Integrated Supply Chain


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AACIMP 2010 Summer School lecture by Oliver Geuther (Procter&Gamble).
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Integrated Supply Chain

  1. 1. Integrated Supply Chain by Oliver Geuther
  2. 2. TOP Company 172 years old 300 brands in 180 countries $79 billion of turnover 25 Research & Development Centers (12 countries) $200 million of investments in Ukraine economy
  3. 3. P&G Ukraine Kiev General Office Ordzhonikidze Plant Dnipropetrovs‟k oblast Boryspil Plant Kiev oblast
  4. 4. Who Am I ? Current: • Boryspil Plant Manager (5th largest FemCare Plant in P&G) Education: • MS in Mechanical Engineering (speciality Chemical Engineering) Experiences in P&G : • • Worked in Germany, USA, Turkey, Ukraine • Manufacturing, Logistics & Warehousing, Global Planning • BabyCare & FemCare 3 4
  5. 5. Purpose • To expose you to current trends and thinking on Logistics & Supply Chain Management • To share with you some of P&G’s experiences and thoughts 3 5
  6. 6. Agenda • 4 Laws of Logistics • Business Cases • Communication 3 6
  7. 7. Two Moments of Truth for the Consumer When she chooses and when she uses
  8. 8. 8
  9. 9. European consumer behavior facing Out-of-Stock in store Retailers and manufacturers loose when a consumer faces an empty shelf 30 % lost 46% lost opportunities opportunities for Retailer for Buys brand Manufacturer Returns later elsewhere 17% 21% Doesn't buy Buys different size anything 16% 9% 4 billion Euro of Buys a different lost sales brand 37% in Europe! 9
  10. 10. Supply Chain Management “Supply chain management can be defined as the management of upstream and downstream relationships with suppliers, distributors and customers to achieve greater customer value- added at less total cost”. 3 10
  11. 11. Mission of Supply Chain/Logistics Get your product to the consumer at the lowest possible cost & cash 11
  12. 12. What are Supply Chain “Laws” ? Material Supplier Manufacturing Distribution Retail Customers Supply Chains conform to Physical / Empirical Laws Implication: • Supply chain performance is predictable and can be designed • By precisely specifying the structure of the supply chain, the operating strategy and quantifying measures consistently, we can dramatically improve Supply Chain performance 3 12
  13. 13. The Laws of Logistics* The Law of Lowest Total Cost The Law of Speed, Quality and Accuracy The Law of Supply Chain Volatility The Law of Counter-intuition The Laws of Logistics are an original concept of Logistics Consulting Partners Ltd. They may be quoted but must be accredited. © LCP Ltd. All rights reserved 3 13
  14. 14. Achieving an Integrated Supply Chain Stage I: Isolation Purchasing Material Control Production Sales Distribution Stage II: Internal Integration Materials Manufacturing Distribution Management Management Stage III: External Integration Suppliers Internal Supply Chain Customers Consumers 14
  15. 15. The Extended Enterprise Viewpoint Single company thinking Extended enterprise thinking  Focus on the customer  Focus on the ultimate consumer  Increase own profits  Increase profits for all  Consider own costs only  Consider total costs  Guard ideas, information and resources  Share ideas, information and resources  Improve internal process efficiency  Improve joint process efficiency (Source : A.T. Kearney) 15
  16. 16. Destructive Negotiations 16
  17. 17. Choosing The Operating Strategy Demand Capability D C I demand capacity inventory P Planning Operating Strategy – The set of parameters and principles which guide the way resources will be managed to achieve the business objectives at the lowest total system cost.
  18. 18. P&G‟s approach towards Supply Chain: Consumer Driven Supply Network • Win at the first and second month of truth: when the consumer buys (1st) and when they try (2nd) the product By Making sure that: • The Right Product arrives at • The Right Place at • The Right Time at • The Right Cost 18
  19. 19. 1.The Law of Lowest Total Cost “The total cost of producing & delivering product is usually larger than the sum of the lowest functional costs of each element in the supply chain” 19
  20. 20. The Effect of Time Procurement Manufacturing Delivery Logistics Lead Time (90 days) Customer‟s Order Cycle Order Fulfillment (5 days) Lead-Time Gap 85 days !!! 20
  21. 21. Demand Predictability and Lead-time + Forecast Error to - tn Lead-Time 21
  22. 22. Traditional Supply Chain • Sequential backward action • Filtering of real demand by inventory • Significant batching activity • Noise in demand patterns Goods flow • Forecast dependent Manufacturer DC Store Customers Demand flow 22
  23. 23. Continuous flow requires Information Sharing • Using shared information to reduce time in the supply chain • Optimize use of capacity • Managing upstream inventory • Using shared information to reduce forecast horizon 23
  24. 24. Why Do We need Inventory? Inventory Hides the Problems A Inventory B Volatile Demand Inaccurate Unreliable Quality Bottlenecks Forecasts Suppliers Problems 24
  25. 25. Dell Computers • Logistics strategy plays an important role in Dell Computer’s impressive financial performance. • Dell’s direct distribution eliminates as much as 2 months of warehouse and retail storage. • About 80% of the cost of a PC consists of components. • Component prices fall while on the shelves at 30% per year. • The consequences of logistics delays are overpriced products and possible obsolescence. • Direct sales also helps Dell in forecasting. 25
  26. 26. Achieving Speed in the Supply Chain: Substituting Information for Inventory Two key techniques: • Vendor Managed Inventory (VMI) • Collaborative Planning, Forecasting & Replenishment (CPFR) 26
  27. 27. 2.The Law of Speed, Quality and Accuracy “In logistics & supply chain management, faster simpler and better is almost always cheaper” 27
  28. 28. P&G Ukraine Supply Chain • 2 plants and 2 distribution centers • 40 brands, 3000 stock keeping units • Products are shipped to 50+ customers • Imports from 31 foreign plants • 30 trucks enter Ukraine border everyday • 30 trucks arrive to customers everyday • 1500 employees are involved in P&G supply chain plus 400 from our partner companies
  29. 29. Business Case 1: Supply network design Customization center P&G DC and buffer Gillette DC and buffer Gala DC and buffer P&G distributors Gillette distributors Gala distributors Question: do we need change? If yes, what exactly would you suggest to change?
  30. 30. Case 1: what we need to change? Direct deliveries Direct deliveries Direct deliveries Direct deliveries P&G DC with in-house customization center P&G ship to •optimize number of DCs •close buffers •establish in-house manipulation capability •optimize number of distributors and ship-to •maximize direct supply from plants to customers
  31. 31. Case 1: Streamlined and cost effective supply net-work design • Reduced supply chain lead-time • Reduced inventory • Improved service • Improved productivity • Several $ millions savings annually Executed by Supply Network Operations department
  32. 32. Variety Grows Increased competition Consumer demand for new products Customer demand for new products Marketing why we are unique High profit margin products What happens when variety increases ? 32
  33. 33. The „Forrester‟ Effect Consumer Company A Company B Company C 180% Required capacity 100% Company A 40% Company B Company C 33
  34. 34. Volatility caused by Manufacturing Shall we produce once a month ? Every week ? Every day ? 3 times a day ? Is there a right answer? 34
  35. 35. Volatility caused by Logistics Shall we ship a full truck ? A small full truck? Half a truck ? 1 pallet ? Is there a right answer? 35
  36. 36. 3.The Law of Supply Chain Volatility The volatility of final consumer demand is “ always less than what we experience through the supply chain by distribution, manufacturing and suppliers” 36
  37. 37. Business Case 2 :Logistics at P&G Load shipment: By euro trucks – 33 pallets, 20 tons; Example Tide detergent weight/pallet– 1000 kg How many pallets of Tide will fit into truck? Answer: 1 truck of Tide – 20 pallets Pampers weight/pallet – 150 kg How many pallets of Pampers will fit into truck? Answer: 1 truck of Pampers – 33 pallets Challenge: how to ship 33 pallets of Tide and 33 pallets of Pampers in 2 trucks?
  38. 38. Logistics at P&G. Case 2 Challenge: how to ship 33 pallets of Tide and 33 pallets of Pampers in 2 trucks? 33 pallets,20 tons. Truck 1: 16 pallets of Tide + 17 pallets of Pampers. (18550 kg) Truck 2: 17 pallets of Tide + 16 pallets of Pampers.(19400 kg) 2000 kg are left. How to use them? Loading on top. Truck 1 – 43 pallets, truck 2 – 37 pallets. Therefore, combining products in trucks helps to reduce number of trucks (and logistics costs)!
  39. 39. Logistics at P&G In reality: how to increase weight limit up to 22 tons? assortment: 600 SKUs, 50 categories, different densities and pressures. Limit: total weight, weights on axis In practice: heterogeneous transport, quality constraints, different product mix for different customers, how to implement into automated processes at warehouses? Result: 21 – 21.5 tons range
  40. 40. Centre of Conflict If only marketing could forecast accurately and sales deliver the orders we could meet requirements If only manufacturing would make what we ask for we could do the business MANUFACTURING PREFERENCE ATTRIBUTE MARKETING PREFERENCE Minimum PRODUCT RANGE Maximum Stable PRODUCT SET Continually Changing Minimal FLEXIBILITY “Infinite” Long LEAD TIME Short Source: Inger Unacceptable UNFORECAST DEMAND Fact of Life 40
  41. 41. Circular References Volatility is caused by time lags Time lags are created to optimize cost Cost is not necessarily lowered by slowing things down Slowing things down is a function of variety and complexity Variety and complexity mean it all gets „too difficult‟ which is why we don’t trust anyone & we slow things down more adding more time creates volatility volatility costs money so we add more time adding more time makes us careless and unreliable Unreliability creates volatility……………………………………………………. 41
  42. 42. 4.The Law of Counter-intuition “The normal human response to the effects of the previous laws is to introduce delay in an attempt to increase certainty which simply makes the situation worse - effective supply chain management is counter intuitive” 42
  43. 43. What Is the source of Most troubles at Work ? Distortion Of Information 43
  44. 44. Distortion of Information Wrong information Too much information Increases confusion 44
  45. 45. How to Reduce Confusion • Listening • Simple language • Single point accountability • KPI’s • Being in touch with reality • Frequent feedback from customers • Few layers in the organization • Daily Reviews 45
  46. 46. Communication Style Reducing Confusion • Stick to facts, don’t speculate • Check understanding • Avoid slogans, jargon and generic • Don’t repeat • Phone/Talk Vs. e-mail • Know when to stop talking • Get to the point / conclusion • Be open / direct 46
  47. 47. WE BUILD FROM WITHIN Career in P&G 47
  48. 48. Education and Career 2009 at Glance Got new role of Distribution Center Operations Leader 2007 Graduated from Zaporozhye Institute of Economics and IT – 2008 Economic cybernetics Joined P&G as Process Engineer with immediate responsibilities 2005 Exchange student at California State Polytechnic University – Operations and Technology Management
  49. 49. MBA on the Job: In 1 year and 4 months at P&G I completed: • New hires college/3 months on boarding program (50+ training sessions) (Kyiv, Ukraine) • New Manager Emerging Leader Training (Kyiv, Ukraine) • Integrated Supply Chain Training (Moscow, Russia) • Quality Assurance in Logistics (Prague, Czech Rep.) • + 35 other specialized web-based logistics trainings! … and more to come!!!
  50. 50. Process Engineer – I was in charge from the very 1st day: • Project manager of the distribution center move project • Project team of 20 people plus 100 involved on 3 continents • Completed project in record timing, below budgeted cost, with no interruption of business
  51. 51. In 4 months I became Distribution Center Operations Leader: • Supervise logistics operations at one of the largest FMCG DCs in UA • Govern logistics service provider company with 120 employees • Work directly with general and commercial directors • Own DC cost-saving program worth > $ 1 million
  52. 52. Learn more on our work and success stories at … and apply for your future success!!!
  53. 53. Supply Chain Business Game • an intensive one day business game for students in their last 2 years of study or fresh graduates • an opportunity to join P&G Supply Network department as intern or full-time employee When: October 27, 2010 Where: P&G Kyiv General Office Application deadline: October 15, 2010 Apply and take the challenge! 53
  54. 54. Internship in P&G is… 2-3 month paid job interesting and challenging project comprehensive training and development program opportunity to know one of the biggest international companies from within chance to express yourself in real business environment and in case of success – chance to get a job offer! 54
  55. 55. Want to know more? Want to know more? Visit our web-site Thank you! 55