Daily Plan-Day 1
Supply Chain Management for Competitive Advantage Reference study: SCM Overview -2
Background of Supply Chain Management The supply chain network – a new business model? Competitive advantage from the supply chain SCM Maturity and Business Performance Supply Chain Visibility and its impacts Developing Supply Chain Management Key Performance Indicators mapped to business strategy. (SCOR Card)
1
Case Study or in class exercise 1
Form groups and complete a team exercise
Day 1 - AM
Designing Supply Chain Process and Organizations Reference study: Supply Chain Planning-14
The SCOR Model – Class Exercise Aligning the SC design with business strategies. Supplier Selection – A Strategic Decision Supplier Development – Building Capabilities SCM Organization Models and how they align to the supply chain strategy
Day 1 - PM
2
Review the Maturity Assessment
Team Exercises in Supply Chain Management Maturity. A review of the assessment results.
End of the day
Module Overview
• Background of Supply Chain Management
• The Supply Chain Network
• Competitive Advantage from the supply chain – SCM Maturity and Business Performance
• Supply Chain Visibility and its impacts
• SCM KPIs mapped to Business Strategy
Background of Supply Chain Management
“It's no longer about competing products. It's about competing supply chains. The company with the most streamlined, cost-effective, collaborative supply chain wins”.
SAP
History of Supply Chain Initiatives
60’s 1970 1985 1990 1995 2000 2004
MRP MR
P II
S&
OP
, JI
T
Clo
sed
Loop
MR
P
ER
P
TQM
Man
ufac
turi
ng E
xcel
lenc
e
Con
tinuo
us Im
prov
emen
t
ReorderPoints
1980
1981
1979
Lean
, Six
-sig
ma
BP
R
1996 - Supply ChainCouncil Formed
2000
- Sup
ply
Cha
in
Net
wor
ks E
mer
geS
uppl
y C
hain
Ris
k M
anag
emen
t
Supply Chain DEFINITIONS
Supply Chain: The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash. APICS
Supply Chain: The integrated processes of Plan, Source, Make, Deliver, and Return…spanning your suppliers’ supplier to your customers’ customer, aligned with Operational Strategy, Material, Work & Information Flows. Supply Chain Council
Suppliers Make/Maintain CustomersDistribution Depot
• The five distinct management processes link together (the chain in supply-chain) seamlessly from supplier to customer
Supplier
Plan
Customer Customer’sCustomer
Suppliers’Supplier
Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver
Internal or External Internal or External
Your Company
Source
Return Return ReturnReturn Return Return Return Return
SCOR Model
Supply Chain Execution Processes
Latin AmericanLatin AmericanSuppliersSuppliers
WarehouseWarehouse
Other SuppliersOther Suppliers
ManufacturingManufacturing
European SupplierEuropean SupplierC ustom er
C ustom er
C ustom er
C ustom erWarehouseWarehouse
WarehouseWarehouse
WarehouseWarehouse
Outgoing material
Incoming from supplier
Returns
CustomersCustomers
CustomersCustomers
Customers’Customers’
CustomersCustomers
A Global Supply Chain
Supply Chain Management DEFINITIONS
Supply Chain Management: The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally. APICS
Supply Chain Optimization: the activities (such as planning, work flow and process improvements, trade-offs) that provide the goods to the consumer in an “optimal” manner – the best trade-off between the lowest cost, lowest inventory, and best due-date performance.
SCS
SCDSS
PM
SRM
Business Strategy
DM
Core SC Processes
SC ManagementProcesses (operational)
CM
PSRMRP
Orders
RP
MDM
Signal
SCPln
CI RM
PTCA
SC Supporting Processes
ENQM
AP
SC ManagementProcesses (Strategic)
Supply Chain Management Processes
Supply Chain Flows
The ‘Chain’ is a series of connected activities and physical processes
Product
Information
Cash
Product Returns
Suppliers Make/Maintain CustomersDistribution Depot
Supply Chain Classifications
The Supply Chain Network
Supply Management Evolution
Time
Su
pp
ly B
as
e P
erf
orm
an
ce/C
ap
abil
ity
Higher
TOTAL QUALITY
MANAGEMENT
SUPPLY BASE ASSESSMENT
SUPPLY BASEREDUCTION
REACTIVE SUPPLIER
DEVELOPMENT
STRATEGIC SUPPLIER
DEVELOPMENT
Lower
Evolutionary Strategies
SUPPLYNETWORK
MANAGEMENT
CustomersSuppliers(And outsourceManufacturing)
Suppliers’ Environment
Customers’ Environment
Organization
Organization’s Environment
Customer Facing
Supplier Facing
Internal Facing
Global Environment
Perspectives
Perspective is Important
Supply Network
s
s
s
s
s
s
s
SC Network
Organizer
Commodity Category
Interactions and Relationship
Supplier Attributes
Supplier Environment
Supply Chain Network:A complex adaptive supply network is a collection of firms that seek to maximize their individual profit and livelihood by exchanging information, products, and services with one another’’ (Choi et al., 2001).Choi, T.Y., Dooley, K.J., Rungtusanatham, M., 2001. Supply networks and complex adaptive systems: Control versus emergence. Journal of Operations Management 19 (3), 351–366.
Competitive Advantage from the supply chain – SCM Maturity and Business
Performance
Supply Chain Excellence Objective
Achieving and maintaining a competitive edge in supply chain…
ReliabilityResponsivenessFlexibilityCostAsset ManagementQuality
“Delivery of Cash is the ultimate supply chain management metric.” S.Mozaffar,Gp.VP-ICI Chemicals, 2003
Where are the “Leaders” focusing their efforts? Where are the “Leaders” focusing their efforts?
• Global SAP Implementation• Enterprise Cost Efficiency Program Office (PMO)• Aggressive SKU Rationalization / Simplification• Expanded Sourcing strategy & Cash focus• Customer Direct Ship Program
• Global SAP Implementation• Enterprise Cost Efficiency Program Office (PMO)• Aggressive SKU Rationalization / Simplification• Expanded Sourcing strategy & Cash focus• Customer Direct Ship Program
• Centralizing Supply Chain Management• Focus on Basics – S&OP and APS tools• Dramatic working capital improvement• Strategic-level Customer Relationships• RFID leadership
• Centralizing Supply Chain Management• Focus on Basics – S&OP and APS tools• Dramatic working capital improvement• Strategic-level Customer Relationships• RFID leadership
• Global “Funding the Growth” program (PMO)• Cross functional “Go-to-Market” teams for NPI• Leveraging global SAP platform for SC Optimization • Demand Pull Focus & Disciplined S&OP• Regional Mfg - Global sourcing & SC coordination
• Global “Funding the Growth” program (PMO)• Cross functional “Go-to-Market” teams for NPI• Leveraging global SAP platform for SC Optimization • Demand Pull Focus & Disciplined S&OP• Regional Mfg - Global sourcing & SC coordination
• Targeting 10 inventory turns by 2005• “Agent-enabled Supply Network” by 2008• Plant and DC Network Optimization • Rolling out `Produce-to-Demand` Capability• CPFR and Scan-based trading
• Targeting 10 inventory turns by 2005• “Agent-enabled Supply Network” by 2008• Plant and DC Network Optimization • Rolling out `Produce-to-Demand` Capability• CPFR and Scan-based trading
Where are the “Leaders” focusing their efforts? Where are the “Leaders” focusing their efforts?
Process Maturity Definition
Process Maturity postulates that:
• Organizations of higher maturity are more productive and that
• Processes, in order to mature and improve, have to go through Evolutionary Phases defined as Ad-hoc, Defined, Managed, Leveraged, and Optimized
Components of Process Maturity
• Leadership - that actively supports & believes in the process value proposition and
participates in the process.
• Strategy – that aligns with the process (customer focused) values between
company, customers, and suppliers.
• Structure – informal and formal cross functional (horizontal) team based
organization structures with broad process ownership with authority (and
investments) clearly assigned.
• Process – the process is defined, documented and understood by a majority of the
company (not just the people directly involved). People speak in the process
“language”.
• People – that are skilled, trained and capable with multi-dimensional jobs and
authority. Also a “learning” and continuous improvement philosophy.
• Systems – that enable information sharing and collaboration between business
functions and units, organization and suppliers; organization and customer
Maturity Relationships
Pro
cess
Mat
uri
ty
High
High
Low
Low
Process M
aturit
y
Accuracy
/ Contro
l
Stability
Predictabilit
y / C
ertainty
Efficiency
Effecti
veness
Capability
Business
Perfo
rmance
Esprit
d’ Corps P
roce
ss F
ocu
s
Internal - withinfunctions
Inter-functional
Inter- company
Process Performance
Maturity Relationships
Source: Dorfman, M. and Thayer, R.H. (1997). The Capability Maturity Model for Software. Software Engineering, pp.427-438.
The company, its vendors and suppliers, take cooperation to the process level. Organizational structures and jobs are based on process, and traditional functions, as they relate to the supply chain, begin to disappear altogether. Process measures and management systems are deeply imbedded in the organization. Advanced process management practices take shape.
Ad Hoc
Defined
Managed
Leveraged
Optimized
Pro
cess
Mat
uri
ty
Processes are unstructured and ill-defined. Process measures are not in place and the jobs and organizational structures are based upon the traditional functions, not horizontal processes. Individual heroics and “working around the system” are what makes things happen.
Basic processes are defined and documented. Changes to these processes must now go through a formal procedure. Jobs and organizational structures include a process aspect, but remain basically traditional. Representatives from functions meet regularly to coordinate with each other concerning process activities, but only as representatives of their traditional functions.
The breakthrough level. Managers employ process management with strategic intent. Broad process jobs and structures are put in place outside of traditional functions. Cooperation between intra-company functions, vendors and customers takes the form of teams that share common process measures and goals.
Competition is based upon multi-firm networks. Collaboration between legal entities is routine to the point where advanced process practices that allow transfer of responsibility without legal ownership are in place. Trust and mutual dependency are the glue holding the extended network together. A horizontal, customer-focused, collaborative culture is firmly in place.
The Process Maturity Model: Best Processes, Practices, & Enablers
Total SCM Cost Impacts and Definition
Mature Supply Chains realize savings:
Total Supply Chain Management Costs
3.70% 4.30%
5.10%2.60%
2.60%
1.70%
0.40%
0.30%
0.50%
0.70%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Linked andbelow
I ntegrated andabove
% o
f R
even
ue
SC I T Cost
SC Finance & PlanningCostI nventory Carrying Cost
Material Acquisition
Order Management Cost
12.3%
9.6%
Levels 1-2 Levels 3
Source: A Presentation to SCC Members “Supply Chain Practice Maturity Model and Performance Assessment”, The Performance Measurement Group, November 6th, 2001.
Ad Hoc
Defined
Managed(Linked)
Leveraged(Integrated)
1. Source: “Procurement: Current Benchmark Findings.” The Hacket Group, 2004
Optimized
SCM Maturity and Associated Performance
7700No. of SuppliersPer $B Spend
Suncor - 8125
1.0
2.0
3.0
4.01700
No. of SuppliersPer $B Spend
1% of SpendProcurement
Costs
Suncor – 0.96%
0.7% of SpendProcurement
Costs
104No. of FTEs
Per $B Spend
Suncor - 200
54No. of FTEs
Per $B Spend
RM ProcessesLT=1SS=1PO=1
RM ProcessesLT<40%SS<40%PO>40%
2. “The Quit Revolution in Supplier Management.” Aberdeen Group, 2004
1 1 12
Anticipated Performance at the Top Maturity LevelsROI = 20% ROCE = 19.5%
Performance at Lower Maturity Levels ROI = 16.5% ROCE = 16%
3. A Presentation to SCC Members “Supply Chain Practice Maturity Model and Performance Assessment”, The Performance Measurement Group, November 6th, 2001.
3
LT = LeadtimeSS = Safety StockPO = Perfect Order
Ad Hoc
Defined
Managed(Linked)
Leveraged(Integrated)
Source: Grosspietcsch, J. and Kupper, J. “Supply Chain Champs” (2004). The McKinsey Quarterly. 2004. No. 1
Optimized
SCM Maturity and Associated PerformanceConsumer Goods Companies
18%Weekly Measurement
Frequency 1.0
2.0
3.0
4.042%
Weekly MeasurementFrequency
5.3% of SalesLogistics
Costs
4.1% of SalesLogistics
Costs
4.0 DaysDelivery
Times
<2.5 DaysDelivery Times
96%PerfectOrder
99%Perfect Order
Performance at the Top Maturity Levels
Performance at Lower Maturity Levels
Ad Hoc
Defined
Managed(Linked)
Leveraged(Integrated)
Source: Grosspietcsch, J. and Kupper, J. “Supply Chain Champs” (2004). The McKinsey Quarterly. 2004. No. 1
Optimized
SCM Maturity and Associated PerformanceConsumer Goods Companies
48 DaysTurnover
1.0
2.0
3.0
4.011 DaysTurnover
2.5SKU per
$1.17 mil. USD
1.4SKU per
$1.17 mil. USD
33%% SKUs with
weekly planning slots
66%% SKUs with
weekly planning slots
1.0Participate in
customer planning
4.0Participate in
customer planning
Performance at the Top Maturity Levels
Performance at Lower Maturity Levels
Note: Higher maturity firms have shorter change-over times and greater upside flexibilityWithout capital investments. Lower maturity firms have 33% of contracts informal while Higher maturity firms have 66%
Ad Hoc
Defined
Managed(Linked)
Leveraged(Integrated)
Source: “Mature Supply Chain Planning”. In Focus, 2003. A PRTM and SAP Study of 60 firms and 75 supply chains in firms from $500Million to $2 billion in Sales across several industries in Europe, US and Asia.
Optimized
SCM Planning Maturity and Performance
1.0Inventory
Levels 1.0
2.0
3.0
4.00.78
InventoryLevels
1.0Delivery
Performance
1.10Delivery
Performance
1.0Order Fulfillment
Lead Times
0.86Order Fulfillment
Lead Times
1.0Inventory
Costs
0.88 Inventory
Costs
Performance at the Top Maturity Levels – Profit =1.38
Performance at Lower Maturity Levels – Profit = 1.00
Note 1: Firms that combine higher maturity planning practices with advanced planning systemsHave 35% lower inventory costs than lower maturity firms.
1
40%
37%
23%
ResultsDistribution
Supply Chain Visibility and its impacts
Performance
201816141210864
SC
M M
atu
rity
400
300
200
100
227
338
112Ad Hoc
Defined
Managed
Leveraged
Borden Total SCM Scoresv. Performance
2001273
1999203
Optimized
•2004 EBIT impacton $1.4 billion in sales
Borden ChemicalSavings from increasing maturity
Improved Service& Quality
Improved Service& Quality
90% reduction inperfect order failure
rate by 2002
90% reduction inperfect order failure
rate by 2002
Cycle TimeReduction
Cycle TimeReduction
20% by 200420% by 2004
OrganizationDevelopment
OrganizationDevelopment
Global Structure,Capable Resources
by 2001
Global Structure,Capable Resources
by 2001
Improved SupplyChain Design & Operations
Improved SupplyChain Design & Operations
$15 MM Savings*$15 MM Savings*
Leveraged GlobalPurchasing
Leveraged GlobalPurchasing
$25 MM Savings*$25 MM Savings*
BASICPP
201816141210864
SO
PT
OT
AL
300
200
100
0 Rsq = 0.6946
S&OP Practices Maturity –
Degussa Engineered Carbons (DEC)
Overall Supply Chain Process Performance
S&
OP
Pra
ctic
e In
stitu
tion
aliz
atio
n
Foundation
AdvancedNon-institutionalized
AdvancedInstitutionalized
Note: Data represents 55 Supply Chain Council firms, from various industries, that were examined using the SCM best practices survey.
150
105
60
DEC – 922004 BM Mean - 91
DEC - 2003
DEC 2004 Results: 20% reduction in inventory with no loss in service. A reduction in SCM costs of 2% of revenue or $4 million annually.
BASICPP
201816141210864
SO
PT
OT
AL
300
200
100
0 Rsq = 0.6946
<70%
>89%
Delivery performance v. commit date>89%
60%
>75%
Forecast Accuracy Benchmarks (SKU/ Location/ 30 days / Weekly)
60%
S&OP Practices Statistically Related to Performance
(Regression Analysis)
S&
OP
Pra
ctic
e In
stitu
tion
aliz
atio
n
Overall Supply Chain Process Performance
SOPTOTAL
280.0
270.0
260.0
250.0
240.0
230.0
220.0
210.0
200.0
190.0
180.0
170.0
160.0
150.0
140.0
130.0
120.0
110.0
100.0
8
6
4
2
0
Std. Dev = 39.72
Mean = 184.6
N = 55.00
S&OP Foundation
OF BM
79.7%
OF BIC
98.4%
BM = Benchmark
BIC = Best-in-class
OF BM
Median
88.6%
Order Fill Rate (Customer Service) and S&OP
Advance S&OP Practices
# of
Com
pani
es
SOPTOTAL
280.0
270.0
260.0
250.0
240.0
230.0
220.0
210.0
200.0
190.0
180.0
170.0
160.0
150.0
140.0
130.0
120.0
110.0
100.0
8
6
4
2
0
Std. Dev = 39.72
Mean = 184.6
N = 55.00
Forecast Accuracy
Median
67 %
Forecast
Accuracy
BIC
>75 %
Forecast Accuracy (SKU/Location 30 Days) and S&OP
BM = Benchmark
BIC = Best-in-class
S&OP Foundation Advance S&OP Practices
# of
Com
pani
es
SOPTOTAL
280.0
270.0
260.0
250.0
240.0
230.0
220.0
210.0
200.0
190.0
180.0
170.0
160.0
150.0
140.0
130.0
120.0
110.0
100.0
8
6
4
2
0
Std. Dev = 39.72
Mean = 184.6
N = 55.00
Total SCM Costs BM
Median 8.7%
Total SCM Costs BM
BIC
3.1%
Total SCM Costs (% of Sales) and S&OP
S&OP Foundation Advance S&OP Practices
# of
Com
pani
es
SCM KPIs mapped to Business Strategy
Performance Expectations: SCOR-card & Gap Analysis
Performance Vs CompetitionHigh Level Metrics Actual Parity Superior
Value from Improvements
Delivery Perf to Commit Date
Fill Rates
EX
TE
RN
AL
Perf Ordr Fulfillment
Order Fulfillment LT
FlexibilityFlexibility
ResponsiveResponsive
Production Flexibility
Total SCM Mgmt Cost 19%
INT
ER
NA
L
CostCostWarranty Cost
NA
Value Added Employee Productivity NA
Inven. Days of Supply 119 da
AssetsAssets Cash-to-Cash Cycle 196 da
Net Asset Turns (Working Capital)
2.2 turns
SC Response Time
85% 90% 95%
94% 96% 98%
80% 85% 90%
7 days 5 days 3 days
30 days 25 days 20 days
13% 8% 3%
NA NA NA
$156K $306K $460K
55 days 38 days 22 days
80 days 46 days 28 days
8 turns 12 turns 19 turns
82 days 55 days 13 days
SupplySupplyChainChainReliabilityReliability
50%
63%
0%
37 da
97 da
45 da
Advantage
$9 M Capital Charge
$80 M Indirect Cost
Key enabler to cost and asset improvements
Team Exercise
Pick a supply chain for your group and..
1. Build a SCOR card.
2. Access the maturity of your SCS and PM processes.
SCOR-card & Gap Analysis
Performance Vs CompetitionHigh Level Metrics Actual Parity Superior
Value from Improvements
Delivery Perf to Commit Date
Fill Rates
EX
TE
RN
AL
Perf Ordr Fulfillment
Order Fulfillment LT
FlexibilityFlexibility
ResponsiveResponsive
Production Flexibility
Total SCM Mgmt Cost 19%
INT
ER
NA
L
CostCostWarranty Cost
NA
Value Added Employee Productivity NA
Inven. Days of Supply 119 da
AssetsAssets Cash-to-Cash Cycle 196 da
Net Asset Turns (Working Capital)
2.2 turns
SC Response Time
SupplySupplyChainChainReliabilityReliability
50%
63%
0%
37 da
97 da
45 da
Advantage
Processes to be Accessed
• Supply Chain Strategy (SCS)– aligns the Supply Chain with the business goals.
• Performance Management (PM) – aligns, structures and manages the performance measurement and management system.