supply chain best practices joe fantasia supply chain strategy deloitte consulting llp september,...

Supply ChainBest Practices

Joe FantasiaSupply Chain StrategyDeloitte Consulting LLP

September, 2005

Copyright © 2005 Deloitte Development LLC. All rights reserved. 2

Welcome to Framingham!

Dare to be Innovative; Dare to be Different!Dare to be Innovative; Dare to be Different!


This year’s nominees for “best practice” are…

And the nominees And the nominees are…are…

CollaborationCollaboration

Low Cost Country Sourcing

Low Cost Country Sourcing

LeanLean

RFIDRFIDContinuous Routing

Continuous Routing


Differentiation!Differentiation!

And the winner is…


As a practice becomes more widely adopted, it transitions from an emerging to a best practice, then to a standard, and finally to a basic practice

Time

…Sooner or later, the competition catches up…Sooner or later, the competition catches up

Usag

e

Stage III

Best

Stage II

Standard

Stage I

Basic

Stage IV

Emerging


Why Differentiate Supply Chains?

•Supply chains play a critical role in creating enterprise value– Differentiating your supply chain can provide

sustainable competitive advantage (within reasonable opportunity windows)


Ultimately, our role is to increase shareholder value

• Improved in-stocks

• Increased sales from new products

• Improved customer loyalty

• Reduced markdowns

• Lowered operating expenses

• Optimized product flow

• Improved inventory performance

Shareholder Value

Revenue GrowthMargin

ImprovementAsset Efficiency


We have entered an era of complexity that we’ve never seen before

•The pressure to continually drive down supply chain and engineering costs

•The pursuit of new lucrative markets and channels around the world

•The quickening pace of product innovation

ResultResult

Increased complexity in the Value Chain as manufacturers expand their global presenceIncreased complexity in the Value Chain as

manufacturers expand their global presence


At the same time, we are challenged by our own organizations, practices and performance measures

“ Optimize (fill in the blank) , and we will be efficient”“Our brand is strong enough and margins high

enough to cover our inefficiencies”“With interest rates so low, why focus on

inventory?”“We have an S&OP meeting every month… not

too many people show up though”“Don’t take volume out of my warehouse!”“I know what I should do, but I know what I’m

going to do…”


It’s not just about cost reduction anymore

•In a world of rising costs and shrinking profits, supply chain differentiation may be the best opportunity for a company’s survival

ProfitsProfits

CostsCosts

Strategies to Addressthe Challenges

Increased Complexity


Master SC Complexity Case Example: What differentiates a complexity master?

CUSTOMER

PRODUCT

SUPPLY CHAIN

What is the path to profitable growth?

Low

Low

G

lob

al V

alu

e C

hain

Com

ple

xit

yG

lob

al V

alu

e C

hain

Com

ple

xit

y

Hig

hH

igh

LowLow Value Chain CapabilitiesValue Chain Capabilities HighHigh

Cost, Quality, Product Intro.

Flexibility, Productivity

Innovation, Product Launch

Time-to-Market

Loyalty, Collaboration, Forecast, Service Level

Low

er

Cost /

New

Mark

ets

New

Pro

du

cts

New

Mark

ets

The Goal: Profitable

Growth


Master SC Complexity

•Factors to consider:– Are you optimizing locally, but not globally?– Is customer service a priority, but there’s not

enough commitment to it?– Is product innovation a leading contributor to

revenues, but the lowest supply chain priority?– Have you diminished your supply chain flexibility

owing to cost reduction measures?– Are you making radical changes to your supply

chain that are impacting product quality?


Master SC Complexity Case Example: What differentiates a complexity master?

Qualifier (Average) Differentiator (High performing)

Customer

• Customer segmentation

• Collaboration – demand planning

• Customer service levels – fulfillment

• Customer collaboration – quality

• Customer strategic planning

• Collaboration – new products

• Collaboration – cost reduction

• Customer/channel profitability

Product

• Cross-functional design teams

• SKU rationalization

• Supplier collaboration

• Product quality

• Product Lifecycle Management

• Design for Quality/Manufacturing

• Common parts/common platform

• Vertically Integrated

Supply Chain

• Integrated Sales & Operations Planning

• Outsourced/low-cost manufacturing

• Demand planning

• Lean Manufacturing

• Continuous Improvement

• ISO Quality Certification

• SCM organization

• Supply Chain Network Optimization

• Flexible capacity/quick changeover

• Production Schedule Optimization

• Transportation Optimization

• Organizationally Aligned Performance Measures



Reduce Cost


Free up Working CapitalThe Wall Street Journal estimates that nearly $600 billion in working capital is available to U.S. companies through improved supply chain management

“A cash cow of nearly $600 billion grazes in plain sight of U.S. companies, but still eludes many of them.”

“That cash…could in many cases be put to better use for, say, paying off debt or creating new products.”

“A cash cow of nearly $600 billion grazes in plain sight of U.S. companies, but still eludes many of them.”

“That cash…could in many cases be put to better use for, say, paying off debt or creating new products.”

Source: The Wall Street Journal, 8/30/04, “Ignored Money Waiting to be Spent”


Inventory DOS vs. Customer Service

20 25 30 35 40 45 50 55 60 65

Days of Supply

Cu

sto

mer

Serv

ice

Year 1 Performance

20 25 30 35 40 45 50 55 60 65

MarMar

June

May

Year 2 Performance(Mar – June)

June

AprApr

Real improvements require shifting the performance curveReal improvements require shifting the performance curve

90%

92%

94%

96%

98%

100%

Many companies have been unsuccessful in improving inventory performance. Reductions in inventory have come at the expense of lower customer service


The companies that have been successful were able to isolate, prioritize and improve the critical capabilities which drive inventory and customer service improvements

Note: Supply chain capabilities shown above are representative of a broader list of capabilities. Comprehensive list includes additional capabilities such as: promotions planning/execution, customer service strategies, etc.

SUPPLY CHAIN CAPABILITIES

Performance Measures

CUSTOMERSERVICE

Supply Planning

InventoryPlanning

Raw/WIPManagement

Product Lifecycle

Mgmt

S&OP

DemandPlanning

Mfg Flexibility

INVENTORY


Case Study 1: $9B Global CPG Manufacturer

The benefits of doing this correctly are significant

$460 million inventory reduction in three years

Customer service levels improved significantly during this time period

$460 million inventory reduction in three years

Customer service levels improved significantly during this time period

Inven

tory

(Million

s o

f D

ollars

)

1,0001,000

1,1001,100

1,2001,200

1,3001,300

1,4001,400

1,5001,500

1,6001,600

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

900

Year 2

$1,010

(Year 2)

$150MM

$460MM

Year 3

$930(Year 3)

$80MM

Year 1

$1,390

(Year 0)

$1,160

(Year 1)

$230MM

Company’s best inventory performance

in over 20 years

Company’s best inventory performance

in over 20 years



New Markets& Channels


Design Multiple Supply Chains

•Create multiple supply chains tailored to your product and customer profiles– “One size fits all” supply chains are a thing of the

past. They may not always be the best option or be competitive

– What is driving companies to this strategy?• Multiple product profiles• Multiple customer segments



– Factors to consider:• Look at the products that flow through your supply chain

and ask yourself the following questions:– Are they identical, should they flow through the same

logistical system?– Do they have the same demand patterns and need similar

delivery commitments?

• If the answer to any of the questions is “no”, you should rethink the flow of your products and customize your supply chain for the flow of products

– Now look at your customer profile:• Should all of your customers have the same delivery

mode?



– Case Example• Situation:

– A company producing multiple products used similar shipping modes to distribute products to its channels. Products that cost several thousands of dollars flowed with products that cost a few hundred dollars or less. This increased delivery lead time, reduced cash conversion cycle, raised the potential for damage of the more expensive product

• Solution:– A faster, parcel shipping line for the expensive product linked

to the production line, and the traditional truck load shipping for the lower cost products


Some retailers have been customizing their supply chains to maximize profitability

• Superior first cost capability

• More efficient material handling

• Better marketing intelligence

• Inventory complexity

• Superior first cost capability

• More efficient material handling

• Better marketing intelligence

• Inventory complexity

• Low value• High cube• Extremely high

value • Short vendor

lead time• High volume/

low volume• Shelf life

• Low value• High cube• Extremely high

value • Short vendor

lead time• High volume/

low volume• Shelf life

• Slow moving• High value/low

cube• Unpredictable

sales pattern• Inconsistent

vendor lead time

• Break-pack

• Slow moving• High value/low

cube• Unpredictable

sales pattern• Inconsistent

vendor lead time

• Break-pack

Optimal Source and Flow Alternative

Vendor-StoreVendor-Store Vendor-DC-Store (Pick)Vendor-DC-Store (Pick)

Vendor-DC-Store (Flow)Vendor-DC-Store (Flow)

WholesaleDistributionWholesale

Distribution

• Fast moving • Consistent seller• Low value• Variable cube• Predictable

sales pattern • Short lead time

• Fast moving • Consistent seller• Low value• Variable cube• Predictable

sales pattern • Short lead time

• Jewelry• Dairy• Jewelry• Dairy • All categories• All categories • All categories

• Seasonal• All categories • Seasonal

• HBC• GM• Tobacco• Specialty Foods

• HBC• GM• Tobacco• Specialty Foods

Example

PredominantAttributesFocusing Approach

SomeExamples


Share your Supply Chain

•Share your supply chain– Sharing supply chains among non-competing

companies, customers, or suppliers can be another source of differentiation (different from outsourcing)

– What is driving companies to this strategy?• Small size makes it difficult to invest in comprehensive

infrastructure• Leverage economies of collaborative supply chain

partners


Share your Supply Chain

– Case Example• Situation:

– Companies A and B, both realized their retail locations were generally located at the same mall locations. They had considered the option of a private transportation fleet, but each company realized that having an individual fleet was not economical, despite customer service advantages

• Solution:– The companies realized that a collaborative private fleet

would give them the advantages of flexibility and still provide economies of scale. They co-located their fleet/transportation personnel to manage their private fleet operations. They were able to better manage both store deliveries and reverse logistics



Product Introductions


Synchronize Concept to Market

•Speed to Market is the latest buzzword particularly for product produced off-shore

•Yet, with long lead times for design, development and production, it is nearly impossible to match supply with demand



•Postponement still works– Increasing product proliferation and changing

customer demands make postponement an attractive and often necessary strategy


Replenishment

Sourcing

Production


Supply Chain

ProductDevelopment


Synchronize Concept to MarketOne company has found a way:

supply chain best practices joe fantasia supply chain strategy deloitte consulting llp september,...

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