Presentation for the Australian Eventful Group Event

Premier Partners: Supported by: Produced by:

Lora CecereCEO and FounderSupply Chain Insights LLC (USA)

Bricks Matter: Creating Supply Chain Excellence

BRICKSMatterThe Role of Supply Chains in Building Market-Driven Differentiation

LORA M. CECERE CHARLES W. CHASE JR.

BookPublishes in December

2012

Evolving Practices

Agenda

Supply Chain Stressors

What is Supply Chain Excellence?

Supply Chain 2020

Wrap it Up

Growth: A Tough Slog

Years Industry 1990-1994 1995-1999 2000-2004 2005-2009 2010-2012Retail 17.05% 42.46% 12.89% 8.76% 5.15%Consumer Products 2.12% 0.84% 3.91% 7.26% 2.32%Food & Beverage 3.86% 2.97% 8.13% 2.59% 4.27%Chemical 0.40% 6.50% 13.80% 5.30% 13.80%Pharmaceutical 8.10% 14.60% 6.30% 4.60% 15.70%High-Tech & Electronics 27.30% 13.20% 11.00% 11.10% 24.00%Semiconductors NA NA 4.28% 1.30% 19.75%

24%

34%

18%

15%

9%

17%

36%

23%

19%

5%

Decrease Increase

Over next 12 months

Over past 12 months

Price Volatility Will Undercut Business Performance

Decrease >50 basis pts

Decrease <50 basis pts

Increase <50 basis pts

Increase >50 basis pts

No effect

In your best estimate, how much has commodity price volatility affected your EBIT over the past 12 months? What do you expect over the next 12 months?

EBIT

Percentage of Respondents

Supply Chain Management: Top 3 Elements of Pain

Collaboration: The Right Stuff

based on J. P. KOTTER

+ ++ = CONFUSIONINCENTIVESKILLS PLANRESOURCES

+ + = ANXIETYRESOURCESINCENTIVE PLAN+ LEADERSHIP+

++ + =INCENTIVESKILLS RESOURCES FALSE STARTSSHAREDVISION

LEADERSHIP+

LEADERSHIP+ ++ =SKILLS INCENTIVE PLAN FRUSTRATIONSHARED

VISION+

++ + = GRADUAL CHANGESKILLS RESOURCES PLANSHAREDVISION

LEADERSHIP+

SHAREDVISION

+ ++ = CHANGESKILLS INCENTIVE PLAN ++ RESOURCES LEADERSHIPSHAREDVISION

Building the End-to-End Value Network

Retail

Today

Goal: Working Capital Turns

CPG3rd Party Supplier

Goal: Growth Goal: Costs

True collaboration only happens when there is a sustaining win/win value proposition.

Sale

s

Time

Manufacturing

Sale

s

Retail Warehouse

Retail StoreConsumer

Sale

s

Time

Suppliers

Time

Sale

s

Time

Inventory and Costs

Inventory data source: CFO Magazine September 2010-2004

Demand

Retailers Food Manufacturers Containers and Packaging10

20

30

40

50

60

200920082007200620052004

Days of Working Capital

Building the End-to-End Value Network

Demand Signal

Accurate Weekly

Forecasting is ...

Delay from Purchase to

Signal

Data Latency and Distortion

Red Represents Emerging Economies with Distributor Trade

Retailer DC

Easy

3-10 Days

7-20 Days

Manufacturer DC

Difficult

10-20 Days

20-45 Days

Suppliers

Almost Impossible

20-50 Days

45-80 Days

Store

Trivial

Instant

Variable

Store

Source: Supply Chain Insights 2012

Average Days of Inventory by Year

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Consumer Packaged Goods

59 57 62 64 67 67 68 70 70 64 64 67

Chemical

71.5 71.9 78.2 75.1 62 70.3 68.1 64.3 64.3 78.6 72.9 72.8

Pharma

122.2366910978

69

133.6991005621

75

190.1476161659

68

170.9865224789

89

184.3426173998

59

175.5502604768

77

167.7999511392

47

149.8151539812

83

154.9157818825

91

198.6631341199

76

154.3134808632

44

131.8197942402

94

High Tech

93.1 57.6 46.5 48.5 35.9 37.3 43.8 36.8 34.6 41.3 34.8 30.4

Average

86.45917277446

74

80.04977514054

37

94.21190404149

19

89.64663061974

72

87.31065434996

47

87.53756511921

92

86.92498778481

17

80.22878849532

07

80.95394547064

77

95.64078352999

41

81.50337021581

1

75.50494856007

36

25.0

75.0

125.0

175.0

225.0D

ay

s o

f In

ve

nto

ry

Source: Supply Chain Insights 2012

Average Days of Working Capital by Industry

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Consumer Packaged Goods

-20 -8 -12 -2 -21 -23 -8 -18 -11 -10 -12 -13

Chemical

37.3 44.7 61.7 71.9 64.8 64.1 63.8 57 51.7 74.8 85.6 77

Pharma

64.13122323105

75

56.40171531995

71

48.41779078772

81

56.19153537418

53

71.83773591464

44

94.06306457185

06

92.60818057698

52

88.05425335219

4

87.11058785110

32

111.0400827200

36

115.9852979100

64

113.2239261600

93

High Tech

231.5 290.3 283.5 243.5 173.5 138.9 109.4 103 92.4 131.9 138.9 140.9

Average

78.23280580776

44

95.85042882998

93

95.40444769693

2

92.39788384354

63

72.28443397866

11

68.51576614296

27

64.45204514424

63

57.51356333804

85

55.05264696277

58

76.93502068000

89

82.12132447751

61

79.53098154002

33

Series6

0 0 0 0 0 0 0 0 0 0 0 0

-25.025.075.0

125.0175.0225.0275.0325.0

Da

ys o

f W

ork

in

g C

ap

ita

l

Agenda

Supply Chain Stressors

What is Supply Chain Excellence?

Supply Chain 2020

Wrap it Up

Evolution of Supply Chain Process Excellence

Align

ResilientReliable

Adapt

Efficient

Building Horizontal Process Connectors

Continuous Testing

Learning

OrchestrateDemand and Supply

Sense Demand

and Supply

Shape Demand andSupply based

on Market

DemandVolatility

Supply Volatility

Right Product

Right Place

Right Time

Right Cost

Cost

Procure to pay/order to

cash

Supply Chain Excellence Definition

Base: Total Sample (61)Q14. How does your company define supply chain “excellence?” Please select all that apply.

Right product, right place, right time at the right cost.

A responsive supply chain that can adapt as markets change.

A resilient supply chain that can withstand the shocks of demand and supply volatility.

The Efficient Supply Chain. Lowest cost per unit.

Right product, right place, right time.

70%

57%

52%

38%

20%

How Companies Define Supply Chain “Excellence”

Most Mature

A Supply Chain is a Complex System

with Complex Processes with Increasing Complexity

The Effective Frontier

Growth Profitability Cycle ComplexityR&D Margin Cash on Hand C2C Cycle Altman ZR&D to COGS Ratio Free Cash Flow Ratio Days of Finished Goods Capital TurnoverSGA Margin Gross Margin Days of Inventory Current Ratio

SGA/COGS Net Profit Days of Payables Outstanding Quick Ratio

COGS as Percent of Net Sales Operating Margin Days of Raw Materials Return on Assets

YoY Sales Growth Pretax Margin (EBIT) Days of Sales Outstanding Return on Equity

Operating Margin Days of Work in Progress

Return on Invested Capital

DPO/DSO Return on Net AssetsInventory Turns Revenue/EmployeeReceivables Turns Cost of Sales

Useful Ratios

Corporate Summary

Metrics Included for Comparison

Metric Equations

Cash-to-Cash Cycle vs. Gross Margin (2000-2003)

Cash-to-Cash Cycle vs. Gross Margin (2004-2007)

Cash-to-Cash Cycle vs. Gross Margin (2008-2011)

Inventory Turns vs. Revenue per Employee (2004-2007)

Inventory Turns vs. Revenue per Employee (2008-2011)

Inventory Turns vs. Revenue per Employee (2002-2011)SUMMARY SLIDE

Building Value Network Strategies

Supply chain strategy

Business StrategyWhat are the right things to do to increase company value?

Value-network Supply Chain StrategyWhat are the right ways to support the business strategy?

What are the right trade-offs between value drivers for each value network?

Right productplatforms

Design the supply response

Build organizational systems and

manage talent

Align supply relationships

Align demandrelationships

Effective Supply Networks

Execution of buy-side strategies

Continuous Improvement

Capabilities RequiredSupply Chain Network

Design

Design Networks

Innovation Methodologies

Demand Networks

Joint Value Creation Strategies

Business ProcessHow do I do the right things right?

Source: Supply Chain Insights, LLC

Manufacturing Asset Strategies

Volume, demand variability, technology and of life cycle clusters

High

Low

HighLowDemand Predictability

Volume LifecycleShort Long

Technology

Commoditized

Specialized

6 5

8 7

LifecycleShort Long

Technology

Commoditized

Specialized

2 1

4 3

LifecycleShort Long

Technology

Commoditized

Specialized

LifecycleShort Long

Technology

Commoditized

Specialized

13

16 15

10 9

12 11

14

Quadrant IResponsiveness

Quadrant IIEfficiency

Quadrant IVAgility

Quadrant IIIEfficiency

Supply ChainProducts

Industry Standard Servers

Commercial PrintingDigital ImagingShared Printing

Personal PrintingSupplies

Portables and Handhelds

Business PC & WorkstationConsumer PC

Monitors & Options

Network Storage Solutions

Business Critical Servers

Managed Services SolutionsCustomer Support Solutions

Consulting & Integration Sol.

Enterprise Solutions

Services

High value & solutions

Configure-to-order (CTO)

Low touch

No touch

Demand Chain

Enterprise

SMB

Consumer

Dir

ect/

Ind

irect/

Part

ner

d

irect

Public

High-tech Company

What is Agility?

Base: Total Sample (117)Q11. How would you define what it means for your company’s supply chain to be “agile”? Please select the one that fits best.

49%

38%

10%3%

How Define Supply Chain “Agility”Shorter supply

cyclesFlexibility to make

and deliver whatever is

ordered

Ability to adapt to

variations in demand and

supply

Most Mature Definition:Ability to recalibrate plans in the face of market, de-

mand and supply volatility and deliver the same or

comparable cost, quality and customer service

Importance Performance

89%

27%

5%

32%

6%

40%

Agility Importance vs. Performance (7-Point Scale)

Low (1-3)

Middle (4)

High (5-7)

Agility Importance vs. Performance

Base: Total Sample (117)Q12. How important is it for your company’s supply chain to be “agile” in 2012? Please base your answer on however your company defines agility. SCALE: 1=Not at all important, 7 = Extremely importantQ13. How would you currently rate your company’s supply chain in terms of being “agile”? SCALE: 1=Not at all agile, 7 = Extremely agile

Agility Performance is 62

% Points Lower than Importance

Scenario Planning

Agenda

Supply Chain Stressors

What is Supply Chain Excellence?

Supply Chain 2020

Wrap it Up

Supply Chain Focal Points for Next 2 Years

Improving demand planning

Saving costs

Shortening cycles

Network design

New product launch effectiveness

Channel sensing

Revenue management

Other

74%

70%

66%

62%

48%

30%

26%

18%

23%

21%

21%

8%

10%

3%

7%

7%

Supply Chain Focal Points for Next 2 YearsPrimary Total

Top Supply Chain Focal Points

IT Systems: Importance & Satisfaction

Demand Planning

Enterprise Re-source Planning

Order Man-agement

Tactical Supply Planning

Price Man-agement

Production Planning

Transportation Planning

Product Life-cycle Man-agement

Manufacturing Execution Sys-

tems

Warehouse Management

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

86% 83% 80%76% 75% 73%

65% 63%59% 58%

30%24%

35%

20%28%

15%

42%

11%

25%

38%

-56%-59%

-45%

-55%

-47%

-58%

-23%

-52%

-34%

-21%

IT Importance vs. SatisfactionImportance (6-7) Satisfaction (6-7) Gap (Sat - Impt)

Base: Have System

57 59 60 49 36 55 43 27* 44 48

Inside-Out Inside-Out

Supply Chain Tipping Points

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

S&OP

Evolution of the PC

JIT

Theory ofConstraints

Supply Chain Organization

Re-Engineering the Organization

(Michael Hammer)

Internet/Email

eProcurement

Total QualityManagement

RFID

Vertical SiloExcellence

Efficient Order toCash Processes

+ Islands ofExcellence

ManufacturingExcellence

+

Supply Chain Excellence = Supply Chain Excellence =

Inside-Out Outside-In

Value-Based OutcomesDelivered by Horizontal Processes

+

Supply Chain Excellence = Supply Chain Excellence =

Supply Chain Tipping Points

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Y2K

Lean Six Sigma

.com

Demand Driven Concepts

Vertical SiloExcellence

Outsourcing Effectiveness

Social Responsibility

CSCO

Market-Driven Value Networks

An adaptive network focused on a value-based outcome that senses and translates market

changes (buy and sell-side markets) bi-directionally with near-real time data latency to align sell, deliver, make and sourcing operations.

What is a Market-driven Value Network?

41

Common Practice Market-driven Focus

S Ask salesFocus on market drivers:How do we best shape demand?

& Direct integration to supply

Design of the value chain to optimize trade-offs, minimize risk, balance cycles, and orchestrate demand

OP Manufacturing plan Trade-offs between make, source and deliver

Getting to Letter Perfect

S&OP Evolution

Manufacturing-Driven

Deliver a Feasible Plan for OperationsMatch Demand with

Supply

Sales Driven

Match Demandwith Supply

Business-planning Driven

Maximize Profitability

Demand Driven

Maximize Opportunity Sense and

Shape Demand

Market Driven

Maximize Opportunity and Mitigate Risk. Orchestrate

DemandMarket to Market

Greater Benefit• Growth• Resilience• Efficiency

• Benefits Received from S&OP Processes

Source: Supply Chain Insights, 2012What benefits have you received from your work with S&OP processes?

Increasing revenue

Improving forecast accuracy

Reduction of inventory

Improving asset utilization

Determining outsourced manufacturing

Determining procurement requirements

Improving new product launch

Transportation and warehouse management

Capital planning and asset management

Improvements in the perfect order

59%

57%

50%

42%

38%

36%

34%

32%

32%

30%

▲ 2%

▲ 5-7%

▲ 3-7%

▲ 3-6%

▲ 3-6%

▼ 10-15%

▼ 2-8%

Putting Together the Pieces

Mastering Supply Chain Management with SAP 2012 | 45

S&OP Process

An Athlete Needs:

What is Agility?

S&OP Balance

Outside-In

Value-Based OutcomesDelivered by Value Networks

Supply Chain Excellence =

Supply Chain 2020 Tipping Points

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Talent Shortage

Compliance on Safe & Secure

Orchestration

Big Data Supply Chains

Internet of Things

Learning Supply Chains

Digital Manufacturing

US Retail Mobile & Social Presence

Source: Intel

Big Data will be the NEW Foundation of the Future

Supply Chain

Definition

Challenges:• Transactional• Time phased data

Structured Data

• Social• Channel• Customer Service

• Temperature• RFID• QR codes and GPS

• Mapping and GPS• Video• Voice and Digital

Unstructured Data

SensorData

NewDataTypes

Volume

Velocity

Variability

Big Data: What is it all About?

Downstream DataCold Chain

GeolocationRFID

Social

Ratings & Reviews

T-Log Data Twitter

Facebook

Call Center Logs

Video Photographs

Warranty Information

ReturnsWeblogs

eCommerceEDI

Data Mining

Forecasting

Sentiment Analysis

What-if Models Hadoop

Rules-Based Ontology

Constraint-based Planning

Data VisualizationLearning Systems

R

Text Analytics

Scorecards

Sensors

Map Reduce

Digital Path To Purchase

Mobile Applications

Newell Rubbermaid

Newell Rubbermaid

Definitions

• Demand Sensing: Shortening the time to sense “true” market data to understand “true” market shifts in the demand response. This is in contrast to the use of order to shipment data that can have 1-3 weeks latency in translating “true” market demand.

• Demand Shaping: The use of techniques to stimulate demand. This includes new product launch, price and revenue management, assortment, merchandising, placement, sales incentives and marketing programs.

• Demand Translation: The translation of demand outside-in from the market to each role within the organization. Recognizing that the requirements for distribution, manufacturing and procurement are different.

• Demand Orchestration: The process of making trade-offs market-to-market based on the right balance of demand risk and opportunity.

• Demand Shifting: The shifting of demand from one period to another through advanced shipments, and moving more products into the channel without stimulating base demand.

BRICKSMatterThe Role of Supply Chains in Building Market-Driven Differentiation

LORA M. CECERE CHARLES W. CHASE JR.

BookPublishes in December

2012

From: To:Digital marketing Digital BusinessMarketing driven Market drivenSell-in Sell-throughInside-out Outside-inAsking the Question we Know to Ask To Listening to Hear the Questions that we do not

Know to AskVertical Process Excellence Horizontal Process OrchestrationMeasuring Business Complexity To Managing a System of Complex Trade-offs

The Most Efficient Supply Chain The Most Effective Supply ChainNear Real-time Real-time

Looking Forward

Evolving Practices

How to contact me:

Name: Lora CecereOrganisation: Supply Chain Insights

Email: Lora.Cecere@SupplyChaininsights.com

Premier Partners: Supported by: Produced by: