Supply Chain Audit


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Supply Chain Audit

  1. 1. Supply Chain Audit Discussion Guide The Context Group
  2. 2. Supply Chain Issues <ul><li>Offshore sourcing lengthens lead-times, reduces flexibility and makes control more difficult </li></ul><ul><li>Multiple sourcing locations create coordination challenges </li></ul><ul><li>Fast response to fashion change essential to drive sales </li></ul><ul><li>Customers expect faster delivery and better service </li></ul><ul><li>Finer customer segmentation, more seasons, more newness increases SKU count </li></ul>
  3. 3. Common symptoms <ul><li>Customer service levels unacceptable </li></ul><ul><li>Sales lost to cancellations </li></ul><ul><li>Margins under pressure </li></ul><ul><li>Low inventory turns </li></ul><ul><li>High markdowns </li></ul><ul><li>Inaccurate forecasts </li></ul><ul><li>Customer invoice deductions </li></ul><ul><li>New products late to market </li></ul><ul><li>Excess expedited shipping costs </li></ul><ul><li>Inventory discrepancies </li></ul><ul><li>Limited flexibility to adjust orders, schedules or shipments </li></ul>
  4. 4. Supply Chain Improvement Opportunities <ul><li>Capture lost sales </li></ul><ul><ul><li>Reduce out-of-stocks </li></ul></ul><ul><ul><li>Fast response to opportunities </li></ul></ul><ul><li>Reduce product cost </li></ul><ul><ul><li>Materials </li></ul></ul><ul><ul><li>Manufacturing </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><li>Reduce lead times </li></ul><ul><ul><li>Replenishment </li></ul></ul><ul><ul><li>New products </li></ul></ul><ul><li>Reduce inventories </li></ul>
  5. 5. Supply Chain Process <ul><li>Supply chain includes many processes from concept to market </li></ul><ul><li>Functional silos create barriers to flow </li></ul><ul><ul><li>Different objectives and metrics </li></ul></ul><ul><ul><li>Batch vs continuous flow </li></ul></ul><ul><ul><li>Efficiency vs effectiveness focus </li></ul></ul><ul><ul><li>Information discontinuities </li></ul></ul>Develop Plan Source Manufacture Distribute Transport Prepare Produce Deliver
  6. 6. Process performance improvement <ul><li>3 essentials of superior process performance </li></ul><ul><ul><li>Clear Strategy What is to be done </li></ul></ul><ul><ul><li>Optimized Process How it is to be done </li></ul></ul><ul><ul><li>Enabling Technology Maximize effectiveness </li></ul></ul><ul><li>The essentials must be </li></ul><ul><ul><li>Top down driven </li></ul></ul><ul><ul><ul><li>Strategy determines process determines technology </li></ul></ul></ul><ul><ul><li>Horizontally integrated </li></ul></ul><ul><ul><ul><li>Seamless transition across intra- and extra-enterprise boundaries </li></ul></ul></ul>
  7. 7. Strategy <ul><li>Create competitive advantage </li></ul><ul><ul><li>Better, faster, cheaper, newer </li></ul></ul><ul><li>Establish clear objectives </li></ul><ul><ul><li>Business level </li></ul></ul><ul><ul><li>Process level </li></ul></ul><ul><li>Resource allocation </li></ul><ul><ul><li>Allocate for highest impact </li></ul></ul><ul><li>Organization structure </li></ul><ul><ul><li>Clear lines of responsibility and authority </li></ul></ul><ul><li>Performance management </li></ul><ul><ul><li>Scorecards </li></ul></ul>
  8. 8. Process <ul><li>Robust process design </li></ul><ul><ul><li>Simplicity, reliability </li></ul></ul><ul><li>Performance metrics </li></ul><ul><ul><li>Time, quality, variability, cost </li></ul></ul><ul><li>Continuous improvement </li></ul><ul><ul><li>Eliminate waste of time, materials, manpower and money </li></ul></ul><ul><li>Integration </li></ul><ul><ul><li>Eliminate silos and bottlenecks </li></ul></ul>
  9. 9. Technology <ul><li>Eliminate process “friction” </li></ul><ul><ul><li>Intra- and inter-enterprise collaboration </li></ul></ul><ul><ul><li>Shared access to common data </li></ul></ul><ul><ul><li>Tracking </li></ul></ul><ul><ul><li>Improved decision making </li></ul></ul><ul><li>Architecture </li></ul><ul><ul><li>ERP platform </li></ul></ul><ul><ul><li>Point solutions </li></ul></ul><ul><ul><li>Internet </li></ul></ul>
  10. 10. Supply Chain Audit <ul><li>High-level assessment of current SC performance </li></ul><ul><li>Benchmark key elements of SC processes </li></ul><ul><ul><li>Supply Chain Scorecard </li></ul></ul><ul><li>Identify capability and performance gaps </li></ul><ul><li>Identify improvement opportunities </li></ul><ul><li>Assess benefits of improvements </li></ul><ul><ul><li>High/medium/low impact </li></ul></ul><ul><li>Develop roadmap </li></ul>
  11. 11. Supply Chain Matrix
  12. 12. Supply Chain Scorecard <ul><li>Evaluates current use of 80+ key management tools and best practices in Strategy, Process & Technology across the six core SC processes </li></ul><ul><ul><li>5-point scale </li></ul></ul><ul><ul><ul><li>0= not implemented </li></ul></ul></ul><ul><ul><ul><li>4= Best Practice </li></ul></ul></ul><ul><li>Identifies possible improvement options </li></ul><ul><li>Estimates potential impact </li></ul><ul><li>Recommends priorities </li></ul>
  13. 13. Current Practice Assessment – Prepare (Partial example) 0 1 Score <ul><li>No evidence of flow path change required </li></ul><ul><li>Consistently update costs to utilize more realistic landed cost and profitability assumptions </li></ul><ul><li>We assume many global costs are hidden and difficult to manage </li></ul>Needs Low Medium Impact <ul><li>Informal process </li></ul><ul><li>Utilize best case landed cost assumptions </li></ul><ul><li>Potential cost impacts include: </li></ul><ul><ul><li>Significant lead time delays and service issues </li></ul></ul><ul><ul><li>Occasional mode shift changes (rail to truckload) from port to warehouse due to lead time problems </li></ul></ul><ul><ul><li>Additional storage costs </li></ul></ul><ul><ul><li>Container demurrage </li></ul></ul><ul><ul><li>Receiving costs </li></ul></ul>Landed costing Plan Supply Chain Function Little or no considerations of flow path Supply chain flow path Current Capability Activity
  14. 14. Current Practice Assessment – Source (Partial example) 1 1 Score Low – currently Medium to High - projected <ul><li>No evidence of supplies inventory being a problem with exception of adding lead time </li></ul><ul><li>Relatively un-complicated inventory profile in current state </li></ul><ul><li>However, increasing growth rates of private label SKU’s will create more complexity and potential issues </li></ul><ul><li>No visibility; dependent on supplier </li></ul><ul><li>No inventory tracking </li></ul>RM Inventory Availability <ul><li>Consider pre-positioning material supplies to reduce lead times </li></ul><ul><li>Consider bulk production with packaging postponed (related to inventory positioning strategy) </li></ul>Needs Low - Medium Impact <ul><li>Materials dependent on supplier acquisition </li></ul><ul><li>Dependency on supply acquisition adds two weeks to supplier lead time </li></ul>Preposition Materials Source Materials Function Current Capability Activity
  15. 15. Current Practice Assessment – Produce (Partial example) 1 1 2 0 Score Unknown Potentially high <ul><li>Further evaluation to render opinion </li></ul><ul><li>Consider developing longer term sourcing relationships such as acquiring and locking into a percent of supplier production capacity </li></ul><ul><li>Order process appears to be more transactional rather than commitment oriented </li></ul><ul><ul><li>Alternative suppliers considered on an order-by-order basis </li></ul></ul>Contracts High <ul><li>Implement supplier process </li></ul><ul><li>Supplier scorecard process is under development </li></ul>Supplier Certification Unknown Potentially high <ul><li>Further evaluation required to render opinion </li></ul><ul><li>No evidence of long term supplier contract relationships </li></ul>Core Supplier Approach <ul><li>Single agent may not offer sufficient coverage </li></ul><ul><li>Seemingly over-exposed: 80% of inbound supply with limited knowledge of capability or status </li></ul><ul><li>More precise control of container scheduling </li></ul><ul><li>More efficient and complete information transfer (spreadsheets & faxes) to manage production status </li></ul>Needs High Impact <ul><li>Single agent (assumed process) utilized to interface with suppliers, gain production status information, and enter updates </li></ul><ul><li>Infrequent and incomplete supplier visibility </li></ul><ul><li>No supplier electronic visibility </li></ul><ul><li>No ability to control container scheduling </li></ul>Supplier Presence Manufacture FG Function Current Capability Activity
  16. 16. Current Practice Assessment – Deliver (Partial example) 0 0 0 Score High <ul><li>Complete visibility upon completion of supplier order </li></ul><ul><li>Poor and often none </li></ul>FG Inventory Visibility <ul><li>Consider manufacture in bulk state (for medium and slow moving SKUs) with packaging in US </li></ul><ul><li>With multiple DC’s – need to allocate to DC either from supplier, or break orders by DC prior to US transportation </li></ul>Needs Medium High Impact <ul><li>Finished goods inventory only available to customers at the end of the supply chain </li></ul>Upstream Inventory Positioning <ul><li>No allocation capability until received at warehouse </li></ul>Inventory Allocation Options Fulfill Orders Function Current Capability Activity
  17. 17. Summary – By Element Technology Process Strategy Priority Opportunities Key Issues Current Score (%)
  18. 18. Summary – By Process 15 Manufacture Products 25 Fulfill Orders 19 Deliver 30 Source Materials and/or Finished Goods 16 Plan Supply Chain 22 Develop Products Priority Opportunities Key Issues Current Score (%)
  19. 19. Project approach <ul><li>Team of 2-3 TCG partners </li></ul><ul><li>3-5 weeks </li></ul><ul><li>Data collection </li></ul><ul><ul><li>Process walk-throughs </li></ul></ul><ul><ul><li>Interviews </li></ul></ul><ul><ul><li>Performance metrics </li></ul></ul><ul><ul><li>Scorecarding </li></ul></ul><ul><li>Planning </li></ul><ul><ul><li>Workshops </li></ul></ul><ul><ul><li>Documentation </li></ul></ul>
  20. 20. Next Steps <ul><li>Identify key issues and concerns </li></ul><ul><li>Define scope </li></ul><ul><ul><li>Business units </li></ul></ul><ul><ul><li>Processes to be included </li></ul></ul><ul><ul><li>Focal areas </li></ul></ul><ul><li>Agree timetable and budget </li></ul>