High-Tech Forecasting & Planning Summit

April 14th, 2011

San Francisco

Demand Sensing in Volatile Times

Your presenter

Gerry Fay, Senior Vice President» Leads Avnet EMs SC Solutions Practice:

» Avnet Velocity

» SVP of Global and Strategic Accounts

» Former President Americas for MEMEC

» Former COO ATLAS Services

We can’t hide from the industry dynamics of volatility

Time to Market

Mass Customization

Long Lead time for Components

Component capacity inflexibility

Capital investment exponential

Asia = biggest market and lowest labor cost

Industry hungry for working capital

Technology enables innovation & creates new markets needing

more Velocity in response

Sustainability quest

CONSEQUENCES

Design to Supply Chain entanglement

Emphasis on Flexibility, Reactivity, Speed

Cash-to-Cash Cycle time is vital

Brutal supply/demand cycles

Supply/capacity management is a competitive advantage

Sustainability in supply base management, and partnership is crucial

to supply continuityDemand ‘sensing and responding’

plus well executed ‘command & control’ is key

The domino effect of innovation

“I need to upgrade my network tomorrow”

MORE CONTENTMORE CONTENT

“I need to introduce next generation network tomorrow”

“I need next generation technology tomorrow!”

“Today Apple re-invents the phone”Steve Jobs – Jan 9, 2007

OEM

“I need one now !”Consumers

“I need more bandwidth now!”Network Providers

“I need to increase production now!”

Infrastructure OEMs & EMS companies

“I need more wafers now!”Component Manufacturers

Ecosystem complexityExternal Wafer Fabs

Internal FabsComponent BE (Sort & Test) Component FE (Assy)

Distributor

Start

OEM’s OEM’sOEM’s

Contract Mfrs (motherboard/subassy)Frustrated Consumer

Ecosystem complexityExternal Wafer Fabs

Internal FabsComponent BE (Sort & Test) Component FE (Assy)

Distributor

Start

OEM’s OEM’sOEM’s

Contract Mfrs (motherboard/subassy)Frustrated Consumer

Delays. Lack of Visibility. Dis-satisfaction. Cost. Obsolescence.Delays. Lack of Visibility. Dis-satisfaction. Cost. Obsolescence.

Why Supply Chain Planning?

Increased Margin

Reduced net working capitalOptimal capacity utilizationReduced administration effort

Competitive

Advantage

Higher delivery reliabilityHigher product availabilityHigher production flexibility

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“In the Electronic Industry lead time is at least as important as price !”

“In the Electronic Industry lead time is at least as important as price !”

Silver bullet?

• Command & Control - Expected• Sense & Respond - Differentiator• Consider SC Risk• Be responsible to our environment• Build a resilient and sustainable supply chain that brings benefit to all players in our ecosystem

Integrated Planning & Execution

LEARN

Continually analyze and learn from exceptions and

incorporate intelligence into business processes

Collaborate and respond to internal and external demand and supply deviations across the business network

RESPOND

Plan and adapt to network-driven demand based upon business objectivesCONTROL

Source: Adapted from SAP

COMMAND

Execute a fulfillment network

based upon the available or anticipated

capability of the supply network

and logistics resource

SENSE

In real time, sense and alert deviations

caused by internaland external events

Sense & Respond

• “Demand sensing is the translation of downstream data with minimal latency to understand what is being sold, who is buying the product, and the impact of demand-shaping programs.”

AMR Research

• Demand sensing is a requirement for “Extended S&OP” along with transparency of key supply chain data

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How?

Requires a focus and dedication across the ecosystem players!

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1. Sales Revenue Planning• Macro market Data / Trends

• Technology Roadmap

• Macro-view factors

• Macro Constraints2. Demand Planning

• Aggregation of Forecast

• Demand Shaping (Cross-Industry view)

• Market specific data

3. Supply Planning

• Capacity Planning (Labor, Resource)

• Inventory Optimization

• Material Planning

• Transportation

• Vendor Reduction

4. Profit based Supply/Demand

Balancing• Scenario Planning

• inventory Balancing

• Expediting

• Consensus

5. Management Review

• KPI Measurement (Working Capital, Gross Margins, Inventory Turns

• QBR

• Performance Scorecard for continuous improvement

Traditional Distribution

Extended S&OP

1. Sales Revenue Planning• Macro market Data / Trends

• Technology Roadmap

• Macro-view factors

• Macro Constraints2. Demand Planning

• Aggregation of Forecast

• Demand Shaping (Cross-Industry view)

• Market specific data

3. Supply Planning

• Capacity Planning (Labor, Resource)

• Inventory Optimization

• Material Planning

• Transportation

• Vendor Reduction

4. Profit based Supply/Demand

Balancing• Scenario Planning

• inventory Balancing

• Expediting

• Consensus

5. Management Review

• KPI Measurement (Working Capital, Gross Margins, Inventory Turns

• QBR

• Performance Scorecard for continuous improvement

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Expanded Distribution Value Proposition

Key Orchestrator of SC Info/Visibility

Customer Input

• Demand Forecasts

• Events, Promotions, NPI information

Supplier Input

• Capacity Updates

• Scheduled Maintenance

Extended S&OP

3 Factors to drive success

1. Extended S&OP

2. Resolve Visibility Issues

3. Focus on cross-enterprise process and performance

Extended S&OP to balance compromise between . . .

Flexibility vs. Inventory

Security vs. Liability

Cost vs. Lead Time

Gross Profit vs. Cash flow

Lead time vs. DemandLabor Cost vs.

Transportation cost

3 Factors to drive success1. Extended S&OP

2. Resolve Visibility Issues

3. Focus on cross-enterprise process and performance

Resolve Visibility Issues

• Right information to enable– Right product– Right time– Right place– Cost-effective

decision making for efficient product or service delivery

Visibility Drives Clarity

• You need to change the paradigm

– Sales = revenue forecast

– Finance = Op plan based on budgets

– Marketing = research on new and existing products

– Manufacturing = demand based on history and future expectations

• We don’t even measure the same way.

– Sales forecasts = revenue numbers in dollars

– Marketing forecasts = dollars and unit sales by product lines

– Finance forecasts = in dollars by internal organization

– Demand forecasts =in units by SKU numbers and their components.

How do you fix it?• You must have one version of the truth!• Create an S&OP enterprise plan of record: a single repository of past, present and future forecasts, plans and assumptions from across the enterprise.

• With a consolidated operating plan, all constituents would drive more consistent results, measure performance and ensure compliance with regulations.

• …and Finance isn't holding the bag!

Level of Internal Visibility

Source: InForum 2009

Insufficient internal visibility

Planning visibility can enable pro-active response

Level of External Visibility

Lower than internal visibility

Execution elements more

visible than planning

Source: InForum 2009

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Importance of Information

Demand information is critical as it the driver for all subsequent planning & execution

Source: InForum 2009

3 Factors to drive success1. Extended S&OP

2. Resolve Visibility Issues

3. Focus on cross-enterprise process and performance

Focus on cross-enterprise process & performance

Supplier CustomerSuppliers’Supplier

Source

Internal or External

Internal or External

Your Company

Return

Deliver MakeSource

Return

Plan

Deliver

Return

Source

Return

MakeSource

Return

Plan

Deliver

Return

DeliverMake

Plan

Return Return

Customers’

Customer

Source: Supply Chain Council

SC Sustainability score card

Economic

Services

Drivers Attributes Metrics

Internal

External

Ecologic

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Increase sustainable advantage with “sensing & responding”

Supply Chain Visibility

Supply Chain Risk

Management

Sense & Response

Management

Competitive Advantage

Su

pply

Chain

Matu

rity

Sustainable Supply Chain ManagementVisibility

Sustainability

PredictabilityEconomicEcologicService

Key Takeaways

Planning is deceptively simple• Poor planning will jeopardize your business• ‘Sensing & Responding’ will proactively help improve enterprise

performance if coupled with capable ‘Command & Control’

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3 Key Factors will drive success:1.Extended S&OP – across the enterprise2.Resolve Visibility Issues – especially demand data3.Focus on cross-enterprise process and performance – for continuous improvement

Collaboration & Communication are key to successCollaboration & Communication are key to success

Thank You!

gerry.fay@avnet.com