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presentation made by Jagadeesh kunchey,Distribution Manager ,Cargill India at CLM Delhi in 2004

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  1. 1. Supply Chain Management For Competitive Advantage Delhi, 17th February.
  2. 2. The faces of The Organization Brand - The face & promise to the consumer
  3. 3. The faces of The Organization Service Providers Manufacturing : Value Addition Statutory Compliance
  4. 4. The faces of The Organization Material Providers Plants (17) Service Providers CFAs + CSAs (48) Value Statutory Compliance Addition Distributors (1500) Possibilities Retailers ( 0.15 Whole-sellers- 10K mn) Consumers
  5. 5. Value Drivers In Today’s Business Supply Chain R&D Branding Value Finance S&D
  6. 6. Compaq Sentence... „We‘ve done most of what we need to do to be more competitive. We‘ve changed the way we develop products, manufacture, market, and advertise. The one piece of the puzzle we haven‘t addressed is logistics. It‘s the next source of competitive advantage. The possibilities are just astounding.“ Daryl White CFO, Compaq Computer
  7. 7. Logistics and Competitive Advantage Cost and Service High Service Leader Leader Value Advantage Commodity Market Cost Leader Low Low High Productivity Advantage
  8. 8. Supply Chain As Competitive Advantage • Successful Companies either have a productivity advantage or they have a “Value” advantage or a combination of the two. •Productivity Advantage gives a lower cost profile and the Value Advantage gives the product or offering a differential ‘plus’ over competitive offerings •Logistics and Supply Chain Management can provide a multitude of ways to increase efficiency and productivity and hence contribute significantly to reduced unit costs •A position of enduring superiority over competitors in terms of customer preference may be achieved through logistics and Supply Chain Management •Companies have focused upon service as a means of competitive advantage
  9. 9. Changed Business Equation Earlier New Paradigm Cost + Profit Sales Price – Cost Sales Price Profit / Loss Only way for more margin is cost optimization without affecting the consumer value equation
  10. 10. Supply Chain Efficiencies As Competitive Advantage • Efficiency here can seriously translate into long term competitive advantage • Since the effect is directly on final output of product/service the mantra is not cost reduction but cost optimization. • Being still a blind spot an early mover advantage in SC optimization is not hygiene factor but tangible value to the business still
  11. 11. Best-in-class companies have an advantage in total supply-chain management cost of 3% – 6% of revenue Best-in-Class '97 14 Average '97 13.1 Total Supply- 12.2 11.5 Chain 12 11.3 10.9 Management 10.3 Cost 10 8 7.1 7.0 6.7 6.5 % of 5.8 6.1 6 Revenue 4 2 0 Computers Industrial Telecom Chemicals Packaged Overall Goods Source: PRTM’s 1997 Integrated Supply-Chain Benchmarking Study. Definition: Total supply-chain management cost is the sum of Order Management, Material Acquisition, Inventory Carrying, and Supply-Chain Finance, Planning, and MIS Costs.
  12. 12. The Future of Operations SUPPLY CHAIN MANAGEMENT The Flywheel Scale Drive Operating Volume Expenses VELOCITY Enhance Focus on Lower Profits Throughput Prices • Lower Inventory • Faster Time to Market
  13. 13. Supply Chain Management Design and Operation of the Physical, Managerial, Informational and Financial Systems needed to transfer goods and services from vendor to customer (point of production to point of consumption) in an Efficient and Effective manner.
  14. 14. Efficient : Doing things right Productivity Cost minimization Supply driven Effective: Doing right things Quality, Flexibility, Service level Profit maximization Customer (demand) driven
  15. 15. Supply Chain Costs Organised Sector 1987 1994 US: 90 Transportation 38% 45% 50% Inventory 28% 25% 20% Warehousing 20% 30% 24% Packaging Losses 14% 6% Total Cost 10% 12% 15-20%
  16. 16. Challenges….. •Demanding Consumer • Complex Distribution Models • Ever Changing Demands •Limited Shelf Life •Complicated Taxation Structures
  17. 17. A Responsive supply chain.. Accurate response – Reducing the demand uncertainty – Lead time reduction – Estimating the forecast accuracy
  18. 18. Improving the Forecast Accuracy • If possible eliminate the need to forecast • Measure & monitor the forecast at SKU level • Fix up the accoutability • Try to capture the trends at the POS to make the necessary changes Measuring and monitoring is the only way to progress.
  19. 19. A Responsive supply chain.. Risk Based Production Planning – Produce the items with stable demand on a continuous basis and the highly fluctuation demand items on need basis – Try to capture some early trends through the market
  20. 20. Performance Measures … •Service •Assets •Speed
  21. 21. Service •Line Item Fill Rate / On Time completion •Lost Sales •Delivery Process On Time •Cost of poor Supply Chain
  22. 22. Assets • Monetary Value •Inventory Turn-over Ratio Key is to monitor both of these for optimal performance
  23. 23. Speed •Cycle Time •Cash conversion Cycle •Upside Flexibility
  24. 24. Performance Matrix.. High Sales Happy Inventory Happy Finance happy Business Low High Service
  25. 25. Some Dilemmas • Stock out Vs excess stock – which one is better ??? • Upto what level can you keep on producing ??? Balance between the cost of service and potential revenue opportunity
  26. 26. Bulk Vs Smaller Lots
  27. 27. Supply Chain …. Paradigm Shifts At Cargill ….
  28. 28. Paradigm Shift - #1 Supply Chain Impacts A Small Portion of costs.. 12% 10% 10% % 8% 8% o f R e 6% v 5% e n u 4% e 2% 2% 1% 1% 0% Packaging Freight Warehousing Handling A&M Var. Margin
  29. 29. Paradigm Shift # 2 Business Models evolve slowly and supply chain gets time to react. The nature of our business and the low margin structure makes small cost advantages worthy of metamorphosis of business.
  30. 30. Paradigm Shift # 3 Consumer pays for ethics….. In the long run maybe…. In the short run ???? We run this business with ethics & quality of a large ethical transnational corporation and compete with the local unorganized players ……..
  31. 31. Paradigm Shift # 4 Supply chain job is transactional in nature…. • This is extremely strategic as it can potentially create huge value •Advances in technology and business also have made greater focus on planning possible.
  32. 32. Paradigm Shift # 5 SCM is cost management SCM is value management as it can impact business strongly
  33. 33. Supply Chain Learnings At Cargill…
  34. 34. Consumer is the mai baap… • Internal Vs External focus – SCM is the part of entire brand offering – The customer is not the sales deptt. It is the consumer who buys Atta/Oils – So it is critically important to manage the “last mile” as television companies call it.
  35. 35. Innovate ….Or Perish • Direct deliveries to the maximum possible extent. • Flexible Contract Manufacturing. • Use various modes of transportation. • Variable cost / Fixed cost arrangements. • Question everything including the Question .
  36. 36. Innovate ….Or Perish • Shipments of Oil through the Rakes • Bulk Break to avoid the Union Costs • Resizing of the cartons to maximise cube utilisation
  37. 37. It pays to be informed. • IT …… – All depots are connected on the NIS/JDE system – Secondary sale data captuering through the system – Mini ERP Supply Chain Planning Module to Ensure “ Inventory Visibility ” Using IT to pay for itself and not because it is fashionable.
  38. 38. Supply chain value is more than the sum of boxes. • Add value at every box of the chain. – Making the material reach the Depot/WD is not enough. Ensure • Timely Supply as per the order • Storage in Hygienic conditions • Transportation w/o Damages • Handling w/o Damages • Helping the WD to sell through the TM activity • Retail Audit for testing the Product Freshness
  39. 39. Vendors….. Or Associates ???? Win-Win & Mutual Growth • Less No of Vendors • Long term Business • Strict adherence to the Norms • Understanding & ensuring the vendor profitability • Monthly Performance Review
  40. 40. How can one create a good supply Chain • People • Processes • Performance
  41. 41. Our Goal … Overwhelming Market Presence Delighted Consumer
  42. 42. Summary “Excellence is to do a common thing, in an uncommon way.” Booker T. Washington