Supply Chain Best Practices

1. 1
Supply Chain Best Practices
Issues that are driving and
will drive companies
by
Tom Craig
[email protected]

2. 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. 3
Set the Stage

4. 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. 5
3 Supply Chains & Flows
Product
Information
Finance

6. 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. 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. 8
Complex and extended real
supply chain
Why firms
wants
control
Are chains
within
chains

9. 9
Additional
supply
chain
challenges

10. 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. 11
The Opportunity for the Best
Best in ClassBest in Class
organizations have organizations have
clear competitive clear competitive
advantages over advantages over
Industry Average & Industry Average &
Laggards.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. 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 Revenue
EnhancementEnhancement
Operating Operating
Cost Cost
ReductionReduction
Working Working
Capital Capital
ReductionReduction
Fixed Capital Fixed Capital
ReductionReduction
Invested Invested
Capital Capital
ReductionReduction
Profit Profit
EnhancementEnhancement
Shareholder Shareholder
Value Value
EnhancementEnhancement

13. 13
Walmart
Private labels
Buying direct
Expanding leveraging
More control of supply chain (going
upstream)

14. 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. 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. 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. 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. 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. 19
Best Practice
Metrics

20. 20
Metrics
Metrics for sake of metrics
Good vs bad from my article

21. 21
Are They Really Metrics?
Financial measures—used as
performance metrics
Internal SCM KPIs
Warehousing—orders picked
Freight costs
Etc.

22. 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. 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. 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. 25
Best Practice
Inventory Velocity

26. 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. 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. 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. 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. 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

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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. 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

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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. 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. 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. 36
Best Practice
Cycle Time Compression

37. 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. 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

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Best Practice
Lean Logistics

40. 40
Lean SCM
Similarity with Lean principles
Pull vs push
Inventory reduction (reduce waste)
Cycle time compression (reduce waste)

41. 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)

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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

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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

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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.

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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.

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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. 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

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Best Practice
Technology

49. 49
Technology--IS

50. 50
Process Enabler
Manage the “buy” even
Important tool to deliver complete,
accurate , on time

51. 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. 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. 53
Best Practice
Supplier Performance

54. 54
Supplier Performance
SCM success starts here
Key to:
reduced cycle time
increased inventory velocity
improved inventory turns
removing waste
better demand planning

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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

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KRALJIC MODEL

57. 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. 58
Best Practice
Segment Supply Chains

59. 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

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Different Approaches
Segment use of speed--transport modes
Where/how inventory is positioned
Segment integration—internal and
external
Cannot be everything to everybody

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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. 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. 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