rapid roi ideas for the supply chain

© 2009 IBM Corporation

Right Here, Right Now: Rapid ROI Right Here, Right Now: Rapid ROI Opportunities In The Supply ChainOpportunities In The Supply Chain

A Discussion DocumentA Discussion DocumentFebruary 23, 2009

Rapid ROI Ideas for The Supply Chain

© 2009 IBM CorporationIBM GBS Supply Chain Strategy Practice2

An unprecedented Global Financial CrisisAn unprecedented Global Financial CrisisAn unprecedented Global Financial Crisis

The Business Reality and the Supply Chain Imperative

is straining most Supply Chainsis straining most Supply Chains

with Demand Uncertainty and Excess Inventorywith Demand Uncertainty and Excess Inventorywith Demand Uncertainty and Excess Inventory

2007 2008 2009

Time

Qty

Today

Where is the economy heading

Demand

Inventory

Optimizing the use of cash

throughout the supply

chain is a critical need

Optimizing the use of cash

throughout the supply

chain is a critical need

Fastest path to freeing up

cash is through inventory

reduction.

Fastest path to freeing up

cash is through inventory

reduction.

The slow‐down is not

even across products and

geographies, so good BI is

critical

The slow‐down is not

even across products and

geographies, so good BI is

critical



Right Here, Right Now: We looked at a range of solutions and screened them based on fastest, large ROI

Solution & Main Focus ROI Size ROI Speed Complexity

Inventory Optimization

Inve

ntor

y

Mfg

. Cos

t

Logi

stic

s

SG&A

SKU Rationalization

Forecasting Process

SCM ERP Tune-Up

S&OP with CPFR & VMI

SCM Ops Outsourcing

Network Optimization

SCM Shared Services

Large

Large

Large

Medium

Large

Large

Medium

Small

<1 Yr

<1 Yr

<1 Yr

<1 Yr

1-2 Yrs

1-2 Yrs

2+ Yrs

2+ Yrs

Low

Medium

Low

Low

High

High

High

Low



Inventory Reduction & Optimization

• Quickly assess current inventory situation and devise a plan with goal of simultaneously increasing product availability / service levels while reducing inventory levels.

• Devise an improvement plan to create high value in less than 3 months.

• Quickly assess current inventory situation and devise a plan with goal of simultaneously increasing product availability / service levels while reducing inventory levels.

• Devise an improvement plan to create high value in less than 3 months.

What is the idea?What is the idea?What is the idea?

• Need to capture every available demand opportunity while optimizing the use of cash to fund operations.

• Having the right products readily available is critical to capturing the demand while keeping inventory levels low

• Need to capture every available demand opportunity while optimizing the use of cash to fund operations.

• Having the right products readily available is critical to capturing the demand while keeping inventory levels low

Why it mattersWhy it mattersWhy it matters

How to go about implementing itHow to go about implementing itHow to go about implementing it

• Inventory positioning and management strategies by SKU• Optimized inventory and replenishment policies• Increased inventory turns• Higher service level, fill rate or similar fulfillment metrics• Reduced distribution and procurement expenses

• Inventory positioning and management strategies by SKU• Optimized inventory and replenishment policies• Increased inventory turns• Higher service level, fill rate or similar fulfillment metrics• Reduced distribution and procurement expenses

Impacted Operational Metrics/DecisionsImpacted Operational Metrics/DecisionsImpacted Operational Metrics/Decisions Typical ROITypical ROITypical ROI

Reduction in inventory levels without negative impact on service levels

Preparation Phase (4 weeks)Preparation Phase (4 weeks) Delivery Phase (8Delivery Phase (8--24 weeks)24 weeks)

Opportunity Identification

Presentation and Demo

Opportunity Opportunity IdentificationIdentification

Presentation and Demo

Express Diagnostic Data Analysis

and Value Opportunity Discussion

Express Express DiagnosticDiagnosticData Analysis

and Value Opportunity Discussion

Off-Shore SupportOffOff--Shore SupportShore Support

Inventory Strategy Details

Inventory Strategy Inventory Strategy DetailsDetails Inventory

Reduction Inventory Inventory ReductionReduction Inventory

Optimization Inventory Inventory

OptimizationOptimization Performance Measurement Performance Performance MeasurementMeasurement

Return On Investment



Inventory Reduction Case Study Industrial Products

Facing a chaotic and very costly inventory situation, a leading industrial company secured our help for a quick MRO assessment project. Our effort lasted 4 weeks and consisted in assessing their MRO process, conducting a benchmarking study and developing an improvement roadmap (6 months) based on an achievable and compelling business case.

Facing a chaotic and very costly inventory situation, a leading industrial company secured our help for a quick MRO assessment project. Our effort lasted 4 weeks and consisted in assessing their MRO process, conducting a benchmarking study and developing an improvement roadmap (6 months) based on an achievable and compelling business case.

BackgroundBackgroundBackground

Roadmap CreationRoadmap Creation

Scenario Workshops & Analysis

Scenario Workshops & Analysis

TransformationValue Prioritization

TransformationValue Prioritization

Benchmarking & Analysis

Benchmarking & Analysis

Operations BaselineOperations Baseline11

22

33

44

55

MRO StrategyMRO Strategy

Inventory ReductionInventory Reduction

Inventory Tracking / BarcodingInventory Tracking / Barcoding

Inventory OptimizationInventory Optimization

Warehouse LocationWarehouse Location

KPI / Scorecard ProcessKPI / Scorecard Process

Improved ForecastingImproved Forecasting

Material MovementMaterial Movement

Supplier ManagementSupplier Management

Reverse LogisticsReverse Logistics

Org DesignOrg Design

StrategicStrategic Analytical / TacticalAnalytical / Tactical OperationalOperationalPhase I Cost Phase II Cost



SKU Rationalization

• Many years of sustained growth without discipline in product management have created a daunting complexity

• SKU portfolio analysis is proven to have great bottom line and top line impact on operational performance

• Many years of sustained growth without discipline in product management have created a daunting complexity

• SKU portfolio analysis is proven to have great bottom line and top line impact on operational performance


• Complex product portfolio can lead to lower margins, excess inventory

• Without processes and business rules in place, it can get worse over time and become a recurring issue.

• Complex product portfolio can lead to lower margins, excess inventory

• Without processes and business rules in place, it can get worse over time and become a recurring issue.



• Reduced Inventory (finished goods and raw material) • Improved product profit margin• Reduced SG&A cost

• Reduced Inventory (finished goods and raw material) • Improved product profit margin• Reduced SG&A cost


Return on Investment

Assessment Assessment (4 (4 –– 6 Weeks)6 Weeks)

Stratify products by segment

Identify process gaps and root causes of proliferation

Stratify products by segment

Identify process gaps and root causes of proliferation

Design Design (4 (4 -- 6 Weeks)6 Weeks)

Design process

Define segmented business rules to differentiate services

Design process

Define segmented business rules to differentiate services

Implement Implement (4 (4 -- 12 Weeks)12 Weeks)

Implement Product Management Process

Implement business rules

Implement Product Management Process

Implement business rules

SuppliersSuppliers

InternalInternal

$ $$ $$ $$ $$$ $ $

CustomersCustomers

SuppliersSuppliers

InternalInternal

$$ $$ $$ $$

CustomersCustomers



SKU Rationalization Case Study Industrial Products

• 3% of sales and profit comes from 76% of SKUs which creates unnecessary complexity and higher costs• These products compete for capacity at constrained period causing over time and poor customer service • High organizational complexity caused by needs to support these products and associated customers, leading to higher

SG&A costs

• 3% of sales and profit comes from 76% of SKUs which creates unnecessary complexity and higher costs• These products compete for capacity at constrained period causing over time and poor customer service • High organizational complexity caused by needs to support these products and associated customers, leading to higher

SG&A costs


• Conducted customer and product stratification • Eliminated unnecessary products • Rationalized product portfolio• Implemented business rules to offer differentiated

services

• Conducted customer and product stratification • Eliminated unnecessary products • Rationalized product portfolio• Implemented business rules to offer differentiated

services

Business Business ResultsResults

Cost ReductionSolution Solution SummarySummary

Inventory Reduction

Sales, Profits and Inventory Cost by Product

0%

20%

40%

60%

80%

100%

1

132

263

394

525

656

787

918

1049

1180

1311

1442

1573

1704

% o

f tot

al

EliminateRationalize

Leverage

Sales and profit

Inventory

Products (#)% of total ProductsSales (% total) Profit (% total)Inventory (% total)

102 327 13526% 18% 76%

80% 17% 3%80% 17% 3%64% 27% 9%

Disproportionate gains made by cutting marginal products

Inventory falls by much bigger margin than sales

Profitability of the total portfolio increases substantially

Operational complexity decreases



Forecasting Process Improvement

• Lack of proper forecasting process or skills causes unreliable forecasts.

• Limited collaboration with partners also leads to inaccuracies in the forecast.

• Lack of proper forecasting process or skills causes unreliable forecasts.

• Limited collaboration with partners also leads to inaccuracies in the forecast.


• Inaccurate forecast leads to systemic supply chain problems (e.g. excess inventory, lower manufacturing efficiency and higher transportation costs)

• An improved forecast is the first towards improved financial performance.

• Inaccurate forecast leads to systemic supply chain problems (e.g. excess inventory, lower manufacturing efficiency and higher transportation costs)

• An improved forecast is the first towards improved financial performance.



• Reduced inventory (Finished Goods, WIP, Parts)• Lower supply chain costs: material, manufacturing and logistics• Improved forecast accuracy

• Reduced inventory (Finished Goods, WIP, Parts)• Lower supply chain costs: material, manufacturing and logistics• Improved forecast accuracy


Return on Investment

History

Partner

Causal Optimal Forecast

IBM Forecast Engines

Assessment Assessment (2 (2 –– 4 Weeks)4 Weeks)

Assess demand planning process

Identify gaps

Make recommendations

Assess demand planning process

Identify gaps

Make recommendations

Design Design (2 (2 -- 6 Weeks)6 Weeks)

Design forecasting process

Define key metrics

Design forecasting process

Define key metrics

Implement Implement (4 (4 -- 8 Weeks)8 Weeks)

Implement Demand Planning Process

Assess performance

Implement Demand Planning Process

Assess performance



Forecasting Process Improvement Case Study Consumer Electronics

• Poor forecasting leads to high inventory and price protection costs in the channels. • As a result of poor forecast, replenishment lead time is long and stock outs at store level frequently occurs• Informal collaboration processes increases the “bullwhip effect” between true POS demand and manufacturer’s forecast• Newly formed demand management group with inexperienced staff is not equipped to do statistical forecasting

• Poor forecasting leads to high inventory and price protection costs in the channels. • As a result of poor forecast, replenishment lead time is long and stock outs at store level frequently occurs• Informal collaboration processes increases the “bullwhip effect” between true POS demand and manufacturer’s forecast• Newly formed demand management group with inexperienced staff is not equipped to do statistical forecasting


Analysis• Demand forecasting and demand shaping• New product load in, POS and PromotionsSupport • Store level forecasting and replenishment planning• Collaboration and VMI process with channel partners

Analysis• Demand forecasting and demand shaping• New product load in, POS and PromotionsSupport • Store level forecasting and replenishment planning• Collaboration and VMI process with channel partners

Business Business ResultsResults

Forecast AccuracySolution Solution

SummarySummaryWeeksAverage

Inventory weeks

RetailersPull Signal

Replenishment

Pull Signal

CustomersCE OEM Client DCs Retailer DCs

Replenishment

CE OEM ClientSuppliers

POS, Promotions

Consensus Forecast

Material Forecast

Supply Commits

Demand

Before

After

New Collaborative Demand Planning

Process

New Collaborative Demand Planning

Process

Forecast AccuracyForecast Accuracy

from



For More Information:

Contact your IBM Account Executive or Relationship Partner

Additional Information Online: Visit www.ibm.com & Search:

IBM’s 2009 Global Chief Supply Chain Officer Survey

Latest White Papers on Sales & Operations Planning

Dynamic Inventory Optimization Technology

Mondher Ben-HamidaAssociate PartnerSupply Chain StrategyIBM Global Business Services

Paul BrodyPartner & Practice Co-LeaderSupply Chain StrategyIBM Global Business Services

Henry DaoAssociate PartnerSupply Chain StrategyIBM Global Business Services

Mondher Ben-HamidaAssociate PartnerSupply Chain StrategyIBM Global Business Services

Paul BrodyPartner & Practice Co-LeaderSupply Chain StrategyIBM Global Business Services

Henry DaoAssociate PartnerSupply Chain StrategyIBM Global Business Services

About The Authors:About The Authors:About The Authors: