Supply Chain ManagementSupply Chain Management

St. Louis NCMA ChapterSt. Louis NCMA Chapter

April 19, 2005April 19, 2005

Steve GeorgevitchSteve Georgevitch

How Important is Supply Chain How Important is Supply Chain Management?Management?

• $936B in 2003 (inventory-carrying $936B in 2003 (inventory-carrying costs, transportation costs, and costs, transportation costs, and administrative costs)administrative costs)

• 8.5% of the $11 trillion U.S. economy8.5% of the $11 trillion U.S. economy

• $76.9 billion spent on logistics $76.9 billion spent on logistics outsourcing outsourcing

Agenda – Questions to Agenda – Questions to AnswerAnswer• What is Supply Chain Management and What is Supply Chain Management and

Why is it important?Why is it important?• Is this something new? What is the history?Is this something new? What is the history?• What are the basic elements of Supply What are the basic elements of Supply

Chain Management?Chain Management?• What are the forces driving Supply Chain What are the forces driving Supply Chain

Management today?Management today?• What are the risks/issues that affect my job What are the risks/issues that affect my job

as a Contracts Manager?as a Contracts Manager?• What about Supply Chain Security?What about Supply Chain Security?

Definition of Supply Chain Definition of Supply Chain ManagementManagementA supply chain is the stream of processes of A supply chain is the stream of processes of

moving goods frommoving goods from– customer order customer order – through the raw materials stagethrough the raw materials stage– SupplySupply– ProductionProduction– and distribution of products to the customerand distribution of products to the customer

Material and information flow Up and Down the Material and information flow Up and Down the Supply Chain Supply Chain

Information, product, service, financial and knowledge flows

Materials

En

d C

on

sum

ers

Capacity, information, core competencies, capital, and human resource constraints

Supplier Network

Market Distribution

Procurement

Manufacturing

Integrated Enterprise

Distribution Network

Relationship Management

Generalized Supply Chain Model

Material FlowInformation Flow

History of Supply Chain History of Supply Chain Management – 1970sManagement – 1970s• The MarketsThe Markets

– Focus on Customer LoyaltyFocus on Customer Loyalty– Quality is kingQuality is king– Product engineering is competitive advantageProduct engineering is competitive advantage

• The Supply ChainThe Supply Chain– Vertically integrated enterprisesVertically integrated enterprises– Primarily domesticPrimarily domestic– Highly regulatedHighly regulated– Not managed beyond the extended enterpriseNot managed beyond the extended enterprise– Rigid, stable, slow but predictableRigid, stable, slow but predictable– Managed by functionManaged by function

The essence of SCM understood. This first phase is characterized as an The essence of SCM understood. This first phase is characterized as an inventory 'push' era that focused primarily on physical distribution of inventory 'push' era that focused primarily on physical distribution of finished goods.finished goods.

History of Supply Chain History of Supply Chain Management – 1980sManagement – 1980s• The MarketsThe Markets

– Market demands varietyMarket demands variety– Cost is king – technology drives manufacturing efficienciesCost is king – technology drives manufacturing efficiencies– Global markets developingGlobal markets developing

• The Supply ChainThe Supply Chain– DeregulationDeregulation– Learning to manage global supply and demandLearning to manage global supply and demand– Beginning of horizontal management crazeBeginning of horizontal management craze– Managed through functional collaboration (ERP hysteria)Managed through functional collaboration (ERP hysteria)– Fragmented and unpredictableFragmented and unpredictable

Realization that productivity could be increased significantly by Realization that productivity could be increased significantly by managing relationships, information and material flow across managing relationships, information and material flow across enterprise borders. enterprise borders.

History of Supply Chain History of Supply Chain Management – 1990s - NowManagement – 1990s - Now• The MarketsThe Markets

– Throw away consumerism – product life measured at blink speedThrow away consumerism – product life measured at blink speed– Cost is still king, but manufacturing has nothing left to giveCost is still king, but manufacturing has nothing left to give– Global competitionGlobal competition– Global marketsGlobal markets

• The Supply ChainThe Supply Chain– Technologically enabledTechnologically enabled– Services explosionServices explosion– The network is the enterpriseThe network is the enterprise– Dynamic, agile and reconfigurableDynamic, agile and reconfigurable– Supply Chain as a strategic imperativeSupply Chain as a strategic imperative

Computers change the way business is done, Internet revolutionized Computers change the way business is done, Internet revolutionized the information pathway and the distribution system of the the information pathway and the distribution system of the business, e-commerce has changed the definition of business business, e-commerce has changed the definition of business itself. itself.

6 key elements to a supply 6 key elements to a supply chain chain • ProductionProduction

• SupplySupply

• InventoryInventory

• LocationLocation

• TransportationTransportation

• InformationInformation

Production Element of Supply Production Element of Supply Chain Chain

Focus on what customer & market Focus on what customer & market demanddemand

• Resource ManagementResource Management– Internal sourcing (what and which plants)Internal sourcing (what and which plants)– Outsourcing to capable suppliersOutsourcing to capable suppliers

• Capacity ManagementCapacity Management– Workload schedulesWorkload schedules– Equipment plans Equipment plans

(acquisition/maintenance)(acquisition/maintenance)

• Order ManagementOrder Management• Quality controlQuality control

Supply Element of Supply Supply Element of Supply Chain Chain

Partners in the Supply ChainPartners in the Supply Chain

• Assessing core/strategic Assessing core/strategic competenciescompetencies

• Identifying capable suppliersIdentifying capable suppliers

• Making sourcing decisionsMaking sourcing decisions

• Relationship managementRelationship management

• General ProcurementGeneral Procurement

Inventory Element of Supply Inventory Element of Supply Chain Chain

How Much Inventory and Where to Store How Much Inventory and Where to Store ItIt

• Analysis of fluctuations in demandAnalysis of fluctuations in demand

• Identification of optimal storage Identification of optimal storage locations in support of customer locations in support of customer demanddemand

• Identification of optimal stock levels by Identification of optimal stock levels by locationlocation

• Establishing inventory ordering policiesEstablishing inventory ordering policies

Location Element of Supply Location Element of Supply Chain Chain

Strategic placement of production plants, Strategic placement of production plants, distribution and stocking facilitiesdistribution and stocking facilities

• Understand customer marketsUnderstand customer markets• Perform Locating decisions for Perform Locating decisions for

production and stocking facilitiesproduction and stocking facilities– Lightweight/market driven near the end-userLightweight/market driven near the end-user– Heavy industries near raw material sourceHeavy industries near raw material source

• Evaluation of tax and tariff issues and Evaluation of tax and tariff issues and transportation accessibility transportation accessibility

Transportation Element of Transportation Element of Supply Chain Supply Chain

Supporting inventory decisions and customer Supporting inventory decisions and customer demand requirements (transportation is up demand requirements (transportation is up to 30% of Product Cost!)to 30% of Product Cost!)

• Identify customer service levelsIdentify customer service levels

• Identify modal formsIdentify modal forms– Air Air – ShipShip– RailRail– GroundGround

• Establish strategic transportation Establish strategic transportation partnershipspartnerships

Information Element of Supply Information Element of Supply Chain Chain

Obtaining, linking and leveraging Obtaining, linking and leveraging information across the Supply Chaininformation across the Supply Chain

• organization of informationorganization of information• Linking computers through networks Linking computers through networks

and the internetand the internet• Streamlining information flowStreamlining information flow• Consolidating informationConsolidating information• Information warehousingInformation warehousing• Decision support tools Decision support tools

Key Attributes of a “Chain”Key Attributes of a “Chain”

• Cannot exceed the capacity of its Cannot exceed the capacity of its weakest linkweakest link

• A break in the chain makes the chain A break in the chain makes the chain non-functionalnon-functional

• All links must move in All links must move in synchronizationsynchronization

• All links have an interdependencyAll links have an interdependency

Supply Chain Driving Supply Chain Driving FactorsFactors

•Information RevolutionInformation Revolution

•Customer DemandCustomer Demand

•Adaptive forms of Adaptive forms of Relationship ManagementRelationship Management

Driving Change – Information Driving Change – Information TechnologyTechnology

• Inter-Enterprise TechnologyInter-Enterprise Technology– Dynamic Operating SystemsDynamic Operating Systems

• Relational data stores Relational data stores

– Desktop ToolsDesktop Tools– COTS Revolution (ERP, S&OP, CPFR)COTS Revolution (ERP, S&OP, CPFR)

Finance ProcurementManufacturingEngineering Marketing Manufacturing

Traditional Information Sharing

Finance

Procurement

Manufacturing

Engineering

Marketing

Manufacturing

Relational Information Sharing

Driving Change – Information Driving Change – Information TechnologyTechnology• Intra-Enterprise TechnologyIntra-Enterprise Technology

– The InternetThe Internet

– E-CommerceE-Commerce• 2004 estimated at $69.2B, +23.5% from 20032004 estimated at $69.2B, +23.5% from 2003• 1.9% of total sales1.9% of total sales

– Universal Information Distribution (Java, XML)Universal Information Distribution (Java, XML)

20002000 20012001 20022002 20032003 20042004

North AmaericaNorth Amaerica 97.697.6 114.114.44

130.8130.8 147.7147.7 160.6160.6

EuropeEurope 70.170.1 107.107.88

152.7152.7 206.5206.5 254.9254.9

Asia/PacificAsia/Pacific 48.748.7 63.863.8 85.485.4 118.8118.8 173.0173.0

Latin AmericaLatin America 9.99.9 15.315.3 22.122.1 31.031.0 40.840.8

Africa and MideastAfrica and Mideast 3.53.5 5.35.3 7.27.2 9090 10.910.9

Total World WideTotal World Wide 229.8229.8 306.306.66

398.1398.1 513.0513.0 640.2640.2

World Wide Estimate of Active Internet Users

Driving Change – Customer Driving Change – Customer DemandDemand• Knowledge Enabled ConsumerismKnowledge Enabled Consumerism

– 27% of new-car buyers say they use online quote tools27% of new-car buyers say they use online quote tools

• Demand for VarietyDemand for Variety– Cell phone life cycle is 9 months, Nokia has 68 active Cell phone life cycle is 9 months, Nokia has 68 active

marketed versions, customizable to estimated over marketed versions, customizable to estimated over 1,200 configurations1,200 configurations

• Cost DrivenCost Driven CPI for Durable Goods

Driving Change – Relationship Driving Change – Relationship ManagementManagement• Relationship AssessmentsRelationship Assessments• Alliance evaluation mechanismsAlliance evaluation mechanisms

– Assessing key variables of Reliability, Assessing key variables of Reliability, Competence, Affect Based Trust (Goodwill), Competence, Affect Based Trust (Goodwill), Vulnerability (risk sharing) and LoyaltyVulnerability (risk sharing) and Loyalty

• Conflict ResolutionConflict Resolution– Aversion to legal disputesAversion to legal disputes– Arbitration as a business decisionArbitration as a business decision

• MinitrialMinitrial• Rent-a-judgeRent-a-judge

• Information as a Common ThreadInformation as a Common Thread

Challenges in Supply Chain Challenges in Supply Chain Management TodayManagement Today

• Strategic imperative of supply chainStrategic imperative of supply chain• Deliberate redesign of supply chain networksDeliberate redesign of supply chain networks• Offshore outsourcing (lead-times/customer Offshore outsourcing (lead-times/customer

service impact)service impact)• Supply chain design to customer Supply chain design to customer

requirementsrequirements• Cash-to-cash cycleCash-to-cash cycle• Supply chain visibility technologySupply chain visibility technology• Strategies for inventory positioning near Strategies for inventory positioning near

customerscustomers• Warehouse Management challengesWarehouse Management challenges• Collaboration with supply chain partnersCollaboration with supply chain partners

Implications to Contract Implications to Contract ManagementManagement

• Risks - ProtivitiRisks - Protiviti– Regulatory, compliance, financial, business

continuation, and other service risks– Supplier security and confidentiality controls– Transfer of nonpublic personal customer

information to a third-party– Monitoring of service performance and billing– Changes in market forces or contract/service

scope– Addressing noncompliance and poor service

levels

Implications to Contract Implications to Contract ManagementManagement

• Risks (Continued) - ProtivitiRisks (Continued) - Protiviti– Contract management personnel changes– Unauthorized or uncontrolled use by the

supplier of other third parties or assignment of contract to others

– Billing issues and exceptions – Level of Service disputes

– Poor financial health of service provider– Deteriorating relationship with the service

provider

Supply Chain Issues Supply Chain Issues Challenging Contract ManagersChallenging Contract Managers

•Effective management, measurement, and control of suppliers, contracts, and overall expenditures by category/commodity

•Lack of timely, complete, and accurate information

•lack of tools and methodologies to analyze data

•integrity of the raw data (coding standards, etc.)

•variety and diversity of systems from which the data must be extracted

Supply Chain Issues Supply Chain Issues Challenging Contract ManagersChallenging Contract Managers• Challenges in non-inventory postaward contract

management and control • Leveraged sourcing (less than 60% of all contracts)• Strategic sourcing and contracts management tools • Applying Strategic sourcing methodologies• Reinvigorating formal risk management• Understanding the market, risk, and spend analysis• Information and tools required to support job

functions• 3rd Party Logistics Providers

Supply Chain SecuritySupply Chain Security

Customs & Border Patrol (CBP) – 2004 Statistics

• 26.1 million trade entries• collected $24.7 billion in import duties• seized 2.2 million pounds of narcotics• 412.8 million pedestrians and passengers• 132.2 million conveyances

Customs – Trade Partnership Against Terrorism (C-TPAT)

• support of CBP’s priority Homeland Security mission• voluntary partnership with members of the trade community• collaborate to better secure the international supply chain to the

United States

Supply Supply Chain Chain SecuritySecurity

Benefits of C-TPAT Benefits of C-TPAT MembershipMembership• C-TPAT supply chain specialist as a CBP liaison Access to the C-TPAT

members network.• Self-policing and self-monitoring of security activities.• Reduced selection rate for Compliance Measurement Examinations

and exclusion from certain trade-related local and national criteria.• Targeting benefits by receiving a “credit” via the CBP targeting

system.• Eligibility for access to the FAST lanes on the Canadian and Mexican

borders.• Eligibility for the Office of Strategic Trade’s (OST) Importer Self-

Assessment Program (ISA) and priority access to participate in the Automated Commercial Environment (ACE).

• Highway carriers, on the Canadian and Mexican borders eligible for access to the expedited cargo processing at designated FAST lanes. – Eligible to receive more favorable mitigation relief from monetary

penalties.• Mexican manufacturers receive access to expedited cargo processing

at designated FAST lanes.• Companies eligible to attend CBP sponsored C-TPAT supply chain

security training seminars.

Questions?Questions?