CSCMP 2014 - Bending the Chain: Purchasing and Logistics Integration

1. Bending the Chain:
Integrating Purchasing
and Logistics
Ted Stank, University of Tennessee
Chad Autry, University of Tennessee
Mike Burnette, University of Tennessee
Doug Gray, Caterpillar

2. • Bending the Chain sponsored by
IBM; 2014
• Managing Risk in a Global
Supply Chain sponsored by UPS
Capital; June 2014
• Global Supply Chains, an EPIC
Framework sponsored by BT
Global; November 2014
• Game-Changing Trends in
Supply Chain sponsored by
Terra Technology & E&Y
UT Game Changers Series

3. Impact of SCM
• 50-80% of total organizational costs
• Up to 80% of working capital through
inventory and payables
• Significant impact on customer
satisfaction through delivery service
thereby significantly impacting ROA.

6. MakeSource Deliver
Business
Strategy
Traditional Strategic Alignment

7. Plan Source Make Deliver
Assumed Decision Flow

8. Plan Source Make
Plan Make Deliver
Actual Decision Flow

10. The Research
• A mail survey was sent to purchasing and logistics managers from the University of Tennessee
Global Supply Chain Institute and Forums mailing list, resulting in over 180 responses from
managers ranging from CEO’s and Presidents to analysts.
• The respondent firms ranged in size from over $20BB to under $100MM, and came from a wide
variety of industries including:
• Aerospace/defense
• Apparel/textile
• Automotive
• Building materials
• Chemical, oil and gas
• Commercial printing
• Components and Systems
• Conglomerate
• Construction
• Consumer electronics
• Engineering
• Environmental services
• Facilities management services
• Financial Institutions – Banking
• Financial institutions - Insurance
• Food, Beverage and Nutrition
• Food service
• Government – National & Local
• Healthcare delivery services
• Heavy Machinery
• High-tech Network Infrastructure
• Hotel/hospitality
• Household, Personal Care and Cosmetics
• Industrial equipment
• Media/Entertainment
• Medical equipment
• Metals/Glass Processing
• Mining
• Office equipment
• Packaging
• Pharmaceuticals
• Plastics processing
• Professional/Information Services
• Pulp and Paper
• Retail
• Telecommunications Services
• Transportation Services
• Utilities
• White Goods

15. Best Practices Revealed
• Supply chains that consistently deliver the
strongest business results have the following
purchasing-logistics characteristics:
– Fully integrated end-to end organization with common
metrics
– Talented supply chain organization that rewards people
for both in-depth mastery and end-to-end leadership
– Unified purchasing and logistics network with a single
operating decision framework based on overall total
value of ownership (TVO)
– Effective IT and work processes that enable superior
results by providing multifunctional teams the proper
tools and information

16. • Champion an end-to-end and integrated supply chain organization
• Align purchasing, manufacturing, and logistics through common metrics to ensure
singularity of objectives.
• Focus metrics on creating total value of ownership (TVO) – including perspectives
on supply chain impact on revenue, cost, and assets
• Get TVO-related metrics on business leader scorecards. Change the business
reward system and culture from “sub-optimal functional goals to total value creation
for the enterprise.”
• Build linkages to non-supply chain functions:
– Make R&D and supply chain best friends by creating a seamless technical
community that is aligned on total business value creation
– Work with finance leadership to align on how multi-discipline teams quantify
value for quality, customer service, environmental, sustainability, delivery, cost,
and inventory.
– Develop a supply chain human resources talent development model that
includes plans for and incentivizes end-to-end supply chain mastery.
– Set clear expectations for the use of multi-discipline teams in analysis and
decision-making.
Making Alignment Work
DeliverSource
Make

17. How High is your PLI?
• Test you level of Purchasing and Logistics
Integration
• Test in the Back as you come in
• Return Test to Box as you Leave

18. SEED:
 Value-based products/services
 Design and development
GROW
 Lead in field population
 Various paths to market
HARVEST
 Aggressively pursue parts/ services
 Unmatched dealer support
Business Case
• Construction
Industries
• Resource
Industries (Coal,
Ore, Lumber, etc.)
• Customer & Dealer
Support
• Energy &
Transportation
• Financial Products
& Corporate
Services
Caterpillar Business Segments
The Caterpillar Business Model
Executed in Close Partnership with our Dealers
• 2013 Sales & Revenue - $55.7B
• Fortune 100, Gartner Top 25 Supply Chains (2013)
• Global Reach unmatched in the industry
• CAT® Equipment — 3M+ units globally — is at work for
our customers on highways, rail lines, oceans and rivers, in
forests, quarries and oil fields
• Caterpillar Manufacturing Excellence is supplemented
by world-class service businesses, providing logistics,
financial products and remanufacturing
Global Snapshot

19. Integration Assessment – an integrative approach provides enhanced
business results in addition to a continuous feedback loop
Conventional Approach Integrative & Collaborative
Procurement
Operations
Finance
Optimizing the ‘part’ / Individual BUs Optimizing the ‘whole’ operations org.
“Sum of the ‘whole’ is greater than
the sum of its parts”
Coordinated Approach
Integrated Delivery
Synchronized Execution
Monitoring & Evaluation
- Transactional
Optimization
- Focus on
Execution
- P&L, Support
Services
Supply Chain Optimization
Integrate people, processes
and functions to provide
enhanced network efficiency
and better value
.

20. Orchestration requires high levels of supply chain maturity
Cost TARGET Service
MINDSET
Inside-Out
Outside-In
BU
BU
BU
Reacting
Orchestrating
BU BU BU
Anticipating
Integrated
Collaborating
Function
Function
Function
Function
Function
Function
Customer Value
Demand
Product
Supply
Demand
Product
SupplyEnterprise Outcome
Enterprise Outcome
Enterprise Outcome
SupplyDemand
Product
Internal Result
Network Outcome
Function
Function
Function
Integrated Supply Chain
Silo’d goals
Scaling SC functions
Demand-driven value
Shared Value
Integrated SC functions
Source: Gartner Research

21. Caterpillar’s Journey to an integrated organization
• Focused on e2e Supply Chain - Inbound
from Source thru Outbound to the
Dealer/Customer
• Brings Global Purchasing and Logistics
together under the same Vice President –
reporting into CESG Senior Vice President
• Focus on delivering high performing,
resilient, and cost effective supply &
delivery solutions to serve Caterpillar’s
businesses and customers
Global Supply Network Formed (Mar-2014)
Caterpillar Enterprise System Group
Formed– April 2013
• Senior VP role reporting to CEO
• Responsible for Global Purchasing, Logistics,
Caterpillar Production System, Lean, Business
Process Transformation
• Accountable for Order to Delivery
• Key metrics for Cash to Cash cycle, inventory
turns, OPACC (Operating Profit After Capital
Charge), and Lean deployment

22. Future Outlook, Change Management, Aligning Functions towards
Excellence
• Helping business units and individual team members to adapt to emotional, rational and political
change associated with transformation
Improved
business
results for the
enterprise
Transition Execution Sustaining
Transformation Timeline
Change Management
• Alignment with
business units
• Separation of duties
• C-level sponsorship
• Execute in
collaboration with
Procurement team
• Develop a
continuous feedback
loop of negotiated
services
• Integrated vendor
relationship
management
• Engage
procurement teams
with vendor
operations reviews
• Provide integrated
leadership to enable
synergies
• Maximize
collaboration efforts

23. Key Takeaways
Collaborative execution provides operational synergies and improved
business results for the enterprise
1
Supply chain integration is a transformational journey and not a singular
event
4
Adapting to new business & political environment is critical to
organizational transformation
2
A well defined organizational structure and transition timeline are major
components of the success criteria
3
Integration leads to maximizing total value creation in the network in
contrast to the sum of functionally Silo'd value
5

24. Questions?

25. Request for Assistance
• The Research Team is launching Phase 2 of the Bending Chain
research.
• Phase 2 will focus on the following:
• How are best in class organizations achieving purchasing and
logistics integration?
• What obstacles and barriers must be overcome to successfully
integrate purchasing and logistics?
• What is the ROI of successful purchasing and logistics integration?
• If you know of an organization that is doing GREAT THINGS in
purchasing and logistics integration, AND/OR would like to participate
in this research, please give us a business card or send and email to:
• tstank@utk.edu
• Thanks!
http://globalsupplychaininstitute.utk.edu/publications/white-papers.asp