Supply Chain Industry Forum Sponsored by YRC Logistics
Making the Financial-Supply Chain Management Connection Dr. Stephen G. Timme President, FinListics Solutions and Adjunct P...
The Challenge <ul><li>Many companies historically have not aligned supply chain management with financial performance goal...
Aligning SCM with Financial Goals:  A Top-Down Approach Uses   gaps   in financial performance drivers to  determine poten...
SCM – Who’s View? <ul><li>Context of customer serviceability. </li></ul><ul><li>Like sufficient quantities of the right pr...
Financial-SCM Connection <ul><li>IT Management </li></ul><ul><li>Selective Outsourcing </li></ul><ul><li>Warehouse Managem...
Example of SCM Solution Mapping SCM solutions help companies  better manage business processes like these. Solution 1 Bett...
Much Potential to Unlock Hidden Value
W/D Durable – North America* *Note: Variations due in part to unique company factors like product mix and not benefits lik...
W/D Non-Durable – North America* *Note: Variations due in part to unique company factors like product mix and not benefits...
Food Products – North America* *Note: Variations due in part to unique company factors like product mix and not benefits l...
Printing & Publishing – North America* *Note: Variations due in part to unique company factors like product mix and not be...
Ind Machinery & Equipment – North America* *Note: Variations due in part to unique company factors like product mix and no...
Need for SCM Speed* *Graph for 12% minimum Return On Assets Base case: 7% Profitability x 2.00 Asset Turnover =  14% ROA C...
Total Cost of Holding Inventory Non-Capital Carrying Charges + Capital Charges
Inventory Trade-Offs Revenue Capital Investment Operating Expenses
Total Cost of Holding Inventory: W/D Durable Goods  <ul><li>Sales $50M </li></ul><ul><li>Inventory  $6.6 </li></ul><ul><li...
Financial Gap Analysis Business Process Mapping SCM Solution Mapping Solution Benefits Estimates Business Case Development...
Questions?
Making the Financial-Supply Chain Management Connection Dr. Stephen G. Timme President, FinListics Solutions and Adjunct P...
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Supply Chain Industry Forum Sponsored by YRC Logistics

  1. 1. Supply Chain Industry Forum Sponsored by YRC Logistics
  2. 2. Making the Financial-Supply Chain Management Connection Dr. Stephen G. Timme President, FinListics Solutions and Adjunct Professor, Georgia Institute of Technology
  3. 3. The Challenge <ul><li>Many companies historically have not aligned supply chain management with financial performance goals. </li></ul>Financial Performance <ul><ul><li>Higher Value-Adding Revenue Growth </li></ul></ul><ul><ul><li>Improved Profitability </li></ul></ul><ul><ul><li>Greater Capital Utilization </li></ul></ul><ul><li>High performance companies use supply chain management to achieve financial goals through: </li></ul>Capital Utilization Revenue Growth Profitability
  4. 4. Aligning SCM with Financial Goals: A Top-Down Approach Uses gaps in financial performance drivers to determine potential for improving SCM business processes, activities, tasks Inventory, Revenue, SG&A, COGS, Fixed Assets, A/R, A/P 1 3 Financial Drivers SCM Business Processes SCM Activities/Tasks 2
  5. 5. SCM – Who’s View? <ul><li>Context of customer serviceability. </li></ul><ul><li>Like sufficient quantities of the right products to sell. Operationally, recognize an on-going need to provide accurate and timely field forecasts. </li></ul>VP Sales <ul><li>Better plan and fulfill market demand for goods and service and do so more efficiently. </li></ul><ul><li>Like SCM buy-side, sell-side, planning and execution. </li></ul>VP Supply Chain <ul><li>Better management of suppliers. </li></ul><ul><li>Like visibility into current and future demand including both quantities and required lead times or replenishment times. </li></ul>VP Procurement <ul><li>Balance supply with demand. </li></ul><ul><li>Maintain sufficient levels of inventory to keep production flowing, adequate spares, and efficient procurement operations, </li></ul><ul><li>Review distribution and logistics operations to enhance customer service. </li></ul>COO <ul><li>Better manage the balance sheet primarily in terms of inventory and fixed assets and the income statement in terms of SCM related expenses. </li></ul>CFO <ul><li>Deliver value-adding growing revenue. </li></ul><ul><li>Like product availability, new product speed to market and customer service. </li></ul>CEO View of Supply Chain Management CxO
  6. 6. Financial-SCM Connection <ul><li>IT Management </li></ul><ul><li>Selective Outsourcing </li></ul><ul><li>Warehouse Management </li></ul><ul><li>Transportation Management </li></ul>Fixed Asset Utilization <ul><li>Payment Practices </li></ul><ul><li>Procurement Terms </li></ul>Days Purchases Outstanding (DPO) <ul><li>Invoicing Accuracy </li></ul><ul><li>Internal Communications </li></ul><ul><li>Shipment Integrity </li></ul><ul><li>Fill Rate </li></ul><ul><li>Proof of Delivery </li></ul>Days Sales Outstanding (DSO) <ul><li>Inventory Visibility </li></ul><ul><li>Forecasting Accuracy </li></ul><ul><li>Demand Planning </li></ul><ul><li>Transportation Mgt. </li></ul><ul><li>Warehouse Mgt. </li></ul><ul><li>Network Design </li></ul>Days in Inventory (DII) (GMROII) <ul><li>Customer Service </li></ul><ul><li>Information Technology </li></ul><ul><li>Warehouse Mgt. </li></ul><ul><li>Transportation Mgt. </li></ul><ul><li>Supply Chain Administration </li></ul>SG&A as a Percentage of Revenue <ul><li>Procurement </li></ul><ul><li>Reverse Logistics </li></ul><ul><li>Selective Outsourcing </li></ul><ul><li>Inbound Transportation Mgt. </li></ul><ul><li>Inventory Mgt. </li></ul><ul><li>Network Design </li></ul>COGS as a Percentage of Revenue (Gross Profit Margin) <ul><li>Lead times </li></ul><ul><li>New Product Speed to Market </li></ul><ul><li>Fill rates </li></ul><ul><li>Forecasting </li></ul><ul><li>Customer Service </li></ul>Revenue Growth Examples of How Supply Chain Management Adds Value Financial Metric
  7. 7. Example of SCM Solution Mapping SCM solutions help companies better manage business processes like these. Solution 1 Better managing business processes increases financial performance. 2
  8. 8. Much Potential to Unlock Hidden Value
  9. 9. W/D Durable – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  10. 10. W/D Non-Durable – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  11. 11. Food Products – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  12. 12. Printing & Publishing – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  13. 13. Ind Machinery & Equipment – North America* *Note: Variations due in part to unique company factors like product mix and not benefits likely achievable by improved SCM. Benefits scaled for company with $50 in Revenue .
  14. 14. Need for SCM Speed* *Graph for 12% minimum Return On Assets Base case: 7% Profitability x 2.00 Asset Turnover = 14% ROA Competition Lowers Profitability to 5% but no Change in Asset Turnover: 5% x 2.00 = 10% ROA Asset Turnover Increases to 2.5: 5% Profitability x 2.5 Asset Turnover = 12.5% ROA
  15. 15. Total Cost of Holding Inventory Non-Capital Carrying Charges + Capital Charges
  16. 16. Inventory Trade-Offs Revenue Capital Investment Operating Expenses
  17. 17. Total Cost of Holding Inventory: W/D Durable Goods <ul><li>Sales $50M </li></ul><ul><li>Inventory $6.6 </li></ul><ul><li>Pre-Tax Cost of Capital 20% </li></ul><ul><li>Inventory Non-Capital </li></ul><ul><li>Carrying Charge 10% 30% </li></ul><ul><li>Total Annual Costs $2.0 </li></ul><ul><li>Adjusted Operating Income* $2.7 </li></ul><ul><li>Total Annual Costs Absorption </li></ul><ul><li>of Adjusted Operating Income 75% </li></ul><ul><li>9 months of sales needed to fund total inventory costs. </li></ul>*Reported Operating Income + Non-Capital Carrying Costs.
  18. 18. Financial Gap Analysis Business Process Mapping SCM Solution Mapping Solution Benefits Estimates Business Case Development Implement & Measure Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Roadmap to Connecting Supply Chain to Financial Performance Copyright © 2007 FinListics Solutions. No part of this presentation may be reused or redistributed without explicit permission from FinListics Solutions. Establish Enterprise-Wide View of SCM <ul><li>Implementation Plan. </li></ul><ul><li>Incorporate into business plans. </li></ul><ul><li>Disseminate lessons learned. </li></ul><ul><li>Project justification. </li></ul><ul><li>Link to business needs. </li></ul><ul><li>Contingency plans. </li></ul><ul><li>Summary of “How” and “How Much” SCM solutions benefits. </li></ul><ul><li>Summary of feasibility of improving gaps with SCM solutions </li></ul><ul><li>Summarize likely areas for greatest improvement. </li></ul><ul><li>Executive summary of gaps and motivation for change. </li></ul><ul><li>Executive summary of importance of SCM and its role in achieving company goals. </li></ul>Output <ul><li>Plan resources. </li></ul><ul><li>Incorporate costs and solution benefits into business plans </li></ul><ul><li>Conduct on-going project post-mortem. </li></ul><ul><li>Establish critical success factors. </li></ul><ul><li>Value benefits. </li></ul><ul><li>Conduct breakeven analysis. </li></ul><ul><li>Estimate costs and benefits. </li></ul><ul><li>Develop alternatives </li></ul><ul><li>Obtain buy-in. </li></ul><ul><li>Prioritize initiatives. </li></ul><ul><li>Map BP’s to SCM solutions. </li></ul><ul><li>Conduct risk assessment and qualitative analysis. </li></ul><ul><li>Develop maps linking financial performance gaps to SCM-related BP’s, activities, tasks and KPI’s. </li></ul><ul><li>Define benchmarks for financial metrics. </li></ul><ul><li>Measure value of gaps relative to benchmarks. </li></ul><ul><li>Educate on benefits of improved SCM. </li></ul><ul><li>Define “How” SCM helps achieve goals. </li></ul><ul><li>Analyze scorecards to determine if change is needed to maximize SCM value. </li></ul>Analysis <ul><li>Resources needed? </li></ul><ul><li>Actual results? Why variances? Lesson Learned? </li></ul><ul><li>What are costs and value added? </li></ul><ul><li>Need for change management? </li></ul><ul><li>“ How much” value may SCM solutions provide and at what cost? </li></ul><ul><li>“ How” gaps in BP’s are linked to SCM solutions? </li></ul><ul><li>“ How” are gaps related to SCM-related business processes? </li></ul><ul><li>Value of gaps? </li></ul><ul><li>Change needed in SCM-related processes and strategies to help close gaps? </li></ul><ul><li>Who’s perspective? </li></ul><ul><li>How SCM currently viewed – “Backroom or Boardroom?” </li></ul><ul><li>Scorecards aligned? </li></ul>Key Questions <ul><li>Manage the project and measure results. </li></ul><ul><li>Develop Business Case. </li></ul><ul><li>Estimate SCM Solution benefits. </li></ul><ul><li>Map gaps in BP’s to potential SCM solutions. </li></ul><ul><li>Map gaps to SCM-related business processes (BP’s). </li></ul><ul><li>Identify Gaps in Financial Metrics. </li></ul><ul><li>Establish how SCM contributes to achieving company goals. </li></ul>Purpose
  19. 19. Questions?
  20. 20. Making the Financial-Supply Chain Management Connection Dr. Stephen G. Timme President, FinListics Solutions and Adjunct Professor, Georgia Institute of Technology

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