supply chain complexity - the growing challenge for performance
TRANSCRIPT
2Wilson Perumal & Company, Inc.
Why isn’t it getting any easier?
[2013] Garment factory tragedy directly impacts a number of multi-nationals including Wal-Mart Stores Inc., Sears Holding Co. and The Walt Disney company.
“Never has so much technology and brainpower been applied to improving supply chain performance… nonetheless, the performance of many supply chains has never been worse.” -- Prof. Marshal Fisher (Harvard Business Review)
1997
[2014/2015] Reuters reports on more 787 production problems which Boeing refers to as “output hiccups”. Noted are “unusual shifts” in the company’s supply chain.
[2012] Best Buy’s much-publicized failure to fulfill many online orders in time for Christmas exposed ongoing problems that hadn’t been resolved. Critics suggest “avoid them”.
3Wilson Perumal & Company, Inc.
Increasing complexity is the biggest challenge for the supply chain
• Input cost volatility
• Shifting sources
• Evolving environmental & safety regulations
• Higher customer expectations
• Shorter product life-cycles
• Business model & technological disruption
• Global supply bases
• Increasing suppliers and partners
• “Right” shoring
• Omni channel fulfillment
• Additional technology investments
• Growing customer centricity
• Delayed integrations
• Tighter inventory policies
• Increasingly extended networks
• Increasingly opaque org structures &
• Need to manage through multiple cultures
• Decreased clarity of direct and indirect costs
• Need for continuous change management
Supply chains are growing increasingly complex making them harder to manage, operate, and change in response to customer, competitive, and financial shifts
A changing world
Typical responses
Resulting Complexity
• Greater number of variables
• Infinite ways to fail
4Wilson Perumal & Company, Inc.
What does complexity in the supply chain look like?Increasing numbers of suppliers, products & components to source and plan
Prod
Mfg
Whse
Field
Expanding networks, product flow alternatives, and processes
Increasing numbers of geographies, markets, channels, and customers to serve
Distrib
B2B
B2C
NorthAmerica
Supplier
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)x x x x x x x x x x
Sources of Complexity (simplified!)
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The impact of too much complexity is higher cost, lower performance, and inability to grow
Level of complexity you can support
Complexity counters economies of scale and dampens profitability
Returns
Cost (and Risk)$
Complexity
An increasing number of companies
Complexity makes ongoing performance and growth increasingly difficult
Complexity increases
Poor execution
Loss of process control
Poor business results
More people and
processes • Shortages• Breakdowns• Missed deliveries• Accidents
$
Companies cannot outgrow complexity; nor do traditional cost containment or process improvement approaches work
Increasing SKUs, facilities, processes…
Wilson Perumal & Company, Inc.Source: Stephen A. Wilson, Mike George. Conquering Complexity (New York McGraw-Hill, 2004)
The case for reducing complexity is compelling
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“Complexity can drive down quality, increase costs and lengthen lead times. Any complexity that is not being valued in the marketplace takes away from my capacity. If that’s the state you’re in, you have poor execution-and you can’t innovate your way out of poor execution.”
- Consumer Electronics VP
Select Metrics Y1 Y2 Y3
Portfolio (#) 3500 2079 499
Product Development projects 120 22 20
New products introduced 0 8 14
On-time delivery 70% 78% 90%
Cust. Satisfaction 27% 55% 90%
Mfg. productivity 1x 2.2x 3.1x
Operating Earnings -6% 3% 7%
Sales 100 125 240
Complexity and business performance are inextricably linked. The benefits of simplification extend across all aspects of the enterprise.
Wilson Perumal & Company, Inc.
Addressing complexity requires an understanding of its drivers
Organization
Value add
Non-value add
The Complexity Cube
Complexity (good and bad) exists along the edges of the Complexity Cube, while the cost of complexity reveals itself on the faces and within. Cost and risk grows geometrically with complexity
Number of products and services you offer
Number of organization, facilities, assets, and systems you employ
Number of programs, processes, steps, and handoffs you execute
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Identifying and understanding the impact of complexity focuses efforts …and prevents you from improving what you should not be doing
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Evidence of complexity is found throughout the supply chain and is sometimes masked as a “local” issue
Companies need to understand the difference between the drivers and the symptoms of complexity
Source
Complexity can easily be the root cause of ongoing poor performance and why initiatives like process improvement and new technology do not yield the expected benefits
↑ Lead-time↑ Cost↓ Utilization↓ Availability
Complexity via
• Product
• Process
• Organization
Plan Make Move
• Late deliveries• Routine expediting • High overtime• Poor space utilization• High accident rate
• Diminished leverage• Inconsistent supply• Rogue buying• Disparate contracts/SLAs• Poor part quality
• Schedule misses• Inconsistent quality• Increased changeovers• Poor asset utilization• High scrap
• High forecast error• Obsolescence• Line shortages• Poor availability• Routine expediting
Wilson Perumal & Company, Inc.
An often unforeseen impact of complexity is how it diminishes a company’s ability to compete overall Much of the value a company delivers to its customers and shareholders is enabled through cross-functional processes which complexity can significantly hamper
When products or services along with processes cross functional lines, the impact of complexity results in ambiguity (who), loss of context (why), and latency (when)
Too many products, processes, and organizational elements…
…can make it hard to deliver on what may matter the most for success
10Wilson Perumal & Company, Inc.
Fortunately, there is a common approach for reducing complexity and sustaining performance
Diagnose Complexity
Attack Complexity
Sustain Results
Identify and diagnose the sources and impacts of complexity. Understand the size of the prize and plan the journey.
Reduce the amount of complexity AND make it less expensive to deliver. Simplify product, process and organization interactions.
Develop and drive the management systems and culture to sustain operations excellence. Control complexity going forward.
© Wilson Perumal & Company, Inc.
Product-related complexity drivers• Numbers of SKUs and components• Configurations and packaging options• Special conversion/handling requirements• Supply market challenges• Safety/environmental hazards
Understanding complexity drives the right set of actions and focus for improvement
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Organization
Value add
Non-value add
Organization-related complexity drivers• Geographic service area• Number of locations (operations, support)• Number of organizations• Offshore and outsourcing models• Competency requirements
Process-related complexity drivers• Multiple or unique customer requirements• Local regulatory and compliance needs• Differing (lack of) service level policies • Too many suppliers and/or partners• Uncommon objectives and metrics
Sample actions Portfolio rationalization Supplier consolidation Product simplification
Sample actions Network optimization Operating model reengineering Portfolio rationalization
Sample actions Service optimization Process & technology standardization Operational excellence
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Examples of how this approach gets applied
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• Reduced SKU count by 75% • Reduced distribution depots from 18 to 5 • Reduced production factories by 15%
• 10% increase in margins• 7% revenue growth on a like-for-
like basis
Product & Org Process & Org
• Aligned production with geographic market• Reduced SKUs produced per plant by 50% • Replaced 3-touch with 1-touch distribution
$15M+ in benefits realized
Product & Process
“ the top-down approach gave us insights into our operating model. The insights are phenomenal!” —President Land o’ Lakes Feed
• New cross-function and cross-mission KPIs• Streamlined processes, decisions and roles• Common principles to drive decision-making
$140M+ in benefits realized
“…the best understanding of the ammo logistics base I have seen…I for one have been waiting for this for years”--Depot Commander
“…our thinking is more joined-up and there is a more coordinated focus on revenue and margin growth” - CEO
Consumer goods Agribusiness Government
13Wilson Perumal & Company, Inc.
A few final thoughts…
• Complexity is the enemy of an efficient supply chain
• As complexity increases, the value of scale decreases
• The answer to complexity is not adding more complexity
• Attacking the right complexity drivers yields more effective and sustainable improvement
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There are multiple ways we get started depending on organizational alignment and clarity of issues
Build the case for action
Identify the Right Levers
Eliminate bad complexity / Reduce cost to deliver good complexity
Procure
Plan
Mfg
Distribute
Strategy
Supplier Rationalization
Part Reduction
S&OP
Out-of-Stock Reduction
Operational Excellence
Inventory Optimization
Order-to-Cash
Supply Chain Strategy
Production Optimization
Op Model/Organization
In/Out- Sourcing
Service Optimization
Operations Excellence
SRM
Plan-to-Produce
Procure-to-Pay“Business Simplification”
“Imperative for Growth”
“Cost Reduction”
“Reducing Risk” Operations Excellence
Customer Profitability
Cost to Serve
Business Standardization
Time to Market/Innovation
Portfolio OptimizationNetwork Design SC Operating Model
Cat. Mgmt
Transportation Optimization DC Ops
Issue-to-Resolution
Workshops Assessments Programs & Projects
Wilson Perumal & Company, Inc.
North America EuropeTwo Galleria Tower
13455 Noel Road, Suite 1000Dallas, TX 75240
+1 972-716-3930
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+44 (0)203 206 1496
Contact Us:
www.wilsonperumal.com