Hope is not a strategy! Companies reduce assets because it is the most obvious way to compensate for reduced revenue. However selling less of the same product which is manufactured and distributed in the same way with lower economies of scale is a temporary strategy at best.
Taken from Friday 12/5 Wall Street Journal – Front page of the business section.
Hope is not a strategy! Companies reduce assets because it is the most obvious way to compensate for reduced revenue. However selling less of the same product which is manufactured and distributed in the same way with lower economies of scale is a temporary strategy at best.
The economic environment has changed. But what hasn’t changed is that investors still demand return for the risk they face. Management teams must continue to drive value or be replaced by their boards or by the more successful teams which acquire them. Strive for Transparency From their supply chains, successful management teams will demand not only greater transparency into demand, supply and the assets which support them, but also into the fundamental health of their networks. Prepare for the Unexpected Suppliers will fail or fail to perform. Some may be purchased by competitors. Some may even acquire failing companies to become competitors. Your competitors and customers may, in their rush to shrink leave opportunities in the market if you can move quickly enough. Measure Performance With fewer capital buffers, supply chain executives can’t afford to wait multiple months to notice warning signs of supplier failure nor even weeks to see that in a quest for “efficiency” a plant is filling warehouses with products that can be made cheaply. Performance must be immediately visible at executive levels. Network Fundamentals As markets shift, competitors falter and customers maneuver the amount of inventory that you stock, the locations of plants and DC’s, the service levels that you offer, all of these need to be constantly monitored and rebalanced to reflect the reality of today, not three, six or even 12 months ago.
Why is innovation in business processes related to supply chain management? Mainly because this is the area with the less sophisticated and matured processes but with the highest value impact. And this again is caused by changing and evolving market and economic conditions. There are three main areas of business drivers: Real supply chains need to evolve into adaptive supply chain networks and demand driven supply networks. In such an environment with on the one hand side high volatility in customer demand and on the other hand side the need for short lead times, accurate prediction of the future market is key. Accurate forecasting and quick response to changes are necessary to control production. Supply chains and networks today are highly flexible. Therefore companies need to sense changes in the network quickly and respond to these chaines quickly. International selling and procurement become normal in today‘s business. Global visibility there is the third important business driver to consider.
Taking the business drivers into consideration and comparing that with today‘s reality in many companies, a number of key challenges can be identified. Globalization & Outsourcing Lack of visibility beyond the four walls Rising costs & regulations Poor customer service
In the already used study companies were asked about used software tools to support supply chain management. It turned out that there is still a high percentage of companies not using state-of-the art software.
Best in class companies have invested in software for different supply chain processes. Nevertheless even in that group there is a significant number of companies not having implemented software as part of their improvement strategy. Given the proven advantage of using state-of-the-art supply chain management software, there is a huge potential of improvements in many companies.
SAP can help companies to gain the Insight to see unexpected challenges… and opportunities sooner and the Flexibility to capitalize on more of them faster…
There is no way to actually eliminate Supply Chain variability, so your best option is to be able to rapidly respond through SCM sensors.
At SAP, we like to identify those areas where Value can be realized-thus, our value proposition.
For each of the value drivers a value proposition can be identified which can be used to measure improvements in the according business processes. Given that today’s number one risk is the lack of Global Trade Finance, shortening the cash-to-cash cycle time takes on a new level of paramount importance.
SCOR is a top-down modeling approach Three levels of modeling IMPORTANT : In difference to other methods of process modeling it's in SCOR not a problem to find the different detail levels of modeling because they are provided. The modeler doesn’t have to select the detail level. He can choose his situation specific process categories and elements. Not in scope: level 4 Keep the different terminologies in mind: process types (level 1) process categories (level 2) process element levels (level 3) Explain the different levels analog to column ´comments ´
The topics in the value proposition can be mapped to KPI‘s, which are defined in the SCOR model. These KPI‘s can be grouped into four categories, ending in increased profitability and optimized use of invested capital.
If we are focusing now on SAP SCM software, it is necessary to explain, what the unique contribution of SAP for the three main business drivers is.
Talk Track Differentiation through an end-to-end process
Instructions: Purpose: To show quantified benefits customers can get from this Value Scenario Questions to help the customer answer/gain agreement to: What have other customers achieved by implementing this value scenario? How did they achieve this? What other proof points can SAP bring to bear to help the customer believe in the Value Scenario? Quality Check: Have we picked customers with stories/metrics that support the Value Scenario pitch? Are the customer stories documented in the notes, so that a presenter can easily talk to what those customers did? Content Pointers: Leverage just a few hard-hitting examples. If you have back-up examples, put them in the notes and/or in the customer reference section at the back of the deck. Compelling & relevant analyst quotes can also be used in the sidebar.
Talk Track For the CP industry the ability to sense and track all demand signals is critical. The lack of demand visibility to all demand streams – either from other internal departments such as sales & marketing or downstream data from the retailer – and the inability to incorporate these demand signals into the overall demand plan has a direct impact on the accuracy of the demand plan and demand forecast. An improved forecast accuracy is a critical element in reducing reaching a higher or target customer service level while containing supply chain costs. As an example: an improved demand visibility in the supply chain to account plans and retail forecasts and POS can directly lead to improvements in in-stock rates at the manufacturer warehouse as well as at the retail warehouse and even improve shelf availability at the point-of-sale.
Talk Track: Demand Planning (SAP Solution: SCM-APO): Forecast and plan anticipated demand for products using state-of-the-art forecasting algorithms, product life-cycle planning, and trade promotion planning. Integrate sales plans and short-term forecasts such as VMI order forecasts or other demand streams such as POS forecasts or retailer forecasts into the overall demand plan. Responsive Replenishment (SNC): support a fully automated efficient customer replenishment process and respond to real-time customer demand, including promotional demand, resulting in reduced customer inventory levels, fewer stock-outs esp. during promotions, shorter order cycle times, and in the end an improved customer satisfaction. VMI (SNC or APO, SNC preferred solution for CP ) Demand Signal Capture (Vision Chain, APO-DP, BI) Sales Forecast Collaboration (Demand Planning with Duet – Excel-based, SNC Forecast Collaboration, APO-DP Collaborative Demand Planning) Trade Promotion Planning (CRM-TPM, integration to APO-DP) Some of the differentiatig capabilities that support the Collaborative Demand Management process include the Business Suite capabilities: Integration of Trade Promotions (CRM) and Sales Collaboration (Duet) with SAP SCM Standardized integration of Demand Signal Repository (Vision Chain) into SAP SCM Specific forecasting features for use with POS data to drive short-term forecasting and replenishment of the manufacturer DC as well as consideration of impact structural changes in the supply chain on the history input for forecasting. (Business Suite 7.0 only) Additional Notes: Scalability: Several hardware partners have carried out performance measurements on the SAP benchmark model of 10,000 different products from 10 different distribution centers bought by 2000 different customers planned for a two year history on a weekly basis. This data volume is equal to 20 million characteristic combinations. The technology partners are certified to plan (e.g. forecast) between 53 000 and 560 000 characteristic combinations an hour at an aggregate level and update between 500 000 and 5.6 million characteristic an hour combination at a detailed level.The results and hardware configuration of the benchmarks can be viewed here: http:// www.sap.com/solutions/benchmark/dp.epx
Some first examples on how SAP SCM helps companies to improve and how they have realized value.
Talk Track These customer examples highlight the benefits of Collaborative Demand Management. Other customers who have benefited from Collaborative Demand Management include P&G, Kimberly Clark, Brown-Foreman, Beiersdorf, Marico, Unilever India (HLL), Mellitta, CJ, ConAgra.
Talk Track To remain competitive in today’s economy, companies need to reduce costs along all areas of the supply network. Improved supply planning and optimization and tighter collaboration with suppliers leads to improved visibility, reduced material (e.g. waste and obsolescence) and inventory carrying, manufacturing, transportation and handling costs which at the end culmiate in increased profit margins and available cash. In order to profitably and reliably deliver against demand, and not waste idle capacity, companies need to collaborate with partners to balance demand and supply across a distributed network, and have the optimum capacities and inventories at the right place at the right time to minimize and mitigate supply risks. Additional Notes The goal of supply planning is to provide the most appropriate supply response to demand variability in the network – as fast as possible at the best cost. Demand patterns are be reviewed and then create an unconstrained supply plan. This plan must then be made feasible over the operating range by reviewing plant capacity, maintenance and shutdowns across the entire network – not just plant by plant, but by considering that each plant affects the other. Then, inventory shortfalls or excesses can be reviewed and simulated to meet customer service and financial goals. Optimization routines will explore alternatives e.g. cost containment or optimal cost-benefit balancing, then these modified plans must be fed back to demand mgmt to align and reconcile. The entire process is iterative and should be carried out as frequently and as detailed as needed depending on the company strategy for supply and demand matching. In a traditional supply planning environment supply planning is carried out less frequently and with a frozen horizon where supply planning does not apply. Demand variability is handled via rush orders within supply chain execution with a limited feedback to supply planning. In a responsive supply network, new demand information e.g. short-term changes to promotional demand is available for supply planning more frequently and a new supply plan e.g. with no or very small frozen horizon is generated as frequently as needed.
Talk Track: Safety stock planning (APO, SmartOps): Assign optimal safety stock and target stock levels in all inventories in the supply network. This enables you to meet desired customer service levels while maintaining a minimum amount of safety stock. Supply network planning (APO-SNP): Integrate purchasing, manufacturing, distribution, and transportation plans into an overall supply picture, so you can simulate and implement comprehensive tactical planning and sourcing decisions based on a single, globally consistent model. Distribution planning (APO-SNP, Deployment, TLB): Determine the best short-term strategy to allocate available supply to meet demand and to replenish stocking locations and build efficient transport loads. Supply network collaboration (APO, SNC): Improve visibility into supply and demand by collaborating with partners to reduce inventory buffers, increase the velocity of raw materials and finished goods through the pipeline, improve customer service, and increase revenues. Procurement Planning (APO, SRM, ERP): Track and monitor closed-loop, order-to-cash procurement from the creation of a purchase order and invoice to the transfer of event data to an analytical application. • Rough-Cut Production Planning (APO, Manaufacturing) : Create feasible, optimized production schedules that take into account real-time material and capacity constraints, ensuring a fast, flexible approach to engineering changes and customer requirements. Additional Notes Scalability: Supply Planning (focus Supply Network Planning). The SAP benchmark model for SNP contains 120 000 location products planned for a 6 month horizon creating transport and planned orders. The technology partners are certified to create between 2 and 3 million orders per hour for this data model. The results and hardware configuration of the benchmark can be viewed here: http:// www.sap.com/solutions/benchmark/snp.epx
Talk Track These customer examples highlight the benefits of Supply Planning.
Talk Track Most companies have implemented some form of sales and operations planning for quite some time, but few are satisfied with the current process. As a result, they are encountering more and more problems, particularly as their supply chains become more complex, matching demand to supply across different departments and across th globe becomes increasingly important. Additional Notes Align company goals in one consolidated plan : Many S&OP processes are incapable of reconciling the perspectives of sales, marketing, manufacturing, and logistics or extending the supply-chain decision process to include customers and suppliers. When each part of a company is operating separately and lacking effective communications that share updated data, stakeholders make decisions independently without recognizing the broader impact. Instead, stakeholders need aggregated data presented according to different dimensions that are meaningful to them: time, organization, product, geography, unit of measure, and so forth, Thus, the company’s S&OP process can link decisions at the strategic level, align tactics with strategy and goals, and allow decision makers to adapt to changing circumstances as they develop.
By using the S&OP process, companies can review and evaluate existing and new products in development and future plans in the context of demand, supply, financial reconciliation, and management analysis. The result is an S&OP process that begins to follow the model of the companies that are leaders in this process. Examples of activities within the S&OP process include: Demand Analysis & Update (BI, SCPM, SCM). Anticipate total market requirements for all offerings from all perspectives, using sources such as quantitative forecasts, input from sales and marketing, and what-if analysis – balancing orders and demand and achieving consensus on various demand scenarios. Special consideration applies for new products to analyze the potential for new products to impact the market, considering elements such as rationalization with channels, pricing and margin implications, ramp-up projections, and both incremental and cannibalized demand. Supply Analysis / Production Capacity Analysis (BI, SCPM, SCM). Review the supply chain capacity, including inventory requirements, procurement policy, and logistics, to make certain that there is sufficient manufacturing and distribution capacity. Identify any need to outsource for additional capacity. Financial and Budget Planning (BI-IP, ERP-COPA) Translate the supply and demand plan into financial terms of revenue, margin, and working capital requirements. Then balance supply and demand, making decisions with regard to potential supply issues and contingencies for the range of possible demand scenarios. Supply and Demand Alignment (SCM-APO, BI) Evaluate the results of your activities to decide how to run the business moving forward. This includes an evaluation of planned versus actual results, an analysis of profitability by customer, channel, and product, and a look at perfect order, cash-to-cash, and asset performance. Additional Notes SCPM: Supply Chain Performance Management. If this is an area of interest point out that a new tool for SCPM that is planned to be released by Q2/2009.
Track Talk The following examples illustrate how global companies are putting this strategic process into practice. Brown-Forman Corporation believes its approach to S&OP is a better way to align supply and demand with the company’s business requirements, build better internal communications, and plan activities to meet customers’ needs. Borealis leverages S&OP to improve customer service while maximizing return on assets. Procter & Gamble credits its own version of S&OP with creating a single set of sales and supply plans to optimize resources to support the company’s business objectives – assessing the financial implications of the plan as well as its impact on both supply and demand.
SAP has a comprehensive Supply Chain Management suite of products as well an extensive partner ecosystem which provides customers with an unparalled capability in the SCM space.
Supposed to be used fast: BASF – real time SCM and event management – knew where all their containers were during Hurricane Katrina and were able within hours to divert to alternative ports and still meet customer demand Merloni, Global multisite order promising integrated to distributed manufacturing and sub asembly availablilty Pacific Cycle: Collaborative supply chain using RFID to tell Pacific when WalMart sells each bike, with one-for-one replenishment managed by the vendor (VMI) Airbus: managing 2 million spare parts for their complex aftermarket where service level agreements can lead to heavy penalties if not met
The mySAP SCM Solution suite is complete and holistic, spanning from supply chain planning and execution to collaboration, visibility and performance management. Being integrated by design helps companies meet their SCM needs at a low Total Cost of Ownership. mySAP SCM provides companies a framework not only to meet the current requirements but also provides a path for businesses to expand and grow operations both internally as well as with partnerships and through acquisitions. It enables companies to collaborate effectively with their trading partners across all aspects of supply chain planning and execution. Finally, mySAP SCM helps companies become real-world aware with timely visibility into supply chain events, and analytics to monitor and analyze their performance so that they can pro-actively adapt to the demand driven and network nature of today’s supply chains and take timely decisions which are aligned with their operational and financial metrics.
To fight commoditization in LCD TV’s, region manufacturing is a must to streamline the LCD TV supply chain. Cost savings are achieved by Semi Knock Down (SKD) manufacturing in Europe for all sizes, even with a potential 5% duty on imported panels. The savings, however are only achievable through optimal factory utilization, smart SKD design guidelines, and best-in-class supply chain management and execution.
Aggregate and manage key risk activities Automate controls across processes Monitor risks and controls across disparate systems
Strategic Service by SAP Value Engineering ,launched end of 2004 jointly with ASUG (America’s SAP Users’ Group), as a forum to exchange metrics and best practices Additional industry partnerships include APICS, TPMA, RILA and SCL One of the largest benchmarking programs in the industry
Key Solution Capabilities Although we obviously import as much data as possible electronically from the GL, ERP, CRM systems etc, (both SAP and non SAP) there is always some non-system driver data that is needed for modeling and collecting and collating this data; that is why cost and profitability modeling is sometimes seen as having been laborious and time consuming. PCM provides web based data entry which together with the work management tool can help expedite the collection of non-system driver data, providing a low cost of ownership and allowing models to be run more frequently so reports are right up-to-date and credible. Rapidly build models using best practice methodology giving quick time to value The ability for end-users to slice and dice data multi-dimensionally and develop a detailed insight into where profit is made, loss incurred - and what drives costs PCM also provides end users with the ability to assess the impact of changes and do “What-If?” scenarios with on-demand calculation. That way they can test out scenarios before committing to them
Finally, to bring me back to the central theme of my presentation, Driving Uncertainty from your supply chain, I I present a highly simplified Risk Management measurement device. Here, we are looking at one measure, Improve Delivery Performance, with various levels of uncertainty. We can of course, drill-up and look at all Measurements and their associated Risk measures along with current actuals.
2. Driving Uncertainty from Your Supply Chain Presented by: Lonnie Ayers, PMP, Industry Principle, Aerospace & Defense Contact: Lonn.Ayers@sap.com
40. Supply chains are under pressure And climate is getting tougher Cost Volatility Risk Purchasing Manufacturing Index Supply Chain Digest, 2009, and McKinsey, 2008 Consumer Confidence Index Sample of Economic Measures What are your company's 2 main strategic goals for your supply chain? Reducing costs Improving customer service Getting new products/services to market faster Improving reliability of supply chain Improving product quality Reducing company’s carbon footprint Maintaining majority of employees in home region None of above McKinsey, 2008 How, if at all, has the amount of supply chain risk faced by your company changed in the past 5 years? Increased significantly Increased Slightly No change Decreased Slightly Decreased significantly 2007 2008 Change Dow Jones Industrial Average on Oct 9 14,279 8,579 -39.9% Crude Oil/bbl on Oct 9 $94.83 $76.77 -19.0% Institute of Supply Management – PMI for Manufacturing, Oct 50.9% 38.9% -23.6% $/Euro on Oct 9 .7093 .7320 +3.2% University of Michigan Consumer Sentiment Index- Oct 80.9 57.6 -28.1% Are my customers satisfied ? Am I managing my assets effectively? How much should I produce?
41. You cannot manage what you cannot measure Supply Chain Cost To what extent is your company meeting the strategic goals for its supply chain? Improving Product Quality, n = 48 Reducing Costs, n = 165 Getting New Products/Services to Market Faster, n = 88 Improving Reliability of Supply Chain, n = 78 Improving Product Quality, n = 119 Demand Forecast Perfect Order Rating X X X
42. Case Study: CPG company Department-only metrics can hurt overall performance Finance <ul><ul><li>Defer payments to end of payment period-Killing suppliers! </li></ul></ul><ul><ul><li>Decrease budget for standard transportation cost </li></ul></ul>Sales <ul><li>Lack of focus, and alignment </li></ul><ul><li>No insight into supply chain performance </li></ul><ul><li>Don’t know how to optimize; when to take action </li></ul>Manufacturing <ul><ul><li>Rebates on selected products </li></ul></ul><ul><ul><li>Launch of customer loyalty programs </li></ul></ul><ul><ul><li>Switch to lowest cost component suppliers-But maintain quality levels </li></ul></ul><ul><ul><li>Increase production throughput </li></ul></ul>
43. Need for Performance Management Finance Sales Manufacturing How are we doing? What should we do? Why is this happening? Demand Perfect Order Cost
44. Supply Chain Performance Management Effectiveness, not only efficiencies Volatility Cost Risk <ul><ul><li>Accounts payable </li></ul></ul><ul><ul><li>Cash flow </li></ul></ul><ul><ul><li>Shipment cost </li></ul></ul><ul><ul><li>Number of returns </li></ul></ul><ul><ul><li>Customer satisfaction </li></ul></ul><ul><ul><li>Customer defection </li></ul></ul><ul><ul><li>Inventories </li></ul></ul><ul><ul><li>Product quality </li></ul></ul><ul><ul><li>Purchasing cost </li></ul></ul><ul><ul><li>Visibility </li></ul></ul><ul><ul><li>Effectiveness </li></ul></ul><ul><ul><li>Control </li></ul></ul>Demand Perfect Order Cost
45. Supply Chain Performance Management Effectiveness, not only efficiencies Supply Chain Effectiveness Order Management Cost Material Acquisition Cost Planning and Finance Cost Level 2 Metrics Finished Good Warehouse Cost Customer Service Cost Outbound Transportation Cost Level 3 Metrics Express Freight Fuel Cost Returns Invoices Outstanding Diagnostic Metrics - Strategic Goals Perfect Order Fulfillment Level 1 Metrics + Supply Chain Management Cost + -
46. SAP BusinessObjects Supply Chain Performance Management <ul><ul><li>Standards-based end-to-end process support </li></ul></ul><ul><li>At any time, know your operational and related financial performance </li></ul><ul><li>Utilize leading industry standards for performance management (e.g. SCOR) </li></ul><ul><li>Focus on end-to-end processes (e.g. order-to-cash), rather than reinforcing operational silos </li></ul><ul><li>Automated data collection </li></ul><ul><li>Timely insights, with tight operational application integration </li></ul><ul><li>Relevant information, derived from actual business processes </li></ul><ul><li>Complete information, with contextual guidance </li></ul><ul><ul><li>Proactive diagnostics </li></ul></ul><ul><li>Fully understand operational drivers affecting performance </li></ul><ul><li>Deliver alerts about deviations from performance targets </li></ul><ul><li>Better balance trade-off decisions, by highlighting operational dependencies </li></ul>Improving Supply Chain Effectiveness
47. Product demonstration SAP BusinessObjects Supply Chain Performance Management Demo
48. Standards-based end to end process support At any time, know your operational and related financial performance
49. Automated data collection Timely insights, with tight operational application integration
51. Fast time to value, business agility Metrics management functionality
52. Analyst perspective <ul><ul><li>AMR, 11/07: “One of the most common patterns in the customer-facing metrics is the connection between demand forecast, perfect order, and inventory . Our research shows a strong correlation between demand forecast accuracy and the perfect order.” </li></ul></ul>“ “ “ “ “ “ <ul><ul><li>HBR, 9/07: “The most effective supply chains achieve the greatest possible availability of goods at optimal levels of inventory, transportation, and warehousing dollars. Specifying goals for improvement in these areas requires knowing where you stand now.” </li></ul></ul><ul><ul><li>HBR, 11/03: “Businesses that do not scrupulously uncover the fundamental drivers of their units’ performance face several potential problems. They often end up measuring too many things, trying to fill every perceived gap in the measurement system.” </li></ul></ul><ul><ul><li>AMR, 11/08: “Now is the best time to invest in technologies that yield greater transparency and control within the supply chain … navigating through the next several years will be a test of wills between partners, but also one of how well your supply chain is under control.” </li></ul></ul><ul><ul><li>AMR, 2/08: “No longer an afterthought, supply chain risk must be managed explicitly and profitably.” </li></ul></ul><ul><ul><li>Ventana, 1/09: “ Not every IT department or consulting organization has the skills to create a well-designed SCPM application.” </li></ul></ul>
53. Supply Chain Performance Management Tied into value scenarios within Responsive Supply Networks Inter-enterprise end-to-end processes Collaborative Demand and Supply Planning Logistics and Fulfillment management Manufacturing Network Planning & Execution Service Parts Management Collaborative Demand Response & Execution VP Supply Chain VP Manufacturing Supply Network Strategy and Design Supply Network Traceability Execution Tactical Strategic VP Logistics DESIGN SOURCE MAKE STORE MOVE SELL SERVICE CEO / CFO / CRO Demand Forecast Perfect Order Rating Supply Chain Cost Supply Chain Performance Management
54. SAP benchmarking services Know where you stand, and where to improve <ul><li>Services by SAP Value Engineering </li></ul><ul><li>Industry-leading benchmark program </li></ul><ul><li>Wide network of partnerships </li></ul>Mike Stoko, Assistant Director, SAP Global Operations and Value Capture, DuPont Since participating in the Benchmarking and Best Practices program we can compare apples to apples. We know what each business process costs and we can go after technical improvements to reduce the costs.” “
55. Solution detail – IT view Receive pro-active alerts about deviations for performance targets, and better balance trade-off decisions for improved supply chain performance Test and Improve Identify and Analyze At any time, know your operational and related financial performance, and understand operational drivers affecting performance Comply with leading industry standards from performance management (e.g. SCOR), focusing on metrics that matter Model and Understand Collect Collect and collate data directly from operational processes, such as order-to-cash, from SAP systems (e.g. ERP, SCM) or non-SAP systems
56. Moving towards risk-adjusted Supply chain performance management <ul><li>Enable risk-aware decision making </li></ul><ul><li>Balance cost and opportunities, against operational risk </li></ul><ul><li>Prioritize across strategic, financial, operational and compliance risks </li></ul><ul><li>Mitigate operational risk thru discovery, quantification, mitigation </li></ul>
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