High Tech Industries: The Supply Chain Executive's Strategic Agenda

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50% of 146 high tech companies regard supply chain management as a customer service differentiator, market strategy differentiator, or as a profit center - while the rest view supply chain as a cost center. This sector insight explores the concerns and process roadmap of supply chain executives in high tech industries.

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High Tech Industries: The Supply Chain Executive's Strategic Agenda

  1. 1. December, 2007 High-Tech Industries: The Supply Chain Executive's Strategic Agenda Fifty percent (50%) of 146 high-tech companies regard supply chain Sector Insight management as a customer service differentiator, market strategy Aberdeen’s Sector Insights differentiator, or as a profit center - while the rest view supply chain as a provide strategic introspective cost center. This Sector Insight explores the concerns and process roadmap and analysis of primary of supply chain executives in high-tech industries. research results by industry, market segment, or geography High-Tech Industries: Leading the Pack in Transformation High-tech industries are showing a higher percentage of companies that indicate they have completed a redesign of their domestic and international supply chains. This indicates that they are ahead of the curve in terms of supply chain transformation based on the key pressures being faced in the marketplace. The top three pressures faced by the high-tech industries are: the need to contain supply chain costs to remain cost competitive (68%); demands to manage a more global business (44%); and the escalation of customer service demands (41%). Figure 1: High-Tech Versus Other Industries in Terms of Redesign of Supply Chains 60% Sector Definition High-Tech, 51% High-Tech, 49% This report focuses on the 50% supply chain transformation Overall, 39% intentions of 146 companies in 40% the high-tech sector. Overall, 32% 30% The high-tech industry, for the purpose of this sector insight, 20% includes computer equipment and peripherals, consumer 10% electronics, high-technology, semi conductors, and 0% telecommunication equipment. Domestic International Source: Aberdeen Group, December 2007 Some of the key business conditions faced by high-tech industries are: • Centralization of supply chain organizations. Forty-six percent (46%) of high-tech companies indicate that their supply chain organizations are centralized. Best-in-Class companies are evolving from multi-national to global companies through centralization of their supply chain organizations and are bringing © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  2. 2. Demand Management: Need for Renewed Focus in A&D Sector Page 2 procurement and order fulfillment into the fold with the supply chain planning organizations. • Response management - beyond visibility. Forty-six percent Related Research (46%) of high-tech companies indicate that they have end-to-end The Supply Chain supply chain data and process visibility. The greatest financial value Executive's Strategic comes from leveraging visibility information to identify and eliminate Agenda 2008; November root causes of delays or other production issues and to rapidly 2007 respond to changes that could negatively impact the business if mismanaged or left unattended. Effective supply chain response management reduces lead times and variability, enables lower inventory investment, improves customer satisfaction and revenue attainment, and cuts supply chain costs. • Sales and operations planning. Fifty-four percent (54%) of high- tech companies indicate that they have an executive position with end-to-end supply chain responsibility. High-tech companies are continuing to make headway in the S&OP process – sales CRM system to supply chain system integration through sales forecasting and order promising, attach rate forecasting for complex configured products, and the incorporation of pricing and inventory as decision factors within the S&OP process are some of the areas where high- tech companies are gaining traction. Technology Adoption Plans for 2008 Figure 2 shows the technology adoption plans for high-tech companies in 2008. The technology priorities clearly reflect the business drivers outlined above. For instance response management/supply chain visibility and S&OP come up as the top areas of focus. Figure 2: Technology Adoption Plans for High-tech Companies in 2008 Supply Chain Visibility 55% "Outsourced manufacturing requires a whole new approach S&OP/Demand Management 40% for managing demand. It Inventory Optimization 34% becomes a game of balancing supply and inventory constantly Supplier/Customer Collaboration 25% and reducing lead-times." Supply Chain Network Design 22% ~ VP of Supply Chain, Large Global Semiconductor Warehouse Management 18% Manufacturing 0% 10% 20% 30% 40% 50% 60% % of High-Tech Respondents Source: Aberdeen Group, December 2007 © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  3. 3. Demand Management: Need for Renewed Focus in A&D Sector Page 3 Case in Point #1 - NetApp Network Appliance, Inc. (NetApp) is a manufacturer of unified storage solutions for data-intensive enterprises. This company’s supply chain has recently adopted a response management concept. Challenge NetApp faced the need to rapidly anticipate and adapt to changing conditions in the complex global environment. In 2000, during a period of rapid growth, NetApp found itself with a number of ERP and APS applications and processes that could not efficiently scale to support the growing demands of a global corporation. In addition, they required visibility across the company in order to automate the scheduling and manage the varying impact of changes in customer demand. Solution A response management solution was implemented to address the aforementioned issues. The key characteristics of this solution were: • Rapid order sourcing: It takes a unique combination of information and business rules to determine where an order should be sourced and the appropriate delivery and build schedules for all steps in the supply chain • Closed loop with ERP: Provides closed-loop integration with their ERP system to ensure complete automation and rapid response • A flexible solution to change the business rules as the business itself evolves Benefits Gained • Orders are now scheduled within minutes of order entry versus the prior goal of manually scheduling orders within 24 hours of receipt • 95% of orders are sourced and scheduled to be done without manual intervention • The aforementioned benefits have allowed planning and scheduling personnel to adopt a more strategic monitoring mode. The planners are able to manage by exception and address the true underlying issues of the moment. This has resulted in improved production efficiencies and reduced planning cycle times. Case in Point #2 - LSI Semiconductors LSI Corporation is a $3.2 Billion USD provider of silicon, systems, and software technologies. LSI Semiconductors provides a silicon-systems approach within targeted growth segments like storage, networking, and consumer industries. This company has recently engaged in a directive to manage complexity and combat uncertainty. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  4. 4. Demand Management: Need for Renewed Focus in A&D Sector Page 4 Challenge A recent merger between LSI semiconductors and Agere Systems resulted "In B2B environments the in several benefits like scale, growth, and efficiencies in their supply chain. demand signal that we get is There were significant synergies in market segments and customers. The out of phase due to three merger afforded the ability to provide inorganic as well as organic reasons. The first is latency investments to grow. However the merger also provided challenges in because the time has shifted terms of increased complexity of supply chain and increased uncertainty. when the demand signal is processed. The second is amplification – changes in Solution demand become exaggerated The realization was made that the best solution to addressing this due to each trading partner uncertainty was to create flexibility and visibility within the supply chain. A taking hedges out or adding hedges to the forecast. The B2B multi-enterprise platform was leveraged to provide this flexibility. Some third phenomenon is salient characteristics of the solution were: two-way closed loop interference where market communication flow, proactive management of supply constraints, events add to the aggregated view of demand, and early and automated notification of uncertainty. The best choice discrepancies to all partners. and only choice for us is to be very flexible and Benefits collaborative.” • Improved shipping performance to customer request "on dock" ~ Don Alvine, Vice President of Supply Chain and • Margin improvement through cycle time improvement from RT Chief Procurement Officer, visibility LSI Semiconductor • Better than industry average inventory performance Required Actions • Extend supply chain visibility. Ramp up the use of global supply chain visibility analytic tools. Best-in-Class are more than twice as likely as Industry Average companies to be performing various analyses, including tracking total landed costs, conducting root cause and trade lane analysis, and traceability / genealogy analysis at the item level. • Implement S&OP process with closed loop integration with execution. Seventy-one percent (71%) of Best-in-Class companies have a continuous monitoring of the S&OP output to ensure plan quality versus 20% of Laggard companies. The ability to measure and "It didn't happen overnight. We monitor the performance of their S&OP plans is a clear have been transforming both differentiator for Best-in-Class companies. our company and supply chain for the last ten years." • Create a globally integrated supply chain organization. ~ Tim Carroll, Vice-President, Thirty-eight percent (38%) of Industry Average companies indicate Global Supply Chain that they have a centralized supply chain management organization Operations, IBM Integrated versus 67% of all others. No longer can companies run different Supply Chain Aberdeen Supply supply chains for different products within the same business units. Chain Summit 2007 Key Note Consolidation and rationalization of business processes within the Address supply chain organizations is a necessity that has to be embraced. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  5. 5. Demand Management: Need for Renewed Focus in A&D Sector Page 5 For firms to succeed in the dynamic environment of the global economy, it is essential to implement a holistic strategy that takes full advantage of the available technology enabling intensive visibility, integration, and S&OP monitoring. For more information on this or other research topics, please visit www.aberdeen.com. Related Research Demand Management in Consumer Driving Sales and Top Line Revenue Industries; December 2006 Requirements Through Executive S&OP Demand Management in Discrete (April 2007) Industries: A Research Preview; October Executive S&OP: Process and Technology 2007 Strategies (June 2007) Author: Nari Viswanathan, Research Director, Supply Chain and Logistics, Aberdeen Group (nari.viswanathan@aberdeen.com) Founded in 1988, Aberdeen Group is the technology- driven research destination of choice for the global business executive. Aberdeen Group has 400,000 research members in over 36 countries around the world that both participate in and direct the most comprehensive technology-driven value chain research in the market. Through its continued fact-based research, benchmarking, and actionable analysis, Aberdeen Group offers global business and technology executives a unique mix of actionable research, KPIs, tools, and services. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provides for objective fact based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a

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