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© 2011 E2open, Inc. All rights reserved.
Global Supply Chain Management Trends & Best Prac.ces FAPICS Annual Conference Paris, May 2011
Mondher Ben-‐Hamida, CPIM, CSCP APICS Board Member Vice President Strategy, E2open [email protected] / [email protected] +1.415.425.7184
E2open ConfidenNal / 2
Agenda
1 Our Point of View on Global Supply Chain IntegraAon What Works & What Doesn’t Work
2 Case Studies in Global Supply Chain IntegraAon & Co-‐opeAAon Lessons Learned
3
4 IT and the Future of Supply Chain Management On the structure and merits of an IT-‐enabled business network
5 Conclusion Final Thoughts
An Overview of Some Macro Economic Trends … and their impact on the micro economic drivers of SCM
E2open ConfidenNal / 3
Supply Chains are More Complex than Ever
• Supply chains becoming ‘virtual enterprises’
• Complex, mulN-‐Ner business and service level relaNonships
• GlobalizaNon, de-‐centralizaNon and management of shared processes
E2open ConfidenNal / 4
… and Supply Chain CollaboraNon is Tough! The Uncanny Resemblance with Chaos Theory
1. Complex systems consist of a large number of elements. 2. The elements have to interact and this interacNon must
be dynamic. 3. The InteracNon is fairly rich, i.e. any element in the system
influences, and is influenced by, quite a few other ones. 4. Firstly, the interacNons are non-‐linear. 5. The interacNons usually have a fairly short range, i.e.
informaNon is received primarily from immediate neighbours. 6. There are loops in the interacNon. 7. Complex systems are usually open systems, i.e. they interact
with their environment. 8. Complex system operate under condiNons far from
equilibrium. 9. Complex systems have a history. Not only do they evolve
through Nme, but their past is co-‐responsible for their present behaviour.
10. Each element in the system is ignorant of the behaviour of the system as a whole.
E2open ConfidenNal / 5
Business EvoluNon over the years ……
Asset Light TransformaAons • Loss of control & increased risk • Planning focus replaced by execuNon focus
Complex Customer Channels • End customer value NOT immediate customer focus
• Visibility and replenishment
Value Networks • Non-‐linear, Global, MulN-‐Ner, Regional • Direct links between points of supply and demand
• No touch or low touch operaNons
Short Product Lifecycles • Need for dynamic supply chains • Lower Inventory levels • Lower liability
AcAve Demand Management • Real Nme visibility and dynamic execuNon to counter volaNlity
• Demand shaping, promoNons
RegulaAons & Compliance • Global networks drive huge compliance requirements
• Cross-‐country goods movements require detailed documentaNon
E2open ConfidenNal / 6
Brand vs. Delivery …..
• Major Brand Owners conNnue to outsource based on their core competencies and the capabiliNes of their partners
• Strategic move – own the Brand/Design and outsource the actual value creaNon
• Requires managing the value network outside the four walls
0%
10%
20%
30%
40%
50%
60%
70%
1975 1985 1995 2005 2015
Tangible Assets/Net Value
E2open ConfidenNal / 7
The Evolving Needs of Global Supply Chains
Phase 1 Phase 2 Phase 3
Business creation and local market
establishment
Aggressive Global Growth
Slower growth and fiercer competition
Reputation Matters Growth Matters Execution Matters
Suitability of Supply Chain Models and Tools LowHigh
Elapsed Time / Supply Chain Planning Complexity HighLow
• Our experience shows that most global companies are in Phase 3 of their evoluNon
• Global operaNonal models (process, tools and infrastructure) have not evolved in sync with the growing complexity of global business models
• The growing compeNNon between new and emerging technology Ntans adds a sense of urgency to the need for key players to upgrade their operaNonal model with greater emphasis on superior planning and execuNon
• Transforming the supply chain to address the requirements of this new phase is the new compeNNve fronNer
Mismatch between Needs and Current Setups
E2open ConfidenNal / 8
Example: Complex Supply Network
Boeing 787:
External CollaboraNon is absolutely criNcal as more design, manufacturing, and supply network execuNon is entrusted to key trading partners
E2open ConfidenNal / 9
Valida.ng Our Observa.ons Findings from a Recent E2open Supply Chain Summit
4 SCM & Financial Management
3 Performance Mgt in a MulN-‐Tier System
1 Number of Planning Tiers
2 Lead Time in an Extended SC
E2open ConfidenNal / 10
Supply Chain MulN-‐Tier Performance Using the E2open Maturity Model
Companies in this zone have neither the supply chain reach nor the advanced planning capabiliNes to turn SCM into a compeNNve differenNator. Many companies from emerging markets fall in this category
The Basic Quadrant
Companies in this zone have heavily invested in enterprise automaNon and planning soluNons but are yet to reap any significant benefits because of either lack of leverage or reluctance to embrace the required mind-‐set shim
Companies in this zone have managed to leverage their size or anchor posiNon to build a mulN-‐Ner planning model that sNll lack advanced analyNcs to handle complexity and improve visibility and responsiveness
Companies in this zone clearly understand the need to reach across their supply chain spectrum to opNmize their operaNons leveraging advanced opNmizaNon and business intelligence for superior performance
The Underachievers Quadrant
The Overachievers Quadrant
The Orchestrators Quadrant
E2open ConfidenNal / 11
OEM / Brand Owner Customers Component Suppliers EMS Partners Channel Partners
Dependency Vola-lity
Variability
Time
The Challenge of MulN-‐Tier Planning
E2open ConfidenNal / 12
Performance Management in a MulA-‐Tier Value Chain The Dubious Usefulness of the Inventory Turnover Ra.o (as an example)
Brand Owner Your Key Supplier/CM Your Key Customer
QuanN
ty
Time
QuanN
ty
Time
QuanN
ty
Time
1 12 11 10 9 8 7 6 5 4 3 2 1 12 11 10 9 8 7 6 5 4 3 2 1 12 11 10 9 8 7 6 5 4 3 2
COGS I
COGS I
COGS I
• Is this metric (and other tradiNonal ones) more suited for a verNcally integrated company? • What’s the true value of pursuing high inventory turns at the Brand Owner level when the Supplier is (contractually / in theory) forced to maintain high inventory levels ― Does this drive some of the hedging games that we see in various industries? • Does a MulN-‐Tier environment warrant re-‐defining this metric to cover 2+ Tiers? • Do we need new ‘financial products’ to provide joint inventory hedging mechanisms? • Please share any experiences implemenNng any cross-‐Ner metrics?
Key Findings
E2open ConfidenNal / 13
What Is Your Lead Time in An Extended Value Chain? The Need to Constantly Monitor 3 Cri.cal Variables
John D.C. Li]le InsNtute Professor
I Inventory
L Lead-‐Time
T Throughput
Supp
liers Custom
ers
Lead Time
T Raw Materials
Component Suppliers
EMS Partners OEM’s / Brand
Owners Warehouse(s) Retailers
Your Company
• How comfortable is a company (with an extended supply chain) quoNng a delivery leadNme? • Is expediNng / firefighNng a reflecNon of poor visibility to inventory? How to fix that?
Key Findings
E2open ConfidenNal / 14
Agenda
1 Our Point of View on Global Supply Chain IntegraAon What Works & What Doesn’t Work
2 Case Studies in Global Supply Chain IntegraAon & Co-‐opeAAon Lessons Learned
3
4
5 Conclusion Final Thoughts
IT and the Future of Supply Chain Management On the structure and merits of an IT-‐enabled business network
An Overview of Some Macro Economic Trends … and their impact on the micro economic drivers of SCM
E2open ConfidenNal / 15
Co-‐opeNNon is Fast Becoming the Norm
Source – E2open Research
Customers SaNsfacNon
Supply Chain Visibility
Cost ReducNon
Inventory ReducNon
Lead Time ReducNon
Supply Chain Velocity
Metrics Alignment
E2open ConfidenNal / 16
A Mockup of a Supply Chain Command Center Co-‐ope..on and ‘Real Time’ S&OP at Work….
E2open ConfidenNal / 17
Agenda
1 Our Point of View on Global Supply Chain IntegraAon What Works & What Doesn’t Work
2 Case Studies in Global Supply Chain IntegraAon & Co-‐opeAAon Lessons Learned
3
4
5 Conclusion Final Thoughts
It and the Future of Supply Chain Management On the structure and merits of an IT-‐enabled business network
An Overview of Some Macro Economic Trends … and their impact on the micro economic drivers of SCM
E2open ConfidenNal / 18
Observa.on # 1 China and the Lewis Turning Point
Lewis argued in a 1954 paper that a developing country with “surplus” agricultural labor could grow its industrial sector for
years without wage infla.on as it absorbs that surplus.
Sir W. Arthur Lewis Nobel Economics 1979
(1915 —1991)
Share of enN
re indu
stry
TexNle Consumer Electronics
Steel Automobile
Low value-‐added products High value-‐added products
E2open ConfidenNal / 19
Observa.on # 2 FluctuaAng Oil Prices Make LogisAcs Planning Challenging
+$100/bbl (from $17 to $117) causes an increment of transportaNon cost of 0.22€/km (from 1.28€ to 1.50€) at full capacity uNlizaNon
# of Warehouses
LogisNcs Costs
Cost of Warehouses, Stock and Loading Devices, etc.
TransportaNon Costs
E2open ConfidenNal / 20
Observa.on/Ques.on # 3 Is Labor Cost SAll Relevant? And How Should It Be Analyzed?
• Vietnam Worker – 400-‐500 RMBs/Month – Lower than Bangladesh
• China Worker – 800 RMBs/Month – Higher than India and Malaysia – Industrial Transfer is inevitable
• Survey by the FederaNon of HK Industries – 37% of 80,000 HK companies planning to transfer part or all of their producNon capaciNes out of the region
– 63% planning to move out of the Guangdong region
E2open ConfidenNal / 21
Observa.on/Ques.on # 4 What is the True Supply Chain Cost Breakdown (1 of 2)
21
‘It is the maxim of every prudent master of a family, never to axempt to make at home what it will cost him more to make than to buy. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, bexer buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.’
“An Inquiry into the Nature and Causes of the Wealth of Na.ons” Adam Smith – 1776
• Purchase price ex-‐factory gate • TransportaNon cost per unit, assuming no unexpected delays or quality problems • Customs and duty to clear a shipment for export • Insurance and transacNon cost • Cost of quality control and compliance with safety and environmental standards • Search cost and agency fees to idenNfy and interact with local suppliers
StaAc Costs • Increased pipeline and safety stock due, which is amplified by demand volaNlity and product variety • Inventory obsolescence due to long logisNcs lead-‐Nmes, e.g. in case of quality problems • Cost of lost sales and stock-‐outs, as the supply chain is unresponsive to shims in demand • Expedited shipments, e.g. air-‐freight, to ensure uninterrupted supply
Dynamic Costs • Labor cost inflaNon due to rising standards of living and compeNNon of the labor market • Currency fluctuaNons, in parNcular for cases of arNficially pegged currencies • Rise in transportaNon cost, e.g. due to higher oil price and carbon offset costs • Overhead for managing the internaNonal supply base, including travel cost or cost for local personnel in the supplying markets • The loss of intellectual property to contract manufacturers • The risk of poliNcal and economic instability or change
Hidden Costs
E2open ConfidenNal / 22
Observa.on/Ques.on # 4 What is the True Supply Chain Cost Breakdown (2 of 2)
22
To Outsource or Not To Outsource? An EvaluaNon Framework
Source – “On the risk and cost of global sourcing” – Holweg et al InternaNonal Journal of ProducNon Economics – 2011