Scoring High on the Supply Chain Maturity Model

Scoring High on the Supply Chain Maturity Model Heino Huettner May 10, 2007

Discussion Topics

The supply chain is under fundamental pressure

Reinventing/transforming the supply chain can bring business value

Many companies are utilizing new approaches

Continued pressure on margins through growth & cost containment Changing market boundaries and new channels Aggressive global competition Shortening product lifecycles

Supply

Chain

Management

Source: Value Chain Study – IBM IBV Industry consolidation and alliances Increased reliance on specialization and partnerships Supply Shocks Demand Shocks The supply chain is under fundamental pressure

Synchronizing supply and demand

Integrating customer forecasts and demand with their suppliers to plan logistics requirements

Participation in customer’s Sales & Operations Planning process

Today’s global supply chain challenges are driving the need for improved end-to-end performance

Monitoring shipment status

Monitor shipment status throughout pipeline with proactive event notification

Improved ability to identify short and over shipments

Multiple channels and customer touch points

Single source dashboard to view overall performance

Tracking from order to delivery

Knowledge of total pipeline customer inventory

Integration with manufacturer’s systems

Access to order commitments & delivery schedules

Visibility into order production status

Multi-source orders and fulfillment

Ability to track purchase orders through their entire lifecycle

Knowledge of total pipeline supplier inventory

Global sourcing of supply Move to contract manufacturing Complex logistics networks Capacity constraints Distributed information Excess inventory Long lead times Excess manpower Deteriorated customer service Business performance uncertainty & risk EQUALS Supply Chain Suppliers Manufacturers Plan Source Make Customer Channels Stores Distribution Centers Flows: Product, Process, Information, Cash Sell Deliver

Companies have traditionally focused their supply chain initiatives on increasing internal operations excellence Cost-cutting focused on optimizing internal processes Achieving functional optimization Applying proven technology Increasing outsourcing of non-core functions Increasing customer service levels

Companies are now placing more focus on the supply chain to transform their businesses… Radically changing the way they think, organize and execute Integrating end-to-end from opportunity to cash Looking at the end-to-end processes horizontally vs. in silos Creating high value services Reinvention using breakthrough business models

... to build a competitive advantage and reach strategic objectives on demand supply chain Responsive Variable Focused Resilient Cost-cutting focused on optimizing internal processes Reinvention using breakthrough business models

Leading firms are progressing toward the vision of an on demand, customer-driven supply chain – one that is integrated end-to-end across the business and with key customers, partners, suppliers & service providers. on demand Traditional S tatic Supply Chain Horizontal Integration Functional Excellence External Collaboration on demand Supply Chain Those companies with high performance supply chains carry less inventory, have shorter cash-to-cash cycle times and are more profitable. Source: “The AMR Research Supply Chain Top 25 and the New Trillion-Dollar Opportunity” AMR Research.

Discussion Topics

Reinventing/transforming the supply chain can bring

business value

In 2005 IBM GBS carried out surveys on value chains in all major developed countries. North America Western Europe Japan Australia/ New Zealand China India The survey design with benchmarking metrics was a collaborative effort

Value Chain Study: Follow the leaders: Scoring high on the supply chain maturity model

Synopsis:

This Survey identifies current practices, captures significant trends and establishes operational performance benchmarks in six key areas of Supply Chain Management: New Product Development, Supply Chain Planning, Procurement, Logistics, Customer Fulfillment and Manufacturing.

Americas,

Europe,

Japan,

Australia/New Zealand,

India,

China,

Taiwan

As political and economic uncertainty led to increased costs and lead times, remaining competitive and correctly identifying customer needs are the key challenges for most firms

Correct identification of customer needs and remaining competitive are the most significant management challenges

Reducing time-to-market is important in all regions except Australia/NZ

How has political/economic uncertainty impacted your supply chain efforts over the past 5 years? What are the most significant management challenges for your site’s new product development efforts?

To achieve profitability objectives, firms concentrate on best fit to customer requirements, on supplier collaboration and on global sourcing. Strategy and Initiatives What is the primary strategy for your site’s new product development efforts? What are the key factors (initiatives) to achieving your objectives?

Implementation and effectiveness of NPD practices differ by geography. Overall, collaboration with customers is most widely implemented and most effective Practices > New Product Development To what extent have the following new product development practices been implemented at your site? How effective are those practices? 96% 96% 81% 59% 88% 48% 66% 58% 83% 87% 74% 91% 92% 91% 95% 85% 88% 73% 81% 95% 85% 92% 80% 90% 72% 89% 96% 97% Australia/NZ Japan WesternEurope North America

While on-budget performance is generally better than on-time performance, both are clearly below target. Performance Metrics What percentage of new products is launched to market on-time? What percentage of new products is launched to market on-budget?

Real-time monitoring and rapid response to marketplace changes are well established in Supply Chain Planning. Around 50% of firms also share risks across their supply network and aligned variable costs with revenues. Practices > Supply Chain Planning

To what extent has each of the following supply chain practices been adopted at your site?

Direct sourcing from low-cost jurisdictions is on the rise, while sourcing from developed countries is stable or decreasing. Practices > Sourcing & Procurement W.Europe North America Japan A/NZ

The relationship of procurement functions to suppliers is mostly focused on price or total cost.

Price and total cost are the major focus points of procurement functions in relation to their suppliers

Australian firms have a more balanced approach. Japanese firms place a high focus on quality.*

* see also low cost of quality in Japan Which of the following best describes your site's relationship with suppliers? Practices > Sourcing & Procurement

Compliance with procurement processes is comparable in America and Europe but limited in Japan and especially Australia/NZ

Overall, maverick buying represents a considerable volume

What percentage of your site's total annual purchases is procured via maverick buying? Enforcing process compliance promises considerable potential.

With the exception of Japan, logistics practices are widely implemented. A formal distribution strategy and differentiated logistics services are among the most effective practices Practices > Logistics Effectiveness To what extent have the following logistics practices been implemented at your site? 87% 98% 75% 79% 83% 97% 80% 79% 89% 99% 82% 86% 92% 96% 89% 92% 81% 91% 81% 65% 95% 96% 75% 87% 98% 97% 88% 89% Australia/NZ Japan WesternEurope North America

Agenda

Reinventing/transforming the supply chain can bring business value

Companies are utilizing new approaches to transform themselves into even more responsive organizations and to connect their supply chains end-to-end Focused Responsive Variable Resilient

Supply Chain Visibility

Synchronizing Supply and Demand

Sense and Respond Event Management

Performance Management

New Organizational Constructs

As a result, Supply Chain Management is becoming an increasingly critical focus area

SCM is increasingly becoming a boardroom issue, with critical linkage to financial performance

Close to 100% of CEOs believe that SCM is either critical or very critical to their business strategy 1

Collaboration and visibility (internal and external, local and global), is becoming a top priority

For the first time ever, 50% of companies collaborate with partners’ supply chains 2

The desire to become demand-driven is expanding the market for sophisticated, agile solutions at every point along the supply chain

1 Source: CEO Perspective on Supply Chain Management, University of Chicago Graduate Business School & Charter Consulting, 2006 2 Source: Third Annual Global Survey of Supply Chain Progress, Computer Sciences Corporation & Supply Chain Management Review, 2005

Top supply chains have a common trait in that they respond quickly to shifts in demand with innovative products and services

To meet profitability and cost objectives, leaders are developing differentiating supply chain models

Companies are progressing toward the vision of an on demand customer-driven supply chain

Top-performing supply chains are:

Coordinating business functions across the supply chain

Developing mutually beneficial ways to strengthen supply chain relationships

Using real-time information to create responsive, customer-driven processes

Developing variable cost structures

Source: IBM Value Chain Study, 2005/2006 IBM Institute for Business Value IBM Business Consulting Services Follow the leaders Supply chain Management

Where are you on the journey to supply chain maturity? S tatic supply chain Horizontal integration Functional excellence External collaboration On demand supply chain Time Supply chain maturity and benefits

A Collection of Observations, News, Resources & Innovations on the changing nature of Supply (chain) management http://aconris.wordpress.com/