fapics mondher may 19, 2011_final_partial

© 2011 E2open, Inc. All rights reserved.

Global Supply Chain Management Trends & Best Prac.ces FAPICS Annual Conference Paris, May 2011

Mondher Ben-‐Hamida, CPIM, CSCP APICS Board Member Vice President Strategy, E2open [email protected] / [email protected] +1.415.425.7184

E2open ConfidenNal / 2

Agenda

1 Our Point of View on Global Supply Chain IntegraAon What Works & What Doesn’t Work

2 Case Studies in Global Supply Chain IntegraAon & Co-‐opeAAon Lessons Learned

3

4 IT and the Future of Supply Chain Management On the structure and merits of an IT-‐enabled business network

5 Conclusion Final Thoughts

An Overview of Some Macro Economic Trends … and their impact on the micro economic drivers of SCM


Supply Chains are More Complex than Ever

•  Supply chains becoming ‘virtual enterprises’

•  Complex, mulN-‐Ner business and service level relaNonships

•  GlobalizaNon, de-‐centralizaNon and management of shared processes


… and Supply Chain CollaboraNon is Tough! The Uncanny Resemblance with Chaos Theory

1.  Complex systems consist of a large number of elements. 2.  The elements have to interact and this interacNon must

be dynamic. 3.  The InteracNon is fairly rich, i.e. any element in the system

influences, and is influenced by, quite a few other ones. 4.  Firstly, the interacNons are non-‐linear. 5.  The interacNons usually have a fairly short range, i.e.

informaNon is received primarily from immediate neighbours. 6.  There are loops in the interacNon. 7.  Complex systems are usually open systems, i.e. they interact

with their environment. 8.  Complex system operate under condiNons far from

equilibrium. 9.  Complex systems have a history. Not only do they evolve

through Nme, but their past is co-‐responsible for their present behaviour.

10. Each element in the system is ignorant of the behaviour of the system as a whole.


Business EvoluNon over the years ……

Asset Light TransformaAons • Loss of control & increased risk • Planning focus replaced by execuNon focus

Complex Customer Channels • End customer value NOT immediate customer focus

• Visibility and replenishment

Value Networks • Non-‐linear, Global, MulN-‐Ner, Regional • Direct links between points of supply and demand

• No touch or low touch operaNons

Short Product Lifecycles • Need for dynamic supply chains • Lower Inventory levels • Lower liability

AcAve Demand Management • Real Nme visibility and dynamic execuNon to counter volaNlity

• Demand shaping, promoNons

RegulaAons & Compliance • Global networks drive huge compliance requirements

• Cross-‐country goods movements require detailed documentaNon


Brand vs. Delivery …..

•  Major Brand Owners conNnue to outsource based on their core competencies and the capabiliNes of their partners

•  Strategic move – own the Brand/Design and outsource the actual value creaNon

•  Requires managing the value network outside the four walls

0%

10%

20%

30%

40%

50%

60%

70%

1975 1985 1995 2005 2015

Tangible Assets/Net Value


The Evolving Needs of Global Supply Chains

Phase 1 Phase 2 Phase 3

Business creation and local market

establishment

Aggressive Global Growth

Slower growth and fiercer competition

Reputation Matters Growth Matters Execution Matters

Suitability of Supply Chain Models and Tools LowHigh

Elapsed Time / Supply Chain Planning Complexity HighLow

• Our experience shows that most global companies are in Phase 3 of their evoluNon

• Global operaNonal models (process, tools and infrastructure) have not evolved in sync with the growing complexity of global business models

• The growing compeNNon between new and emerging technology Ntans adds a sense of urgency to the need for key players to upgrade their operaNonal model with greater emphasis on superior planning and execuNon

• Transforming the supply chain to address the requirements of this new phase is the new compeNNve fronNer

Mismatch between Needs and Current Setups


Example: Complex Supply Network

Boeing 787:

External CollaboraNon is absolutely criNcal as more design, manufacturing, and supply network execuNon is entrusted to key trading partners


Valida.ng Our Observa.ons Findings from a Recent E2open Supply Chain Summit

4 SCM & Financial Management

3 Performance Mgt in a MulN-‐Tier System

1 Number of Planning Tiers

2 Lead Time in an Extended SC


Supply Chain MulN-‐Tier Performance Using the E2open Maturity Model

Companies in this zone have neither the supply chain reach nor the advanced planning capabiliNes to turn SCM into a compeNNve differenNator. Many companies from emerging markets fall in this category

The Basic Quadrant

Companies in this zone have heavily invested in enterprise automaNon and planning soluNons but are yet to reap any significant benefits because of either lack of leverage or reluctance to embrace the required mind-‐set shim

Companies in this zone have managed to leverage their size or anchor posiNon to build a mulN-‐Ner planning model that sNll lack advanced analyNcs to handle complexity and improve visibility and responsiveness

Companies in this zone clearly understand the need to reach across their supply chain spectrum to opNmize their operaNons leveraging advanced opNmizaNon and business intelligence for superior performance

The Underachievers Quadrant

The Overachievers Quadrant

The Orchestrators Quadrant


OEM / Brand Owner Customers Component Suppliers EMS Partners Channel Partners

Dependency Vola-lity

Variability

Time

The Challenge of MulN-‐Tier Planning


Performance Management in a MulA-‐Tier Value Chain The Dubious Usefulness of the Inventory Turnover Ra.o (as an example)

Brand Owner Your Key Supplier/CM Your Key Customer

QuanN

ty

Time

QuanN

ty

Time

QuanN

ty

Time

1 12 11 10 9 8 7 6 5 4 3 2 1 12 11 10 9 8 7 6 5 4 3 2 1 12 11 10 9 8 7 6 5 4 3 2

COGS I

COGS I

COGS I

•  Is this metric (and other tradiNonal ones) more suited for a verNcally integrated company? • What’s the true value of pursuing high inventory turns at the Brand Owner level when the Supplier is (contractually / in theory) forced to maintain high inventory levels ― Does this drive some of the hedging games that we see in various industries? • Does a MulN-‐Tier environment warrant re-‐defining this metric to cover 2+ Tiers? • Do we need new ‘financial products’ to provide joint inventory hedging mechanisms? • Please share any experiences implemenNng any cross-‐Ner metrics?

Key Findings


What Is Your Lead Time in An Extended Value Chain? The Need to Constantly Monitor 3 Cri.cal Variables

John D.C. Li]le InsNtute Professor

I Inventory

L Lead-‐Time

T Throughput

Supp

liers Custom

ers

Lead Time

T Raw Materials

Component Suppliers

EMS Partners OEM’s / Brand

Owners Warehouse(s) Retailers

Your Company

• How comfortable is a company (with an extended supply chain) quoNng a delivery leadNme? •  Is expediNng / firefighNng a reflecNon of poor visibility to inventory? How to fix that?

Key Findings


Agenda



3

4


IT and the Future of Supply Chain Management On the structure and merits of an IT-‐enabled business network



Co-‐opeNNon is Fast Becoming the Norm

Source – E2open Research

Customers SaNsfacNon

Supply Chain Visibility

Cost ReducNon

Inventory ReducNon

Lead Time ReducNon

Supply Chain Velocity

Metrics Alignment


A Mockup of a Supply Chain Command Center Co-‐ope..on and ‘Real Time’ S&OP at Work….


Agenda



3

4


It and the Future of Supply Chain Management On the structure and merits of an IT-‐enabled business network



Observa.on # 1 China and the Lewis Turning Point

Lewis argued in a 1954 paper that a developing country with “surplus” agricultural labor could grow its industrial sector for

years without wage infla.on as it absorbs that surplus.

Sir W. Arthur Lewis Nobel Economics 1979

(1915 —1991)

Share of enN

re indu

stry

TexNle Consumer Electronics

Steel Automobile

Low value-‐added products High value-‐added products


Observa.on # 2 FluctuaAng Oil Prices Make LogisAcs Planning Challenging

+$100/bbl (from $17 to $117) causes an increment of transportaNon cost of 0.22€/km (from 1.28€ to 1.50€) at full capacity uNlizaNon

# of Warehouses

LogisNcs Costs

Cost of Warehouses, Stock and Loading Devices, etc.

TransportaNon Costs


Observa.on/Ques.on # 3 Is Labor Cost SAll Relevant? And How Should It Be Analyzed?

•  Vietnam Worker – 400-‐500 RMBs/Month –  Lower than Bangladesh

•  China Worker – 800 RMBs/Month –  Higher than India and Malaysia –  Industrial Transfer is inevitable

•  Survey by the FederaNon of HK Industries –  37% of 80,000 HK companies planning to transfer part or all of their producNon capaciNes out of the region

–  63% planning to move out of the Guangdong region


Observa.on/Ques.on # 4 What is the True Supply Chain Cost Breakdown (1 of 2)

21

‘It is the maxim of every prudent master of a family, never to axempt to make at home what it will cost him more to make than to buy. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, bexer buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.’

“An Inquiry into the Nature and Causes of the Wealth of Na.ons” Adam Smith – 1776

•  Purchase price ex-‐factory gate •  TransportaNon cost per unit, assuming no unexpected delays or quality problems •  Customs and duty to clear a shipment for export •  Insurance and transacNon cost •  Cost of quality control and compliance with safety and environmental standards •  Search cost and agency fees to idenNfy and interact with local suppliers

StaAc Costs •  Increased pipeline and safety stock due, which is amplified by demand volaNlity and product variety •  Inventory obsolescence due to long logisNcs lead-‐Nmes, e.g. in case of quality problems •  Cost of lost sales and stock-‐outs, as the supply chain is unresponsive to shims in demand •  Expedited shipments, e.g. air-‐freight, to ensure uninterrupted supply

Dynamic Costs •  Labor cost inflaNon due to rising standards of living and compeNNon of the labor market •  Currency fluctuaNons, in parNcular for cases of arNficially pegged currencies •  Rise in transportaNon cost, e.g. due to higher oil price and carbon offset costs •  Overhead for managing the internaNonal supply base, including travel cost or cost for local personnel in the supplying markets •  The loss of intellectual property to contract manufacturers •  The risk of poliNcal and economic instability or change

Hidden Costs


Observa.on/Ques.on # 4 What is the True Supply Chain Cost Breakdown (2 of 2)

22

To Outsource or Not To Outsource? An EvaluaNon Framework

Source – “On the risk and cost of global sourcing” – Holweg et al InternaNonal Journal of ProducNon Economics – 2011

fapics mondher may 19, 2011_final_partial

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