HCLT Whitepaper : Hi Tech Supply Chain Advisory Framework
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In the beginning, the performance indicators which impact the area of collaboration, forecasting, supplier collaboration and supply chain agility will be measured. A few examples of such performance ...

In the beginning, the performance indicators which impact the area of collaboration, forecasting, supplier collaboration and supply chain agility will be measured. A few examples of such performance indicators are cash-to-cash cycle time, inventory turn, order fulfillment cycle time, upside supply chain adaptability, downside supply chain adaptability and flexibility, return on supply chain asset, supply chain cost etc. HCL’s proprietary tool PRIZM can help capture values of existing performance indicators in the organization. Once we get the values of existing performance indicators, these are compared against the benchmark performance indicator values. HCL has created a repository of benchmark performance indicators for best-in-class industry, average industry and laggards.

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HCLT Whitepaper : Hi Tech Supply Chain Advisory Framework Document Transcript

  • 1. HiTech Supply ChainAdvisory Framework
  • 2. 2HiTech Supply Chain Advisory Framework1. Introduction1.1 Background and ObjectiveIn this interlinked and globalized world economy, manufacturingcompanies are constantly transforming themselves to quickly adapt tomarket requirements to sustain their competitive advantage. Some of thekey factors effecting this transformation are –? but varied demand Huge?Country-specific & changing risk, regulatory & compliance requirements?Complexity in global flows of information, goods & capital?Challenges in global resource & talent acquisition and their managementMany of these factors link how a manufacturing company operates theirbusiness and has a big impact on their supply chain strategies. It istherefore prudent to revisit the supply chain components, re-plan aswarranted and accurately execute to effect the desired transformation.The objective is to lay a foundation for improved supply chain visibility torespond appropriately to the changing global scenarios. In essence, thiswill aid in reducing logistics costs & inventory levels, reducing cash-to-cash cycles, yielding higher inventory turns, improving forecast accuracyand other important performance indicators thus having more profitableoperations.This white paper outlines a framework to revisit the supply chain ofHiTech manufacturing companies and identify the key transformationareas as relevant to their business.Complications for supply chain in HiTech Industries could be significantas the supply chain is generally spread across multiple geographies and isprimarily forecast driven. The framework discussed in this white paperaddresses the key issues and suggests means to streamline theirregularities.1.2 Summary of the FrameworkWhile the evolution of enterprise is advancing from a semi-functionalenterprise to an integrated and extended enterprise, the objective of thesupply chain should be to span the entire extended enterprise. Theframework, in this white paper, has been developed to identify all majorissues in the supply chain of HiTech companies including the extendedenterprise. Once these issues are addressed and streamlined, the HiTechsupply chain can achieve the desired state of an integrated and extendedenterprise.The HiTech industry in our context comprises of the following sub-segments: semiconductor, consumer electronics, electronic measuringequipments & instruments, storage, desktops & server, networking andperipheral devices manufacturers.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 3. 3HiTech Supply Chain Advisory FrameworkThis advisory framework outlines a well-defined methodology to identifyand address the supply chain issues and recommend possible solutions.Several tools and accelerators are also recommended for use at variousstages of the framework. An industry analysis has been done tounderstand the key issues in HiTech supply chain through various sources.Research reports from Aberdeen Research and RR Donnelly have beenreferred to for industry analysis. Also, several key users in HiTechindustries have been interviewed to understand the key pain areas.2. The Industry AnalysisThe primary objective of industry analysis is to identify the areas of focus,different key success factors in different segments and the logic of theindustry. This analysis is also called external analysis. Aberdeen researchreports have been used to identify the key areas of focus in the next 18-24months. Improving forecast accuracy 55% Optimizing inventory routes, making better 52% decisions on where and how much inventory to store Reducing lead times 48% Inventory collaboration with suppliers/customers 38% Implementing Lean and Just-in-Time principles 34% Reducing lead time variability 31% 0% 10% 20% 30% 40% 50% 60%Source: Aberdeen Research Webinar Oct, 2010 % of Respondents Table 1: Key Supply Chain Strategies for HiTech CompaniesNote from Table 1, that 55% respondents in HiTech industries havementioned that forecast accuracy is their key areas of focus while 52%respondents have mentioned that inventory optimization is their keyfocus. Lead time reduction and collaboration with suppliers andcustomers (supply chain partners) are the next priority of supply chainactivities as per the respondents (key users of HiTech supply chain) of thissurvey.Now refer to the RR Donnelley Report for HiTech in Table 2. The focusareas identified through this survey are almost similar to that of theAberdeen Research survey.As per this report, improved forecasting, inventory reduction,improvement of supply chain visibility and managing supply chaincomplexities are the main areas of focus.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 4. 4HiTech Supply Chain Advisory Framework Areas in which Tools, Strategies or Technologies will be Invested, in the Next 12 Months Supply Chain Management Visibility Infrastructure Investment Forecasting Business Intelligence Reporting/Analytics Procurement Staff Training Order Systems Collaboration Warehouse Management 20 40 60 80 Source: Eyefortransport’s 2010 survey, RR Donnelley % Table 2: Key Supply Chain Strategies for HiTech CompaniesBesides analyzing Aberdeen and RR Donnelley reports, key users inHiTech industries have also been interviewed. The areas of interest in thesupply chain as described by the key users are mentioned below:? capability building with suppliers and partners to do Joint research and development work.? saving through proper forecasting, timely replenishment, Cost operations and inventory optimization.? adopters of concepts of integrated enterprise through B2B Early exchange.? visibility is required in the distribution channel with close High collaboration with SCM partners.?Reasonably good forecasting is required for launch of substitute product. Postponement technique is adopted to come out with new product quickly.Considering the observations from above, there are four key areas offocus in HiTech supply chain. The cause and effect of these four areas areoutlined below:?Forecasting issue – HiTech industry runs on forecast-driven supply chain. Semiconductor industry and consumer electronics industry in particular, depends on forecasting for their production planning, raw material planning and distribution planning. If the forecast is not accurate a possible bullwhip effect is expected in the supply chain. Small demand© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 5. 5HiTech Supply Chain Advisory Framework variability becomes more and more distorted resulting in unnecessary stock pile in different point of the supply chain. There may be unexpected stock out situation also at different point of supply chain.?Collaboration Issue - HiTech Industry has a large vendor base and their distribution channel is spread across multiple geographies. Collaboration, therefore, is always an issue for them. There is demand mismatch among SCM partners at any point of the supply chain due to lack of information sharing and collaboration approach.Due to lack of collaboration, cost of procurement, cost of planning and cost of distribution goes up. It also affects the timely delivery and product quality.’?Supplier Consolidation Issue - HiTech Industry has a large supplier base because of variation in product range and technical complexities. For most of the HiTech companies, supplier base is spread across multiple geographies. Because of transactional relationship with suppliers, cost of purchase goes up and proper supplier selection cannot be done because of lack of understanding of their capability.?Supply Chain Agility Issue - Since the product life cycle is short in HiTech industry, maximum sales should be achieved in a short span of time. Sensitivity analysis is done very frequently in marketing front and the supply chain does not always respond to that sensitivity analysis quickly. Because of less flexibility and adaptability in the supply chain there is loss of sales opportunity.3. The MethodologyA methodology has been conceptualized which comprises of six mainsteps which can address the above mentioned issues step-by-step. Theseare:?Assessment of performance indicators?VMOKRAPIS exercise? – Impact- Action – Enablers exercise Issues??Conceptualization of new standard operating procedure?Analytic hierarchy process?SCOR metrics analysis© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 6. 6HiTech Supply Chain Advisory Framework As - Is As - Is As - Is To - Be To - Be Assessment of Issues- Impact – New Standard Analytic VMOKRAPIS Performance Action – Enablers Operating Hierarchy Exercise Indicators Exercise Procedure Process Compute ? Revisit Strategy ? Identify issues ? ? of Setting up Identification of ? current against new in the area of New Standard Criteria Relevant Pis benchmark Pls Collaboration, Operating Forecasting, Procedure Identification of ? ? with Compare ? the Prioritize SCM Agility and Based on Sub Criteria Benchmark Pis area of Supplier Issues – advisory Consolidation Impact- Action – ? Setting up Enablers proportionate Identify conflicts ? Assess Impact ? Exercise weight to each and Actions element required ? of Calculation Identify ? final score for Enablers for IT product As - Is SCOR Metrics Analysis Prizm Benchmark Standard Path Measurement of ? PI Repository Questionnaire Finder Supply Chain Metrics SCOR Measurement of ? Process SCOR Metrics Accelerators Repository before and after IT system Table 3: The Methodology3.1 Assessment of Performance IndicatorIn the beginning, the performance indicators which impact the area ofcollaboration, forecasting, supplier collaboration and supply chain agilitywill be measured. A few examples of such performance indicators arecash-to-cash cycle time, inventory turn, order fulfillment cycle time,upside supply chain adaptability, downside supply chain adaptability andflexibility, return on supply chain asset, supply chain cost etc. HCL’sproprietary tool PRIZM can help capture values of existing performanceindicators in the organization. Once we get the values of existingperformance indicators, these are compared against the benchmarkperformance indicator values. HCL has created a repository ofbenchmark performance indicators for best-in-class industry, averageindustry and laggards.This comparison will give a clear picture of the overall supply chain healthcheck up of the organization. Areas of improvement will be identifiedclearly and the advisory work can be narrowed down to specific areas.Specific performance indicators can be identified where improvement isrequired. This step will set the directions for the rest of the steps in themethodology.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 7. 7HiTech Supply Chain Advisory Framework Key Result Area (KRA) Key Result Area (KRA) Performance Indicator (PI) PerformanceIndicator (PI) PI Values ((Benchmark) Values Benchmark) Best- in-Class – 26 Days Average - 55 Days Laggard - 72 Days Supply Chain Asset Mgt Cash to Cash Cycle Time Best-in-Class – 97% Average – 89% Laggard – 82% Supply Chain Reliability Perfect Order Fulfillment Best-in-Class - 82% Average – 68% Laggard – 42% Visibility Forecast Accuracy Best-in-Class - 60% Average – 40% Laggard – 20% Visibility Visibility Across Supply Chain Best- in-Class – 50% (Approx) Average - 30% (Approx) Supply Chain Responsiveness Agility Best- in-Class – 46 Inventory Turn Average - 30 Laggard - 15The functional areas which will be covered are the followings:? Management Order?Inventory Management?Purchase Order System?Material Requirement Planning? in Process Work? OP Planning S&?Collaborative Planning?Accounts Payable?Accounts Receivable3.2 VMOKRAPIS ExerciseThe main objective of this exercise is to understand the strategic directionof the company. ‘VMOKRAPIS’ stands for Vision, Mission, Objective,Key Result Area, Performance Indicator and Strategy. This is called top-down approach of strategy development. Strategic direction dependsupon values of performance indicators. When performance indicators areidentified for which enhancement is required, we need to validate whetherstrategies are in the right direction against those performance indicators.No new strategies will be developed for customers. Existing strategies willbe validated once. If there is any major conflict, it will be highlighted.As an example, to improve the value of performance indicators likeInventory Turn, Cash-to-Cash cycle time, Order fulfillment cycle time, it© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 8. 8HiTech Supply Chain Advisory Frameworkmay be required to go for strong collaboration with suppliers andcustomers. The organization may need to share planning and operationaldata with its supply chain partners. However, if the organization-widestrategy prevents the company in doing so, this should be highlightedduring the advisory work.3.3 Issues – Impact – Action – Enablers ExerciseIn this step, all issues will be identified in relevant areas through standardquestionnaire. Issues for areas of focus should be considered only. Thearea of focus is collaboration, forecasting, supplier consolidation andsupply chain agility. For all issues, the impact will be identified. For eachimpact, proper actions should be conceptualized so that the impact can beovercome. For each action, proper enablers should be identified so thatthe actions can be implemented. Enablers will be the solution which canresolve the issue. These enablers will later be implemented byrecommended IT solutions & recommended business processmodifications or additions. Issues Impact Impact Action Action Enablers EnablersHigh Procurement Uncertainty in ? Activate Collaboration ? VMI Solution ?Lead Time, FluctuatingProcurement Lead Time Replenishment among Partners CPFR Solution ? High Procurement ? ? Establishing Strategic Collaborative ? Cost relationship with Vendors ? Transportation Jointly doVendors not Aligned Delay in ? Visibility enhancement ? VMI Solution ?with Forecast Trend, Replenishment through Collaboration ? Planning InventoryLot Sizing Problem ? of High Cost SolutionHigh Cost of Logistics ? of High cost Establishing Strategic ? Collaborative ?( 3PL / 4 PL) procurement relationship with Logistic Transportation Service Provider Management ? Transportation Jointly do Table 5 – Issues – Impact – Action-Enablers Exercise3.4 New Standard Operating ProcedureThe new standard operating procedure should be conceptualized wherechanges will be taking place through this advisory work. It is equivalent todrafting new business processes in the concerned area. HCL’s tool‘PATHFINDER’ has a huge repository of standard business processesfor different segment of HiTech industries. This repository can help inconceptualizing standard business processes for the area of focus. From‘Issues–Impact-Action-Enablers’ exercise ‘Impacts’ and ‘Actions’ areimportant outcomes which will show the path of formulating newstandard operating procedure.This step will make existing business process smarter and lean, andperformance indicator’s value gets improved. SCOR (Supply ChainOperations Reference) metrics, which are conceptualized by SupplyChain Council (SCC), should be analyzed at AS-IS state and at TO-BEstate. TO-BE state can only be reached through implementation ofproposed IT/ERP system. At AS-IS state SCOR metrics value should becaptured. These can be compared with TO-BE state value afterimplementation of IT/ERP system.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 9. 9HiTech Supply Chain Advisory Framework3.5 Analytic Hierarchy Process (AHP)Analytic Hierarchy Process is for structured decision making process.Each and every enabler may have multiple IT Solutions. The AHP helpsdecision makers find one that best suits the goal and the understanding ofthe problem. Users of the AHP first decompose their decision probleminto a hierarchy of more easily comprehensible sub-problems, each ofwhich can be analyzed independently. Each and every sub-problem will begiven due weight and all options will be evaluated against these weightedpoints. A definite score will come up for all possible IT solutions. Theoption for which the score is highest will be recommended. For selectionof IT systems, generally the following criteria are considered.?Assessment during product demo?gap analysis Fit?Suggested approach and methodology?Price?IT product company reference?Extent of supportThis exercise is based on possible enablers.?Criteria, Sub Criteria and Proportionate weight is decided based on discussion with? key users. p le ple Selection of IT System Exam Goal Exam 0.25 0.25 0.25 0.25 Criteria Fit Gap Assessment Suggested IT Product Analysis during CRP Approach Company Sub 0.125 0.125 0.125 0.125 Criteria Extent of Price Methodology Reference Support Alterna tives IT Systems, ERP systems Table 6: Analytic Hierarchy Process4. ConclusionToday’s supply chain in the HiTech industry is characterized by highcomplexity, change and new regulations. Add to this the high volatility ofdemands and thereby prices. The global nature of operations brings in areliance on global partners and their operations. The value chain extendsacross to all these partners which effect the overall operations of theorganization in discussion. Therefore, re-planning and execution agilityare vital for the HiTech companies of today.The advisory framework discussed in this white paper attempts to addressthese through a structured methodology.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 10. 10HiTech Supply Chain Advisory FrameworkThe ultimate objective is the enhancement of the supply chainperformance. Enhancement of performance indicator value in the areaof collaboration, forecasting accuracy, supplier consolidation and supplychain agility will help bring the supply chain to the level of extendedenterprise where the optimum level of supply chain efficiency can beattained. This advisory framework exercise will result inrecommendations for solutions in various areas which when implementedwill help improve upon the supply chain efficiencies.It is expected that this methodology will accrue benefits to help in:?Lowering inventory levels?Lowering logistics costs?Perfect order fulfillment?Increased agility for meeting forecast and demand driven scenariosThis will overall impact in shorter cash-to-cash cycle and hence revenuegrowth and cost reduction. In summary this will help in more profitableoperations.References:-1. Aberdeen Research Reports ? Strategic Supply Chain Planning (2010) – Nari Vishwanath ? Beyond Visibility - Diving Supply Chain Responsiveness (2008) – Viktoriya Sadlovska ? management ( 2009) – Nari Vishwanath Inventory2. McKinsey Reports ? The Challenges ahead for Supply Chain ( 2010) - Trish Gyorey, Matt Jochim, Sabina Norton3. Emerald Papers – Business Strategy Series ? Fitment of ERP and Conceptualization of its Analysis of Substitute for small segment – A Strategic Approach ( 2009) – Arindam Sen and Ranjan Bhattacharya4. RR Donnelley ? Eyefortransport’s 2010 survey, RR Donnelley© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 11. 11HiTech Supply Chain Advisory FrameworkAuthors Arindam Sen, General Manager, HCL Technologies Ltd.Arindam Sen is part of the Vertical Solution team at HCL TechnologiesLtd. Arindam’s primary role in HCL is to devise solutions, IPs &frameworks to address business problems of customers in HiTechvertical.Arindam is a seasoned professional with 17 years of global experience ofwhich the last 13 years were in Information Technology and his initial 4years were in Production Operations and Supply Chain Management. Hehas extensive experience in ERP consulting including Business Strategy &Planning, Product Selection, Solution Building, CompetencyDevelopment and Program Management.Arindam holds a Master in Management (General Management) fromAsian Institute of Management (AIM), Manila. He is also a CSCP(Certified Supply Chain Professional) from APICS, USA. He completedhis Master of Engineering (Production Management) from JadavpurUniversity, Calcutta and Bachelor of Engineering (Mechanical) fromBengal Engineering and Science University (BESU), Shibpur.Thirthankar Banerjee, General Manager,HCL Technologies Ltd.Thirthankar is a seasoned professional with 25 years of experience inSenior Management, Solution Development, Sales and Marketing andAdvisory Services. He is deft with strategy formulation andimplementation and adept in Industry Analysis, Internal Analysis, MarketSegmentation and Analysis of Competitors.Thirthankar has extensive experience in ERP consulting includingBusiness Strategy / Planning, Product Selection, Solution Building,Account Management, Client relationship management, CompetencyDevelopment and Program management. He is a graduate from IIT,Kharagpur.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.
  • 12. 12HiTech Supply Chain Advisory FrameworkABOUT HCLHCL TechnologiesHCL Technologies is a leading global IT services company, working withclients in the areas that impact and redefine the core of their businesses.Since its inception into the global landscape after its IPO in 1999, HCLfocuses on ‘transformational outsourcing’, underlined by innovation andvalue creation, and offers integrated portfolio of services includingsoftware-led IT solutions, remote infrastructure management,engineering and R&D services and BPO. HCL leverages its extensiveglobal offshore infrastructure and network of offices in 29 countries toprovide holistic, multi-service delivery in key industry verticals includingFinancial Services, Manufacturing, Consumer Services, Public Servicesand Healthcare. HCL takes pride in its philosophy of ‘Employees First’which empowers our 70,218 transformers to create a real value for thecustomers. HCL Technologies, along with its subsidiaries, hadconsolidated revenues of US$ 2.9 billion (Rs. 13,145 crores), as on 30thSeptember 2010 (on LTMbasis).About HCL EnterpriseHCL is a $5.5 billion leading global technology and IT enterprisecomprising two companies listed in India - HCL Technologies and HCLInfosystems. Founded in 1976, HCL is one of Indias original IT garagestart-ups. A pioneer of modern computing, HCL is a globaltransformational enterprise today. Its range of offerings includes productengineering, custom & package applications, BPO, IT infrastructureservices, IT hardware, systems integration, and distribution ofinformation and communications technology (ICT) products across awide range of focused industry verticals. The HCL team consists of over77,000 professionals of diverse nationalities, who operate from 29countries including over 500 points of presence in India. HCL haspartnerships with several leading Global 1000 firms, including leading ITand technology firms. For more information, please visit www.hcl.com.© 2011, HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.