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Click to edit title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,TheEightEffectivePrinciplesof,SupplyChainManagement,0,1999AndersenConsulting,What are the cost and margin implications of integration for the supply chain participants?,What level of integration is optimal?,Should integration be pursued physically or virtually?,What pieces of the supply chain are candidates for outsourcing?,What key information is required to integrate?,How will the information be,sourced,?,How should information be managed across the supply chain?,How do you drive value from Year 2000 systems investments?,To what degree are the supply chain participants ready to integrate?,Operational excellence?,Information management?,Economic incentive?,Financial wherewithal?,Capability to manage change?,Architecture,Information,Readiness,Many questions should be asked before taking any concrete SCM initiatives.,1, 1999 Andersen Consulting,Eight fundamental principles provide the levers to balance customer service and profitable growth.,Supply Chain,Synchronization,Customer-Driven,Manufacturing,Customize theLogistics Network,Supply Chain-Wide,PerformanceMeasurements,Strategically Sourceand Procure,Supply Chain-Wide,Technology Strategy,Design and DifferentiateProduct Closer,to the Customer,Plan According toMarket Demand,Signals,Segment Customers,Based on Needs,2, 1999 Andersen Consulting,One-size-fits-all approach to service,Costs and profitability averaged across segments,Unable to gauge likely profitability of customers,Needs-based segmentation of customers,Understand the cost to serve, predict marginal profitability for each customer segment,Identify segment-specific service packages which maximize profitability,Identify which customers will generate the highest long-term profitability, Traditional , Opportunities ,“We dont fully understand the,relative value customers place on our,service offerings”,Service balanced with profitability,Segment Customers Based on Needs,Segmentation typically groups customers by industry, product, or trade channel. Segmentation based on service needs allows a company to develop service portfolios tailored to various segments.,3, 1999 Andersen Consulting,Sales & Merchandising Needs,Low,Low,High,High,Order Fulfillment Requirements,Innovators,Grainger,Home Depot,Wal-Mart,Logistics Optimizers,Chrysler,Westinghouse,Maytag,Developing,Auto Zone,Staples,Traditionalists,Small Retail Stores,Small Industrial Wholesale Distributors,Needs Based Segmentation,An Example of one way in which service needs may be segmented is to consider order fulfillment requirements and sales and merchandising needs.,Segment Customers Based on Needs- Example: Need Based Segmentation,4, 1999 Andersen Consulting,Poor on-time delivery performance,Multiple plans functionally “optimized”,Long product delivery lead times,Fixed planning cycles and dated technology,Planning independent of supply and demand chain partners,Limited decision support capability,Fast and accurate order promising,Develop single shared plan across the enterprise,Lead time is a competitive weapon,Rapid response to changes in demand,Collaboration and synchronization with business partners on supply chain activities,Use of simulation technologies to support business decisions, Traditional , Opportunities ,Many organizations have identified customer-driven planning processes built around creating the “perfect order”, hitting the delivery date on time in one complete damage-free shipment, supported by timely communication flows.,Plan According to Market Demand Signals,5, 1999 Andersen Consulting,Collaborative Planning and Execution in the PC industry has emerged as a method to improve alignment of supply and demand.,Exacerbated by . . .,Short product life cycles,Product shortages,Independent planning and execution decisions,Promoted by . . .,Shared forecasting and demand,Synchronized order fulfillment,Joint capacity planning,CollaborativePlanningandExecution,Supply-Demand Mismatch,Supply-Demand Alignment,Launch date,End of Life,True End Consumer Demand,Channel Orders,Supply,Units,Units,Time,Time,True End Consumer Demand,Channel Orders,Supply,Launch date,End of Life,Plan According to Market Demand Signals- Example,6,Standard product and service delivered to all customers,Make to stock,Long development lead times,Functionally based development processes,Segment based services with products configured to needs of customer,Timely delivery of “shelf ready” product (package to order),Rapid development cycle times,Team-based development processes,Web enabled design integration,Intellectual capital leveraged for competitive advantage, Traditional , Opportunities ,Mass production manufacturing efficiencies no longer provide competitive advantage. The ability to design flexibility into products and production processes will allow companies to give their customers exactly what they want faster and with less cost.,Design & Differentiate Closer to Customer,Postponement is one practice of this principle.,7, 1999 Andersen Consulting,High performing global electronics companies change their demand forecasts much closer to production than low and medium performers - 75% of them within a week of production.,Source: Marketing and Manufacturing Managers,(4/2/97 data),- How Close to Production Can Marketing Formally Change the Demand Forecast -,0%,25%,50%,75%,100%,LowPerformers,Higher,Performers,60%,20%,20%,55%,27%,18%,25%,45%,30%,MediumPerformers,Design & Differentiate Closer to Customer- Example: Change Demand Forecast,8, 1999 Andersen Consulting,Build to a mix of orders and forecast,Complex planning process supported by MRP/ERP software,Lot sizes based on procurement and economies of scale,Just In Time delivery from vendor warehouses,Sophisticated shop floor control systems,Quality inspected into product according to part specification,Customer demand linked directly to manufacturing,Quick response or vendor managed replenishment (or VMI),Web-based integration to suppliers and customers for point of consumption data,Team based focused factory work organization with flexible multi-skilled operators and few indirect staff,Quality engineered in the product and manufacturing process through joint development, Traditional , Opportunities ,Production strategies are evolving rapidly and provide a sustainable source of competitive advantage. Customer-driven manufacturing is designed to improve manufacturing operations, but the concepts apply across the supply chain.,Customer-Driven Manufacturing,9, 1999 Andersen Consulting,High performing global electronics companies score higher on traditional internal manufacturing metrics.,Andersen Consultings 1997 Global Electronics Study,Completed Order Fill Rate,0%,25%,50%,75%,100%,LowPerformers,Higher,Performers,18%,Cycle Time,(PC and Other Companies),0,1,Weeks 2,LowPerformers,Higher,Performers,67%,- Internal Manufacturing Metrics -,Customer-Driven Manufacturing- Example: Performance Metrics,10, 1999 Andersen Consulting,Old Paradigm,Engineering problem,Control $,“Crisis planning”,Best of Breed tools,Component teams,“Mfg will fix it”,Were done at Job 1,“Firefighter”,New Paradigm,Product development,Hours, quality,$,Common methodology,Integrated tools,Platform teams,Concurrent view,Process metrics,“By the book”,-A Cultural Change -,The introduction of a new “manufacturing” culture focused on material flow and control, quality, and a team-based approach has produced significant improvements.,Factory metricResults,Space reduction40-60%,Inventory reductionWIP75-90%F/G25-50%,Lead-time reduction75-90%,Quality improvement 75-90%,Direct labor productivity 10-15%,Indirect labor productivity 50-90%,-Benefits -,Customer-Driven Manufacturing- Example: Manufacturing Culture Change,11, 1999 Andersen Consulting,Price focused,Reduced number of vendors,EDI links to vendors,Minimal focus on non-production purchases,Vendors viewed as resources not assets (only contact is through purchasing - negotiate price, place order),Supplier based inspection and quality reviews,Total lifecycle cost and value focus,Grouping commodities to leverage buying power,Total cost of ownership,Vendor integration into supply chain,Fact-based negotiation,Leverage suppliers knowledge in product design,Web-based planning and consumption,Automated compliance to contract,Joint cost and time reduction through robust design and process capabilities, Traditional , Opportunities ,Traditionally, manufacturers have had a short term “best pricing” focus.,However, leading edge manufacturers realize “our suppliers costs are in effect our costs.”,Strategically Source and Produce,12, 1999 Andersen Consulting,5-20% cost reduction,Fact-Based Negotiation,Total cost approach,eProcurements value proposition is high because it reduces operating costs for both buyers and suppliers.,How can we save so much?,Savings for Buyer,Volume Leverage,Productivity,Inventory,Savings for Supplier,Sales & Order Mgt.,Time to Collect,Inventory,Strategically Source and Produce- Example: Ariba Alliance,13,Profit Impact,% of total spend,Criticality,Importance of quality (Will unsatisfied supply lead to shut down? drop in productivity? disqualified products or services? Lost opportunities for growth?),Impact of shortage,Value added provided by vendor,Supply Risk,Number of vendors capable of delivering quantity & quality required,Intensity of competition among suppliers,Existence of competitive demand,Price fluctuation /Price risk,Lead time/ Delivery risk,Substitution possibility,To differentiate among items purchased, two dimensions stand out in the Item Management Matrix.,Strategically Source and Produce- Example: CAPCO Strategic Soucing,14, 1999 Andersen Consulting,Strategically Source and Produce- Example: CAPCO Strategic Soucing,Within the Item Management Matrix, Items purchased can be further grouped into 4 quadrants.,Materials Management,Supply Management,Purchasing Management,Sourcing Management,Low,High,Low,High,Leverage,Items,Strategic,Items,Non-critical,Items,Bottleneck,Items,Profit Impact,Supply Risk,Item Management Matrix,15, 1999 Andersen Consulting,Levels of Sophistication,Non-critical items:,Decision Level-,Lower management level,Decision Authority-,Delegated to end-users, and audited afterwards; PA initiated intervention, when formal contracting and vendor consolidation is justified,Procurement Focus-,Convenient for business,Main Tasks-,Convenient transaction modes (e.g. B/O with EDI hookup); Vendor consolidation; Product standardization; Inventory optimization;,Sources-,Local suppliers with alternative ones identified,Time horizon-,up to 12 months,Leverage items:,Decision Level-,Medium management level,Decision Authority-,Category team,Procurement Focus-,Reduce profit impact,Main Tasks-,Exploitation of purchasing power; Monitoring possibility of solution substitution; Requests for more value-added services;,Sources-,Chiefly suppliers with local presence; alternative ones qualified,Time horizon-,1 - 3,years,Bottleneck items:,Decision Level-,Senior management level,Decision Authority-,Category team,Procurement Focus-,Reduce supply risks,Main Tasks-,Volume and quality insurance; Security of inventory; Exploration of alternatives;,Sources-,Mostly highly dependent on the resources necessary for de-bottleneck; alternative ones explored,Time horizon-,Variable, dependent on the nature of supply risks,Strategic items:,Decision Level-,Top management level,Decision Authority-,Category team consists of senior management,Procurement Focus-,Make conscious decisions to balance profit impact and supply risks,Main Tasks-,Formulation of supply management strategies explicitly linked to the corporate strategy; Partnering with suppliers to identify joint-cost reduction opportunities; Active exploration of opportunities of alliance with members in the value chain or even with,complementor,in other industries (e.g. purchasing group),Sources-,Global suppliers,Time horizon-,Over 3 years,Different quadrants imply different procurement management approaches.,Strategically Source and Produce- Example: CAPCO Strategic Soucing,16, 1999 Andersen Consulting,All purchase items are put into 4 quadrants and different soucing strategies and purchasing processes are defined to optimize procurement cost.,High,Low,High,Supply Risk,Low,Profit,Impact,PX,HAC,Small-Scale,Project,Large-Scale,Project,Specialty,Chemicals,Gas,Tankage,Transportation,General,Service,General,Insurance,Utility,Common,Spare Parts,Capital Equipment &,Specialized Spare Parts,Item Management Matrix,Strategically Source and Produce- Example: CAPCO Strategic Soucing,Expected to release benefits at least US$ 10 Million annually.,17, 1999 Andersen Consulting,Customize the logistics network to the service requirements and profitability of customer segments.,Logistics network designed to meet a single standard,Typically either:,Average or Toughestservice requirements,Cross-docking,Logistics independent of manufacturing,Company owned warehousing and dedicated fleets,Multi-level logistics network to provide segment-specific services,Robust logistics planning enabled by “real-time” decision support tools,Outsource some or all elements of the supply chain,Inclusion of value added logistics provider or Fourth Party Logistics provider,Integrate the manufacturing and logistics processes,Configure the network to reduce cost and replenishment lead time, Traditional , Opportunities ,. . . of course, customer needs and preferences do not tell the whole story, the service packages must turn a profit.,Customize the Logistics Network,18, 1999 Andersen Consulting,1,200,1,000,800,600,400,200,0,$8,470,$7,700,$10,010,$8,000,Baseline,Option 1,Option 3,Option 2,Customer Freight,Interfacility Freight,Total Network Cost,($000),10,200,10,100,10,000,9,000,8,000,7,000,Total Network Cost,($000),50,60,70,80,90,100,Option 1,Option 4,Option 2,Option 6,Option 3,Option 5,Percentage of Volume within Target Lead Time,Total Logistics Cost,Cost Service Trade-off Curve,Warehousing,Inventory Carrying,Efficient distribution strategies may require analysis of alternative network scenarios which balance cost and service requirements.,Customize the Logistics Network- Example: Cost Service Trade-off Curve,19, 1999 Andersen Consulting,By moving from a myopic view of individual optimization to a channel-wide view, estimates in the food industry suggest 42% reduction in per case logistics cost and 73% reduction in total days in the system,Value-added,Distributor,Food,Retailer,Distribution,Centres,Supplier,Distribution,Centres,Individual Optimization,Channel-wide Optimization,Transition to Channel-Wide Optimization,Average cost/case = $2.36# of days to the store = 73,Average cost/case = $1.37# of days to the store = 24,Customize the Logistics Network- Example: Channel-wide Optimization,20, 1999 Andersen Consulting,EDI,Shop floor control,Functionally based systems acquisitions,Separate or disparate systems,Poor customer to operations links,Independent financial systems (no true purchase-to-pay or order-to-receive model),Leverage web capabilities to span the entire supply chain,Globalization of corporate systems,Information clearing houses,Supply chain optimization using decision support tools,Business simulation training,Electronic links to customer demand,Automated order generation for POs with tracking,Customer connectivity (analysis and response to promotions and marketing impact, Traditional , Opportunities ,Mass production manufacturing efficiencies no longer provide competitive advantage. The ability to design flexibility into products and production processes will allow companies to give their customers exactly what they want faster and with less cost.,Supply Chain-wide Technology Strategy,21, 1999 Andersen Consulting,Supply Chain-wide Technology Strategy - Example: Lucent Technology,Enabling technologies are significantly impacting the cost to procure.,Customer Interaction Type,High,Low,Direct Mail,Contact,$0.25-$5.00,(1),Self-Service,VRU / Web Interaction,$0.10-$0.40,(5),Telephone Customer,Service Interaction,$2-$5,(4),Fax/Mail,Interaction,$3-$6,(3),Telemarketing,Interaction,$8-$24,(1),Telephone Product,Support Interaction,$4-$75,(2),Field Sales,Interaction,$40-$400,(1),Automated,Face-to-Face,Current,Future,US Interaction Costs,Customer,Interaction,Costs,Sources:,(1),Lucent Technologies Marketing Costs,(2),Help Desk Institute - Help Desk and Customer Support Practices (946 companies surveyed),(3),Technical Assistance Research Program (TARP) (170 companies surveyed),(4),Purdue University Center for Customer Driven Quality (200 companies surveyed) and TARP (170 companies surveyed),(5),TARP (170 companies surveyed) & Andersen Consulting Analysis,22, 1999 Andersen Consulting,Performance measured independently by each functional area,Metrics locally optimized,Too many measures - which reduce impact,Common report cards - set common goals & joint measures - understand how to leverage assets & skills to greatest joint advantage,Supply chain wide bottom line impact metrics,Unit Cost (total delivered),Inventory (days of supply),Lead Time (order to cash),Perfect Order (fill rate service levels, quality, time),Functional metrics must feed or influence one of the four primary measures,Return on sales (growth in profitable market segments),Supply chain cycle time, Traditional , Opportunities ,To focus the entire company on achieving the vision, we must rethink the way it measures and rewards behavior.,Common Report Card,Total Delivered,Unit Cost,Perfect Order,Performance,Order to Cash,Lead Time,Days supply Inventory,IncreasedVolume,IncreasedMargins,Joint Measures,Promotes win-win environment,Increased,Profits,Return,on Sales,Supply Chain-wide Performance Measurement,23, 1999 Andersen Consulting,Relationship Between Supply Chain Principles and Financial Outcomes,1,Information technology provide the infrastructure required to capture benefits across the supply chain,High,Medium,Low,1.,Segment Customers Based on Needs,2.Plan According to Market Demand Signals,3.Design and Differentiate,Product Closer to Customer,4.Customer-driven Manufacturing,5.Strategically Source and Procure,6.Customize the Logistics Network,7.Develop Supply-Chain Technology Strategy,1,8.Develop Supply-ChainPerformance Measures,Revenue Growth,Asset Utilization,Cost Reduction,Eight Principles,Customer Service,24, 1999 Andersen Consulting,
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