118-Dec 09

Total Cost Approach to

Supply Chain Management

218-Dec 09

v Challenges / Opportunities

v Understanding of supply chain

v Anatomy of cost in SCM

v Total Cost Approach to SCM

Agenda

318-Dec 09

Customer awareness

Borderless global trade / Logistics

Global meltdown

Fiscal / Regulatory requirements

Commodity prices

Technological Innovation & IPR

IT revolution & HR

Challenges / Opportunities

Shift in market dynamics / business strategy

418-Dec 09

Suppliers CustomersProcurement Manufacturing support

Physical Distribution

Supply Chain Management

Supply Chain Model

Upstream Downstream

“Supply Chain starts with customer and ends with customer”

Inventory Flow

Information Flow

Understanding of supply chain

518-Dec 09

Today’s Supply Chain Network

T2 T1 OEM

CustomersSuppliers

T3

Location of facilitiescloser to market

Expanding dealers &service network

Distribution

Understanding of supply chain

618-Dec 09

Anatomy of Cost in SCM

+

+

How visible are these costs ?

Labour Consumable

Power & Fuel

Depn R & M RejectionInterest OthersMaterial

Cost

Conversion

Packing Logistics ProfitTier 2

Labour Consumable

Power & Fuel

Depn R & M RejectionInterest OthersMaterial

Cost

Conversion

Packing Logistics ProfitTier 1

Total Cost

OEM Material Cost Manufacturing cost

Logistics Cost

Other variable cost

Fixed Cost Profit

+

718-Dec 09

Total Cost Approach to SCM

Trust and transparency

Ø Customer Insight

Ø Supplier / Dealer development

Ø Supplier collaboration

Ø Supplier consolidation

Ø Complexity reduction

Ø Lean manufacturing

Ø Strategic sourcing

Ø Cost of poor quality

Ø Benefit sharing

Ø Network expansion

Ø Postponement

Ø Value stream mapping

Ø TPM

Ø TQM

Ø JIT & Kanban

Ø 5S

Ø Activity based cost

Ø Design to target cost

Ø Value engineering

Ø Kaizen

Ø Six Sigma & QFD

Ø Supplier / Dealer clusters

Strategy Tools / Techniques

818-Dec 09

Customer insight

Attractive features

Vs

Customer preference

Total cost approach to SCM

" Value Vs Cost "

918-Dec 09

T2 T1

OEM

Customers

Suppliers

T3

Location of facilitiescloser to market

Distribution

Lean and agile supply chain

Value stream mapping

Lean

Total cost approach to SCM

1018-Dec 09

Supplier clusters

World Class Organisation

Methodology

Cluster approach

Ø Group learning

Ø Moving together

Ø Focussed plant visits & diagnosis

Ø Corrective actions

Ø Progress as a group

Ø Take off – company specific

Lean Manufacturing

Total Productive Maintenance

Flow manufacturing

Inventory management

5S Work Practice

Quality System

Total Employee Involvement

Total cost approach to SCM

1118-Dec 09

Postponement – Logistics ManagementBefore Improvement After Improvement

Loading capacity in a truck - 44 Loading capacity in a truck - 55

Action taken :-

• Redesigned a few parts• Postponed assembly to dealer end

Desc. UOM BEFORE AFTER Impro vement

Volume Nos 44 55 25%Transportation cost reduced by 20%

Benefits

Total cost approach to SCM

1218-Dec 09

Approach towards Target cost

Macro Level

v Platform Commonisationv Part Commonisation v Part count reductionv Design for supply chain / early supplier involvement v Target Cost deployment

Micro Levelv Material / Weight / Surface area / Process / Specification, etcv Process Design

Understand and Attack cost drivers

Total cost approach to SCM

1318-Dec 09

How Specification drives cost in Supply Chain?Notification on 24.07.2008 Implemented Effective 01.07.2009

“Specification should be the documentation of the results, not the recipe of the plan”

Total cost approach to SCM

1418-Dec 09

v Cost of poor quality

v Design for Service

Total Cost Approach to SCM

1518-Dec 09

Cost + Profit = Price

Price – Profit = Cost

Price – Cost = Profit

Total Cost Approach to SCM

1618-Dec 09

Thank you