CONNECTIONS 2005: SUPPLY CHAIN ROI

SCMN 7700/7706SCMN 7700/7706

Demand Demand FulfillmentFulfillment

Segment 02Segment 02

SC&L StrategySC&L Strategy

2

1. Link Strategies

2. Value for the Consumer

3. Efficiency, Effectiveness, and Differentiation

4. Shareholder Value

5. Demand and Supply Planning

6. Leverage Tools and Technology

7. Seamless Integration

8. Core Competencies

9. Outsourcing a Strategic Alternative

10. Security and Visibility

11. Global Mindset and Capabilities

12. Change and Reinvent

The 12 Essentials of SCM Strategy

33

Align supply chain strategies with corporate

goal and plans

Supply chain leaders must:

Essential #1

4

Framework for Supply Chain Strategy

Business Objectives

Management Processes

Focus of Top Management

Supply Chain Objectives

Supply Chain Processes

Importance to Top Management

5

Business Objectives

Management Processes

Focus of Top Management

Supply Chain Objectives

Supply Chain Processes

Importance to Top Management

Business Strategy

Supply Chain Strategy

Aligning Supply Chain Strategy with Business Strategy

6

26%Doers

27%Leaders

13%Laggards

34%Dreamers

Business Strategy

Su

pp

ly C

ha i

n S

trat

egy

Reality lags the integration goal but some positive exceptions exist. “The overachieving

vision is that we could not survive with a

fragmented approach. But we have to

articulate that it isn’t just about buildings and getting to one system. It’s about

enabling customers to get our products

through their systems more efficiently,

thereby generating more profit on our

products.”

Sr. VP of Logistics$14.5B Food Producer

77

Create value and satisfaction

for the end consumer

Supply chain management must:

Essential #2

8

A Shift in Customer (Buyer) Demand Toward Integration and Customization

Highly CustomisedSolutions

Highly Integrated Solutions

Stand Alone Services Level of Integration

Basic Services

Lev

el o

f C

ust

om

isat

ion

Customers

Customer Demand

Customer Demand

Cu

sto

mer

Dem

and

Source: Roger MacFarlane, CEO

9

The Pursuit of the “Perfect Order” Requires All Supply Chain Players to

Work TogetherSupplier Manufacturer Warehouse Distribution Centre Store

Accurate receiving

Improved accuracy and visibility of shipmentsProduct recall/ Product tracking

Intelligent sub-assembliesImproved manufacturing through-put

Automated Shipping (reduced cost andIncreased capacity)

Automated Receipt, Shipping, and increased through-put capacity

Automated put away and picking for increased capacity and accuracy

Automated checkingfor less errors(crucial for mixed pallet loads). Product recall/tracking

Reduced truck turn around time. Less invoice queries

IncreasedPicking accuracy

Increased picking Accuracy. Supportasset (e.g. RPC’s, dollies) management.Product trackingReverse LogisticsShrink reduction

Automated ReceivingReverse logisticsAsset management

Increased shelf availability through splitting back and front store inventory to show need for shelf filling Shrink reduction

9Source: Capgemini LLC.

1010

Creating efficiency, effectiveness, and

differentiation from competitive supply chains

Supply chain strategy must focus on:

Essential #3

11

Supply Chain Value Creation Involves Three Product/Service Forms

“Value-Added” Product/Service Form Visibility Information Technology Order Fulfillment Network Solutions etc.

“Tangible” Product/Service Form Transportation Warehousing Cross-Docking Freight Forwarding etc.

“Core” Product/Service Form Efficiency Effectiveness Differentiation

1212

Drive Shareholder Value

SCM must adopt a new mindset:

Essential #4

13

Supply Chain Success Impacts Corporate Financial Performance

Accenture/Stanford/Insead Research Indicates:

Supply Chain Category CAGR of Market Capitalization Above/Below Industry AVG

Leaders + 7%-26%

Transformers + 8%

Laggards - 2%-5%

Decliners - 25%

Source: Accenture/Stanford/Insead Research, 2003.

Revenue Growth Income Statement Balance Sheet

14

…but it’s getting more difficult to do as fuel and other costs rise.

1515

Integrate demand with supply planning

Supply chain partners must collaborate to:

Essential #5

16

Supply-Demand Misalignment:The Need for Demand Management

Channel Orders True End CustomerDemand

Production

Channel Fill and Phantom Demand

Real Shortage

Returns/ Cancellations

Over-Supply

Launch Date End ofLife

Un

its

Per

Per

iod

1717

Leverage available tools and technologies to meet and

exceed supply chain objectives

Supply chains must:

Essential #6

18

SuppliersMfg. PlantMfg. DCRetail DCStoreConsumer

Supply Chain Visibility is Essential to Becoming Demand-driven

Seamless Supply Chain Visibility

Accelerate the Supply Chain Gain a Competitive Advantage Real Time Visibility Replace Inventory with Information Lower Supply Chain Costs Improve Forecast Accuracy and Increase Perfect Orders

ForecastsSuggested Orders

Source: Logility, 2005

1919

Seamlessly integrate through collaboration across processes and

organizations

Supply chain managers must strive to:

Essential #7

20

Effective Supply Chains Should Strive for “Full” Collaboration

Manufacturer #1

Retail Store #1

Distributor #1

Supplier Network #1

Retail Store #2

Distributor #2

Manufacturer #2

Supplier Network #2

2121

Understand core competencies and build ‘brand equity’ for all

supply chain participants

Supply chains partners must perform a reality check in order to:

Essential #8

22

Example Functions Being Questioned for Core

Competency◈ Manufacturing

◈ Transportation

◈ Warehousing

◈ Information Technology

◈ Order Management

◈ Integrated Logistics Services

◈ Business Process (BPO)

Core Competencies: Three Questions Each Supply Chain Organization Should Ask Itself

Do We Have TheSkills We Need? If Not, How Do We

Get Them?

Expertise

Consistent WithOrganizationalMission? Is It a Good Use of Our

Resources?

Strategic Fit

Ability to Invest

Is the ROIAttractive?

What’s The Best Way to Do It?

2323

Meaningfully consider outsourcing as a key

strategy

Supply chain leaders should:

Essential #9

24

3PL Customer Perceptions ofProvider Roles

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

TacticalServiceProvider

LogisticsStrategist

Supply ChainIntegrator

North America

Western Europe

Asia-Pacific

Latin America

3PL’s Mostly thought of as“Tactical Service Providers”

Source: 2004 3PL Study, Georgia Tech, Capgemini, and FedEx.

25

Next Generation of Logistics Outsourcing Models?

InsourcingInsourcing

Basic Services(Logistics Service Providers)

Value-Added(Third Party Logistics)

Lead Logistics(4PL)

Advanced Services

Evo

lutio

nary

Mig

ratio

n

Knowledge

InnovationRelationships

Integration

Information

Source: 2004 3PL Study, Georgia Tech, Capgemini, and FedEx.

2626

Achieving security and visibility throughout the

supply chain

Supply chains must focus on:

Essential #10

27

Security Requirements Increase Complexity and Need for Information Visibility

• Security Assistance Act of 2002

• Customs-Trade Partnership Against Transportation Terrorism (C-TPAT)

• Food & Drug Administration’s Bioterrorism Act of 2002

• 24-Hour Advance Container Manifest Rule

• Security Objectives

◈Enable All Parties to Participate in Process Improvements

◈Eliminate Duplicate Efforts

◈Enhance Supply Chain Security

Source: CLM, 15th Annual State of Logistics Report, June 7, 2004.

2828

Develop and rely upon global mindset and global

capabilities

Supply chain leaders must:

Essential #11

29

Global SCM:Key Areas of Greatest Need

• Managing the Geographic Evolution of Supply Chain Activities

◈ Need to take advantage of “core competencies” of specific geographies

◈ Focus on “lowest net landed cost” for the customer/consumer

• Transformation or Redesign of “Best” or “Proven” Practices to Global Supply Chain Setting

◈ Recognize challenges unique to global objectives

◈ Achieve end-to-end process integration and shipment visibility

◈ Design for supply chain agility

◈ Involvement of capable facilitators to achieve desired success

• Leverage Global Supply Chain Strategies to Significantly Impact Overall Business Strategies

30

Change, reinvent, and transform …

every day if necessary

Supply chain leaders must adopt an agility mindset in order to:

Essential #12

30

31

1. Not understanding customers’ needs

2. Lack of synchronization and collaboration upstream/ downstream in supply chain

3. Absence of visibility throughout supply chain

4. Too much focus on meeting objectives of individual supply chain organizations

5. Lack of integrated information technologies

6. Continued existence of “functional silos” within supply chain organizations

7. Insufficient senior executive attention to logistics and supply chain issues

8. Reluctance to search for and implement innovative, creative customer-focused solutions

9. Challenge of dealing with supply chain complexity

10.Inability or unwillingness to change

Ten Impediments to Getting ‘Change’ from Supply Chain Management

32

Getting Change from Supply Chain Management: Concluding Thoughts of a Few “All-Stars”

“Consider how hard it is to change yourself, and you’ll understand what little chance you have of changing others.” (Albert Einstein)

“If you can’t change, you will find it impossible to improve” (Jack Nicklaus)

“It is not the strongest of the species that survive, nor the most intelligent, but those most responsive to change”

(Charles Darwin)