110 FUNDAMENTAL STRATEGIES AND BEST PRACTICESFOR SCM ORGANIZATIONS

Presented By

2WHAT IS THIS MAN FAMOUS FOR???

Theory of Relativity

E=mc2

3BUT HIS BEST WORK MAY BE HIS DEFINITION OF INSANITY:

DOING THE SAME TASKS OVER AND OVER AGAIN AND EXPECTING DIFFERENT RESULTS.

ALBERT EINSTEIN.

So what does Albert Einstein have to do with

Building a Best in Class Supply Chain Organization??

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Maybe Albert Einstein has hit on something:

Do it differently from the way you are use to doing things if you want different results.

Supply Chain Organizations today, want to be:

Effective

Relevant

Viewed as VALUED

Part of the Management Team

To accomplish this, we must have Strategies & Best Practices in place to Execute our plans.

WHAT DOES BEST PRACTICE MEAN?

Best Practice is defined as:

A management idea which asserts that there is a :

technique, method, process, activity, incentive or reward

that is more effective at delivering a particular DESIRED OUTCOME than any other :

technique, method, process, activity, incentive or reward

PresenterPresentation NotesStrategy. In business, examples are: 1. Increasing market share2. Have a global approach and presenceBest Practices. In business this could be Following a standard way of doing things for continuous learningand improvement.

7So lets examine 10 Fundamental Strategies and Best Practices to consider embracing to Achieve Supply Chain Excellence

1. Establish a governing council

2. Align the supply chain organization

3. Recruit supply chain professionals

4. Set the Strategic Sourcing strategy

5. Establish key supplier alliances

6. Manage TCO

7. Manage compliance and Risk

8. Optimize Company owned inventory

9. Gather information on a timely basis

10. Establish processes and controls

81. Establish a Govern Council

This is listed first for a reason. Absolutely mandatory

Make up of the Council: Influential Business Unit leaders, C level suite, and representation from supply chain management.

What does the council do?

1. Drives strategy. Gives direction to and helps align supply chain strategy to be consistent with company strategy

2. Helps in removing barriers within the organization

3. Influences internal decision makers. Fosters internal buy-in from the business units

4. Ensures that the supply chain organization is involved in the early stages of planning and forecasting.

92. Align the Supply Chain Organization

SCM must be properly organized in order to execute the plan

Decide: centralized or de-centralized? Answer depends and varies by company.

No prescribed answer on how to organize

Common theme is Centralized Consensus with Decentralized execution.

In a perfect world, the supply chain organization will have the functions of

Sourcing

Materials Management

Logistics

Contract Management

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Supply Chain Leader

PROCUREMENT LOGISTICS SCM ADMIN

KAP-Vendors$ Volume DrivenQ ASpend Areas-FutureCORE Commodities

StrategiesEfficienciesProcess ReviewDemand & Forecasting

WarehousingInventoryTransportationEnvironmentalDisposal

TYPICAL SCM ORGANIZATIONAL DESIGN

Release orders-KAPsSpot OrdersNon-Repetitive OrdersNON-CORE Commodities

Strategic Sourcing Tactical

SCM=Supply Chain Management KAP=Key Alliance Partners

Contract Management

Supply Chain Council

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3. Recruit Supply Chain Professionals

Recruit SCM professionals with the right mentality

More focus on strategic thinking

Less focus on measuring transactional activity

Different skill sets needed today vs. historical

Interpersonal communication

Strategic Thinking

Value Oriented

Relationship management skills

SCM Leaders are looking for two distinct skill setsA. Technical Skills (analytical, subject matter expertise)B. Project management Skills. Those who can:

1. Understand the customers changing needs2. Continually address the changing needs

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HAVE THE RIGHT MENTALITY

CONSIDERATION

COURAGE

LOSE / WIN

LOSE / LOSE

WIN / WIN

WIN / LOSE

LOW

HIGH

LOW HIGH

MY WAY OR HIGHWAY

Sacrifices Long Term relationships

Squelches Creativity

I am a loser - step on me

I am a peacemaker

Win/Lose people love!

Believe in Mutual Benefit

Long term relationship

Cooperative - Not combative

Where bad relationships go

Where 2 Win/lose people go to

Adversarial conflict

War!!

The 7 Habits of Highly Effective People-Steven Covey

As Supply Chain Professionals,

We are evolving to here

WIN-WIN RELATIONSHIPS

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4. Set the Strategic Sourcing Strategy

What is Strategic Sourcing?? Collaborative and Organized approach to spend categories with objective of selecting suppliers best suited to provide maximum value.

Strategic Sourcing implements cross functional and geographic teams for unified decision making process with Supply Chain Organization guidance and leadership. This must become a standard practice

Strategic Sourcing is the Cornerstone of Supply Chain Management

Benefits are:

Improved buy-in from the internal business units

Increased internal business unit satisfaction

Assures availability of goods and services (particularly in tight markets)

Increased responsiveness to customers changing needs.

Promotes teamwork

Streamlined Processes

Quality will be improved

Lower overall total cost and increased value

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5. Establish Key Supplier Alliances

Key Supplier selection is product of Sourcing Team This best practice that needs to have more focus. Supplier Management: the forgotten or ignored step in Strategic

Sourcing Process Terminology: Alliance Management vs. Supplier Relationship

Management

SRM suggest one way communication

Alliance Management more appropriate term: Two Way Communication

4 Objectives of an Alliance Management Team:1. Provides a mechanism to ensure relationship stays healthy2. Creates the needed platform for problem resolution3. Forum for developing continuous improvement goals for future4. Ensure that Performance Measurement objectives are achieved

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Strategic, impacts core business

Non-strategic, easily replaceable

Easy to manage, simplistic

High maintenance, emotional, complex

Exercise: Name some commodities & services in each category. How Do You View Them?????

ALLIANCE MGT

Our focus is most likely hereRoutine SRM

Routine SRM Routine SRM

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6. Manage Total Cost of Ownership

THIS IS ABOUT:

Instill Total Cost of Ownership / Total System Cost Mindset

Move away from looking at just lowest price

More focus on best value

Move towards process improvement as a measurable internal goal

Evaluation of all factors that make up the cost of goods and services

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A = Acquisition Cost (25-40%)

O = Operating Costs

T = Training Costs

M = Maintenance Costs

W = Warehousing Costs

E = Environmental Costs

S = Salvage Value

60-75%

Total Cost of Ownership = A + (O+T+M+W+E) Less S

Source: The Executive Guide to Supply Chain Management, David Riggs/Sharon Robbins

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PurchaseCost

Demand Drivers

Specifications Standardization

Inventory Practices

Operational PracticesDisposal/Salvage Practices

Perceived Opportunity

Actual Opportunity Actual Opportunity

Total Cost Approach

Environmental Issues

Warehousing Costs

Maintenance Expense

Quality Costs

Procurement Practices

Warranty Terms

Freight

PresenterPresentation NotesPrice is only one element of the total, life-cycle cost of acquiring products and services.A sourcing effort that addresses price only misses a much, much greater opportunity to reduce internal design and process costs.A rule of thumb is that once you have told a supplier what it is you want to buy and what it must look like, you have already built in 80% of the purchase cost. By understanding and managing demand drivers and how specifications are developed to meet them, a client can often double or triple the savings.Inventory is another area where you can drive out cost by asking suppliers to manage stock or migrating to just-in-time deliveries.You will find other savings opportunities in every aspect of the internal supply chain.

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Buyer Cost

Interaction Cost

Profit

Supplier Cost

Buyer Cost

Interaction Cost

Profit

Supplier Cost

Traditional Focus

(price only)

Strategic Focus

Total System Cost Savings

Traditional Strategic

Total System Cost

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7. Manage Compliance and Risk

Contract Management is a focal point for best of class companies

Sarbanes Oxley (SOX) demands controls and to mitigate risks

Aberdeen Survey to Leaders of SCM Organizations: Question: How do you manage your companys contracts? Answer: We cant even find them much less manage them

Effective Contract management: Ensures contract compliance (using the agreements) Mitigates risks by standardizing terms and conditions Provides more spend visibility for future negotiations Provides platform for viewing maverick spend

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Top SIX Contract Management Strategies (Aberdeen Group Research)

1. Standardize Contract Procedures Companywide2. Establish Central Repository that is Web Based3. Integrate with Financial ERP System4. Track Compliance more Frequently5. Improve Ability to Analyze Contract Performance6. Improve Automation (due dates, expiration dates, etc)

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8. Optimize Company Owned Inventory

Inventory is money. Ask any CFO or Controller!! Inventory holding cost: 20-48% Establish Vendor Managed Inventories (VMIs) as

one Solution Current Market (mostly sellers vs. buyers market) will

challenge VMI programs Meet expected lead times Logistics issues particularly if sourced offshore

Need exist to Implement improved and effective demand planning and forecasting methodology

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9. Gather Information on a Timely Basis

Gather Timely Information from the ERP System

a. One of the largest barriers is inability to retrieve precise spend data

b. Consider deployment of Data Cleansing Software

c. Address multiple ERP system inadequacies and provide solution

d. Best of class companies Navigate these Challenges and Find a Way within their information system to retrieve meaningful data:

1. Goal = Information available to users

2. Information used to target opportunities of spend or process improvement

3. Information used to monitor compliance and controls

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10. Establish Processes and Controls

Simplify Processes and Controls-Then Select Correct Technologies to Complement

1. First order of business is to establish your processes2. When this is completed, select the technology to

compliment your processes

Struggling Organizations often implement technology then develop processes to meet the needs of technology.

Make Policies and Procedures simple and easy to understand

Controls should be adequate to deter fraud or ensure that improper decisions are not being made and doing so without adding unnecessary process steps

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SUMMARY

To expect different results, we may need updated roadmap

No two companies operate the same way But all have guiding principles for success

Best Practices are a benchmark and guide for SCM Effectiveness and Improvement

Company leadership expects SCM Organizations to be more Transformational vs. Tactically focused

Good News: Company leadership is expecting more from our Supply Chain Management profession

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THANK YOU !!

M. Abidur Rahman CEO, MECOL Engineering Co. Ltd.

MBA (Strategic Management) a.rhmn@yahoo.com

01731501740

Slide Number 1WHAT IS THIS MAN FAMOUS FOR???Slide Number 3So what does Albert Einstein have to do with Building a Best in Class Supply Chain Organization?? Slide Number 5WHAT DOES BEST PRACTICE MEAN?Best Practice is defined as:A management idea which asserts that there is a :technique, method, process, activity, incentive or reward that is more effective at delivering a particular DESIRED OUTCOME than any other :technique, method, process, activity, incentive or rewardSo lets examine 10 Fundamental Strategies and Best Practices to consider embracing to Achieve Supply Chain Excellence1. Establish a Govern Council2. Align the Supply Chain Organization 3. Recruit Supply Chain ProfessionalsHAVE THE RIGHT MENTALITY4. Set the Strategic Sourcing Strategy5. Establish Key Supplier AlliancesSlide Number 156. Manage Total Cost of OwnershipSlide Number 17Total Cost ApproachSlide Number 197. Manage Compliance and RiskTop SIX Contract Management Strategies(Aberdeen Group Research)8. Optimize Company Owned Inventory9. Gather Information on a Timely Basis10. Establish Processes and ControlsSUMMARYTHANK YOU !!M. Abidur RahmanCEO, MECOL Engineering Co. Ltd. MBA (Strategic Management)a.rhmn@yahoo.com01731501740