paul lord, gartner – “from out-sourcing to optimization: making sense of strategic options”

© 2013 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity."

From Out-Sourcing to Optimization: Making Sense of Processes in the

Chemical Industry

Paul Lord Research Director

Gartner Supply Chain

© 2013 Gartner, Inc. and/or its affiliates. All rights reserved.

Inventory: The Window Into Supply Chain

•  No permission or grand strategy are needed to eliminate inventory waste

•  Lower inventory does not necessarily reduce cost •  Metrics benchmarking and strategic declarations

are not enough

2

Ref: “Supply Chain Research Roundup for Inventory Management, 2013 “


Inventory Alignment and Determination Occurs at Multiple Levels

Optimized Policies to

Reduce Costs and Improve

Efficiencies

Optimized Inventory Levels

Physical Structure and Sourcing

Decisions

•  Capital investments

•  Mergers & acquisitions

•  Sourcing relations

•  Stocking levels •  Stocking

locations •  Service levels

Tactical

Strategic

•  Inventory, transportation, policies •  Product flow: Consolidation,

routing carbon footprint

Operational

Ref: “The Journey to Successful Supply Chain Inventory Management Requires a Sequenced Plan”


Architect Decision Process Layers With Carefully Selected Frequencies & Time Horizons

Sell Deliver Make Source Strategic/Long-term Planning (2 Years to 5 Years)

Strategic Planning and Forecasting Network Optimization, Strategic Risk Evaluation

Tactical/Mid-term Planning (3 Months to 24 Months)

Sales and Operations Planning

Demand Planning

Supply Planning Inventory Configuration

Supplier Mgmt. Contract Mgmt.

Operational/ Short-term Planning (1 Week to 12 Weeks)

Vendor Mgmt. Inventory (VMI)

Distribution Req. Planning ( DRP) Inventory Policy Transportation Mgmt.

Factory Scheduling

Material Req. Planning (MRP) Sourcing

Execution (Order Duration to Shipment)

Order to Cash Manufacturing Execution Systems (MES)

Procure to Pay

Note: Planning Horizons Differ by Industry Depending on Product Life Cycle and Asset Investments

“Five Chemical Industry Supply Chain Insights From 2013”


Supply Chain Optimization: Model-based prescriptive analytics for decision support

"Optimization is the ability to minimize cost or maximize profit subject to existing constraints such as …"

— J.Paul Dittmann, Supply Chain Transformation: Building and Executing an Integrated Supply Chain Strategy

•  Conscious design tradeoffs: •  Networks •  Processes •  Incentives

Alignment

•  Without constraints, supply chain is easy…..and expensive

Constraints

•  Analysis improves judgment

•  Speed allows postponement

Decisions

“Supply Chain Optimization in Process Manufacturing Requires More Than Analytics”


Value Chain Orchestration: Scaled and Sustained With Enabled Processes

Demand Supply

Product

Global

Optimized

Efficient

Strategic

Operational

Digitized

Collaborative


Outcomes, Tactics, Features & Benefits

•  Outcomes: - Profitable growth, customer delight, reliable supply,

joint value creation

•  Tactics: - Standardization, Integration, Outsourcing,

Collaboration

•  Features & Capabilities: - Global, Automated, Digital, Responsive, Visibility

•  Benefits - Cost reduction, Working capital reduction, Service

improvement 7


Procter & Gamble’s Burning Platform Winning the Moments of Truth

Big countries Big brands Big customers

A.G. Lafley

A.G. Lafley, Proctor & Gamble

•  “First Moment of Truth” - the first interaction between a shopper and a product on the store’s shelf.

•  The second moment of truth is when the consumer uses the product.


Research Insights: Demand Fulfillment

•  Desired Outcomes Are Clear - Customer Satisfaction & Experience - Reliable Supply (Perfect order)

•  Tactics & Process Features -  Integration, Segmentation, Collaboration, Responsive

•  Metrics and Justifications for Improvement Don’t Always Align - Digitization - Productivity / Scalability

10

11

Integrated Global Supply Chain Vision & Guiding Principles

Be the reason customers do business with Eastman

The Integrated Global Supply Chain: •  Is all in for safety •  Is reliable and provides creative solutions to our customers •  Translates market insights from customer and suppliers into

profitable business responses •  Is demand driven •  Is an organization that provides opportunities for professional

growth and development •  Demonstrates excellent performance in revenue growth, total

cost management, return on assets, inventory optimization, and targeted levels of service

DuPont Process Performance World Class Performance Requires Eliminating Process Defects Across the Value Chain

Suppliers

Customers

Requisition to Pay Order to Cash Record to Report

Demand Mgt

Supply Mgt

Material Money

Information

Transactional Processes

BPM Supports the Elements of Value Chain Transformation

Develop and Maintain Cross Functional Standard Processes

Standard KPIs for Integrated E2E Supply Chain

Behaviors to Support Change

Standard System & Data Architecture

Standard Governance, Accountability and Centered Teams

Business Processes

Capabilities Strategy & KPIs

Systems & Information

Flows Structure

Culture (M & B)

Mindsets, Behaviors & Organizational Liquidity

Reference: “DuPont Applies Business Process Management to Deliver Supply Chain Performance Breakthroughs”


Concluding thoughts •  Prioritize inventory visibility, defined supply

processes and waste reduction •  Align physical networks, decision processes and

metrics/incentives •  Distinguish features and tactics from outcome

and benefits • Different ‘metrics’ types….KPI’s and PPI’s

•  Beware the efficiency trap…pursue strategic alignment and higher value

•  Avoid isolated attention to a single process layer…. connect operations with strategy

14

© 2013 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. If you are authorized to access this publication, your use of it is subject to the Usage Guidelines for Gartner Services posted on gartner.com. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity."

Paul Lord [email protected]

QUESTIONS?

paul lord, gartner – “from out-sourcing to optimization: making sense of strategic options”

Technology