Supply Chain Executive's Agenda for 2010: Best Practices for ...

© AberdeenGroup 2009

Supply Chain Executive’s Agenda for 2010:Best Practices for

Weathering the RecessionIn a Global Environment

Nari ViswanathanVice President/Principal Analyst

October 6th, 2009

© AberdeenGroup 2009 2

Agenda

1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways


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Agenda



It is a whole different world now……

Lowered demand from end consumersCash is king – credit crunchExtremely volatile financial marketsHigh inventory levels – finished goods, raw materials & work in progressVolatile fuel pricesIncreasing interest on sustainability and green supply chain concernsWhat should companies do?


Today’s Complex Demand-Supply Networks

Customers

DistributorsRaw Material

ComponentFactory

Retail StoreSystemFactory

Enterprise

Suppliers

Customers

DistributorsRaw Material

ComponentFactory


Enterprise

Suppliers

• Complexity has risen in multiples• Results in loss of control and visibility• Demand-Supply Networks compete with each otherrather than individual enterprises


Customers

Suppliers

Raw Material

ComponentFactory


Enterprise

Demand Network - Buyer of services and products

For e.g: Retailers, Distributors, Value Added Resellers (VARs),

Supply Network –System suppliers,

Contract Manufacturers, ODMs,Raw material suppliers

Enterprise – Sales, Marketing,Operations, Manufacturing,

Procurement

Logistics Network – 3PLs, Shippers, Carriers

Integrated Demand-Supply Networks

Flow of physical goods, supply chain data and financial information


Agenda



Top 2 SCM Pressures

35%

36%

37%

2%

8%

18%

21%

32%

0% 25% 50%

Other

Regulatory compliance mandates

Increased supply chain risk exposure (security/environmental/ financial instability or other risks)

Significant decrease in demand for our products

Escalating customer service demands

Rising supply chain management costs

Rising business complexity of managing anincreasingly global business network

Economic and financial volatility

% of Respondents


Top Supply Chain Disruptions over the Past 12 Months

62%

42% 41%34%

0%

25%

50%

75%

Reduction incustomerdemand

Raw materialsprice volatility

Fuel pricevolatility

Commoditiesprice volatility

n = 209

Per

cent

of R

espo

nden

ts

62%

42% 41%34%

0%

25%

50%

75%





62%

42% 41%34%

0%

25%

50%

75%





n = 209

Per

cent

of R

espo

nden

ts


Top SCM Actions Targeted at Combating Recession

45%

54%

20%

21%

32%

34%

45%

0% 20% 40% 60%

Reduced SCM process improvement budget

Closed distribution centers/ warehouse

Laid off people from the supply chain organization

Changed financial arrangements with customers or suppliers (e.g. stopped extending payment

terms for the customers, etc.)

Shifted focus from strategic to more tactical, short-term improvement projects

Restructured the supply chain organization to increase efficiencies

Reduced inventory at all levels


Agenda



Best-in-Class Definition Metrics:

Perfect orders delivered to customers (complete and on-time)Total landed costs (relative change over the past year)Cash conversion cycle (absolute and relative change over the past year)Forecast AccuracyCustomer Service Level


BIC Differentiation

56%

58%

61%

63%

67%

36%

46%

51%

57%

52%

35%

43%

40%

46%

39%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Formalized supply chain risk management

Drill-down capability for executives todetermine causes of business level challenges

Executive position with end-to-end SCMresponsibility

Closed-loop integration of supply chainplanning and execution

Online visibility into supply chain issues /disruptions

Best-in-Class Average Laggards

Process

Process

Organization

Technology

Process


Agenda



3 Key Process Capabilities

1. Supply chain visibility and responsiveness, leading to better risk-management2. Closed Loop Inventory Management3. Integrated Business Planning


1. Managing Supply Chain Risks

Less than one-third of companies in an Aberdeen study reported actively managing each individual risk

Trade complianceRaw materialsDemand fluctuationsProduct qualityRisk profile of suppliers and customersCurrency volatilityCatastrophic eventsLogistics capacity and congestionSupply chain security, and environmental disasters


1. Gaining Supply Chain Visibility and Responsiveness

Level of Maturity

RO

I

B2B Integration

Data Mgmt.

ProcessCollaboration

Network Intelligence/

Performance Management

Visible Responsive

Level of Maturity

RO

I

B2B Integration

Data Mgmt.

ProcessCollaboration

Network Intelligence/

Performance Management

Visible Responsive


2. Closed Loop Inventory Management


2. Setting Inventory Targets is Still Manual

43% state that they follow rule of thumb approaches

Versus

57% state that they follow statistical methods

60% of companies do not include setting inventory targets as a part of S&OP process


2. How to Position Inventory Management as a Strategic Area to the Financial Organization?

Cash-to-Cash Cycles = DSO + DIO - DPO

Reduce lead-timesso that orders can be delivered quicker andget paid faster

Automate AR Process

Stock the right inventoryat the right place

Adopt a build to ordermodel

Negotiate DPO extensionwith suppliers

Receivables Financing

Change customercredit policies

Use 3rd partyInventory financing

Use 3rd party financingto pay suppliers faster while extending terms for the buyer

While balancing other business objectives like customer service…..


3. Traditional S&OP Outdated?Old concepts may be too supply chain focused:

The Sales and Operations Plan is a managerial tool used for manufacturing planning and control. Its fundamental objective isto reconcile sales forecasts with production plans in terms of volume[1]. To do so, the S&OP has to coordinate planning effortsamong the various departments involved in the process.

Time for the Next Generation S&OP?“Traditional sales and operations planning (S&OP) processes and supporting technologies are no longer sufficient in today’s high-pressured business environment. Sales and Operations Planning has evolved to become Integrated Business Planning.

It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy.”- “Technology Strategies for Integrated Business Planning”, June 2006


Elements of Integrated Business Planning

Product Differentiation

Customer Service

Cost Reduction

Working Capital

Revenue Expansion

Levers

Results

Financial Planning

Pricing

Demand Forecasting

Demand Shaping

Rough Cut Capacity Planning

Inventory Optimization

New Product Introduction

Profit Optimized Supply-DemandPlanning

Metrics: Return on Net Assets, Profit Margins, Cash-Cash-Cycle, Customer Service Levels, Forecast Accuracy

BoostShareholder

Value

Business Goals IBP Levers

Product Differentiation

Customer Service

Cost Reduction

Working Capital

Revenue Expansion

Levers

Results

Financial Planning

Pricing

Demand Forecasting

Demand Shaping

Rough Cut Capacity Planning

Inventory Optimization

New Product Introduction

Profit Optimized Supply-DemandPlanning

Metrics: Return on Net Assets, Profit Margins, Cash-Cash-Cycle, Customer Service Levels, Forecast Accuracy

BoostShareholder

Value

Business Goals IBP Levers

Source: Upcoming article in Supply Chain Management Review


Agenda



Who Participates in S&OP Processes?

72%78%

91% 94%

72%61%

92%82%

66%59%

72%84%

0%

20%

40%

60%

80%

100%

Manufacturing Finance Logistics /Supply Chain

Sales

Perc

enta

ge o

f Res

pond

ents


n = 214

72%78%

91% 94%

72%61%

92%82%

66%59%

72%84%

0%

20%

40%

60%

80%

100%


Sales

Perc

enta

ge o

f Res

pond

ents


72%78%

91% 94%

72%61%

92%82%

66%59%

72%84%

0%

20%

40%

60%

80%

100%


Sales

Perc

enta

ge o

f Res

pond

ents


n = 214

BIC companies are 1.5 times more likely to have the sales organization driveS&OP process


Skillsets for the new Supply Chain Organization

22%

31% 34%41% 42%

16%

27%

17%

38%

23%

11% 14%9%

25%

13%

0%

10%

20%

30%

40%

50%

"What-if"scenario

analysis todetermine

alternatives

Managecritical

relationshipsthrough theend to end

supply chain

ExceptionManagementprocess toidentify and

manageexceptions

Understandthe business

strategy,products, and

processes

Statisticalanalysis andfact baseddecisionmaking

Perc

enta

ge o

f Res

pond

ents Best-in-Class Average Laggard

n = 214

22%

31% 34%41% 42%

16%

27%

17%

38%

23%

11% 14%9%

25%

13%

0%

10%

20%

30%

40%

50%

"What-if"scenario


alternatives

Managecritical


supply chain


manageexceptions



processes


Perc

enta

ge o

f Res

pond


22%

31% 34%41% 42%

16%

27%

17%

38%

23%

11% 14%9%

25%

13%

0%

10%

20%

30%

40%

50%

"What-if"scenario


alternatives

Managecritical


supply chain


manageexceptions



processes


Perc

enta

ge o

f Res

pond


n = 214


Agenda



Raw MaterialsSupplierComponent

Supplier

Global DC

Retail Store

Raw MaterialsSupplier

ComponentSupplier

RetailStore

Customers

Global DC

Global DC

Home Delivery

International visibility from satellites and cloud technology

10 Key Takeaways for Succeeding in the Global Supply Chain


Top 10 Takeaways for Competing in the Global Supply Chain10.Develop and Deploy Sustainability Strategy9. Have a single point of contact for Supply Chain8. Think creatively

Working Capital Optimization – Supply Chain Finance

7. IT is not the fix it is the enabler6. Think FAST – flexibility and agility

* - Supply Chain Summit 2009


Top 10 Takeaways for Competing in the Global Supply Chain5. Embrace “AND” – matrix management + dotted

lines4. Extend metrics across the supply chain – use it

enable accountability3. Engage the customer2. Business as usual does not work1. Supply chain is a concept and not an

organization

* - Supply Chain Summit 2009


Aberdeen Supply Chain ManagementResearch Team:Nari Viswanathan, VP/Principal [email protected]

Bob Heaney, Senior [email protected]

Viktoriya Sadlovska, [email protected]

Scott Pezza, Research [email protected]

Additional Information:Supply Chain Management Practice Blog

Aberdeen SCM LinkedIn Group

mailto:[email protected]




http://research.aberdeen.com/index.php/analyst-insight/supply-chain-management

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