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Supply Chain Management


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Supply Chain Management

  1. 1. Supply Chain Management St. Louis NCMA Chapter April 19, 2005 Steve Georgevitch
  2. 2. How Important is Supply Chain Management? <ul><li>$936B in 2003 (inventory-carrying costs, transportation costs, and administrative costs) </li></ul><ul><li>8.5% of the $11 trillion U.S. economy </li></ul><ul><li>$76.9 billion spent on logistics outsourcing </li></ul>
  3. 3. Agenda – Questions to Answer <ul><li>What is Supply Chain Management and Why is it important? </li></ul><ul><li>Is this something new? What is the history? </li></ul><ul><li>What are the basic elements of Supply Chain Management? </li></ul><ul><li>What are the forces driving Supply Chain Management today? </li></ul><ul><li>What are the risks/issues that affect my job as a Contracts Manager? </li></ul><ul><li>What about Supply Chain Security? </li></ul>
  4. 4. Definition of Supply Chain Management <ul><li>A supply chain is the stream of processes of moving goods from </li></ul><ul><ul><li>customer order </li></ul></ul><ul><ul><li>through the raw materials stage </li></ul></ul><ul><ul><li>Supply </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><ul><li>and distribution of products to the customer </li></ul></ul><ul><ul><li>Material and information flow Up and Down the Supply Chain </li></ul></ul>
  5. 5. Information, product, service, financial and knowledge flows Capacity, information, core competencies, capital, and human resource constraints Supplier Network Market Distribution Procurement Manufacturing Integrated Enterprise Distribution Network Relationship Management Generalized Supply Chain Model Material Flow Information Flow Materials End Consumers
  6. 6. History of Supply Chain Management – 1970s <ul><li>The Markets </li></ul><ul><ul><li>Focus on Customer Loyalty </li></ul></ul><ul><ul><li>Quality is king </li></ul></ul><ul><ul><li>Product engineering is competitive advantage </li></ul></ul><ul><li>The Supply Chain </li></ul><ul><ul><li>Vertically integrated enterprises </li></ul></ul><ul><ul><li>Primarily domestic </li></ul></ul><ul><ul><li>Highly regulated </li></ul></ul><ul><ul><li>Not managed beyond the extended enterprise </li></ul></ul><ul><ul><li>Rigid, stable, slow but predictable </li></ul></ul><ul><ul><li>Managed by function </li></ul></ul><ul><ul><li>The essence of SCM understood. This first phase is characterized as an inventory 'push' era that focused primarily on physical distribution of finished goods. </li></ul></ul>
  7. 7. History of Supply Chain Management – 1980s <ul><li>The Markets </li></ul><ul><ul><li>Market demands variety </li></ul></ul><ul><ul><li>Cost is king – technology drives manufacturing efficiencies </li></ul></ul><ul><ul><li>Global markets developing </li></ul></ul><ul><li>The Supply Chain </li></ul><ul><ul><li>Deregulation </li></ul></ul><ul><ul><li>Learning to manage global supply and demand </li></ul></ul><ul><ul><li>Beginning of horizontal management craze </li></ul></ul><ul><ul><li>Managed through functional collaboration (ERP hysteria) </li></ul></ul><ul><ul><li>Fragmented and unpredictable </li></ul></ul><ul><ul><li>Realization that productivity could be increased significantly by managing relationships, information and material flow across enterprise borders. </li></ul></ul>
  8. 8. History of Supply Chain Management – 1990s - Now <ul><li>The Markets </li></ul><ul><ul><li>Throw away consumerism – product life measured at blink speed </li></ul></ul><ul><ul><li>Cost is still king, but manufacturing has nothing left to give </li></ul></ul><ul><ul><li>Global competition </li></ul></ul><ul><ul><li>Global markets </li></ul></ul><ul><li>The Supply Chain </li></ul><ul><ul><li>Technologically enabled </li></ul></ul><ul><ul><li>Services explosion </li></ul></ul><ul><ul><li>The network is the enterprise </li></ul></ul><ul><ul><li>Dynamic, agile and reconfigurable </li></ul></ul><ul><ul><li>Supply Chain as a strategic imperative </li></ul></ul><ul><ul><li>Computers change the way business is done, Internet revolutionized the information pathway and the distribution system of the business, e-commerce has changed the definition of business itself. </li></ul></ul>
  9. 9. 6 key elements to a supply chain <ul><li>Production </li></ul><ul><li>Supply </li></ul><ul><li>Inventory </li></ul><ul><li>Location </li></ul><ul><li>Transportation </li></ul><ul><li>Information </li></ul>
  10. 10. Production Element of Supply Chain <ul><li>Focus on what customer & market demand </li></ul><ul><li>Resource Management </li></ul><ul><ul><li>Internal sourcing (what and which plants) </li></ul></ul><ul><ul><li>Outsourcing to capable suppliers </li></ul></ul><ul><li>Capacity Management </li></ul><ul><ul><li>Workload schedules </li></ul></ul><ul><ul><li>Equipment plans (acquisition/maintenance) </li></ul></ul><ul><li>Order Management </li></ul><ul><li>Quality control </li></ul>
  11. 11. Supply Element of Supply Chain <ul><li>Partners in the Supply Chain </li></ul><ul><li>Assessing core/strategic competencies </li></ul><ul><li>Identifying capable suppliers </li></ul><ul><li>Making sourcing decisions </li></ul><ul><li>Relationship management </li></ul><ul><li>General Procurement </li></ul>
  12. 12. Inventory Element of Supply Chain <ul><li>How Much Inventory and Where to Store It </li></ul><ul><li>Analysis of fluctuations in demand </li></ul><ul><li>Identification of optimal storage locations in support of customer demand </li></ul><ul><li>Identification of optimal stock levels by location </li></ul><ul><li>Establishing inventory ordering policies </li></ul>
  13. 13. Location Element of Supply Chain <ul><li>Strategic placement of production plants, distribution and stocking facilities </li></ul><ul><li>Understand customer markets </li></ul><ul><li>Perform Locating decisions for production and stocking facilities </li></ul><ul><ul><li>Lightweight/market driven near the end-user </li></ul></ul><ul><ul><li>Heavy industries near raw material source </li></ul></ul><ul><li>Evaluation of tax and tariff issues and transportation accessibility </li></ul>
  14. 14. Transportation Element of Supply Chain <ul><li>Supporting inventory decisions and customer demand requirements (transportation is up to 30% of Product Cost!) </li></ul><ul><li>Identify customer service levels </li></ul><ul><li>Identify modal forms </li></ul><ul><ul><li>Air </li></ul></ul><ul><ul><li>Ship </li></ul></ul><ul><ul><li>Rail </li></ul></ul><ul><ul><li>Ground </li></ul></ul><ul><li>Establish strategic transportation partnerships </li></ul>
  15. 15. Information Element of Supply Chain <ul><li>Obtaining, linking and leveraging information across the Supply Chain </li></ul><ul><li>organization of information </li></ul><ul><li>Linking computers through networks and the internet </li></ul><ul><li>Streamlining information flow </li></ul><ul><li>Consolidating information </li></ul><ul><li>Information warehousing </li></ul><ul><li>Decision support tools </li></ul>
  16. 16. Key Attributes of a “Chain” <ul><li>Cannot exceed the capacity of its weakest link </li></ul><ul><li>A break in the chain makes the chain non-functional </li></ul><ul><li>All links must move in synchronization </li></ul><ul><li>All links have an interdependency </li></ul>
  17. 17. Supply Chain Driving Factors <ul><li>Information Revolution </li></ul><ul><li>Customer Demand </li></ul><ul><li>Adaptive forms of Relationship Management </li></ul>
  18. 18. Driving Change – Information Technology <ul><li>Inter-Enterprise Technology </li></ul><ul><ul><li>Dynamic Operating Systems </li></ul></ul><ul><ul><ul><li>Relational data stores </li></ul></ul></ul><ul><ul><li>Desktop Tools </li></ul></ul><ul><ul><li>COTS Revolution (ERP, S&OP, CPFR) </li></ul></ul>Finance Procurement Manufacturing Engineering Marketing Manufacturing Traditional Information Sharing Finance Procurement Manufacturing Engineering Marketing Manufacturing Relational Information Sharing
  19. 19. Driving Change – Information Technology <ul><li>Intra-Enterprise Technology </li></ul><ul><ul><li>The Internet </li></ul></ul><ul><ul><li>E-Commerce </li></ul></ul><ul><ul><ul><li>2004 estimated at $69.2B, +23.5% from 2003 </li></ul></ul></ul><ul><ul><ul><li>1.9% of total sales </li></ul></ul></ul><ul><ul><li>Universal Information Distribution (Java, XML) </li></ul></ul>World Wide Estimate of Active Internet Users 10.9 90 7.2 5.3 3.5 Africa and Mideast 640.2 513.0 398.1 306.6 229.8 Total World Wide 40.8 31.0 22.1 15.3 9.9 Latin America 173.0 118.8 85.4 63.8 48.7 Asia/Pacific 254.9 206.5 152.7 107.8 70.1 Europe 160.6 147.7 130.8 114.4 97.6 North Amaerica 2004 2003 2002 2001 2000
  20. 20. Driving Change – Customer Demand <ul><li>Knowledge Enabled Consumerism </li></ul><ul><ul><li>27% of new-car buyers say they use online quote tools </li></ul></ul><ul><li>Demand for Variety </li></ul><ul><ul><li>Cell phone life cycle is 9 months, Nokia has 68 active marketed versions, customizable to estimated over 1,200 configurations </li></ul></ul><ul><li>Cost Driven </li></ul>CPI for Durable Goods
  21. 21. Driving Change – Relationship Management <ul><li>Relationship Assessments </li></ul><ul><li>Alliance evaluation mechanisms </li></ul><ul><ul><li>Assessing key variables of Reliability, Competence, Affect Based Trust (Goodwill), Vulnerability (risk sharing) and Loyalty </li></ul></ul><ul><li>Conflict Resolution </li></ul><ul><ul><li>Aversion to legal disputes </li></ul></ul><ul><ul><li>Arbitration as a business decision </li></ul></ul><ul><ul><ul><li>Minitrial </li></ul></ul></ul><ul><ul><ul><li>Rent-a-judge </li></ul></ul></ul><ul><li>Information as a Common Thread </li></ul>
  22. 22. Challenges in Supply Chain Management Today <ul><li>Strategic imperative of supply chain </li></ul><ul><li>Deliberate redesign of supply chain networks </li></ul><ul><li>Offshore outsourcing (lead-times/customer service impact) </li></ul><ul><li>Supply chain design to customer requirements </li></ul><ul><li>Cash-to-cash cycle </li></ul><ul><li>Supply chain visibility technology </li></ul><ul><li>Strategies for inventory positioning near customers </li></ul><ul><li>Warehouse Management challenges </li></ul><ul><li>Collaboration with supply chain partners </li></ul>
  23. 23. Implications to Contract Management <ul><li>Risks - Protiviti </li></ul><ul><ul><li>Regulatory, compliance, financial, business continuation, and other service risks </li></ul></ul><ul><ul><li>Supplier security and confidentiality controls </li></ul></ul><ul><ul><li>Transfer of nonpublic personal customer information to a third-party </li></ul></ul><ul><ul><li>Monitoring of service performance and billing </li></ul></ul><ul><ul><li>Changes in market forces or contract/service scope </li></ul></ul><ul><ul><li>Addressing noncompliance and poor service levels </li></ul></ul>
  24. 24. Implications to Contract Management <ul><li>Risks (Continued) - Protiviti </li></ul><ul><ul><li>Contract management personnel changes </li></ul></ul><ul><ul><li>Unauthorized or uncontrolled use by the supplier of other third parties or assignment of contract to others </li></ul></ul><ul><ul><li>Billing issues and exceptions – Level of Service disputes </li></ul></ul><ul><ul><li>Poor financial health of service provider </li></ul></ul><ul><ul><li>Deteriorating relationship with the service provider </li></ul></ul>
  25. 25. Supply Chain Issues Challenging Contract Managers <ul><li>Effective management, measurement, and control of suppliers, contracts, and overall expenditures by category/commodity </li></ul><ul><ul><ul><li>Lack of timely, complete, and accurate information </li></ul></ul></ul><ul><ul><ul><li>lack of tools and methodologies to analyze data </li></ul></ul></ul><ul><ul><ul><li>integrity of the raw data (coding standards, etc.) </li></ul></ul></ul><ul><ul><ul><li>variety and diversity of systems from which the data must be extracted </li></ul></ul></ul>
  26. 26. Supply Chain Issues Challenging Contract Managers <ul><li>Challenges in non-inventory postaward contract management and control </li></ul><ul><li>Leveraged sourcing (less than 60% of all contracts) </li></ul><ul><li>Strategic sourcing and contracts management tools </li></ul><ul><li>Applying Strategic sourcing methodologies </li></ul><ul><li>Reinvigorating formal risk management </li></ul><ul><li>Understanding the market, risk, and spend analysis </li></ul><ul><li>Information and tools required to support job functions </li></ul><ul><li>3 rd Party Logistics Providers </li></ul>
  27. 27. Supply Chain Security <ul><li>Customs & Border Patrol (CBP) – 2004 Statistics </li></ul><ul><li>26.1 million trade entries </li></ul><ul><li>collected $24.7 billion in import duties </li></ul><ul><li>seized 2.2 million pounds of narcotics </li></ul><ul><li>412.8 million pedestrians and passengers </li></ul><ul><li>132.2 million conveyances </li></ul><ul><li>Customs – Trade Partnership Against Terrorism (C-TPAT) </li></ul><ul><li>support of CBP’s priority Homeland Security mission </li></ul><ul><li>voluntary partnership with members of the trade community </li></ul><ul><li>collaborate to better secure the international supply chain to the United States </li></ul>
  28. 28. Supply Chain Security
  29. 29. Benefits of C-TPAT Membership <ul><li>C-TPAT supply chain specialist as a CBP liaison Access to the C-TPAT members network. </li></ul><ul><li>Self-policing and self-monitoring of security activities. </li></ul><ul><li>Reduced selection rate for Compliance Measurement Examinations and exclusion from certain trade-related local and national criteria. </li></ul><ul><li>Targeting benefits by receiving a “credit” via the CBP targeting system. </li></ul><ul><li>Eligibility for access to the FAST lanes on the Canadian and Mexican borders. </li></ul><ul><li>Eligibility for the Office of Strategic Trade’s (OST) Importer Self-Assessment Program (ISA) and priority access to participate in the Automated Commercial Environment (ACE). </li></ul><ul><li>Highway carriers, on the Canadian and Mexican borders eligible for access to the expedited cargo processing at designated FAST lanes. </li></ul><ul><ul><li>Eligible to receive more favorable mitigation relief from monetary penalties. </li></ul></ul><ul><li>Mexican manufacturers receive access to expedited cargo processing at designated FAST lanes. </li></ul><ul><li>Companies eligible to attend CBP sponsored C-TPAT supply chain security training seminars. </li></ul>
  30. 30. Questions?