10 Fundamental Strategies & Best Practices

8/7/2019 10 Fundamental Strategies & Best Practices

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10 FUNDAMENTAL STRATEGIES AND BEST PRACTICES

FOR SCM ORGANIZATIONS

Presented By

Bob Engel, C.P.M.


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WHAT IS THIS MAN FAMOUS FOR???

Theory of Relativity

E=mc2


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BUT HIS BEST WORK MAY BE HIS

DEFINITION OF INSANITY:

DOING THE SAME TASKS OVER AND

OVER AGAIN AND EXPECTING

DIFFERENT RESULTS.

ALBERT EINSTEIN.


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So what does Albert Einstein have to do with

Building a Best in Class Supply Chain Organization??


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Maybe Albert Einstein has hit on something:

Do it differently from the way you are use todoing things if you want different results.

Supply Chain Organizations today, want to be:

Effective

Relevant

Viewed as VALUED

Part of the Management Team

To accomplish this, we must have Strategies & Best

Practices in place to Execute our plans.


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WHAT DOES BEST PRACTICE MEAN?

Best Practiceis defined as:

A management idea which asserts that there is a :

technique, method, process, activity, incentive or reward

that is more effective at delivering a particular DESIRED OUTCOME

than any other :

technique, method, process, activity, incentive or reward


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So lets examine 10 Fundamental Strategies and Best Practices toconsider embracing to Achieve Supply Chain Excellence

1. Establish a governing council2. Align the supply chain

organization

3. Recruit supply chain

professionals

4. Set the Strategic Sourcingstrategy

5. Establish key supplier alliances

6. Manage TCO

7. Manage compliance and Risk

8. Optimize Company owned

inventory

9. Gather information on a timely

basis

10. Establish processes andcontrols


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1. Establish a Govern Council

This is listed first for a reason. Absolutely mandatory

Make up of the Council: Influential Business Unit leaders, C level suite,

and representation from supply chain management.

What does the council do?

1. Drives strategy. Gives direction to and helps align supply chain

strategy to be consistent with company strategy

2. Helps in removing barriers within the organization

3. Influences internal decision makers. Fosters internal buy-in from the

business units

4. Ensures that the supply chain organization is involved in the earlystages of planning and forecasting.


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2. Align the Supply Chain Organization

SCM must be properly organized in order to execute the plan

Decide: centralized or de-centralized? Answer depends and varies by

company.

No prescribed answer on how to organize

Common theme is Centralized Consensus with Decentralized execution.

In a perfect world, the supply chain organization will have the functions of

Sourcing

Materials Management

Logistics Contract Management


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Supply Chain Leader

PROCUREMENT LOGISTICS SCM ADMIN

KAP-Vendors

$ Volume Driven

Q A

Spend Areas-FutureCORE Commodities

Strategies

Efficiencies

Process ReviewDemand &Forecasting

Warehousing

Inventory

Transportation

Environmental

Disposal

TYPICAL SCM ORGANIZATIONAL DESIGN

Release orders-KAPs

Spot Orders

Non-Repetitive Orders

NON-CORECommodities

Strategic Sourcing Tactical

SCM=Supply Chain Management KAP=Key Alliance Partners

Contract Management

Supply ChainCouncil


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3. Recruit Supply Chain Professionals

Recruit SCM professionals with the right mentality

More focus on strategic thinking

Less focus on measuring transactional activity

Different skill sets needed today vs. historical

Interpersonal communication

Strategic Thinking

Value Oriented

Relationship management skills

SCM Leaders are looking for two distinct skill setsA. Technical Skills(analytical, subject matter expertise)

B. Project management Skills. Those who can:

1. Understand the customers changing needs

2. Continually address the changing needs


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HAVE THE RIGHT MENTALITY

CONSIDERATION

LOSE / WIN

LOSE / LOSE

WIN / WIN

WIN / LOSE

LOW

HIGH

COURAGE

LOW HIGH

MY WAY OR HIGHWAY

Sacrifices Long Termrelationships

Squelches Creativity

I am a loser - step on me

I am a peacemaker

Win/Lose people love!

Believe in Mutual Benefit

Long term relationship

Cooperative - Not combative

Where bad relationships go

Where 2 Win/lose people go to

Adversarial conflict

War!!

As Supply Chain

Professionals,We are evolving

to here

The 7 Habits of Highly Effective People-Steven Covey

WIN-WIN RELATIONSHIPS


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4. Set the Strategic Sourcing Strategy

What is Strategic Sourcing?? Collaborativeand Organizedapproach to spendcategories with objective of selecting suppliers best suited to provide maximum value.

Strategic Sourcing implements cross functional and geographic teams for unified

decision making process with Supply Chain Organization guidance and leadership. Thismust become a standard practice

Strategic Sourcing is the Cornerstone of Supply Chain Management

Benefits are:

Improved buy-in from the internal business units

Increased internal business unit satisfaction

Assures availability of goods and services (particularly in tight markets)

Increased responsiveness to customers changing needs.

Promotes teamwork

Streamlined Processes

Quality will be improved

Lower overall total cost and increased value


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5. Establish Key Supplier Alliances

Key Supplier selection is product of Sourcing Team

This best practice that needs to have more focus.

Supplier Management: the forgotten or ignored step in Strategic

Sourcing Process

Terminology: Alliance Management vs. Supplier Relationship

Management SRM suggest one way communication

Alliance Management more appropriate term: Two Way

Communication

4 Objectives of an Alliance Management Team:1. Provides a mechanism to ensure relationship stays healthy

2. Creates the needed platform for problem resolution

3. Forum for developing continuous improvement goals for future

4. Ensure that Performance Measurement objectives are achieved


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Strategic,

impactscorebusiness

Non-strategic,

easilyreplaceable

Easy to manage,simplistic

High maintenance,

emotional, complex

Exercise: Name some commodities & services in each category.How Do You View Them?????

ALLIANCE MGTOur focus is

most likely hereRoutine SRM

Routine SRM Routine SRM


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6. Manage Total Cost of Ownership

THIS IS ABOUT:

Instill Total Cost of Ownership / Total System Cost Mindset

Move away from looking at just lowest price

More focus on best value

Move towards process improvement as a measurableinternal goal

Evaluation of all factors that make up the cost of goods

and services


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A = Acquisition Cost (25-40%)O = Operating Costs

T = Training Costs

M = Maintenance Costs

W = Warehousing Costs

E = Environmental Costs

S = Salvage Value

60-75%

Total Cost of Ownership = A + (O+T+M+W+E) Less S

Source: The Executive Guide to Supply Chain Management, David Riggs/Sharon Robbins


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PurchaseCost

Demand Drivers

Specifications Standardization

Inventory Practices

Operational PracticesDisposal/Salvage Practices

PerceivedOpportunity

ActualOpportunityActualOpportunity

Total Cost Approach

Environmental Issues

Warehousing Costs

Maintenance Expense

Quality Costs

Procurement Practices

Warranty Terms

Freight


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Buyer Cost

Interaction Cost

Profit

Supplier Cost

Buyer Cost

Interaction Cost

Profit

Supplier Cost

Traditional

Focus(price only)

StrategicFocus

Total System Cost Savings

Traditional Strategic

Total System Cost


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7. Manage Compliance and Risk

Contract Management is a focal point for best of class companies

Sarbanes Oxley (SOX) demands controls and to mitigate risks

Aberdeen Survey to Leaders of SCM Organizations:

Question: How do you manage your companys contracts?

Answer: We cant even find them much less manage them

Effective Contract management:

Ensures contract compliance (using the agreements)

Mitigates risks by standardizing terms and conditions

Provides more spend visibility for future negotiations

Provides platform for viewing maverick spend


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Top SIX Contract Management Strategies(Aberdeen Group Research)

1. Standardize Contract ProceduresCompanywide2. Establish CentralRepository that is Web Based

3. Integratewith Financial ERP System

4. Track Compliancemore Frequently

5. Improve Ability to Analyze Contract Performance

6. Improve Automation(due dates, expiration dates, etc)


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8. Optimize Company Owned Inventory

Inventory is money. Ask any CFO or Controller!!

Inventory holding cost: 20-48%

Establish Vendor Managed Inventories (VMIs) asone Solution

Current Market (mostly sellers vs. buyers market) willchallenge VMI programs

Meet expected lead times

Logistics issues particularly if sourced offshore

Need exist to Implement improved and effectivedemand planning and forecasting methodology


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9. Gather Information on a Timely Basis

Gather Timely Information from the ERP System

a. One of the largest barriers is inability to retrieveprecise spend data

b. Consider deployment of Data Cleansing Software

c. Address multiple ERP system inadequacies and provide solution

d. Best of class companies Navigate these Challengesand Find a Way

within their information system to retrieve meaningful data:

1. Goal = Information available to users

2. Information used to target opportunities of spend or process

improvement

3. Information used to monitor compliance and controls


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10. Establish Processes and Controls

Simplify Processes and Controls-Then Select CorrectTechnologies to Complement

1. First order of business is to establish your processes

2. When this is completed, select the technology tocompliment your processes

Struggling Organizations often implement technology thendevelop processes to meet the needs of technology.

Make Policies and Procedures simple and easy to understand

Controls should be adequate to deter fraud or ensure thatimproper decisions are not being made and doing so without

adding unnecessary process steps


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SUMMARY

To expect different results, we may need updated roadmap

No two companies operate the same way But all haveguiding principles for success

Best Practices are a benchmark and guide for SCM

Effectiveness and Improvement

Company leadership expects SCM Organizations to be

more Transformationalvs. Tacticallyfocused

Good News: Company leadership is expecting more from

our Supply Chain Management profession


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THANK YOU !!

Bob Engel, [email protected]

713-403-1979

Documents

10 Fundamental Strategies & Best Practices