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IS YOUR SUPPLY CHAIN COMPETITIVE?HOW DO YOU KNOW?BLAIR R WILLIAMSProfessor and Director,Polytechnic University.Brooklyn,New Y 718-260-3835OBJECTIVES AND OUTLINEOBJECTIVE:TO HELP YOU DETERMINE IF YOUR COMPANY HAS A COMPETITIVE SUPPLY CHAIN.OUTLINE:uELEMENTS OF A SUPPLY CHAINuSCOR MODEL AND METRICSuBENCHMARKING uIMPLICATIONS u BEST PRACTICESuINFORMATION SOURCESDEFINITION OF A SUPPLY CHAINuA SUPPLY CHAIN COVERS THE FLOW OF MATERIALS,INFORMATION AND CASH ACROSS THE ENTIRE ENTERPRISEuSUPPLY CHAIN MANAGEMENT IS THE INTEGRATED PROCESS OF PLANNING,SOURCING,MAKING AND DELIVERING PRODUCT,FROM RAW MATERIAL TO END CUSTOMERELEMENTS-SUPPLY CHAIN MANAGEMENTELEMENTS-SUPPLY CHAIN MANAGEMENTPLAN-SOURCE-MAKE-DELIVER-MEASUREPLAN-SOURCE-MAKE-DELIVER-MEASURESUPPLY CHAIN INFRASTRUCTURE TRANSFER OF INFORMATION,MATERIALS AND CASHDEMAND MANAGEMENTCUSTOMER ORDER MANAGEMENT PROCESSFORECASTINGCUSTOMER PARTNERSHIPSSOURCINGSELECTING,QUALIFYING,PARTNERING,MEASURING AND PROVIDING FEEDBACK TO KEY SUPPLIERSELEMENTS OF SUPPLY CHAIN MANAGEMENTELEMENTS OF SUPPLY CHAIN MANAGEMENTPLAN-SOURCE-MAKE-DELIVERPLAN-SOURCE-MAKE-DELIVERuSUPPLY OR MANUFACTURING PROCESSFACTORY SCHEDULINGINVENTORY MANAGEMENTLEAD TIME REDUCTIONuLOGISTICAL PROCESSTRANSPORTATION,WAREHOUSING,DISTRIBUTION,DELIVERYuGLOBAL PERFOMANCE MEASUREMENTS-SCORSUPPLY CHAIN COUNCIL(SCC)uSCC IS AN INTERNATIONAL PROFESSIONAL BODY FOR SUPPLY CHAIN MANAGEMENT(SCM)SYSTEMS AND PRACTICESuDEVELOPED AND ENDORSED THE SCOR(SUPPLY CHAIN OPERATIONS REFERENCE MODEL)AS A CROSS INDUSTRY STANDARD FOR SCMSPECIAL INDUSTRY GROUPSAEROSPACE AND DEFENCECOMPUTERS&ELECTRONICS EQUIPMENTPHARMACEUTICALS&CHEMICALSUTILITIES-TELECOMMUNICATIONSRETAIL-CONSUMER PACKAGED GOODSDEFENSE AND INDUSTRIALSEMICONDUCTORSSCOR MODELuBUSINESS PROCESS REENINEERINGAS IS TO TO BEuMETRICS uBENCHMARKINGuIMPLICATIONSuBEST PRACTICE ANALYSISuPROCESS REFERENCE MODELBASED ON BEST IN CLASS RESULTSCHARACTERIZE MANAGEMENT PRACTICESIDENTIFY SOFTWARE SOLUTIONSLEVEL I METRICSuDELIVERY PERFORMANCEuPERFECT ORDER FULFILLMENTuPRODUCTION FLEXIBILITYuTOTAL SUPPLY CHAIN MANAGEMENT COSTuMATERIAL ACQUISITION COSTuCASH TO CASH CYCLE TIMEuTOTAL INVENTORY DAYS OF SUPPLYuASSET TURNS LEVEL I METRICSuDELIVERY PERFORMANCE-%THE PERCENTAGE OF ORDERS THAT ARE FULFILLED ON OR BEFORE THE CUSTOMERS REQUESTED DATELEVEL I METRICSuPERFECT ORDER FULFILLMENT-%DELIVERED COMPLETE WITH ALL ITEMS ON THE ORDER IN THE QUANTITY REQUESTEDDELIVERED ON TIME TO CUSTOMERS REQUEST DATEDELIVERED IN PERFECT CONDITION WITH THE CORRECT CONFIGURATION AND COMPLETE&ACCURATE DOCUMENTATIONLEVEL I METRICSuPRODUCTION FLEXIBILITY-DAYSTHE NUMBER OF DAYS REQUIRED TO ACHIEVE AN UNPLANNED,SUSTAINABLE 20%INCREASE IN PRODUCTIONLEVEL I METRICSuTOTAL SUPPLY CHAIN MANAGEMENT COST-$sSUM OF COSTS OF:ORDER MANAGEMENTMATERIALS ACQUISITIONINVENTORY CARRYINGSUPPLY CHAIN-FINANCE,PLANNING AND MIS LEVEL I METRICSuMATERIAL ACQUISITION COST-$sSUM OF COSTS TO MANAGE:COMMODITY MANAGEMENT&PLANNING SUPPLIER QUALITY ENGG.INBOUND FREIGHT&DUTIESRECEIVING AND MATERIAL STORAGEINCOMING INSPECTIONMATERIAL PROCESS ENGG.&TOOLINGLEVEL I METRICSuCASH TO CASH CYCLE TIME-DAYSTHE NUMBER OF DAYS BETWEEN PAYING FOR RAW MATERIALS AND GETTING PAID FOR PRODUCT,AS CALCULATED BY:INVENTORY DAYS OF SUPPLY PLUS DAYS OF SALES OUTSTANDING(RECEIVABLES)MINUS AVERAGE PAYMENT PERIOD FOR MATERIAL(PAYABLES)C to CC TIME=INV DAYS+DAYS REC DAYS PAYLEVEL I METRICSuTOTAL INVENTORY DAYS OF SUPPLY(THE AVERAGE COST OF INVENTORY DIVIDED BY THE COST OF GOODS SOLD)TIMES 365TOTAL INVENTORY DAYS SUPPLY=INVENTORY x 365COGSLEVEL I METRICSuASSET TURNS NUMBERTOTAL REVENUE DIVIDED BY TOTAL ASSETS =TOTAL REVENUE TOTAL ASSETSBENCHMARKING AND BEST PRACTICESuDELIVERY PERFORMANCE TO REQUEST%(8/2000)BIC Aver MedianPharmas and Chemical98.978.491.9Computers82.856.458.8Consumer Packaged Goods98.472.384.4Defense and Industrial98.069.471.7Electronic Equipment97.467.674.2Semiconductors84.562.064.8Telecommunications94.863.472.6DELIVERY PERFORMANCE TO REQUEST%uRANGE 62%TO 98%(20 to 30%points per Industry Group)uIMPLICATIONS MOST FUNDAMENTAL MEASUREMENT OF CUSTOMER SATISFACTIONINDICATES HOW WELL THE SUPPLY CHAIN IS CONFIGURED&INTEGRATEDDELIVERY PERFORMANCE TO REQUEST%uBEST PRACTICESORDER TRACKING SYSTEMS TO COMPARE REQUESTED VS ACTUAL DATES AT LINE ITEM LEVELDEMAND VISIBILITY TO SUPPLIERSCONSOLIDATION,PACKING AND DELIVERY OUTSOURCED.DELIVERY DIRECTLY TO CUSTOMER POINT OF USEON LINE ATP AND ORDER STATUS AVAIL TO CUSTOMERBENCHMARKING AND BEST PRACTICESuUPSIDE PRODUCTION FLEXIBILITY(8/2000)DAYSBICAverMedianPharmas and Chemical18.4229.3 120 Computers9.753.438.5Consumer Packaged Goods9.4144.8 60.0Defense and Industrial16.796.136.0Electronic Equipment9.073.360.0Semiconductors30.0188.5 175.0Telecommunications9.641.730.0UPSIDE PRODUCTION FLEXIBILITY DaysuRANGE 9 to 230 DAYS(6 to 10 times within Industry Group)uIMPLICATIONS MEASURE OF COMPANYS SUPPLY FLEXIBILIYINCREASE IN PRODUCTION WITHOUT CAPITAL INVESTMENTUPSIDE PRODUCTION FLEXIBILITY DaysuBEST PRACTICESEFFECTIVE SUPPLIER PARTNERSHIPSSYNCHRONIZING OPERATIONS ACROSS THE COMPANY TO REDUCE RAMP TIMEHIGH PERFORMANCE MANUFACTURING TECHNIQUES DEMAND PULL,CELLULAR MFG,MULTI SKILLED FORCEBUILD/CONFIGURE TO ORDER MODULAR DESIGNBENCHMARKING AND BEST PRACTICESuTOTAL SUPPLY CHAIN MANAGEMENT COSTS(8/2000)%OF REVENUEBICAverMedianPharmas and Chemical5.010.311.2Computers4.39.48.4Consumer Package Goods 4.111.39.1Defense and Industrial3.29.48.9Electronic Equipment5.111.411.4SemiconductorsTelecommunications3.78.68.2TOTAL SUPPLY CHAIN MANAGEMENT COSTS%OF REVENUEuRANGE 3 to 11%(double within Industry Groups)uIMPLICATIONS 1 BILLION DOLLAR COMPANY WILL SAVE$50 million(5%)PER YEAR,IN SUPPLY CHAIN MANAGEMENT COSTS,OVER THEIR COMPETITIONTOTAL SUPPLY CHAIN MANAGEMENT COSTS%OF REVENUEuBEST PRACTICESSCM VIEWED AS CRITICAL PROCESS AND INTEGRATED INTO BUSINESS PLANNING PROCESSSINGLE EXECUTIVE OVERALL RESPONSIBILITYON LINE EDI AND PURCHASINGPAY ON RECEIPT(ELIMINATE RECONCILIATION OF INVOICES)BENCHMARKING AND BEST PRACTICESuMATERIAL ACQUISITION COST 1996%OF REVENUEBICAverMedianPharmas and Chemical 0.51.3Computers&Electronics 1.01.7Consumer Package Goods 1.11.7Defense and Industrial1.02.6Semiconductors0.51.3Telecommunications1.01.9Automotive1.83.5MATERIAL ACQUISITION COST%OF REVENUEuRANGE 0.4 to 3.5%(double across industry groups)uIMPLICATION A 1 BILLION$CO.SAVES$10 MILLION(1%)PER YEAR IN MATERIAL BUYING COSTS PURCHASING,QUALITY AND DEVELOPMENTMATERIAL ACQUISITION COST%OF REVENUEuBEST PRACTICES SUPPLIER PARTNERSHIPSKEY SUPPLIERS ON PRODUCT DEVELOPMENT TEAMSCERTIFIED SUPPLIERS DELIVER AT POINT OF USECOMMODITY TEAMS FOCUS ON STRATEGIC PROCUREMENT ISSUESBENCHMARKING AND BEST PRACTICESuCASHtoCASH CYCLE TIME (8/2000)DAYS BICAverMedianPharmas and Chemical31.3120.2 96.8Computers27.562.151.5Consumer Package Goods 19.977.063.6Defense and Industrial20.870.367.1Electronic Equipment31.6116.3103.1Semiconductors49.4110.3104.5Telecommunications19.490.585.8CASHtoCASH CYCLE TIME-DAYSuRANGE 20 to 120 days(2 to 4 times within Industry Groups)uIMPLICATIONS 50%TO 75%OF WORKING CAPITAL BECOMES AVAILABLE TO COMPANIES TO INVEST CASHtoCASH CYCLE TIME-DAYSuBEST PRACTICES CASH-RELEASE AGREEMENT FOR BLANKET ORDERSTHIRD PARTY RECONCILIATION AND PAYMENT OF RECEIVABLESABILITY TO MAINTAIN LOWER INVENTORY LEVELSBENCHMARKING AND BEST PRACTICESuINVENTORY DAYS OF SUPPLY(BIC&Median96,Av.98)DAYSBICAver MedianPharmas and Chemical102120160Chemical375460Computers313876Consumer Packaged Goods72Defense and Industrial558085Electronic Equipment3177Semiconductors4976Telecommunications508095INVENTORY DAYS OF SUPPLY-DAYS uRANGE 20 to 120 days(3 to 4 times within Industry Groups)uIMPLICATIONSFOR A 1 BILLION$CO.,WITH COGS OF 500 MILLION,DIFFERENCE OF 50 DAYS IS$100 MILLION!SUPPLIERS SELECTED ON TOTAL COST OF OWNERSHIP(TCO),NOT JUST PURCHASE PRICEINVENTORY DAYS OF SUPPLY-DAYSuBEST PRACTICESAUTO REPLENISHMENT Ex.VMIVISIBILITY OF DEMAND TO ALL KEY PARTICIPANTS IN SUPPLY CHAINCAPACITY AND SUPPLY CONSTRAINTS IDENTIFIED AND MANAGED PRODUCT DESIGN INCLUDES PART STANDARDIZATION,CONFIGURABILITY,END OF LIFE MANAGEMENTSOURCES OF INFORMATIONuPRTN Insight MagazineuSupply Chain Council and SCOR-PublicationsuArthur Andersen Knowledge SpaceuPerformance Measurement Group Dimensions NewsSUMMARY OF WHAT WE COVEREDuIDENTIFIED SCOR METRICSuDEFINED HOW THE METRICS WERE CALCULATEDuBENCHMARKED THE METRICS BY INDUSTRY GROUPING BY BIC,MEDIAN,AVERAGE,WICuLOOKED AT THE IMPLICATIONS OF THE DIFFERENCESuCOVERED SOME BEST PRACTICESNEXT STEPSuCLASSIFY YOUR COMPANY IN AN INDUSTRY GROUP(CHECK SCC ON WEB)uCALCULATE YOUR COMPANYS PERFORMANCE IN THE LEVEL I METRICSuPLOT WHERE YOUR COMPANY IS uARE YOU COMPETITIVE?uNOW YOU KNOW!INFORMATION THANK YOU MORE INFORMATION email BLAIR WILLIAMS
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