Supply Chain Industry Forum Sponsored by YRC Logistics
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Supply Chain Industry Forum Sponsored by YRC Logistics Supply Chain Industry Forum Sponsored by YRC Logistics Presentation Transcript

  • Supply Chain Industry Forum Sponsored by YRC Logistics
  • Making the Financial-Supply Chain Management Connection Dr. Stephen G. Timme President, FinListics Solutions and Adjunct Professor, Georgia Institute of Technology
  • The Challenge
    • Many companies historically have not aligned supply chain management with financial performance goals.
    Financial Performance
      • Higher Value-Adding Revenue Growth
      • Improved Profitability
      • Greater Capital Utilization
    • High performance companies use supply chain management to achieve financial goals through:
    Capital Utilization Revenue Growth Profitability
  • Aligning SCM with Financial Goals: A Top-Down Approach Uses gaps in financial performance drivers to determine potential for improving SCM business processes, activities, tasks Inventory, Revenue, SG&A, COGS, Fixed Assets, A/R, A/P 1 3 Financial Drivers SCM Business Processes SCM Activities/Tasks 2
  • SCM – Who’s View?
    • Context of customer serviceability.
    • Like sufficient quantities of the right products to sell. Operationally, recognize an on-going need to provide accurate and timely field forecasts.
    VP Sales
    • Better plan and fulfill market demand for goods and service and do so more efficiently.
    • Like SCM buy-side, sell-side, planning and execution.
    VP Supply Chain
    • Better management of suppliers.
    • Like visibility into current and future demand including both quantities and required lead times or replenishment times.
    VP Procurement
    • Balance supply with demand.
    • Maintain sufficient levels of inventory to keep production flowing, adequate spares, and efficient procurement operations,
    • Review distribution and logistics operations to enhance customer service.
    COO
    • Better manage the balance sheet primarily in terms of inventory and fixed assets and the income statement in terms of SCM related expenses.
    CFO
    • Deliver value-adding growing revenue.
    • Like product availability, new product speed to market and customer service.
    CEO View of Supply Chain Management CxO
  • Financial-SCM Connection
    • IT Management
    • Selective Outsourcing
    • Warehouse Management
    • Transportation Management
    Fixed Asset Utilization
    • Payment Practices
    • Procurement Terms
    Days Purchases Outstanding (DPO)
    • Invoicing Accuracy
    • Internal Communications
    • Shipment Integrity
    • Fill Rate
    • Proof of Delivery
    Days Sales Outstanding (DSO)
    • Inventory Visibility
    • Forecasting Accuracy
    • Demand Planning
    • Transportation Mgt.
    • Warehouse Mgt.
    • Network Design
    Days in Inventory (DII) (GMROII)
    • Customer Service
    • Information Technology
    • Warehouse Mgt.
    • Transportation Mgt.
    • Supply Chain Administration
    SG&A as a Percentage of Revenue
    • Procurement
    • Reverse Logistics
    • Selective Outsourcing
    • Inbound Transportation Mgt.
    • Inventory Mgt.
    • Network Design
    COGS as a Percentage of Revenue (Gross Profit Margin)
    • Lead times
    • New Product Speed to Market
    • Fill rates
    • Forecasting
    • Customer Service
    Revenue Growth Examples of How Supply Chain Management Adds Value Financial Metric
  • Example of SCM Solution Mapping SCM solutions help companies better manage business processes like these. Solution 1 Better managing business processes increases financial performance. 2
  • Much Potential to Unlock Hidden Value
  • W/D Durable – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  • W/D Non-Durable – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  • Food Products – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  • Printing & Publishing – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  • Ind Machinery & Equipment – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  • Need for SCM Speed* *Graph for 12% minimum Return On Assets Base case: 7% Profitability x 2.00 Asset Turnover = 14% ROA Competition Lowers Profitability to 5% but no Change in Asset Turnover: 5% x 2.00 = 10% ROA Asset Turnover Increases to 2.5: 5% Profitability x 2.5 Asset Turnover = 12.5% ROA
  • Total Cost of Holding Inventory Non-Capital Carrying Charges + Capital Charges
  • Inventory Trade-Offs Revenue Capital Investment Operating Expenses
  • Total Cost of Holding Inventory: W/D Durable Goods
    • Sales $50M
    • Inventory $6.6
    • Pre-Tax Cost of Capital 20%
    • Inventory Non-Capital
    • Carrying Charge 10% 30%
    • Total Annual Costs $2.0
    • Adjusted Operating Income* $2.7
    • Total Annual Costs Absorption
    • of Adjusted Operating Income 75%
    • 9 months of sales needed to fund total inventory costs.
    *Reported Operating Income + Non-Capital Carrying Costs.
  • Financial Gap Analysis Business Process Mapping SCM Solution Mapping Solution Benefits Estimates Business Case Development Implement & Measure Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Roadmap to Connecting Supply Chain to Financial Performance Copyright © 2007 FinListics Solutions. No part of this presentation may be reused or redistributed without explicit permission from FinListics Solutions. Establish Enterprise-Wide View of SCM
    • Implementation Plan.
    • Incorporate into business plans.
    • Disseminate lessons learned.
    • Project justification.
    • Link to business needs.
    • Contingency plans.
    • Summary of “How” and “How Much” SCM solutions benefits.
    • Summary of feasibility of improving gaps with SCM solutions
    • Summarize likely areas for greatest improvement.
    • Executive summary of gaps and motivation for change.
    • Executive summary of importance of SCM and its role in achieving company goals.
    Output
    • Plan resources.
    • Incorporate costs and solution benefits into business plans
    • Conduct on-going project post-mortem.
    • Establish critical success factors.
    • Value benefits.
    • Conduct breakeven analysis.
    • Estimate costs and benefits.
    • Develop alternatives
    • Obtain buy-in.
    • Prioritize initiatives.
    • Map BP’s to SCM solutions.
    • Conduct risk assessment and qualitative analysis.
    • Develop maps linking financial performance gaps to SCM-related BP’s, activities, tasks and KPI’s.
    • Define benchmarks for financial metrics.
    • Measure value of gaps relative to benchmarks.
    • Educate on benefits of improved SCM.
    • Define “How” SCM helps achieve goals.
    • Analyze scorecards to determine if change is needed to maximize SCM value.
    Analysis
    • Resources needed?
    • Actual results? Why variances? Lesson Learned?
    • What are costs and value added?
    • Need for change management?
    • “ How much” value may SCM solutions provide and at what cost?
    • “ How” gaps in BP’s are linked to SCM solutions?
    • “ How” are gaps related to SCM-related business processes?
    • Value of gaps?
    • Change needed in SCM-related processes and strategies to help close gaps?
    • Who’s perspective?
    • How SCM currently viewed – “Backroom or Boardroom?”
    • Scorecards aligned?
    Key Questions
    • Manage the project and measure results.
    • Develop Business Case.
    • Estimate SCM Solution benefits.
    • Map gaps in BP’s to potential SCM solutions.
    • Map gaps to SCM-related business processes (BP’s).
    • Identify Gaps in Financial Metrics.
    • Establish how SCM contributes to achieving company goals.
    Purpose
  • Questions?
  • Making the Financial-Supply Chain Management Connection Dr. Stephen G. Timme President, FinListics Solutions and Adjunct Professor, Georgia Institute of Technology