Daily PlanDay 1

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Daily Plan-Day 1
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Module Overview

• Background of Supply Chain Management
• The Supply Chain Network
• Competitive Advantage from the supply chain SCM
  Maturity and Business Performance
• Supply Chain Visibility and its impacts
• SCM KPIs mapped to Business Strategy

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Background of Supply Chain Management
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It's no longer about competing products. It's
about competing supply chains. The company with
the most streamlined, cost-effective,
collaborative supply chain wins. SAP
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History of Supply Chain Initiatives
2000- Supply Chain Networks Emerge
Continuous Improvement
Manufacturing Excellence
Lean, Six-sigma
Closed Loop MRP
SOP, JIT
Reorder Points
MRP II
BPR
ERP
TQM
MRP
1981
1979
1980
60s 1970
1985 1990 1995 2000 2004

1996 - Supply Chain Council Formed
Supply Chain Risk Management
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Supply Chain DEFINITIONS
Supply Chain The global network used to
deliver products and services from raw materials
to end customers through an engineered flow of
information, physical distribution, and cash.
APICS Supply Chain The integrated processes of
Plan, Source, Make, Deliver, and Returnspanning
your suppliers supplier to your customers
customer, aligned with Operational Strategy,
Material, Work Information Flows. Supply Chain
Council
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Supply Chain Execution Processes

• The five distinct management processes link
  together (the chain in supply-chain) seamlessly
  from supplier to customer

Deliver
Make
Deliver
Make
Source
Source
Make
Deliver
Source
CustomersCustomer
Your Company
Supplier
Customer
SuppliersSupplier
Internal or External
Internal or External
SCOR Model
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A Global Supply Chain
Manufacturing
Customers
European Supplier
Customers
Latin American Suppliers
Customers
Customers
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Supply Chain Management DEFINITIONS
Supply Chain Management The design, planning,
execution, control, and monitoring of supply
chain activities with the objective of creating
net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing
supply with demand, and measuring performance
globally. APICS Supply Chain Optimization
the activities (such as planning, work flow and
process improvements, trade-offs) that provide
the goods to the consumer in an optimal manner
the best trade-off between the lowest cost,
lowest inventory, and best due-date
performance.
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Supply Chain Management Processes
Business Strategy
SC Management Processes (Strategic)
SCS
SC Management Processes (operational)
SCD
SS
SRM
DM
Orders
SCPln
MRP
RP
PSR
Signal
CA
PT
AP
Core SC Processes
PM
CM
MDM
CI
RM
EN
QM
SC Supporting Processes
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Supply Chain Flows
The Chain is a series of connected activities
and physical processes
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Supply Chain Classifications
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(No Transcript)
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The Supply Chain Network
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Supply Management Evolution
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Perspectives
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Perspective is Important
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Supply Network
s
Interactions and Relationship
s
s
s
SC Network Organizer
s
s
Commodity Category
s
Supplier Attributes
Supply Chain Network A complex adaptive supply
network is a collection of firms that seek to
maximize their individual profit and livelihood
by exchanging information, products, and services
with one another (Choi et al., 2001).Choi,
T.Y., Dooley, K.J., Rungtusanatham, M., 2001.
Supply networks and complex adaptive systems
Control versus emergence. Journal of Operations
Management 19 (3), 351366.
Supplier Environment
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Competitive Advantage from the supply chain SCM
Maturity and Business Performance
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Supply Chain Excellence Objective

• Achieving and maintaining a competitive edge in
  supply chain
• Reliability
• Responsiveness
• Flexibility
• Cost
• Asset Management
• Quality

Delivery of Cash is the ultimate supply chain
management metric. S.Mozaffar,Gp.VP-ICI
Chemicals, 2003
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Where are the Leaders focusing their efforts?

• Centralizing Supply Chain Management
• Focus on Basics SOP and APS tools
• Dramatic working capital improvement
• Strategic-level Customer Relationships
• RFID leadership

• Global SAP Implementation
• Enterprise Cost Efficiency Program Office (PMO)
• Aggressive SKU Rationalization / Simplification
• Expanded Sourcing strategy Cash focus
• Customer Direct Ship Program

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Where are the Leaders focusing their efforts?

• Global Funding the Growth program (PMO)
• Cross functional Go-to-Market teams for NPI
• Leveraging global SAP platform for SC
  Optimization
• Demand Pull Focus Disciplined SOP
• Regional Mfg - Global sourcing SC coordination

• Targeting 10 inventory turns by 2005
• Agent-enabled Supply Network by 2008
• Plant and DC Network Optimization
• Rolling out Produce-to-Demand Capability
• CPFR and Scan-based trading

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Process Maturity Definition

• Process Maturity postulates that
• Organizations of higher maturity are more
  productive and that
• Processes, in order to mature and improve, have
  to go through Evolutionary Phases defined as
  Ad-hoc, Defined, Managed, Leveraged, and Optimized

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Components of Process Maturity

• Leadership - that actively supports believes in
  the process value proposition and participates in
  the process.
• Strategy that aligns with the process (customer
  focused) values between company, customers, and
  suppliers.
• Structure informal and formal cross functional
  (horizontal) team based organization structures
  with broad process ownership with authority (and
  investments) clearly assigned.
• Process the process is defined, documented and
  understood by a majority of the company (not just
  the people directly involved). People speak in
  the process language.
• People that are skilled, trained and capable
  with multi-dimensional jobs and authority. Also a
  learning and continuous improvement philosophy.
  
• Systems that enable information sharing and
  collaboration between business functions and
  units, organization and suppliers organization
  and customer

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Maturity Relationships
Inter- company
High
High
Process Maturity Accuracy / Control Stability Pred
ictability / Certainty Efficiency Effectiveness Ca
pability Business Performance Esprit d Corps
Process Maturity
Process Focus
Inter-functional
Internal - within functions
Low
Low
Process Performance
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Maturity Relationships
Source Dorfman, M. and Thayer, R.H. (1997). The
Capability Maturity Model for Software. Software
Engineering, pp.427-438.
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The Process Maturity Model Best Processes,
Practices, Enablers
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Total SCM Cost Impacts and Definition

• Mature Supply Chains realize savings

12.3
9.6
Levels 1-2
Levels 3
Source A Presentation to SCC Members Supply
Chain Practice Maturity Model and Performance
Assessment, The Performance Measurement Group,
November 6th, 2001.
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SCM Maturity and Associated Performance
Optimized
4.0
2
RM Processes LTlt40 SSlt40 POgt40
1
1
1
54 No. of FTEs Per B Spend
1700 No. of Suppliers Per B Spend
0.7 of Spend Procurement Costs
Leveraged (Integrated)
3.0
Anticipated Performance at the Top Maturity
Levels ROI 20 ROCE 19.5
3
Managed (Linked)
2.0
Performance at Lower Maturity Levels ROI
16.5 ROCE 16
Defined
RM Processes LT1 SS1 PO1
7700 No. of Suppliers Per B Spend Suncor - 8125
1 of Spend Procurement Costs Suncor 0.96
104 No. of FTEs Per B Spend Suncor - 200
1.0
Ad Hoc
LT Leadtime SS Safety Stock PO Perfect Order

• Source Procurement Current Benchmark
  Findings. The Hacket Group, 2004

2. The Quit Revolution in Supplier
Management. Aberdeen Group, 2004
3. A Presentation to SCC Members Supply Chain
Practice Maturity Model and Performance
Assessment, The Performance Measurement Group,
November 6th, 2001.
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SCM Maturity and Associated Performance Consumer
Goods Companies
Optimized
4.0
42 Weekly Measurement Frequency
4.1 of Sales Logistics Costs
lt2.5 Days Delivery Times
99 Perfect Order
Leveraged (Integrated)
3.0
Performance at the Top Maturity Levels
Managed (Linked)
2.0
Performance at Lower Maturity Levels
Defined
18 Weekly Measurement Frequency
5.3 of Sales Logistics Costs
4.0 Days Delivery Times
96 Perfect Order
1.0
Ad Hoc
Source Grosspietcsch, J. and Kupper, J. Supply
Chain Champs (2004). The McKinsey Quarterly.
2004. No. 1
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SCM Maturity and Associated Performance Consumer
Goods Companies
Optimized
4.0
11 Days Turnover
1.4 SKU per 1.17 mil. USD
66 SKUs with weekly planning slots
4.0 Participate in customer planning
Leveraged (Integrated)
3.0
Performance at the Top Maturity Levels
Managed (Linked)
2.0
Performance at Lower Maturity Levels
Defined
48 Days Turnover
2.5 SKU per 1.17 mil. USD
33 SKUs with weekly planning slots
1.0 Participate in customer planning
1.0
Ad Hoc
Note Higher maturity firms have shorter
change-over times and greater upside
flexibility Without capital investments. Lower
maturity firms have 33 of contracts informal
while Higher maturity firms have 66
Source Grosspietcsch, J. and Kupper, J. Supply
Chain Champs (2004). The McKinsey Quarterly.
2004. No. 1
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SCM Planning Maturity and Performance
Optimized
4.0
1
0.78 Inventory Levels
1.10 Delivery Performance
0.86 Order Fulfillment Lead Times
0.88 Inventory Costs
Leveraged (Integrated)
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3.0
Performance at the Top Maturity Levels Profit
1.38
Managed (Linked)
37
2.0
Performance at Lower Maturity Levels Profit
1.00
40
Defined
Results Distribution
1.0 Inventory Levels
1.0 Delivery Performance
1.0 Order Fulfillment Lead Times
1.0 Inventory Costs
1.0
Ad Hoc
Note 1 Firms that combine higher maturity
planning practices with advanced planning
systems Have 35 lower inventory costs than lower
maturity firms.
Source Mature Supply Chain Planning. In Focus,
2003. A PRTM and SAP Study of 60 firms and 75
supply chains in firms from 500 Million to 2
billion in Sales across several industries in
Europe, US and Asia.
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Supply Chain Visibility and its impacts
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Borden Total SCM Scores v. Performance
Optimized
Leveraged
338
2001 273
Managed
227
1999 203
Defined
112
Ad Hoc
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Borden ChemicalSavings from increasing maturity

• 2004 EBIT impact
• on 1.4 billion in sales

Improved Supply Chain Design Operations
Leveraged GlobalPurchasing
15 MM Savings
25 MM Savings
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SOP Practices Maturity Degussa Engineered
Carbons (DEC)
150
DEC 2004 Results 20 reduction in inventory
with no loss in service. A reduction in SCM
costs of 2 of revenue or 4 million annually.
Advanced Institutionalized
105
DEC 92 2004
Advanced Non-institutionalized
BM Mean - 91
SOP Practice Institutionalization
60
DEC - 2003
Foundation
Overall Supply Chain Process Performance
Note Data represents 55 Supply Chain Council
firms, from various industries, that were
examined using the SCM best practices survey.
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SOP Practices Statistically Related to
Performance (Regression Analysis)
gt75
60
gt89
SOP Practice Institutionalization
lt70
Overall Supply Chain Process Performance
Delivery performance v. commit date
gt89
Forecast Accuracy Benchmarks (SKU/ Location/ 30
days / Weekly)
60
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Order Fill Rate (Customer Service) and SOP
BM Benchmark BIC Best-in-class
OF BIC 98.4
OF BM Median 88.6
of Companies
OF BM 79.7
SOP Foundation
Advance SOP Practices
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Forecast Accuracy (SKU/Location 30 Days) and SOP
BM Benchmark BIC Best-in-class
Forecast Accuracy BIC gt75
Forecast Accuracy Median 67
of Companies
SOP Foundation
Advance SOP Practices
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Total SCM Costs ( of Sales) and SOP
Total SCM Costs BM BIC 3.1
Total SCM Costs BM Median 8.7
of Companies
SOP Foundation
Advance SOP Practices
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SCM KPIs mapped to Business Strategy
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Performance Expectations SCOR-card Gap
Analysis
Performance Vs Competition
Value from Improvements
High Level Metrics
Actual
Superior
Advantage
Parity
Delivery Perf to Commit Date
50
Supply Chain Reliability
63
Fill Rates
0
Perf Ordr Fulfillment
EXTERNAL
37 da
Order Fulfillment LT
Responsive
97 da
SC Response Time
Flexibility
45 da
Production Flexibility
19
Total SCM Mgmt Cost
Warranty Cost
Cost
NA
INTERNAL
Value Added Employee Productivity
NA
119 da
Inven. Days of Supply
Assets
196 da
Cash-to-Cash Cycle
Net Asset Turns (Working Capital)
2.2 turns
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Team ExercisePick a supply chain for your group
and..1. Build a SCOR card.2. Access the
maturity of your SCS and PM processes.
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SCOR-card Gap Analysis
Performance Vs Competition
Value from Improvements
High Level Metrics
Actual
Superior
Advantage
Parity
Delivery Perf to Commit Date
50
Supply Chain Reliability
63
Fill Rates
0
Perf Ordr Fulfillment
EXTERNAL
37 da
Order Fulfillment LT
Responsive
97 da
SC Response Time
Flexibility
45 da
Production Flexibility
19
Total SCM Mgmt Cost
Warranty Cost
Cost
NA
INTERNAL
Value Added Employee Productivity
NA
119 da
Inven. Days of Supply
Assets
196 da
Cash-to-Cash Cycle
Net Asset Turns (Working Capital)
2.2 turns
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Processes to be Accessed

• Supply Chain Strategy (SCS) aligns the Supply
  Chain with the business goals.
• Performance Management (PM) aligns, structures
  and manages the performance measurement and
  management system.