Supply Chain Management

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Supply Chain Management

• St. Louis NCMA Chapter
• April 19, 2005
• Steve Georgevitch

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How Important is Supply Chain Management?

• 936B in 2003 (inventory-carrying costs,
  transportation costs, and administrative costs)
• 8.5 of the 11 trillion U.S. economy
• 76.9 billion spent on logistics outsourcing

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Agenda Questions to Answer

• What is Supply Chain Management and Why is it
  important?
• Is this something new? What is the history?
• What are the basic elements of Supply Chain
  Management?
• What are the forces driving Supply Chain
  Management today?
• What are the risks/issues that affect my job as a
  Contracts Manager?
• What about Supply Chain Security?

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Definition of Supply Chain Management

• A supply chain is the stream of processes of
  moving goods from
• customer order
• through the raw materials stage
• Supply
• Production
• and distribution of products to the customer
• Material and information flow Up and Down the
  Supply Chain

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Generalized Supply Chain Model
Relationship Management
Information, product, service, financial and
knowledge flows
Material Flow Information Flow
Supplier Network
Integrated Enterprise
Distribution Network
Market Distribution
Procurement
Manufacturing
Capacity, information, core competencies,
capital, and human resource constraints
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History of Supply Chain Management 1970s

• The Markets
• Focus on Customer Loyalty
• Quality is king
• Product engineering is competitive advantage
• The Supply Chain
• Vertically integrated enterprises
• Primarily domestic
• Highly regulated
• Not managed beyond the extended enterprise
• Rigid, stable, slow but predictable
• Managed by function
• The essence of SCM understood. This first phase
  is characterized as an inventory 'push' era that
  focused primarily on physical distribution of
  finished goods.

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History of Supply Chain Management 1980s

• The Markets
• Market demands variety
• Cost is king technology drives manufacturing
  efficiencies
• Global markets developing
• The Supply Chain
• Deregulation
• Learning to manage global supply and demand
• Beginning of horizontal management craze
• Managed through functional collaboration (ERP
  hysteria)
• Fragmented and unpredictable
• Realization that productivity could be increased
  significantly by managing relationships,
  information and material flow across enterprise
  borders.

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History of Supply Chain Management 1990s - Now

• The Markets
• Throw away consumerism product life measured at
  blink speed
• Cost is still king, but manufacturing has nothing
  left to give
• Global competition
• Global markets
• The Supply Chain
• Technologically enabled
• Services explosion
• The network is the enterprise
• Dynamic, agile and reconfigurable
• Supply Chain as a strategic imperative
• Computers change the way business is done,
  Internet revolutionized the information pathway
  and the distribution system of the business,
  e-commerce has changed the definition of business
  itself.

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6 key elements to a supply chain

• Production
• Supply
• Inventory
• Location
• Transportation
• Information

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Production Element of Supply Chain

• Focus on what customer market demand
• Resource Management
• Internal sourcing (what and which plants)
• Outsourcing to capable suppliers
• Capacity Management
• Workload schedules
• Equipment plans (acquisition/maintenance)
• Order Management
• Quality control

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Supply Element of Supply Chain

• Partners in the Supply Chain
• Assessing core/strategic competencies
• Identifying capable suppliers
• Making sourcing decisions
• Relationship management
• General Procurement

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Inventory Element of Supply Chain

• How Much Inventory and Where to Store It
• Analysis of fluctuations in demand
• Identification of optimal storage locations in
  support of customer demand
• Identification of optimal stock levels by
  location
• Establishing inventory ordering policies

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Location Element of Supply Chain

• Strategic placement of production plants,
  distribution and stocking facilities
• Understand customer markets
• Perform Locating decisions for production and
  stocking facilities
• Lightweight/market driven near the end-user
• Heavy industries near raw material source
• Evaluation of tax and tariff issues and
  transportation accessibility

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Transportation Element of Supply Chain

• Supporting inventory decisions and customer
  demand requirements (transportation is up to 30
  of Product Cost!)
• Identify customer service levels
• Identify modal forms
• Air
• Ship
• Rail
• Ground
• Establish strategic transportation partnerships

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Information Element of Supply Chain

• Obtaining, linking and leveraging information
  across the Supply Chain
• organization of information
• Linking computers through networks and the
  internet
• Streamlining information flow
• Consolidating information
• Information warehousing
• Decision support tools

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Key Attributes of a Chain

• Cannot exceed the capacity of its weakest link
• A break in the chain makes the chain
  non-functional
• All links must move in synchronization
• All links have an interdependency

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Supply Chain Driving Factors

• Information Revolution
• Customer Demand
• Adaptive forms of Relationship Management

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Driving Change Information Technology

• Inter-Enterprise Technology
• Dynamic Operating Systems
• Relational data stores
• Desktop Tools
• COTS Revolution (ERP, SOP, CPFR)

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Driving Change Information Technology

• Intra-Enterprise Technology
• The Internet
• E-Commerce
• 2004 estimated at 69.2B, 23.5 from 2003
• 1.9 of total sales
• Universal Information Distribution (Java, XML)

World Wide Estimate of Active Internet Users
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Driving Change Customer Demand

• Knowledge Enabled Consumerism
• 27 of new-car buyers say they use online quote
  tools
• Demand for Variety
• Cell phone life cycle is 9 months, Nokia has 68
  active marketed versions, customizable to
  estimated over 1,200 configurations
• Cost Driven

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Driving Change Relationship Management

• Relationship Assessments
• Alliance evaluation mechanisms
• Assessing key variables of Reliability,
  Competence, Affect Based Trust (Goodwill),
  Vulnerability (risk sharing) and Loyalty
• Conflict Resolution
• Aversion to legal disputes
• Arbitration as a business decision
• Minitrial
• Rent-a-judge
• Information as a Common Thread

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Challenges in Supply Chain Management Today

• Strategic imperative of supply chain
• Deliberate redesign of supply chain networks
• Offshore outsourcing (lead-times/customer service
  impact)
• Supply chain design to customer requirements
• Cash-to-cash cycle
• Supply chain visibility technology
• Strategies for inventory positioning near
  customers
• Warehouse Management challenges
• Collaboration with supply chain partners

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Implications to Contract Management

• Risks - Protiviti
• Regulatory, compliance, financial, business
  continuation, and other service risks
• Supplier security and confidentiality controls
• Transfer of nonpublic personal customer
  information to a third-party
• Monitoring of service performance and billing
• Changes in market forces or contract/service
  scope
• Addressing noncompliance and poor service levels

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Implications to Contract Management

• Risks (Continued) - Protiviti
• Contract management personnel changes
• Unauthorized or uncontrolled use by the supplier
  of other third parties or assignment of contract
  to others
• Billing issues and exceptions Level of Service
  disputes
• Poor financial health of service provider
• Deteriorating relationship with the service
  provider

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Supply Chain Issues Challenging Contract Managers

• Effective management, measurement, and control of
  suppliers, contracts, and overall expenditures by
  category/commodity
• Lack of timely, complete, and accurate
  information
• lack of tools and methodologies to analyze data
• integrity of the raw data (coding standards,
  etc.)
• variety and diversity of systems from which the
  data must be extracted

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Supply Chain Issues Challenging Contract Managers

• Challenges in non-inventory postaward contract
  management and control
• Leveraged sourcing (less than 60 of all
  contracts)
• Strategic sourcing and contracts management tools
  
• Applying Strategic sourcing methodologies
• Reinvigorating formal risk management
• Understanding the market, risk, and spend
  analysis
• Information and tools required to support job
  functions
• 3rd Party Logistics Providers

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Supply Chain Security

• Customs Border Patrol (CBP) 2004 Statistics
• 26.1 million trade entries
• collected 24.7 billion in import duties
• seized 2.2 million pounds of narcotics
• 412.8 million pedestrians and passengers
• 132.2 million conveyances
• Customs Trade Partnership Against Terrorism
  (C-TPAT)
• support of CBPs priority Homeland Security
  mission
• voluntary partnership with members of the trade
  community
• collaborate to better secure the international
  supply chain to the United States

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Supply Chain Security
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Benefits of C-TPAT Membership

• C-TPAT supply chain specialist as a CBP liaison
  Access to the C-TPAT members network.
• Self-policing and self-monitoring of security
  activities.
• Reduced selection rate for Compliance Measurement
  Examinations and exclusion from certain
  trade-related local and national criteria.
• Targeting benefits by receiving a credit via
  the CBP targeting system.
• Eligibility for access to the FAST lanes on the
  Canadian and Mexican borders.
• Eligibility for the Office of Strategic Trades
  (OST) Importer Self-Assessment Program (ISA) and
  priority access to participate in the Automated
  Commercial Environment (ACE).
• Highway carriers, on the Canadian and Mexican
  borders eligible for access to the expedited
  cargo processing at designated FAST lanes.
• Eligible to receive more favorable mitigation
  relief from monetary penalties.
• Mexican manufacturers receive access to expedited
  cargo processing at designated FAST lanes.
• Companies eligible to attend CBP sponsored C-TPAT
  supply chain security training seminars.

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Questions?