aankhen supply chain 2.0

Aankhen, Inc. White Paper

© Aankhen, Inc. All rights reserved. of 11

1735 N First St #306

San Jose, California 95112, USA

www.aankhen.com

e-mail: [email protected]

Introduction to Supply Chain 2.0

Written by

Subhash Chowdary

CEO Aankhen, Inc.

Version 2.0

Updated: May 1, 2007

http://www.aankhen.com/



Executive Summary

Every once in a while certain events create economic tsunamis that create inflection

points in global economics. The ability to differentiate an incoming wave from a tsunami

and making the right decisions creates opportunities to convert risks to rewards.

Globalization is a tsunami that has been set in motion creating new economic dynamics.

As enterprises adapt to outsourcing and offshoring of manufacturing, the uninterrupted

flow of goods becomes more critical to the financial stability of the enterprise. Supply

chains are the lifelines that enterprise prosperities depend on. This white paper is

intended to introduce Supply Chain 2.0 to decision makers who impact the performance

of their supply chains. We are calling supply chains that address the next generation of

requirements driven by globalization - Supply Chain 2.0.

What is Supply Chain 2.0?

Supply Chain 2.0 is the virtual integration of the financial and physical supply chains to

create a value chain delivering economic benefit to its users. Users include customers,

employees of an enterprise, service providers and suppliers. Financial supply chains

address the flow of capital between participants in the supply chains. Physical supply

chains address the continuity of the flow of goods. Information supply chains enable the

synchronization of financial and physical operations of the supply chains.

Globalization is one of the key phenomena driving the innovations of Supply Chain 2.0.

CEOs, CFOs, CIOs and Supply chain executives transforming their supply chains to

address globalization issues will find Supply Chain 2.0 a critical and necessary part of

their procurement, logistics and financial management strategies.

About Aankhen, Inc.

Aankhen provides comprehensive Supply Chain 2.0 solutions, consulting and

development services spanning financial, physical and information supply chains backed

by best-in-class practitioners with hands-on world class experience in supply chain

management and operations.

Wave or Tsunami?



Table of Contents

Introduction ....................................................................................................................... 4

Example supply chain scenario ....................................................................................... 5

Supply Chain 2.0 enabled value chains ........................................................................... 6

Making supply chains better .......................................................................................... 7

Making supply chains faster .......................................................................................... 8

Making supply chains smarter ...................................................................................... 8

Competitive advantage ................................................................................................... 10

Where to start .................................................................................................................. 11

About Aankhen, Inc. ....................................................................................................... 11



Introduction

Globalization is an economic tsunami that has been set in motion. Like all tsunamis there

is a period of early warnings and signs of the inevitable force of nature to follow. Those

who can sense and respond intelligently have the best opportunity to reap the rewards of

their decisions. As CEOs, CFOs, CIOs, and Supply Chain executives responsible for

making decisions, globalization presents great opportunities and challenges. The right

decisions will determine the future prosperity of your enterprise. The wrong decisions

will take their toll on the enterprise and its trading partners.

The most visible globalization activities are:

The outsourcing of manufacturing to China

Increased reliance on import of finished goods by consumers in the west

The outsourcing of information technology services to India

Globalization is not limited to China and India. It is now a continuous quest for low cost

resources spreading across Asia, Eastern Europe, Mexico, South America and Africa.

Enterprising leaders are taking action to seize new opportunities as they present

themselves and new leaders are emerging by creating new opportunities for themselves.

In the old computer world, Dell dominated the PC industry with its direct business model

leveraging the internet for direct sales and cost efficient sourcing. IBM transformed itself

by selling its PC division to Lenovo and moving its procurement division to china. HP

regained its PC market leadership taking market share away from Dell and IBM. In the

automotive industry Toyota is the emerging new leader replacing GM and Ford.

Key point: previous business models and processes no longer provide a competitive

advantage. It is time to innovate and change strategies.

Globalization impacts every enterprise involved in the purchase and sale of physical

goods. Supply chains are the global networks that deliver the goods from suppliers to

buyers. Any disruption to the flow of goods in the physical supply chains including

security threats will have a financial impact on all trading partners. Financial risks and

uncertainty must be managed proactively across trading partners in the new generation of

global trade.

Motivation for addressing globalization

From an enterprise perspective, there are two primary motives for addressing

globalization:

new markets to grow the business

increase profit with lower costs

To grow into the new markets, goods must be sold and delivered using supply chains. To

increase profit, enterprises must source competitively from low cost countries. In both

cases, financial and physical supply chain networks must be extended to these new

locations.



Example supply chain scenario

A buyer goes on-line to a website and configures a product to the buyer’s needs. For

every configuration and service requested, the cost is visible to the buyer. When the

buyer is finished with making all the decisions the buyer knows the total cost of the

product purchased and the promised delivery date. After placing the order the buyer has

visibility to the status of the order fulfillment process with confirmations at various stages

until final delivery.

In the example scenario, the buyer could be in the US, the website and software

developed by a company in India, the product a US brand like HP, the suppliers of the

components in China, the manufacturing/assembly by a contract manufacturer in Taiwan,

a logistics service provider like UPS or FedEx and a bank for financial services. This is a

simplified view of an existing global supply chain network.

After placing an order the buyer enters the most anxious and mysterious phase of the

supply chain process - will the order arrive on time? Globalization of supply chains can

create new challenges and uncertainty.

The key challenges created by globalization of supply chains:

1. Increased lead times As supply chain networks are extended globally to new locations the number of

blind spots and lead times are expected to increase. Increase in lead time directly

impacts inventory in-transit, inventory at distribution centers/hubs, supply risk,

financial risk and total cost of goods. Blind spots and poor visibility compound

the problem further with no ability to address the issues before it is too late.

2. Inventory management Extending an existing supply chain to meet globalization requirements adds nodes

and touch points in a supply chain. Each node and touch point involves yet

another inventory location in the supply chain network. New manufacturing

locations, supplier sources and consumer markets added to the network require

every enterprise to reengineer the network.

3. Financial management Supply chain business models can range from an enterprise owning the entire

process to managing only the brand and outsourcing the rest of the business

functions (design, manufacturing and delivery) to third parties. The trend with

globalization is to outsource more and own very few processes. However, at the

end of the day the enterprise must pay for all the outsourced services regardless of

how creative the accounting process may be. New and increasing procurement,

logistics and finance costs will require the ability to compute and manage cost

items not previously tracked. This requires a total cost approach to managing the

bottom line.



Supply Chain 2.0 enabled value chains

Supply chains have been traditionally managed as a cost of doing business with

initiatives focused on cost savings and not as a value chain that directly impacts the

financial worth of an enterprise. Globalization is driven by an opportunity to grow global

market share and earn higher profits leveraging low costs, making supply chains critical

to the financial value of an enterprise. Supply Chain 2.0 addresses the challenges created

by globalization and turning them into opportunities to gain competitive advantage with

new functionality. These functions can be classified into three distinct categories:

Financial – making supply chains better

The financial supply chain manages the pricing/cost and settlement of financial

transactions across all the trading partners involved in the supply chain

Physical – making supply chains faster

The physical supply chain ensures the sourcing and continuity of supply of the

components and services to manufacture/assemble, package, ship and deliver the

goods on time

Information – making supply chains smarter

The information supply chain keeps the financial and physical supply chains in

sync by providing the data required by applications and users to make intelligent

decisions.

Hub/Warehouse Factory / DC

Supplier Factory

Material + Freight + Inventory + Other = Total Shouldbe Cost®

$ $

$75 $10 $5 $10 = $100

Physical Supply Chain

Aankhen Inc. 2007 All Rights Reserved www.aankhen.com

Financial Supply Chain

$

$



Making supply chains better

Supply chains are better when they are cost efficient while delivering value to their

customers and profits to their stakeholders. Supply Chain 2.0 makes financial supply

chains better with a fresh and innovative approach to managing cost 24/7. As

manufacturing moves offshore, so will procurement, logistics and finance in the form of

International Procurement Offices (IPO). Existing applications and spreadsheet based

manual processes cannot sustain a common, repeatable financial decision making process

across geographically dispersed procurement, logistics and finance personnel. The new

approach is a combination of innovative technology and systemic process change to

proactively manage ‘what shouldbe’ the spend in addition to the backward looking

style of managing ‘what was’ the spend. Managing ‘what shouldbe’ proactively

introduces a pragmatic, forward looking approach that:

1. Reduces pricing negotiation and approval cycle times

Faster pricing negotiation and approval with ‘one truth’ integrity anytime from

anywhere with visibility to computed ‘Shouldbe Cost®’ during the negotiation.

Shouldbe Cost® is the computed cost of a cost component using approved rates

and fees existing in an enterprise applicable to the time period the cost is being

computed for.

2. Improves financial predictability and stability

Cross functional integration of data and automation of common processes across

product engineering, procurement, logistics, manufacturing and finance eliminate

the need for manual or spreadsheet based cost computations delivering a

repeatable and reliable system of financial information.

3. Reduces costs significantly without increasing risk

Fact based decision making enabled by computed ‘Shouldbe Cost®’ empowers

decision makers to make decisions with visibility to the financial impact of the

decision before making the decision.

Strategy - Network redesign - Inventory optimization

- Spend Management

Auctions Transportation

Spend Forecast

Shouldbe Cost®

New Product

Introduction

Procurement Logistics

Manufacturing

Financial Management - Forecasting - Budgeting

- Planning



Making supply chains faster

Supply chains are faster when they promise and deliver requested goods to their

customers in a shorter time than competitors. Visibility is the critical ingredient for

increasing the speed and velocity of supply chains. Supply Chain 2.0 delivers the next

level of visibility. Instead of looking for ‘where is my stuff?’ Supply Chain 2.0 provides

forward looking visibility to ‘where your stuff will not be on-time’ enabling proactive

decision making to prevent problems.

Supply Chain 2.0 makes supply chains faster by:

1. Delivering end-to-end visibility of the supply chain

Visibility exposes the blind spots in the supply chain. For example, 90% of all

cargo representing 200 million containers are moved between seaports each year.

New RFID and GPS technologies provide automated processes and capabilities

that eliminate and break through existing barriers that create blind spots. A

command center level visibility delivers new agility to sense and respond to

fulfillment risk on a global basis.

2. Reducing lead times

Accurate measurement of actual dwell times in each segment of a supply chain as

goods move through them enables exceptions to be managed proactively with

automation and intelligence. Visibility to the quantitative measures enables

decision makers to identify, prioritize and execute strategies to reduce lead time.

3. Providing visibility to where the inventory is at all times

Allows decision makers to proactively direct or redirect the inventory to where it

should be before it is too late. For example, it is now possible to track movement

of physical goods at a SKU level from the time they enter a container to the time

the product is sold at a store delivering on the promise of end-to-end visibility.

Making supply chains smarter

Supply chains are smarter when they enable their users to make better and faster

decisions. Supply Chain 2.0 enabled information supply chains bring a disciplined

approach to managing data and information analogous to the manufacturing industry: on-

time, on-budget, perfect order delivery. Globalization challenges cannot be addressed

cost effectively using existing applications. New innovative information technologies are

critical to making global supply chains smarter.

Supply Chain 2.0 makes supply chains smarter by:

1. Synchronizing financial and physical supply chains

As International Procurement Offices (IPO) move closer to manufacturing and

supply sources, the cross functional integration of procurement, logistics and

finance is necessary to support the extended supply chains. Keeping financial and



physical supply chains in sync 24/7 with real time information does not mean

more number of resources working longer hours and midnight conference calls.

New Supply Chain 2.0 technologies reduce the complexity and skills required to

manage additional stress created by distance and time differentials by providing

smarter solutions to automate business processes and provide in context visibility

to users at lower cost.

2. Increasing the predictability of the supply chain

Automating common and repetitive processes, reducing manual interventions in

supply chain processes and eliminating bad master data in the supply chain

increases the predictability and performance of a supply chain. Data accuracy

reduces complexity and increases the confidence in decisions across the supply

chain eliminating ‘versions of truth’ which result in higher costs.

3. Providing in context intelligence to the user

Supply chain users include a large number of users including customers,

suppliers, service providers, commodity managers, financial analysts, logistics

analysts, planners, product engineers, managers and executives. Each user’s

context is different when viewing the supply chain. Each user influences the

performance of the supply chain with their decisions. Providing in context cross

functional access to data created and maintained by the users becomes critical to

improving the productivity of every user in the value chain. Supply Chain 2.0

technologies automate and deliver computed content and intelligence in context of

the user not possible with previous applications.

4. Supporting constant change

The mean time for changing business requirements in global supply chains will be

shorter than the time to upgrade and deploy existing applications. Working

harder to support frequent upgrades is not a viable option for the already stretched

IT resources. Smarter technologies using services oriented models capable of

supporting rapid changes to process and international business requirements will

provide the agility an enterprise requires to be competitive.



Competitive advantage

Supply Chain 2.0 solutions create new competitive advantages for the enterprise. These

advantages include:

1. Ability to respond to cost increases or decreases faster than the competition In a global environment, costs can decrease or increase across geographic regions

for various reasons. Bid and Auction events are manually intensive to set up and

do not by themselves provide the flexibility to take advantage of cost savings

opportunities as they occur globally. Enterprises that have financial and physical

supply chains in sync have a competitive advantage with their ability to

proactively sense and respond. International Procurement Offices (IPO) will play

a key role in determining the cost competitive advantage of an enterprise.

2. Demand shaping As globalization forces price competition, commoditization and shorter product

lifecycles, the ability to shape demand will be critical to increasing sales and

maximizing profits. For example, a supplier has excess inventory of 21” LCD

panels and wishes to unload at a discounted cost to an existing buyer. In a Supply

Chain 2.0 enabled enterprise, the temporary discounted price can be negotiated in

near real-time, the buyer uses the computed total ‘Shouldbe Cost®’ to determine

the potential additional profit for the buyer, the buyer promotes the on-line sale of

a PC with an upgrade from 19” to a 21” LCD monitor for an additional cost,

captures customer order and fulfills the order before the competition knows what

happened. Everyone wins. The supplier moves excess inventory, the enterprise

makes a sale with additional margin and the customer gets a deal! Using Supply

Chain 2.0 the entire cost management process would be accomplished in less than

2 hours instead of taking 30 to 180 days.

3. Enabling continuous cost takedowns ‘Shouldbe Cost®’ computation proactively identifies savings opportunities at

each cost item level an enterprise wishes to manage. Existing cost, less ‘Shouldbe

Cost®’ quantifies cost savings opportunity. Multiple approved pricing at

worldwide, regional or local sites for the same material sourced is the low

hanging savings opportunities identified by ‘Shouldbe Cost®’. In low cost

country sourcing smarter supplier financing and payment terms can takedown

20% of direct material cost without increasing risk. In freight logistics, several

costs are hidden and rationalized as cost of doing business. These costs when

aggregated can exceed 10 to 15% of direct material spend. Freight spend using air

or ocean containers will account for an increasingly significant share of cost of

goods. Savings in millions from freight spend can be realized from better

container utilization and packaging optimization without increasing supply risk.

This is accomplished in Supply Chain 2.0 with visibility to the computed

‘Shouldbe Cost®’ and the ability to do ‘what if’ analysis in real-time to optimize

and manage the embedded logistics costs at a logistics lane level for each SKU.



Where to start

If you have any of the following initiatives:

International Procurement Offices (IPO)

End-to-end supply chain visibility

Supply chain network modeling or redesign involving global hubs, new

manufacturing locations or new distribution centers

Network inventory optimization modeling

Total cost management

Outsourcing procurement

Procurement, Logistics and Finance synchronization

contact Aankhen, Inc. at:

408-387-0083 or send an email with your questions to [email protected]

For more information visit our website at www.aankhen.com

About Aankhen, Inc.

Aankhen provides comprehensive Supply Chain 2.0 solutions, consulting and application

development services spanning financial, physical and information supply chains backed

by best-in-class practitioners with hands-on world class experience in supply chain

management and operations.

aankhen supply chain 2.0

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