Developing a 5 year Supply Chain Strategy: IITA AS A CASE STUDY

George CooperNovember 2009

3 KEY WORDS

In Developing a 5 year Supply Chain Strategy

REVIEW

DEVELOPMENT

CONTROL

coles

In Developing a 5 year Supply Chain Strategy

There is a need to:

• Understand where money is spent

• Evaluate strengths and weaknesses within current organisation and its existing strategy

• Plan short, mid and long term

• Develop strategy based upon evidence and data

• Develop KPIs to ensure strategy is on course

• Develop systems and staff to maintain the course

The Vision and Strategy

Need for vision and strategy must balance:

• Financial guidelines and limits

• Scientific and organisational objectives and desires / needs

• Growth and learning of internal personnel and beneficiaries

• Requirements of all stakeholders internal and external

IITA Annual Report

• Total Funding $US 51.09 million

• 94.2% from CGIAR

• Expenditure $US 50.747 million

• 83.3% for program expense

• $US 16.7 million for management and general expense

IITA Annual Report

CGIAR priorities:

• 33.5% Sustainable management of resources

• 31.1% Generic improvement

• 15.0% Improving policies

• 11.1% Agricultural diversification

• 9.4% Sustaining biodiversity

IITA

Likely Financial priorities:

• Maintain and improve KPIs and efficiencies to generate continued and increased support and funding.

• Help to maximise communication of work and benefits.

• Maximise use of funding for scientific resources by optimum efficiency in supply chain

IITA

Likely Stakeholder priorities:

• Effective and efficient use of funds

• Productive meaningful output from funds

• Real cohesive food improvement research

• Maximise productivity and communication of results

• Viable farming and food production research

Opportunities• Scientific Research fully supported• Maximise funds available for research• Minimise waste• Minimise Cost• Improve Efficiency• Improve Bottom Line / Cash availability • Alliances with manufacturers rather than agents• Alliances with Importers• Minimise expenditure on stock and develop fluid

supply chain.• Items where needed and on Time• People being fed

Threats• Ineffective utilisation of funds resulting in less

research and loss of funding confidence• Possibility of extended supply chains leading to

delays, shortages and wasted time.• Exposure to excess stock and subsequent

obsolescence• More effective use of funds by other organisations

leading to greater confidence in their research / operations

• Supply / continuity / availability• Items logistically unavailable and late• People starving

IITA

Weaknesses, opportunities and threats may include:

• Price / cost• Quality of goods and services • Reliability of supply (Availability on time)• Service levels• Communication• Impact of loss of funds both to program and

future funding

The First Steps Towards Solution

• Identify Problems

• Identify Causes

• Effect Solutions

• Measure

The Process of 5 Year Improvement is therefore to:

• Understand causes of problems• Understand research, operations and funding• Agree goals and direction• Devise strategy• Effect solutions and KPIs• Involve, motivate and train staff• Introduce controls• Develop strategy and innovative solutions• Involve suppliers and move forward

Developing the Purchasing / Supply Strategy and Team for 5

year plan

Requires clear understanding of the role

Role of Purchasing and Supply:

To help and advise on:

• Minimising cost and improving bottom line / research funding

• Satisfying customers re service (internal and external)

• Increasing efficiency• Mirroring supply to demand• Developing sourcing and supply chain strategies

Apply Best Practice Purchasing and Develop Effective 5 Year Supply Chain:

• Researching and understanding the internal and external problems and market thoroughly

• Developing the best overall supply solution re price, quality and supply reliability

• Consolidating spend (maximising opportunity)

Apply Best Practice Purchasing and Develop Effective 5 Year Supply Chain:

• Rationalisation of suppliers with regard to price, quality of service and reliability

• Apply: – Negotiation– Cost reduction– Value Analysis– Vendor Rating

Apply Best Practice Purchasing and Develop Effective 5 Year Supply Chain:

• Supplier development / relationship building• Determining the total cost of acquisition• Rigid control of pricing, freight and services• Buying team becoming professional enough to

warrant being fully involved in long and short term strategic decision making and direction

• The value of purchasing to the bottom line being recognised at all levels throughout the entire organisation

Likely Timescale

• 0 – 3 Months

Review current situation including systems, controls, staff, problems, suppliers

• 3 – 12 Months

Change and modify problem areas and create competitive market atmosphere supplier review. (Consider supplier days, conference, e auctions etc). Introduce system and administrative controls etc

• 12 – 20 Months

Continue process of change and introduction of new suppliers, staff reviews, training

Likely Timescale

• 20 - 24 Months

Review, analyse and modify. Introduce 360 degree feedback

• 24 – 48 Months

Conduct further improvements taking account of market changes

• 48 – 60 Months

Further review and hone ALL

Food for Thought

“The Future Viability and Funding of IITA may Depend upon Purchasing and the

Supply Chain”

The Purchasing Pie

Materials

55%

Labour

24%

Overheads

15%

Profit

6%

The average purchasing department spends over 50% of what the organisation receives as

income

Purchasing and the Bottom Line

Apportionment of Sales Revenue

A 5% reduction in bought out costs can increase

Bottom line Cash by 25%

100%

50%

Profit

Bought Out Materials &

Services

Overheads

Labour

Lean Thinking Supply

Includes minimising waste in any form including:

• Minimal stock solutions• Demand driven supply• Direct to customer supply• Simplified operations • Change• Challenging current practices and suppliers

Implementing Lean Thinking in the Supply Chain

• Is about accepting the need for change

• Planning change

• Implementing change

• Managing change

• Making it work

Improving the Productivity of Capital

Purchasing Efficiency

Supply Chain Efficiency

Sales Revenue

Costs

Inventory

Cash

Fixed Assets

Receivables

PROFIT

Capital

Employed

Return onInvestment

Purchases & Stocks – How they affect Funds and Bottom Line

Current Assets

Year 1 £5,100.0

Year 2 £3,800.0

Current Liabilities

Year 1 £300.0

Year 2 £1,200.0

Other Costs

Year 1 £16,700.0

Year 2 £15,400.0

Purchases

Year 1 £18,800.0 (50.7%)

Year 2 £16,300.0 (45.2%)

Fixed Assets

Year 1 £5,000.0

Year 2 £5,500.0

Working Capital

Year 1 £4,800.0

Year 2 £2,600.0

Total Costs

Year 1 £35,100.0

Year 2 £31,700.0

Sales Turnover

Year 1 £37,100.0

Year 2 £36,100.0

Total Capital Employed

Year 1 £9,800.0

Year 2 £8,100.0

Profit

Year 1 £1,600.0 (4.3%)

Year 2 £4,400.0 (12.3%)

Return on Investment

Year 1 16.3%

Year 2 54.1%

BALANCE SHEET

PROFIT & LOSS ACCOUNT

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