx xxxxxxxxx

Division #1 Division #2

Customer Interviews

Customer #1 — Belgium

Customer #2 — UK (Distributor)

Customer #3 — Holland (Distributor)

Customer #4 — UK (Direct)

Customer #5 — Holland (Direct)



Findings


Major European Findings From Interviews Major European Findings From Interviews and Workshops by Supply-Chain Elementand Workshops by Supply-Chain Element

Plan

• Lack of organized forecasting process

• Finished goods inventory planning not integrated and responsibility rests at the lowest levels of the organization

• Too many planners

Source

• Few Joint Service Agreements in place

• Apparent overlap of purchasing responsibilities

Make

• Manual scheduling techniques

• Complicated scheduling and inventory mgmt due to imbalance between machining and packaging lines

Deliver

• Local warehouse structure not delivering expected benefits

• Multiple order entry points adding costs without value

• Lack of corporate guidance to RSC’s results in unnecessary complexity


Widgets “AS-IS” Geographic (L-1) Map - EuropeWidgets “AS-IS” Geographic (L-1) Map - Europe

OrderEntry

MFG Plant Warehouse Contract

MFGStorage

Tank

OrderEntry

MFG Plant

Warehouse

ContractMFG

StorageTank

MFG Plant

StorageTank

OrderEntry

ContractMFG

Warehouse

Warehouse

ContractMFG

OrderEntry


Widgets “AS-IS” Process (L-2) Map - Europe Widgets “AS-IS” Process (L-2) Map - Europe

PLAN SOURCE MAKE DELIVER

SCOR Modeling Level 2ExternalSuppliers

InternalSuppliers

Warehouses Distributors Direct Customers

MAKE DELIVERSOURCE

PLAN




• Visioning




GWSC Visioning ProcessGWSC Visioning Process

Global Widget Business Other

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Visioning Team

Tim TroupScott BarberConsultant #1Consultant #2Consultant #3

ReviewCustomers, Competitors,

and Widget Goals

Combine 11 Product Market Segments into 4

Categories Based on Supply Chain Commonality

Define Customer-FacingRequirements for 4 Product Market Segment Categories

Define Plan/Source/Make/Deliver Requirements Necessary to Serve 4 Product Market

Segment Categories

Review “as-is” Supply-Chain Configurations

for Each Area

Recommend Supply-ChainChanges by Geography

and Plan/Source/Make/Deliver

Develop “to-be” Supply-Chain for Each Area

Group Recommendationsinto Implementation Projects

Strategic Visioning

Tactical Visioning

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx

Xxx xxxxxxxx


Widgets Consumer / Trades Market Segment Widgets Consumer / Trades Market Segment “Basis of Competitive Differentiation” “Basis of Competitive Differentiation”

Attribute MajorOpportunity Disadvantage Average Advantage

Best-in-Class

On-Time Delivery to CRD

Customer Facing Flexibility

Perfect Order Fulfillment

Order Fulfillment Lead-Time

Product Variation

Color Customization

Local Manufacturing Presence Not Required To Be Successful

Local Inventory/Warehousing Local To Region (2 – 3 Days Away)

Local Sales Presence Sub Region Language Specialization

Customer Service By Region, Multi-Lingual In Market

Price (1 – 4) 3 (4 Is Least Price Sensitive)

Product Range Limited # (6 – 10) Of Global Products

Product Technology (1 – 4) 2.5 (4 Requires Least Sophisticated Product Technology)

Geographic Focus Global

Local Technical Service Centralized By Region/Area

Area = Americas, Asia, or Europe—highest levelRegion = As defined by OU structure, except Europe is considered a regionSub-region = Grouping by language requirements or sizeLocal = Within a country, 3 – 4 hour transportation time

= how we need to compete to be successful

(1)

(1) This attribute is required to be at least in the advantage category for the North America Market


Europe — The Future (2 – 5 years) Europe — The Future (2 – 5 years) • MAKE Sites (6)

– Bangor, Belgium– Dusseldorf, Germany– Roma, Italy– Cordina, Germany– Fasday, UK– PTC, Germany

• Warehouses (9+45)– Bangor, Belgium– Copersigen, Belgium– Wochester, UK– Madrid, Spain– Roma, Italy– Baste, France– Manheim, Germany– Cordina, Germany– Dusseldorf, Germany– 45 Machinos, Germany

• Order Entry Sites (8)– La Notal, Belgium– Vienna, Austria– Dusseldorf, Germany– Cordina, Germany– Roma, Italy– Moisle, France– Madrid, Spain– Mersey, UK

MAKE Sites (2)

• Bangor

• PTC Site, TBD

Warehouses (1+)

• Copersigen

Order Entry Sites (3 to 1)

• Roma


Europe “AS-IS” Supply-Chain ConfigurationEurope “AS-IS” Supply-Chain Configuration

PLAN SOURCE MAKE DELIVER


InternalSuppliers

Warehouses Distributors Direct Customers

MAKE DELIVERSOURCE

PLAN


Europe “TO-BE” Supply-Chain ConfigurationEurope “TO-BE” Supply-Chain Configuration

PLA N SOU R C E MA K E D ELIVER


InternalSuppliers

Warehouses Distributors

MAKE

Direct Customers

DELIVERSOURCE

PLAN




• Visioning




Project Definition TasksProject Definition Tasks

CreateProject

Charters

PerformEconomicAnalysis

Load Resultsinto BusinessHealth Model

RefineProject

Charters

DefineProjects

(from Visioning)

BuildImplementation

Milestones


The Widgets Visioning Team Defined the Following The Widgets Visioning Team Defined the Following Implementation Projects Required to Attain the VisionImplementation Projects Required to Attain the Vision

= less impact= most impact * Included in global procurement initiative

Americas Europe Asia Plan Source Make Deliver

Geographical Supply-Chain

Area of ImpactArea of Impact

4 “Make” sites consolidation

Project(Ranked by priority)

5 Warehousing and distribution consolidation

1 Demand supply management

6 Order management and supporting business process consolidation

3 Supply strategy

2 Supply-chain organization and metrics

11 Japan Widgets supply-chain reengineering

9 Business brand and product line rationalization

7 Consolidate procurement *

8 Direct order entry from distributor/customer

10 Application of global purchasing methodologies to current and new products *


Project # 4: Global Widget Business Project # 4: Global Widget Business “Make” Site Consolidation“Make” Site Consolidation• Purpose:

– To reduce the present number of Global Widget Business MAKE sites globally to the number needed to meet the Widget Businesses’ goals

• Needs:– Too many MAKE and/or packaging sites in the

Widgets business have resulted in:• RONA that is well below target• Below optimized capacity utilization rates and

manufacturing efficiencies

• Expected Results:– Global reduction in MAKE sites from XX to X– Achieve a (Fixed/Variable) Cost Savings of $29,999 M

by year end 2000– Achieve DSI Reduction of X Day(s) by year end 2000– Achieve a Working Capital Reduction of $2,222 M

which realizes an opportunity cost avoidance of $555 M (@ XX% C of C) by year end 2000

– Improve customer facing metrics (Delivery Performance and Perfect Order Fulfillment) to BIC

– A major step change is achieved towards Global Products and Global MAKE processes

• Timeline:– July 1998 to Q4 1999

Americas Team

Europe Team

Asia Team

Implementation Structure

Mr. Smith

SC Leader

Mr. Lue

Mr. Brown

Ms. Jones

Ms. Jones

Mnf’ing

Mnf’ing (Bulk)

Ec Eval

Pack’ging

Mr. Brown

Mr. Lue

Glo

ba

l M

an

ag

em

en

t T

ea

m(4

– 5

Pe

op

le,

20

%

Co

mm

itm

en

t)

Are

a T

ea

ms

(4

– 5

Pe

op

le,

40

– 6

0%

C

om

mit

me

nt)

Process Eng

HR

Mnf’ing

Mnf’ing (Bulk)

Ec Eval

Pack’ging

Process Eng

HR

Mnf’ing

Mnf’ing (Bulk)

Ec Eval

Pack’ging

Process Eng

HR

Logistics Logistics

Logistics


Make Consolidation MilestonesMake Consolidation MilestonesJuly 98 Aug 98 Sept 98 Oct 98 Nov 98 Dec 98 Q1 99 Q2 99 Q3 99 Q4 99 Q1 2000

Project Planning

Define Metrics

Analysis Phase

European Analysis Complete

Americas and Pacific Analyses Complete

European Implementation Complete

Project Implementation

Americas Implementation Complete

Pacific Implementation Complete

Confirm Project Improvements


Economic Analysis — Total of All Widget ProjectsEconomic Analysis — Total of All Widget Projects

* Contains inventory expense items of space/racks/equipment, personnel, inventory planning and management, record keeping, inventory counting, plant floor space, and lot inspections plus other infrastructure savings

** Contains inventory expense items of Fixed: Insurance/Tax/IT costs/Assoc. Tech Support, Variable: Damage/Shrinkage/Obsolescence/Scrap/Rework

Fixed and Variable Cost Savings due to Widgets projects $000sFixed cost savings from consolidation * Fixed: $30,100Other savings not included above

Inventory**

Transportation and raw material efficiencies

Fixed:Variable:

Variable:

$6,108$3,256

$5,181Total annual savings: $44,645

Working Capital Reduction $000s

Working Capital Reduction @ FASC (one-time) $30,630Inventory Cost Avoidance @ 15% C of C (annual) $9,095

Cost and Capital to Implement Widgets projects $000s

Implementation Costs:

Cost: (ex. Severance, Lease, Relocation)Capital: (ex. New and/or Relocation Assets)

$29,000

$9,000

One-Time Charge for Widgets Change: $38,000


EE MethodologyEE Methodology

Main focus: Large reduction of Fixed Expenses in a short time frame– Target cost savings: $20 million in 1999,

building up to $50 million per year by YE 2000

Evaluation tool: – Income statement and balance sheet projections

Business Unit Health model

– Cash Flow analysis could be applied to provide a longer term perspective


Expense Cost/Savings projection

(40,000)

(30,000)

(20,000)

(10,000)

-

10,000

20,000

30,000

40,000

50,000

1999 2000 2001

$ (

000

's)

Imp

rov

em

en

t

Restructuring

Fixed

Variable

Widgets Expense / Cost Savings ProjectionWidgets Expense / Cost Savings Projection


Basis of CompetitionBasis of Competition

• Review and agree on how Widget Business will supply its customer base

• Review and prioritize implementation projects required to realize the vision

• Confirm that Widget Business has resources required to complete implementation


Key Supply-Chain

Learnings & Recommendations

Key Supply-Chain

Learnings & Recommendations


Key IssuesKey Issues

• Defining Scope

• Assigning Players

• Keeping to “Tight” Schedule

• Participation of Key Players

• Moving Forward on Projects

• Sub-Optimization

• Coordination of Efforts


What Have We Learned To-Date?What Have We Learned To-Date?

• Well Defined & Integrated IBU StrategiesIBU Strategies Are Critical PrecursorsCritical Precursors To Optimal SC Definition & Operation . . . .

- - Global Industry Business Unit Strategy(s) - - Commercial Strategy(s) - - Product Line Strategy(s)

- - Supply Chain Strategy(s)


Mission, Vision, Goals, Strategy, Strategic Initiatives, SCOREcard

Commercial Strategies (4-P’s), Industry SCOREcard

Supply Chain Strategies, Goals & SC SCOREcard(Plan, Source, Make, Deliver)

Product Line

Strategies, Goals & PL/BPU SCOREcard

(1) IBU strategy is the sum of (and drives) commercial strategy, product line strategy, and supply chain strategy.(2) Commercial strategies lead product line strategy and supply chain strategy.(3) IBU balanced SCOREcard addresses key stakeholders and includes key metrics from commercial, PL and SC SCOREcards.

Harmonization

IBU Strategic FrameworkIBU Strategic Framework



• Supply-Chain Cost Reduction & Optimization Opportunities Are In The $MMsOpportunities Are In The $MMs For DCC ($150MM By 2001) • Supply-Chain Re-engineering “Is NotIs Not” Free Free

• Rapid SC Analysis is “Resource / SupportResource / Support IntensiveIntensive”

• Staffing & ImplementationStaffing & Implementation of Supply-Chain Initiatives Has Been Our Biggest Challenge



• “SuboptimizationSuboptimization” is a Legitimate Issue (By Business / IBU & By Geography)

• Many of DCC’s Key SC Links Are “SharedShared” • Many SC Re-engineering Opportunities are “Multi-Business / IBUMulti-Business / IBU” in Breadth

• Significant Insights Result From Infrastructure “MappingMapping” & Supply Chain “BenchmarkingBenchmarking”


• Ultimately, Consolidation / Elimination of Supply-Chain Costs Is Relatively Easy ...

The challenge lies in re-engineering ourThe challenge lies in re-engineering our supply-chain configurations & processes so thatsupply-chain configurations & processes so that we can optimize our Supply Chainwe can optimize our Supply Chain Management Management costs costs & ensure we provide our targeted levels& ensure we provide our targeted levels

of customer serviceof customer service..

+ +

Project ImplementationProject Implementation



Concerns going forward...Concerns going forward...

• Keeping Implementations on track with organization changes

• Rapid staffing of projects

• Stopping Supply Chain Improvement too soon (Remember the Customer!Remember the Customer!)


““Best in Class” Companies Follow a “Process- Best in Class” Companies Follow a “Process- Centered” Approach to Supply-Chain Management Centered” Approach to Supply-Chain Management

Source: Pittiglio Rabin Todd & McGrath (PRTM)

Supply-chain support elements must be present to achieve significant performance improvement

Operations Strategy Performance Targets and Benchmarks

AssetsDeliveryPerformance /

Quality

CostFlexibility and Responsiveness

PlanSource Make Deliver

Supply-Chain Management Processes

• Value Proposition• Core Competencies• Make/Buy Decisions• Capacity Rationalization

Organization and Decision-Making

Policies and Procedures

xxx xxxx xxxx xxxxx xxxxx

Information

Systems and Tools

Senior Management


QuestionsQuestions

&&

DialogueDialogue

QuestionsQuestions

&&

DialogueDialogue


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