Supply Chain Best Practices

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29 Νοε 2013 (πριν από 3 χρόνια και 6 μήνες)

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1

Supply Chain Best Practices

Issues that are driving and

will drive companies

by

Tom Craig

tomc@ltdmgmt.com

2


Best Practice Topics

1)
Metrics

2)
Inventory velocity

3)
Cycle time compression

4)
Lean logistics

5)
Technology

6)
Supplier performance

7)
Segmenting supply chains

3

Set the Stage

4

SUPPLY CHAIN MANAGEMENT

--
FOUNDATION
--


Applies regardless




of industry


Make to Stock and Make to Order


Runs from suppliers doors through to your
customers’ doors or your stores


Process


Internal


External

5

3 Supply Chains & Flows


Product



Information



Finance

6

Supply Chains


Flow is important for supply chains


Is not ONE supply chain


Are series of supply chains


supply chains
within supply chains

7

Big Guys and SCM


Link supply chain to corporate strategy


“Optimize” inventory and service with
Best Practices
(these tie together)
--


inventory velocity


cycle time compression


lean logistics


supplier performance


splinter supply chains

8

Complex and extended real
supply chain

Why firms
wants
control

Are chains
within
chains

9

Additional
supply
chain
challenges

10

Market strategy

competitive
differentiator

27%


Cost center necessary to

conduct business

25%


Customer service

competitive differentiator

30%


Lower performing companies are 3 times more likely to view their
supply chains as cost centers.

Cost
savings opportunity
area to help

fund R&D or business
expansion

18%

Supply Chain as
Competitive Differentiator

11

The Opportunity for the Best

Best in Class

organizations have
clear competitive
advantages over
Industry Average &
Laggards.

Laggards
Industry Average
Best in Class
Organization
Silo-based supply chain
operations with little
synchronization and
collaboration across
departments; moving
toward more business
unit or regional oversight
Moving toward a more
centralized supply chain
management organization
but most activity is still
decentralized into
business units and
regions
Central supply chain
management
organization established
with executive who has
end-to-end supply chain
responsibility; strong
cross-functional metrics
in place
Knowledge
No budgeted projects for
visibility improvement
Actively working to
improve end-to-end and
plant floor to top floor
visibility
End-toend supply chain
visibility in place with
strong strides being
made toward plant floor
to top floor visibility
Technology
Spreadsheets and home
grown Access database
solutions are common
for supply chain
planning; legacy or
heavily customized
supply chain execution
applications
Advanced supply chain
technology solutions
deployed for a handful of
key supply chain
management functions;
lack closed-looped
integration between
planning and execution
Extensive use of
advanced supply chain
technology with closed-
loop integration
between planning and
execution
Performance Metrics
Forecast accuracy at the
family product level is
below 61%; Perfect
Order percentage is 85%
or less; Logistics costs
as a percent of sales is
greater than 10%
Forecast accuracy at the
product family level is
61% to 71%; Perfect order
percentage is 86%-90%;
Logistics costs as a
percent of sales is 7%-
10%
Forecast accuracy in
the product family level
is 71% or better; Perfect
order percentage is
91% or better; Logistics
costs as a percentage
of sales 6% or less
Laggards

Industry Average

Best in Class

Organization

Knowledge

Technology

Performance
Metrics

12

Benefits of Best

Revenue Lift


Customer service enhancements


Product quality improvements


Increased quality availability

Reduced Supply Chain Costs by 10 to 15%


Operational efficiencies


Process enhancements


Procurement savings

Reduced Working Capital Requirements by
20 to 30%


Inventory reductions


Reduced cycle times

Reduced Supply Chain
-
Related Capital


Capital asset transfer


Enhanced asset utilization


Capital procurement savings

Revenue
Enhancement

Operating
Cost
Reduction

Working
Capital
Reduction

Fixed Capital
Reduction

Invested
Capital
Reduction

Profit
Enhancement

Shareholder
Value
Enhancement

13

Walmart


Private labels


Buying direct


Expanding leveraging



More control of supply chain
(going
upstream)

14

Walmart


Take control of deliveries from suppliers
(with its fleet
--
price cuts greater than what freight
costs suppliers

and possible warehouse
inefficiencies for suppliers)


Consolidating its purchasing with
suppliers

(Pepsi and potatoes)


Orders $1Bil in supply chain savings
(produce)

15

Retailers


Will Walmart expand their efforts to
other products/categories?


Will other retailers copy the programs?


Taking
total

control of its
total

supply
chain
(de facto vertical integration

throwback to
Standard Oil and US Steel?) (does it change role for
suppliers?)


16

You


Do you have a supply chain strategy
(or do
you just react?)


Is it tiered by market segment and/or
customers (
or is it one size fits all?)


How much do you spend annually on
SCM

inventory, sourcing, transport,
warehousing, people, technology, etc?

17

Your Supply Chain


Do you know how well it performs?


Do you measure?
(Or is it by complaints or
chargebacks?)


How much do you expedite/fight fires?


What metrics do you use to measure?


Do you look at it as a process or in
functional terms or tasks


freight,
warehousing?




18

LSPs


Do you initiate best SCM practices?


How do you develop/lead best practices?


Way to create value proposition


Higher margins


Greater customer retention


Separate from other commodity service
providers


Way to gain share

19

Best Practice


Metrics

20

Metrics


Metrics for sake of metrics


Good vs bad from my article

21

Are They Really Metrics?


Financial measures

used as
performance metrics


Internal SCM KPIs


Warehousing

orders picked


Freight costs


Etc.

22

Question

Which Are You


Are you focused on freight and other
logistics costs?
(misdirection)





--
or
--


Are you focused on your supply chain and
how well it performs?

23

Key Metrics


Customer orders
DELIVERED

complete,
accurate, on time (customer service /
chargebacks)


Purchase orders
DELIVERED

complete,
accurate, on time (critical to your SCM
success)


Inventory turns


24

Metrics
--
More


Measures that are strategic and complement
company direction


Time it takes from “sales order” through to
payment is received from customer


SCM has a key role in that PROCESS whether existing
product, new product development, etc.


Inventory turns or the corollary of how long
inventory is in the supply chain

25

Best Practice


Inventory Velocity

26

Ask


Are you inventory rich and cash poor?


How often does your inventory turn (Raw, WIP,
Finished Goods)? Why does it not turn faster?


How long does it take from when you know
you need to reorder until the material is
received? Why does it take so long?


27

Inventory


Raw, WIP, finished goods


Buffer against uncertainty


Inventory rich and cash poor


More uncertainty (time) means more inventory


Turns represent time company goes unpaid


More warehouses means more inventory with safety
stock (square root of the number of warehouses)


Too much

more than capital tied up and the
opportunity cost; becomes part of the company
portfolio

28

Inventory


Out of stock of needed products

customer service problems


Too much of products that sell slowly or
almost not at all


Impact of long lead times on levels?


Inventory rich and cash poor?


29

Inventory Turns


Is both a problem and a symptom


Reflects how fast company is paid
(like a
salary)


Aggregate turns and Breakdown


A B C and ….


product category


market segment


revenue and profit contributions


domestic vs imports

30

Inventory/Time Measures


Days in inventory


Cost of Goods Sold / 365 Days


Can understate total inventory in the supply chain


excludes inventory that is on order and inventory in transit


Manufacturers and wholesalers

over 60 days of
inventory


Retailers

over 90 days of inventory


Factor in what is excluded makes it 25% more

31

Increase Inventory Velocity


Multi
-
step program


Align with business strategy


Key metric
--
Perfect Order
--
orders delivered
complete, accurate and on
-
time


Purpose/Direction


Manage and reduce total supply chain costs


Increase inventory velocity


Compress cycle time


Need for Lean success


Provides structure, platform and integration for new
processes internally and externally with suppliers




32

Inventory Velocity


How fast inventory moves through the supply
chain


Is more than “turns”


Shows as days of inventory on hand


Flaw because it excludes product on order
and/or in transit


33

Inventory Velocity


Recognizes emphasis is beginning of
supply chain with suppliers


Transit time is one factor


Avoid stopping inventory (lean)


Supplier performance is key



34

Inventory Yield


Time is very important


Issues with demand planning and time


Internal “battles can create discord to create
inventory yield maximization and minimize
supply chain costs, inventory and time
--
Procurement looks at low product price and
Transport looks at low freight price



35

Inventory Yield Maximization


Yield Maximization

used to sell airline
seats and hotel rooms


Is a “right” time to sell


View inventory is same way


Too little inventory

lost sales


Too much inventory

mark down and fire
sales


Inventory can go stale




36

Best Practice


Cycle Time Compression

37

Cycle Time


Time to convert a sales / replenishment /
purchase order into finished product that is at
the customer or at the store


Ties to scope of supply chain


Remember effect of time on inventory


Cycle time often exceed demand planning
credibility and capability


Supplier performance is key

38

Cycle Time Compression


Recognize need for product till sales paid
by customer


Subsets

such as time from recognize
need (before PO is issued) until product
delivered to you


In Lean, time is waste


39

Best Practice


Lean Logistics

40

Lean SCM


Similarity with Lean principles


Pull

vs push


Inventory

reduction (reduce waste)


Cycle
time

compression (reduce waste)

41

Lean Logistics


Extending it beyond domestic and factory
walls (end to end)


Waste


Unnecessary, additional time


Unnecessary, additional inventory


Stopping or waiting on the flow of inventory
and information
(add no value to final product or


value for customer)


42

Lean


Assess entire supply chain as to where
time is spent and why


Look especially at internal


Smaller orders/more frequency from
suppliers


Do not store
--
cross dock at port or DC



43

5R’s (Rights) of Lean SCM


Right Product


Right Quantity


Right Condition


Right Place


Right Time


Anything that does not contribute to the
5Rs is waste

44

Examples of SCM Waste


Over supply
--
Supplying product at a faster rate
than customer requires, having it ahead of demand.
Bringing in large quantities of product without
matching demand creates excess inventory and can
cause write
-
down and fire sales to draw down
inventories

and revenues and profits.


Transportation. Unnecessary or slow movement of
product adds no value (for lower freight cost). This
can include movement of inventory between
company facilities.



45

SCM Waste


Movement. Any unnecessary movement of
product or people during their work is to be
avoided. This may be seen in warehouses or in
special operations such as kitting.


Defective Service or Product. Poor quality,
rework, or scrap because it does not meet the
customer requirements adds no value.


Over processing. This is doing more than is
necessary.


46

SCM Waste


Inventory. Firms have more finished product, raw
materials, or work in process than the absolute
minimum. This includes inventory in transit,
regardless of whether it is treated as inventory when
it is delivered or not; it is still inventory regardless of
such transaction nuances.


Waiting. Delays in previous supply chain steps cause
unnecessary waiting of people or equipment.
Inventory at warehouses reflect waiting.

47

Becoming Lean


Realize cause
-
effect impacts. Distinguish problem from
symptom of a problem


High freight cost can be a problem or a symptom.


Inventory can be a problem or symptom of a problem


Ask customers about how well your supply chain
operates


Comprehend the complexity of supply chains with
multiple suppliers in multiple countries, distribution
centers and customers


Assess time

especially internal

for waste



48


Best Practice


Technology

49

Technology
--
IS

50

Process Enabler


Manage the “buy” even


Important tool to deliver complete,
accurate , on time

51

Technology


Supply chain execution tool for



integration


end
-
to
-
end global visibility


dealing with complexity


issue PO and changes to PO


exception management


52

Supply Chain Technology


Much more than online “track and trace”


Not about the container

about what’s in
the container


It’s about the PO



53

Best Practice


Supplier Performance

54

Supplier Performance


SCM success starts here


Key to:


reduced cycle time


increased inventory velocity


improved inventory turns


removing waste


better demand planning


55

Importance


Supplier performance is critical to



SCM success


Inventory velocity and turns improvement


Cycle time compression


Lean SCM


Costs, such as expedited freight


And more

56

KRALJIC MODEL

57

Supplier Performance


Start with Procurement Strategy


It’s about “price” and MUCH MORE


Include


Supplier rationalization


Supplier collaboration


Supplier development


Spend management and compliance



58

Best Practice


Segment Supply Chains

59

One Size Does Not Fit All


Is not one approach to SCM for all
industries and all businesses


Should be multiple approaches used by a
company


For A vs B vs C items


For Tier 1 vs Tier 2 vs Tier 3 customers


60

Different Approaches


Segment use of speed
--
transport modes


Where/how inventory is positioned


Segment integration

internal and
external


Cannot be everything to everybody

61

Develop multiple supply chains


Move away from monolithic supply chain
approach


Splinter/multiple supply chain approaches


reduce static/noise with better focus


increased flexibility and responsiveness


enables better demand planning

62

Types of SCM Splintering


Master/prioritize/differentiate by
--


product demand, volatility, velocity


where made or sourced


when sold in quarter or year


market segments


63



Nothing will come of nothing

King Lear

Act 1, Scene 1


Doing the same thing over and over
and expecting the same results.

Einstein’s definition of insanity