Microsoft PowerPoint - APICS Baltimore FCG Template

The Ferrari Consulting and Research Group

Creating Resilient Global Supply Chains

Implications on Individual and Corporate Skills

Presentation to Baltimore Chapter of APICS

April 2007

Bob Ferrari


Winds of Change Across Global Supply Chains

Faster, more

accurate, and

informed decision

making, will be the

single most important

capability for any

competitive supply

chainSignificant Implications

•Process

•Organizational Skills

•Technology


Agenda

� Current State- Global Supply Chains

� Evolution- Where Have We Come From

� Key Buffers- What Is Changing

� Capabilities of New Innovators

� Implication on Skills

� Summary and Questions


Complexity in Managing Today’s Global Supply Chains

� Customers increasingly demand

customization

“I want it made for me, and I want it

now!”

“I require 30 days of firm commitment,

and I want upside flexibility”

� Continuous innovation with

shrinking product lifecycles

� Product Proliferation

� Globalization

� Global sourcing

� Global Markets

� Rising transportation & logistics

costs

Reduce

Cost

Increase

Profitability

Increase

Responsiveness

Manage

Risk


Supplier Facing Risks

Supply Chain Risks Continue to Increase

Customer Facing RisksProduct Risks

• Constantly shifting markets

• More demanding customers

• Global markets / distribution

• Inaccurate forecasts

• Bundling of products

• Complex channels

• The “Bullwhip Effect”

• Cost and supply variability

for commodity and

component materials

• Capacity and cycle-time

constraints

• Needs for Lean-Sigma, pull-

driven environment

• Short product life cycles

• New product failure rates

• Value-chain cost structure

• Ramp-up / Ramp-down

• Inventory risks for non-

conforming, obsolete, expensive

components

What Risks are Relevant for Your Company ?


Supply Chains Are No Longer Static

� Access new geographic markets to grow

� Become more demand, or pull-driven

� Shifting industry demand patterns

� Continuous needs for deeper collaboration

� Continuing quest for sourcing and/or sustaining

lowest-cost/ flexible production

� Rising costs in global transportation and logistics

Do you know the cost and benefit drivers for your supply

chains?


Goal- Creating Alignment to the Business

Economic

Value

Operating Profit

Cost of Capital

Assets

WACC

Contribution

Revenue

Cost of Goods

Sold

Overhead

Production

Selling

Administration

Fixed Assets

Current Assets

Cost of Equity

Cost of Debt

Risk Management Levers

Smarter inventory deployment

Improve risk profile by reducing risk

exposure

Cost Reduction Levers

Reduce procurement costs on

goods and services

Reduce facility and infrastructure

costs

Reduce inventory

Innovation LeversIncrease service levels

Product Unit/volume scalability

Timely new product introduction

New global sources of innovation


Performance Gaps Are Widening

65 days1 day7 daysMake to

Stock

160 days2 days26 daysMake to

Order

WorstBestMedianType

Order-to-delivery lead times by supply chain type

Source: AMR Research, 2006Days Inventory Outstanding (DIO) 2003 2004 2005

12 Select CPG Companies

Average 38.8 41.0 41.2

Highest 65.0 66.0 65.5

Lowest 17.0 16.0 13.2

5 Select Electronic Manufacturing Services Companies

Average 51.3 48.5 49.4

Highest 87.0 78.0 77.9

Lowest 34.0 32.0 31.6

8 Select Semiconductor Companies

Average 55.7 52.8 49.4

Highest 78.0 82.0 62.7

Lowest 24.0 28.0 24.3

Source: Hackett-REL, CFO Magazine


Agenda








Supply Chain EvolutionProduct Management

Procurement

Planning

Manufacturing

Transp

/ Logistics

Concept to Design

Plan to Manufacture

Procure to Pay

Order to Cash

Suppliers Customers

Demand Information

Supply information

“Traditional” Silos“Integrated”Supply Chain

“Innovative and Networked” Supply Chain

Capability / Complexity

Functional Silos,

Serial Process

Departmental

Goals

Integrated

Supply Chain

Corporate Goals

Networked Collaborative

Multi-Enterprise Goals


Where Have we Come From- The PastProduct Management

Procurement

Planning

Manufacturing

Transp

/ Logistics

“Traditional” Silos

Functional Silos,

Serial Process

Departmental

Goals

Process Control: MRP and Shop Floor

Response: Maintain Safety Stock Inventory

Response: Reserve Production Capacity

Response: Optimize Locally

Response: Expedite Everything

PUSH

Supply Chains Built on

Inventory and Capacity


How Did We Plan and Manage?

A Serial and Sequential Process

Budget MPS MRP

Production Distribution

Production

Order

Fulfillment

Shop Floor WMS Transportation

ERP and Inventory Management

Demand

Planning

Supply

Network

Planning

Production

SchedulingDistribution

and Logistics

Planning

Sales and

Marketing

Plans

Product

Plans Product

Sourcing Procurement

Strategic Planning

Tactical and Operational Planning

Sales and Operations Planning Process (S&OP)


Product Lifecycle Cost Considerations- The Past

Operational

Tactical

Strategic

Planning and

Execution

Processes

Product

Life-Cycle

Costs

70%

Mostly owned production

Localized, single echelon value-

chain

Longer product lifecycles

The Ferrari Consulting and Research GroupSource: DARPA Rapid Design Exploration and Optimization ProjectSource: DARPA Rapid Design Exploration and Optimization Project

Conceptual Design

(creative, early phase)

Detailed Design &

Sourcing Decisions

(engineering phase)

Volume

ProductionOperations

And Aftermarket

Support

Cost Reduction

Opportunities

Life Cycle Cost

Determinations

70%

85%95%

20

40

60

80

100

Today’s Reality of Life Cycle Costs

The Supply Network Structure

Pre-Built Into Your Value Chain


Agenda








Three Principal Supply Chain Buffers

� Demand

� Capacity

� Inventory

Past FutureForecast / Push Demand-driven

Never accurate Demand scenarios

Little flexibility Managed flexibility

React to demand Demand-shaping

Past FutureFixed / owned Flexible / acquired

Mostly localized Global inter-enterprise

Little flexibility Managed flexibility

A hard constraint A flexible constraint

Past FutureEOQ driven Quantified drivers

Always bad Smartly leveraged

Locally optimized Globally optimized

Inhibitor to business Enabler to business

process initiatives


Creating Resilient and Responsive Supply Chains

Intelligent Supply Chain Capabilities

DemandDemand Shaping

Demand Scenarios

InventoryQuantified Drivers of Inventory

Optimal Deployment Strategy

CapacitySupply and Demand Network Design

Flexible Capacity Options

DELIVER

PLAN

Value Chain Transformation

SOURCE MAKE DELIVERSOURCE SOURCEMAKE MAKEDELIVER

Your Company or OrganizationDownstream Upstream

Multi- Echelon

Globally Optimized


Multi-Echelon Inventory Optimization

Determine inventory locations and levels to achieve

customer service at the minimum total supply chain cost

stage 1

……stage 2

stage 3

stage 4

stage n

stage n-

1

stage n-

2

Coordination of

service times of

components

Risk-pooling

across products

or components

Low inventory cost to lead time

ratios (just before the steepest

sections in the cost accrual curve)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%Cumulative Product Cost

Number of Time Periods away from Final Stage


The Ability To Quantify Inventory by Cause

Different types of inventory need to be addressed in different ways

Demand

Uncertainty

Cycle

Stock

Pipeline

Stock

Stage Time

Uncertainty


Simultaneous Planning and Execution

Budget MRP

Production Distribution

Production

Order

Fulfillment

WMS

ERP and Inventory Management

Demand

Planning

Supply

Network

Planning

Production

Scheduling

Distribution

and Logistics

Planning

Sales and

Marketing

Plans

Product

Plans Product

Sourcing Procurement

Sales and Operations Planning Process (S&OP)

From Periodic to Continuous Set of Events

Supply Chain Analytical Tools and Applications

Scenario and What-If Planning

Lean- Sigma

Replenishment

Supply Chain Modeling and Scenario-Building


Agenda








Where Are the Innovators?

� Align supply chain capability with overall business

strategy

� Continually analyze the optimal supply chain design

that can sustain efficiency as well as resiliency needs

� Make smarter investments in working capital to

achieve goals related to service level and cost

� Deploy a combination of linked supply chain process

strategies to complement the entire network

In Process



� Forster new dimensions of supply chain organizational

capabilities

� Analytical, scenario-driven, as well as traditional planning

� New importance of the knowledge worker

� Risk management / risk contingency perspectives

� Collaboration across all functions, as well as partners

� Quicker, intelligence-based decision making across

planning and execution

� Plan transformations in manageable increments

In Organization and Culture



� Leverage best-of-breed technology:

� To implement industry unique, or individualized

supply chain capabilities

� Enhance or better leverage previous investments in

ERP/APS systems to address uncertainty and risk

� Target specific processes to enhance decision-

making

� To speed-up the planning process, and overcome

information latency

� To overcome challenges of too much data and not

enough information

In Technology


What Do Best in Class Companies Do Differently?

� Best in Class are 2.1X more likely to use multi-echelon inventory optimization

� Best in Class are 2.1X more likely to have a supply chain visibility system

� Best in Class are 1.9X more likely to have a demand management system that supports customer-level forecasting

� Best in Class are 2X more likely to have cross-functional teams for inventory mgmt

According to a 2007 Aberdeen Group Survey

Source: Aberdeen Group, 2007


Total Supply Chain Cost

Service Level

Value Delivery Approach

CurrentEfficient Frontier

NewEfficient Frontier

New Strategy

Step One

Focus on policy “right-sizing”with current structure, policies and parameters

Step Two

Identify, prioritize, and implement high impact, short-term opportunities

Step Three

Fundamental changes to the supply chain structure or strategy

Starting Point

TargetCurrent


Agenda








Implications for Overall Supply Chain Skills

� We are moving toward the information-driven / analytics based companies

� Contextual information vs. data

� Information with relevancy- integrated across organizational barriers

� Historical / forward-looking / predictive

� Orchestration of the supply chain to meet or anticipate business needs

� Form and re-form networks of opportunity

� Risk balanced

� Scenario based

� Multi-skilled and self-contained


Implications for Individual Skills

� Broad Supply Chain Fundamentals� Broad supply chain concepts� Supply chain key performance indicators (KPI’s), aligned to corporate objectives

� The key supply chain buffers� Managing and planning across a global supply chain� Continuous improvement (Lean / Sigma)� Analytical as well as management skills� Compliance and regulatory issues

� Building Competitive Processes� Design for supply chain and time-to-volume� In-depth understanding of the core value-chain� Inventory deployment strategy in push-pull environment� A scenario and analytical planning based S&OP process� Global risk management� Logistics and distribution


Implications for Individual Skills

� Managing Customer and Supplier Relationships

� Integrated customer/supplier relationship management

� Strategic commodity management

� Collaboration for win-win

� Change management / program management

� Supply network design

� Leveraging technology

� Leveraging IT to enhance supply chain performance

� Knowledge of various advanced technologies / SCM applications strengths/limitations

� Leveraging the Internet and other enabling technologies

� General knowledge of IT concepts and trends (J2EE, SOA, .NET, Appliance….)


Summary

� Creating knowledge, and knowledge-based organization

� Knowing all of the characteristic /needs of your value-chain

� Driving alignment and direct linkage to overall business performance

� Faster / accurate/ holistic / predictive decision making

� Selective and leveraged use of advanced applications and technology

Creating Resilient Global Supply Chains is About:

Resulting in the ability to respond to continuous

business change, uncertainty, and risk


A Closing Quote

“Every morning in Africa, a gazelle wakes up.

It knows it must run faster than the fastest lion or it will be

killed.

Every morning a lion wakes up.

It knows it must outrun the slowest gazelle or it will starve

to death.

It doesn’t matter whether you are a lion or a gazelle.

When the sun comes up, you better start running.”

African proverb- Translated into Mandarin and posted in

Chinese auto parts factory


Thank you for the opportunity to speak with you today

My Contact Information:

Office Phone: 781-944-6308

Mobile Phone: 617-686-6317

Email: [email protected]

Documents

Microsoft PowerPoint - APICS Baltimore FCG Template