© 2008 AMR Research, Inc. | Page 1

© 2008 AMR Research, Inc. | Page 1

Alison SmithResearch Director, Manufacturing Operations

Simon JacobsonResearch Director, Manufacturing Operations

Next-Generation Demand-Driven Manufacturing Strategy


What we’ll discuss today

• Reliable, stable, and profitable product supply is the core of demand-

driven value network performance.

• Differences in manufacturing priorities across styles of supply chains

• Evolving manufacturing plant and IT priorities

• Measurement strategies to achieve alignment

• Leadership and organization models


Together, operations and innovation create value

Higher cash flow, profits, p/e

Op

erat

ion

al E

xcel

len

ce(P

erfe

ct O

rder

, Cyc

le T

imes

To

tal S

up

ply

Ch

ain

Co

st)

Leader

LeaderLaggard

LaggardPS

D

Innovation Excellence(Time to Value, Return on R&D)

WinnersWinners

LosersLosers


Aligning the pillars for shareholder value

Demand Networks

Design Networks

SupplyResponse

SupplyRelationships

Cost/Value TradeoffsBusiness ProcessesInnovation

IT Strategy and Architecture

7 CoreThemes

Organization and LeadershipSkills and TalentPerformance Measurement


Start by developing the operating strategy…

Supply chain strategy

Business Strategy

What are the right things to do to increase company value?

Demand-driven value-network strategyWhat are the right ways to support the business strategy?

What are the right tradeoffs between value drivers for each value network?

Right productplatforms

Design the supply

response

Build organizational systems and

manage talent

Align supply relationships

Align demandrelationships

Effective supply networks

Execution of buy-side strategies

Continuous Improvement

Capabilities required

Supply chain network design

Design networks

Innovation methodologies

Demand networks

Joint value creation strategies

Business Process

How do I do the right things right?


Supply chain strategy

Business strategyWhat are the right things to do to increase company value?

Demand-driven adaptive value-network strategyWhat are the right ways to support the business strategy?

Right productplatforms

Design the supply response

Build organizational systems and manage

talent

Design supply relationships

Align demandrelationships

Determine effective supply networks

Strategic standardization

Execution of buy-side strategies

Continuous improvement

Capabilities required

Supply chain network design

Sustainability

Design networks

Innovation

Demand networks

Joint value creation strategies

Business Process

How do I do the right things right?

Innovation Design the mfg. response

Talent for mfg. excellence

Align supply relationships

Demand management

Direct material sourcing strategies

Supplier development

Performance management

Continuous improvement

Talent development

Metrics alignment

Agility & responsiveness strategies

Corporate responsibility

Demand shaping: flows to assets

Demand sensing to demand visibility

Alignment and Orchestration of Strategy: S&OP

The role of innovation to manufacturing value

Balance in product cycles to manufacturing cycles

Technology & process innovation

Manufacturing Execution ExcellenceReliable supplySupport of growth

strategiesFactory as knowledge

WorkersReward supply relationships

Demand Translation

Collaboration

Supplier scorecards

Kaizen events

Health and safety

Union versus non-union

Security requirements

Intellectual property

Commercialization reliability

Continuous Improvement Programs

Service requirements

Demand sensing in the slush period

Manufacturing performance

Efficiency and effectiveness

Deliver against Inventory Strategies

…then build the product supply elements


Stage 1:

Markets / Product Line

Focused

Stage 2:

Cost

Control

Stage 3:

Demand

Driven

Stage 4:

Value

Driven

Process • Distributed business units and functions

• Focused on local markets and products

• Consolidated and standardized business processes, infrastructure and standardized controls

• Efficiency

• Extended set of integrated lean, business, and supply chain processes

• Integrated front and back office

• Focused on outward-facing demand and supplier management efficiency

• Joint value creation

• Profitable relationships with upstream and downstream network partners

• Focus on outside-in demand translation into joint value

Metrics Local business unit metrics

• Business/geography/unit performance • Market share• Revenue

• Efficiency, costs, standards

• Speeds, feeds, cycle times• Transaction platforms• Integrated core metrics

Inside – out metrics• Transactional business

performance management• Service levels, adherence,

compliance• Collaboration metrics

Outside-in metrics

• Joint value creation relationships and networks• Profitable perfect orders • Relationship process management metrics

IT Systems

• Local IT organization, governance systems and standards

• Centralized IT leadership and standards, consolidated platforms, data and infrastructure

• Business-IT partnership• Governance of the

distributed IT organization• IT operations excellence

• Business leadership of enabling IT

• Business-skilled IT resources embedded in business processes

Process, metrics and IT systems aligned for transformation


Manufacturing components look like:

• Manufacturing sites

autonomous; unique

process control and

application architectures

• Plant/site has own plant

utilization, efficiency, and

cost metrics

• No replication of best

practices, and no demand-

driven metrics (that is,

schedule adherence)

• Focus is on local

optimization

• Common SLAs and metrics for in-house and contract manufacturing

• Multiplant planning and finite capacity scheduling for supply side tradeoff decisions

• Manufacturing constraints and costs modeled, and included in S&OP

• Formal process for strategic manufacturing outsourcing decisions and relationship management

• Extend demand-pull systems to suppliers and performance visibility to customers

• Short and predictable cycle times exploited by changes to supply network and/or active demand-shaping to level load manufacturing lines/sites or inventories

• Supply sensing for closed loop schedule optimization and network scheduling

• Network visibility of demand-driven metrics, such as schedule adherence, profit velocity, cycle time variances

• Design for supply–NPDI exploits common manufacturing processes and platforms; R&D utilizes manufacturing master data

Markets Focused Customer and Brand Control

Demand Driven Value Driven

• Ops excellence strategy: focus on cycle times, product mix, FG inventories, and right first time quality. Disconnected from demand/supply sensing, shaping

• Manufacturing CoEs, common definition of performance data, identification and replication of best practices

• Focus on plant capacity utilization and efficiency measures


Hackett uses actual data to identify world-class performers in procurement

EFFECTIVENESS

• Economic return• Supply base leverage and

performance• Role of procurement• Process quality• Information and analysisExamples:• Spend cost reduction and

avoidance savings as a percent of spend

• Percent of suppliers comprising the top 80% of spend

• On-time supplier delivery percentage

• Internal customer satisfaction ratings

• Percent of spend formally influenced by procurement

• Percent of transactions requiring post-issuance activity

• Ability to view detailed spend data on an enterprise-wide basis

EFFICIENCY

• Process costs

• Productivity

• Cycle times

• Technology leverage

• Costs per transaction

• Staffing Levels

Examples:

• Procurement process costs as a percent of spend

• Number of POs processed per FTE

• Receipt processing cycle time

• Percent of RFXs submitted electronically

• Ratio of labor to technology cost

• Cost per PO

• FTEs per $1B of spend

Procurement SampleProcurement Sample


How do you measure manufacturing performance?

Mfg quality metrics

Supplier quality metrics

Mfg cost metrics

Mfg responsiveness metrics

Schedule adherence metrics

Mfg flexibility metrics

Measuring demand metrics

Q. Which of the following manufacturing metrics do you track today in your manufacturing operations?


Perceptions of manufacturing capabilities

% of responses, n=100


Reality check! Manufacturing operations fundamentals are iffy

% respondents, n=197; this chart shows top six only

50%

48%

47%

46%

45%

43%

37%

39%

33%

39%

35%

32%

Providing real manufacturing costs, capabilities, and capacity to the business for

effective sales and operations planning

Managing inventory across the extended supply chain (e.g., with contract manufacturers, component

suppliers, and third-party logistics

Asset performance management and reliability centered maintenance programs to improve

availability and performance of manufacturing tools and equipment

Managing supplier quality, compliance, and performance

Providing manufacturing with accurate and timely forecasts of demand

Acquiring near real-time production information for site level performance metrics

Importance Performance

Importance and Performance on Manufacturing Business Process

Red arrows indicate statistically significant gap


Transforming manufacturing: turning inside out

1 Week Planning by day

Weekly planning for the year for X weeks

Balance in months

Annual planning

Integrated point systemsand IT-driven master data

S&OP balances supply and demand Tactical

Planning

Production Materials Assets

Operational Planning

Strategic Planning Strategic Planning


Transforming manufacturing: turning inside out on its head

Tactical Planning

Products Demand Supply

Planning Architecture; Master Data, Standards, and Processes

Planning Architecture; Master Data, Standards, and Processes

PBN-architected solutions

and planning master data

S&OP bidirectionally and adaptively

translates opportunity

Into execution

Operations and innovation excellence

architecture, manufacturing master data, standards, and

capabilities

Operations and innovation excellence

architecture, manufacturing master data, standards, and

capabilitiesOperational Planning Operational Planning

Strategic Planning Strategic Planning

1 Week Planning by day

Weekly planning for the year for X weeks

Balance in months

Annual planning

Right First Time


Pillars of demand driven Manufacturing Architecture• Enterprise as Orchestrator:• Products and specifications managed centrally and electronically

communicated across fleet of assets (plants)–owned and outsourced• Global visibility of production performance and traceability, genealogy, and

quality management across the extended supply network needed for warranty, safety, and compliance• Event driven (demand variation, new supply network constraints) S&OP

and same-day scheduling across fleet of assets (plants), requiring deeper insight of equipment and process capability (network finite capacity scheduling)

• Excellence in Local Plant Execution Components• Product or specification management • Production order and recipe execution• Flexible plant automation for rapid changeovers • Track and trace, genealogy, quality• Equipment and process capability, plant production

dispatching/scheduling• WIP visibility• Schedule adherence


Manufacturing SOA: A new organizational model

Network:Quality

GenealogyCompliancePerformance

P&PLMEtc.

Network:Quality

GenealogyCompliancePerformance

P&PLMEtc.

M-MDM:ProductsAssets

ProcessesSpecifications

Etc.

M-MDM:ProductsAssets

ProcessesSpecifications

Etc.


Questions and Answers

Date post:	18-Sep-2014
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