Aankhen Supply Chain 2.0

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Aankhen Supply Chain 2.0

  1. 1. Aankhen, Inc. White Paper 1735 N First St #306 San Jose, California 95112, USA www.aankhen.com e-mail: request@aankhen.com Introduction to Supply Chain 2.0 Written by Subhash Chowdary CEO Aankhen, Inc. Version 2.0 Updated: May 1, 2007 © Aankhen, Inc. All rights reserved. Page 1 of 11
  2. 2. Aankhen, Inc. White Paper Executive Summary Every once in a while certain events create economic tsunamis that create inflection points in global economics. The ability to differentiate an incoming wave from a tsunami and making the right decisions creates opportunities to convert risks to rewards. Wave or Tsunami? Globalization is a tsunami that has been set in motion creating new economic dynamics. As enterprises adapt to outsourcing and offshoring of manufacturing, the uninterrupted flow of goods becomes more critical to the financial stability of the enterprise. Supply chains are the lifelines that enterprise prosperities depend on. This white paper is intended to introduce Supply Chain 2.0 to decision makers who impact the performance of their supply chains. We are calling supply chains that address the next generation of requirements driven by globalization - Supply Chain 2.0. What is Supply Chain 2.0? Supply Chain 2.0 is the virtual integration of the financial and physical supply chains to create a value chain delivering economic benefit to its users. Users include customers, employees of an enterprise, service providers and suppliers. Financial supply chains address the flow of capital between participants in the supply chains. Physical supply chains address the continuity of the flow of goods. Information supply chains enable the synchronization of financial and physical operations of the supply chains. Globalization is one of the key phenomena driving the innovations of Supply Chain 2.0. CEOs, CFOs, CIOs and Supply chain executives transforming their supply chains to address globalization issues will find Supply Chain 2.0 a critical and necessary part of their procurement, logistics and financial management strategies. About Aankhen, Inc. Aankhen provides comprehensive Supply Chain 2.0 solutions, consulting and development services spanning financial, physical and information supply chains backed by best-in-class practitioners with hands-on world class experience in supply chain management and operations. © Aankhen, Inc. All rights reserved. Page 2 of 11
  3. 3. Aankhen, Inc. White Paper Table of Contents Introduction ....................................................................................................................... 4 Example supply chain scenario ....................................................................................... 5 Supply Chain 2.0 enabled value chains ........................................................................... 6 Making supply chains better .......................................................................................... 7 Making supply chains faster .......................................................................................... 8 Making supply chains smarter ...................................................................................... 8 Competitive advantage ................................................................................................... 10 Where to start .................................................................................................................. 11 About Aankhen, Inc. ....................................................................................................... 11 © Aankhen, Inc. All rights reserved. Page 3 of 11
  4. 4. Aankhen, Inc. White Paper Introduction Globalization is an economic tsunami that has been set in motion. Like all tsunamis there is a period of early warnings and signs of the inevitable force of nature to follow. Those who can sense and respond intelligently have the best opportunity to reap the rewards of their decisions. As CEOs, CFOs, CIOs, and Supply Chain executives responsible for making decisions, globalization presents great opportunities and challenges. The right decisions will determine the future prosperity of your enterprise. The wrong decisions will take their toll on the enterprise and its trading partners. The most visible globalization activities are: The outsourcing of manufacturing to China Increased reliance on import of finished goods by consumers in the west The outsourcing of information technology services to India Globalization is not limited to China and India. It is now a continuous quest for low cost resources spreading across Asia, Eastern Europe, Mexico, South America and Africa. Enterprising leaders are taking action to seize new opportunities as they present themselves and new leaders are emerging by creating new opportunities for themselves. In the old computer world, Dell dominated the PC industry with its direct business model leveraging the internet for direct sales and cost efficient sourcing. IBM transformed itself by selling its PC division to Lenovo and moving its procurement division to china. HP regained its PC market leadership taking market share away from Dell and IBM. In the automotive industry Toyota is the emerging new leader replacing GM and Ford. Key point: previous business models and processes no longer provide a competitive advantage. It is time to innovate and change strategies. Globalization impacts every enterprise involved in the purchase and sale of physical goods. Supply chains are the global networks that deliver the goods from suppliers to buyers. Any disruption to the flow of goods in the physical supply chains including security threats will have a financial impact on all trading partners. Financial risks and uncertainty must be managed proactively across trading partners in the new generation of global trade. Motivation for addressing globalization From an enterprise perspective, there are two primary motives for addressing globalization: new markets to grow the business increase profit with lower costs To grow into the new markets, goods must be sold and delivered using supply chains. To increase profit, enterprises must source competitively from low cost countries. In both cases, financial and physical supply chain networks must be extended to these new locations. © Aankhen, Inc. All rights reserved. Page 4 of 11
  5. 5. Aankhen, Inc. White Paper Example supply chain scenario A buyer goes on-line to a website and configures a product to the buyer’s needs. For every configuration and service requested, the cost is visible to the buyer. When the buyer is finished with making all the decisions the buyer knows the total cost of the product purchased and the promised delivery date. After placing the order the buyer has visibility to the status of the order fulfillment process with confirmations at various stages until final delivery. In the example scenario, the buyer could be in the US, the website and software developed by a company in India, the product a US brand like HP, the suppliers of the components in China, the manufacturing/assembly by a contract manufacturer in Taiwan, a logistics service provider like UPS or FedEx and a bank for financial services. This is a simplified view of an existing global supply chain network. After placing an order the buyer enters the most anxious and mysterious phase of the supply chain process - will the order arrive on time? Globalization of supply chains can create new challenges and uncertainty. The key challenges created by globalization of supply chains: 1. Increased lead times As supply chain networks are extended globally to new locations the number of blind spots and lead times are expected to increase. Increase in lead time directly impacts inventory in-transit, inventory at distribution centers/hubs, supply risk, financial risk and total cost of goods. Blind spots and poor visibility compound the problem further with no ability to address the issues before it is too late. 2. Inventory management Extending an existing supply chain to meet globalization requirements adds nodes and touch points in a supply chain. Each node and touch point involves yet another inventory location in the supply chain network. New manufacturing locations, supplier sources and consumer markets added to the network require every enterprise to reengineer the network. 3. Financial management Supply chain business models can range from an enterprise owning the entire process to managing only the brand and outsourcing the rest of the business functions (design, manufacturing and delivery) to third parties. The trend with globalization is to outsource more and own very few processes. However, at the end of the day the enterprise must pay for all the outsourced services regardless of how creative the accounting process may be. New and increasing procurement, logistics and finance costs will require the ability to compute and manage cost items not previously tracked. This requires a total cost approach to managing the bottom line. © Aankhen, Inc. All rights reserved. Page 5 of 11
  6. 6. Aankhen, Inc. White Paper Supply Chain 2.0 enabled value chains Supply chains have been traditionally managed as a cost of doing business with initiatives focused on cost savings and not as a value chain that directly impacts the financial worth of an enterprise. Globalization is driven by an opportunity to grow global market share and earn higher profits leveraging low costs, making supply chains critical to the financial value of an enterprise. Supply Chain 2.0 addresses the challenges created by globalization and turning them into opportunities to gain competitive advantage with new functionality. These functions can be classified into three distinct categories: Financial – making supply chains better The financial supply chain manages the pricing/cost and settlement of financial transactions across all the trading partners involved in the supply chain Physical – making supply chains faster The physical supply chain ensures the sourcing and continuity of supply of the components and services to manufacture/assemble, package, ship and deliver the goods on time Information – making supply chains smarter The information supply chain keeps the financial and physical supply chains in sync by providing the data required by applications and users to make intelligent decisions. Physical Supply Chain Supplier Hub/Warehouse Factory Factory / DC $ $ $ $ Financial Supply Chain $75 $10 $5 $10 = $100 Material + Freight + Inventory + Other = Total Shouldbe Cost® Aankhen Inc. 2007 All Rights Reserved www.aankhen.com © Aankhen, Inc. All rights reserved. Page 6 of 11
  7. 7. Aankhen, Inc. White Paper Making supply chains better Supply chains are better when they are cost efficient while delivering value to their customers and profits to their stakeholders. Supply Chain 2.0 makes financial supply chains better with a fresh and innovative approach to managing cost 24/7. As manufacturing moves offshore, so will procurement, logistics and finance in the form of International Procurement Offices (IPO). Existing applications and spreadsheet based manual processes cannot sustain a common, repeatable financial decision making process across geographically dispersed procurement, logistics and finance personnel. The new approach is a combination of innovative technology and systemic process change to proactively manage ‘what shouldbe’ the spend in addition to the backward looking style of managing ‘what was’ the spend. Managing ‘what shouldbe’ proactively introduces a pragmatic, forward looking approach that: 1. Reduces pricing negotiation and approval cycle times Faster pricing negotiation and approval with ‘one truth’ integrity anytime from anywhere with visibility to computed ‘Shouldbe Cost®’ during the negotiation. Shouldbe Cost® is the computed cost of a cost component using approved rates and fees existing in an enterprise applicable to the time period the cost is being computed for. 2. Improves financial predictability and stability Cross functional integration of data and automation of common processes across product engineering, procurement, logistics, manufacturing and finance eliminate the need for manual or spreadsheet based cost computations delivering a repeatable and reliable system of financial information. 3. Reduces costs significantly without increasing risk Fact based decision making enabled by computed ‘Shouldbe Cost®’ empowers decision makers to make decisions with visibility to the financial impact of the decision before making the decision. New Product Financial Strategy - Network redesign Introduction Management - Inventory optimization - Forecasting - Spend Management - Budgeting - Planning Logistics Shouldbe Cost® Procurement Transportation Auctions Spend Forecast Manufacturing © Aankhen, Inc. All rights reserved. Page 7 of 11
  8. 8. Aankhen, Inc. White Paper Making supply chains faster Supply chains are faster when they promise and deliver requested goods to their customers in a shorter time than competitors. Visibility is the critical ingredient for increasing the speed and velocity of supply chains. Supply Chain 2.0 delivers the next level of visibility. Instead of looking for ‘where is my stuff?’ Supply Chain 2.0 provides forward looking visibility to ‘where your stuff will not be on-time’ enabling proactive decision making to prevent problems. Supply Chain 2.0 makes supply chains faster by: 1. Delivering end-to-end visibility of the supply chain Visibility exposes the blind spots in the supply chain. For example, 90% of all cargo representing 200 million containers are moved between seaports each year. New RFID and GPS technologies provide automated processes and capabilities that eliminate and break through existing barriers that create blind spots. A command center level visibility delivers new agility to sense and respond to fulfillment risk on a global basis. 2. Reducing lead times Accurate measurement of actual dwell times in each segment of a supply chain as goods move through them enables exceptions to be managed proactively with automation and intelligence. Visibility to the quantitative measures enables decision makers to identify, prioritize and execute strategies to reduce lead time. 3. Providing visibility to where the inventory is at all times Allows decision makers to proactively direct or redirect the inventory to where it should be before it is too late. For example, it is now possible to track movement of physical goods at a SKU level from the time they enter a container to the time the product is sold at a store delivering on the promise of end-to-end visibility. Making supply chains smarter Supply chains are smarter when they enable their users to make better and faster decisions. Supply Chain 2.0 enabled information supply chains bring a disciplined approach to managing data and information analogous to the manufacturing industry: on- time, on-budget, perfect order delivery. Globalization challenges cannot be addressed cost effectively using existing applications. New innovative information technologies are critical to making global supply chains smarter. Supply Chain 2.0 makes supply chains smarter by: 1. Synchronizing financial and physical supply chains As International Procurement Offices (IPO) move closer to manufacturing and supply sources, the cross functional integration of procurement, logistics and finance is necessary to support the extended supply chains. Keeping financial and © Aankhen, Inc. All rights reserved. Page 8 of 11
  9. 9. Aankhen, Inc. White Paper physical supply chains in sync 24/7 with real time information does not mean more number of resources working longer hours and midnight conference calls. New Supply Chain 2.0 technologies reduce the complexity and skills required to manage additional stress created by distance and time differentials by providing smarter solutions to automate business processes and provide in context visibility to users at lower cost. 2. Increasing the predictability of the supply chain Automating common and repetitive processes, reducing manual interventions in supply chain processes and eliminating bad master data in the supply chain increases the predictability and performance of a supply chain. Data accuracy reduces complexity and increases the confidence in decisions across the supply chain eliminating ‘versions of truth’ which result in higher costs. 3. Providing in context intelligence to the user Supply chain users include a large number of users including customers, suppliers, service providers, commodity managers, financial analysts, logistics analysts, planners, product engineers, managers and executives. Each user’s context is different when viewing the supply chain. Each user influences the performance of the supply chain with their decisions. Providing in context cross functional access to data created and maintained by the users becomes critical to improving the productivity of every user in the value chain. Supply Chain 2.0 technologies automate and deliver computed content and intelligence in context of the user not possible with previous applications. 4. Supporting constant change The mean time for changing business requirements in global supply chains will be shorter than the time to upgrade and deploy existing applications. Working harder to support frequent upgrades is not a viable option for the already stretched IT resources. Smarter technologies using services oriented models capable of supporting rapid changes to process and international business requirements will provide the agility an enterprise requires to be competitive. © Aankhen, Inc. All rights reserved. Page 9 of 11
  10. 10. Aankhen, Inc. White Paper Competitive advantage Supply Chain 2.0 solutions create new competitive advantages for the enterprise. These advantages include: 1. Ability to respond to cost increases or decreases faster than the competition In a global environment, costs can decrease or increase across geographic regions for various reasons. Bid and Auction events are manually intensive to set up and do not by themselves provide the flexibility to take advantage of cost savings opportunities as they occur globally. Enterprises that have financial and physical supply chains in sync have a competitive advantage with their ability to proactively sense and respond. International Procurement Offices (IPO) will play a key role in determining the cost competitive advantage of an enterprise. 2. Demand shaping As globalization forces price competition, commoditization and shorter product lifecycles, the ability to shape demand will be critical to increasing sales and maximizing profits. For example, a supplier has excess inventory of 21” LCD panels and wishes to unload at a discounted cost to an existing buyer. In a Supply Chain 2.0 enabled enterprise, the temporary discounted price can be negotiated in near real-time, the buyer uses the computed total ‘Shouldbe Cost®’ to determine the potential additional profit for the buyer, the buyer promotes the on-line sale of a PC with an upgrade from 19” to a 21” LCD monitor for an additional cost, captures customer order and fulfills the order before the competition knows what happened. Everyone wins. The supplier moves excess inventory, the enterprise makes a sale with additional margin and the customer gets a deal! Using Supply Chain 2.0 the entire cost management process would be accomplished in less than 2 hours instead of taking 30 to 180 days. 3. Enabling continuous cost takedowns ‘Shouldbe Cost®’ computation proactively identifies savings opportunities at each cost item level an enterprise wishes to manage. Existing cost, less ‘Shouldbe Cost®’ quantifies cost savings opportunity. Multiple approved pricing at worldwide, regional or local sites for the same material sourced is the low hanging savings opportunities identified by ‘Shouldbe Cost®’. In low cost country sourcing smarter supplier financing and payment terms can takedown 20% of direct material cost without increasing risk. In freight logistics, several costs are hidden and rationalized as cost of doing business. These costs when aggregated can exceed 10 to 15% of direct material spend. Freight spend using air or ocean containers will account for an increasingly significant share of cost of goods. Savings in millions from freight spend can be realized from better container utilization and packaging optimization without increasing supply risk. This is accomplished in Supply Chain 2.0 with visibility to the computed ‘Shouldbe Cost®’ and the ability to do ‘what if’ analysis in real-time to optimize and manage the embedded logistics costs at a logistics lane level for each SKU. © Aankhen, Inc. All rights reserved. Page 10 of 11
  11. 11. Aankhen, Inc. White Paper Where to start If you have any of the following initiatives: International Procurement Offices (IPO) End-to-end supply chain visibility Supply chain network modeling or redesign involving global hubs, new manufacturing locations or new distribution centers Network inventory optimization modeling Total cost management Outsourcing procurement Procurement, Logistics and Finance synchronization contact Aankhen, Inc. at: 408-387-0083 or send an email with your questions to request@aankhen.com For more information visit our website at www.aankhen.com About Aankhen, Inc. Aankhen provides comprehensive Supply Chain 2.0 solutions, consulting and application development services spanning financial, physical and information supply chains backed by best-in-class practitioners with hands-on world class experience in supply chain management and operations. © Aankhen, Inc. All rights reserved. Page 11 of 11

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