Supply Chain Management Accelerating Cost Effectiveness Pw C

Supply Chain Management Accelerating Cost Effectiveness Pw. C

Supply Chain Management • The supply chain used to be a simple serial process with raw materials slowly moving in one direction through manufacturing production and onward via a distribution system to retailers and customers. • Today, the talk is of "supply networks", "parallel chains", "enhanced concurrent activities", and “customer centric” with new information platforms and technology set to cut both inventory and lead-times throughout the delivery pipeline further. 2 Pricewaterhouse. Coopers

Top Issues Facing SCM Professionals In a recent quantitative survey, SCM professionals were asked a open-ended subjective question, “What are three biggest issues facing you personally in developing your logistics strategy? ” Source: AMR Research 2000 The top three responses were; Cost (21%), Systems Applications (20%) and Integration (19%) 3 Pricewaterhouse. Coopers

SCM Benefits Materials Flows Information Flows Cash Flows Suppliers Manufacturer Distributors/ Wholesalers Retailers Customers US companies expect to reap $3 -400 B of savings through a variety of benefits (3 – 5% of revenues) Source: PRTM 4 Pricewaterhouse. Coopers

Move From Push To Pull Suppliers Distributors/ Wholesalers Manufacturers Distributors/ Wholesalers Customer Retailers Make what we sell, not sell what we make! 5 Pricewaterhouse. Coopers

Move to Cross-Functional Business Processes Purchasing Manufacturing Distribution Install/ Maintenance Sales Order Fulfillment Sales & Operations Planning Source Make Deliver 6 Install Department Performance Available-to-Promise Sell Pricewaterhouse. Coopers

Supply Chain Optimization Synchronized, Sequential Planning Procurement Planning Manufacturing Planning Distribution Planning Forecasting Synchronized, Concurrent Planning Supply Chain Optimization Procurement Planning Manufacturing Planning 7 Distribution Planning Demand Planning Pricewaterhouse. Coopers

Cross-Functional Supply Chain Metrics Purchasing Manufacturing Distribution LSL USL Install/ Maintenance LSL USL Sales LSL USL Perfect Order Process Performance Source Make Deliver 8 Install Sell Pricewaterhouse. Coopers

Sharing and Collaboration Retailers Suppliers Synchronized Production Scheduling Manufacturer Collaborative Demand Planning Collaborative Product Development Distributors/ Wholesalers Collaborative Logistics Planning • Transportation services • Distribution center services 9 Pricewaterhouse. Coopers

Full Value Procurement Objective Lowest total cost of ownership Price is often just the tip of the iceberg! • Quality meeting customer needs • On-time delivery • Acceptable supply risk Acquisition • Process efficiency Installation • Demand reduction Maintenance Purchase Price Disposal Underpinned by procurement infrastructure excellence 10 Pricewaterhouse. Coopers

Strategic Souring Evolving Model of Procurement Traditional Progressive Strategic Tactical • • • Tactical Emphasis Acquisition Cost Focus Staff Function Cost Center Reactive 11 Strategic Emphasis Total Cost Focus Profit Center Proactive Pricewaterhouse. Coopers

Logistic and Transportation • Logistics accounts for 8 -12% of sales. In 1998, it accounted for over 10% of the US GDP • Logistic is one of the glues that holds the supply chain together. The techniques that most manufacturers employ to increase speed and reducing cost is outsourcing • Average cost reductions from outsourcing is 32% • The 3 PL market has enjoyed explosive growth over the past 5 years. Most 3 PLs have reported annual growth rate of 2550% Source: industry week 12 Pricewaterhouse. Coopers

Manufacturing • Manufacturing managers view efficiency and flexibility as two objectives which must be balanced in order to arrive the lowest total cost • World-class companies adopt strategies and tactics such as pull system, JIT replenishment, and cycle time reductions that enables a company to have lower levels of inventory while still driving reductions in production unit cost • Companies frequently underestimate the commitment required to achieve an effective quality improvement which result in operation cost increases. 13 PRT Customer order Material Routing BOM etc. Document . . . Work center Pricewaterhouse. Coopers

Forecasting and Planning Scheduling Tactical Strategic Manufacturing Planning Scheduling Transportation Distribution Planning Order 14 year + months weeks Rolling Forecast Strategic Business Planning Demand Planning days Promise hours Source Make Move Store Sell Operational Pricewaterhouse. Coopers

Top Issues Facing SCM Professionals e-Business is a relatively low priority, coming in sixth of the top issues facing SCM professionals. However, this does not reflect the impact that e-Business will have on Supply Chain Management Source: AMR Research 2000 e-Business will fundamentally change SCM 15 Pricewaterhouse. Coopers

e-Business Is Driving a Fundamental Transformation in SCM ENTERPRISE OPTIMIZATION NETWORK OPTIMIZATION Company D A Procure Products Manage Logistics Forecast Demand Company G B Company C Optimize Network Effect Economies of Scale Company E F Company The larger the network of companies the greater the power of the network to reduce cost for its members • • Increased leverage with suppliers Broader market access for suppliers Expanded community and collaboration opportunities Greater integration across market supply chains The larger the Meta-Market the faster it can form and launch facilitate the operational excellent • Broader communities to allocate R&D cost • Operational efficiencies via back office shared services • Depth of industry and procurement knowledge and resources available to develop supplier contracts 16 Pricewaterhouse. Coopers

The Impact of e-Business on SCM e-Business affects four broad categories that determine the production and transaction costs of a firm: • The cost of executing a sale • The costs associated with procuring production inputs • The costs associated with making and delivering a product or service • The cost associated with logistics 17 Pricewaterhouse. Coopers

The Cost of e-Business Sales Accessibility An e-Business web site is open 24 hours per day, 7 days per week. A business no longer has to build separate physical establishments to attract a larger customer base. A virtual storefront also allows an ebusiness to manage one store instead of multiple stores, thus eliminating duplicate inventory costs. 18 Pricewaterhouse. Coopers

The Cost of e-Business Sales Order Rework Another aspect of e-Business is that it enables more efficient order configuration. For example, both General Electric (GE) and Cisco Systems reported nearly one-quarter of their pre-Web-site orders had to be reworked because of errors--a total of more than 1 million orders, in the case of GE. Since adopting a Web-enabled customer interface, Cisco reports an error rate of only 2 percent. Critical Customer Requirement B A Defects: Service unacceptable to customer Produce or Service Output 19 Pricewaterhouse. Coopers

The Cost of e-Business Sales Fundamental Shift Customised w Face-to-face sales w $500/sales contact Direct Sales w Distributors/VARs Resellers w $2 -300/sales contact Value. Added of Sale Telechannel w Telephone sales and service w $25 per sales contact Electronic w No human contact Channels w $1 per sales contact “Off-the. Rack” Low Clearly, e-Business represents a fundamental shift in how the sales process is executed by a company. As a result, e-Business compels existing businesses to re-examine how they interact with customers, even as new entrants exploit e. Businesses to reach customer bases previously thought unreachable. High Cost of Sale Source: Dr. Rowland Moriarty, Cubex Corp. 20 Pricewaterhouse. Coopers

The Costs Associated With Procuring Production Inputs Buyers B 2 B Market. Place Buyers connected to marketplace via E-Procurement App Profit 100 5 Other Costs 45 Purchases 50 Suppliers Connected to Market. Place via Web or ERP 100 7. 5 +50% 45 47. 5 -5% 21 Web-based procurement of maintenance, repair, and operations (MRO) supplies is expected to reach more than $100 billion worldwide by the year 2000. MRO comprises those goods required to run a company that are not raw materials used in the direct manufacture of a product or the provision of a service. A 5% reduction in purchase cost can result in a 50% increase in profit margin. Pricewaterhouse. Coopers

The Costs Associated With Procuring Production Inputs Lower transaction costs coupled with the ability to enforce purchasing policy across the enterprise have been instrumental in driving Web-based MRO procurement. CURRENT COST PER PO POTENTIAL COST PER PO Source: RB Weber 22 Two additional factors have accelerated the trend. The first factor is a defensive reaction by firms that note the cost savings being enjoyed by rivals switching to an e-business procurement mode. The second, and possibly more important factor is the insistence by large firms such as Ford, that their suppliers link into their Web-based procurement systems as a condition of doing business with them. Pricewaterhouse. Coopers

The Cost of e-Business Supply Chain Management Even the scope of MRO procurement pales beside the possibilities for reorganizing supply chains around e-business. Rather than increasing production and inventory in advance of actual customer demand, ebusinesses are looking to make both their own supply chains and those of their customers and suppliers respond in real time to actual sales. Supplier Manufacturer Distribution Retailer Consumer Information 23 Pricewaterhouse. Coopers

The Cost of e-Business Supply Chain Management Visibility of the entire supply chain is necessary so a business can analyse the interplay between interactions such as procuring materials, components, and subassemblies from various suppliers; shifting production between installations or business partners; and moving goods to the final consumer. Understanding relationships between all players in a particular value chain allows an ebusiness to adjust to new contingencies in real time. 24 Pricewaterhouse. Coopers

The Transformation of Logistics e-Business transforms logistics from simply packaging and moving goods and turns it into an information business. Introducing online parcel order and tracking via a proprietary network in 1983, Federal Express took nearly 12 years to sign up 50, 000 customers. In 3 years, between 1995 -1998, after Fed. Ex offered essentially the same service via the Web, the number of customers rose to 1 million. Fed. Ex estimates nearly 70 percent of the 3 million packages it processes each day now are initiated via interactive networks. 25 Pricewaterhouse. Coopers

e-Business Driving Transparency When building visibility of the entire supply chain, this also includes customers. e-Business gives the customer access to the suppliers product data, ordering and delivery information. This drives transparency within the organization and forces the supplier to develop better delivery and support systems. Supplier Collaboration Supply Chain Management Product Lifecycle Management Design Partners Customer Management Consumers and Channels 26 Pricewaterhouse. Coopers

Recommendations • Include e-business as part of your top three supply chain agenda items. Put in effort to articulate a value proposition for e-business within your company, and the impact it will have on your supply chain. Seek and gain cross-functional and key trading partner alignment on your strategy. • Look for additional learning opportunities. Look at the early adopter or e-business-oriented companies, e-business consultants, system integrators, and colleagues in supply chain management. Lessons can be learned in both the Business-to-Consumer (B 2 C), as well as Business-to-Business (B 2 B) domains. • Broaden your perspectives on e-business beyond customer interaction and supply chain cost savings. Consider the broader implications of supplier and trading partner visibility, Business Community Integration (BCI), and partner collaboration. A broadened perspective can yield greater opportunities for leveraging e-business processes within the supply chain. • Consider some form of electronic marketplace adoption as part of your supply chain strategy. Evaluate the long-term presence of trading exchanges according to the value-added services they can provide that are over and above procurement transactional cost savings. Evaluate your strategies to impact both the sell-side and the buy-side processes. 27 Pricewaterhouse. Coopers