The document discusses opportunities for rapid ROI in the supply chain during times of economic uncertainty and demand volatility. It identifies inventory optimization and reduction, SKU rationalization, forecasting process improvement, and supply chain ERP tuning as solutions that can deliver large ROI within one year through reduced inventory levels, improved profit margins, and lower costs. The document provides examples of implementing these solutions through assessment, design, and implementation phases and outlines typical impact on operational metrics and expected returns.

1. Right Here, Right Now: Rapid ROI
Opportunities In The Supply Chain
A Discussion Document
February 23, 2009
© 2009 IBM Corporation

2. Rapid ROI Ideas for The Supply Chain
The Business Reality and the Supply Chain Imperative
An unprecedented Global Financial Crisis is straining most Supply Chains
with Demand Uncertainty and Excess Inventory
Qty
Inventory
Today
Where is the
economy
heading
Demand
Time
2007 2008 2009
The slow‐down is not
Optimizing the use of cash Fastest path to freeing up
even across products and
throughout the supply cash is through inventory geographies, so good BI is
chain is a critical need reduction.
critical
2 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

3. Rapid ROI Ideas for The Supply Chain
Right Here, Right Now: We looked at a range of solutions and
screened them based on fastest, large ROI
Mfg. Cost
Inventory
Logistics
SG&A
Solution & Main Focus ROI Size ROI Speed Complexity
    
Inventory Optimization Large <1 Yr Low
    
SKU Rationalization Large <1 Yr Medium
    
Forecasting Process Large <1 Yr Low
    
SCM ERP Tune-Up Medium <1 Yr Low
    
S&OP with CPFR & VMI Large 1-2 Yrs High
  
  
SCM Ops Outsourcing Large 1-2 Yrs High
    
Network Optimization Medium 2+ Yrs High
    
SCM Shared Services Small 2+ Yrs Low
3 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

4. Rapid ROI Ideas for The Supply Chain
Inventory Reduction & Optimization
What is the idea? Why it matters
What is the idea? Why it matters
• Quickly assess current inventory situation and devise a plan with
• Quickly assess current inventory situation and devise a plan with • Need to capture every available demand opportunity while
• Need to capture every available demand opportunity while
goal of simultaneously increasing product availability / service optimizing the use of cash to fund operations.
goal of simultaneously increasing product availability / service optimizing the use of cash to fund operations.
levels while reducing inventory levels.
levels while reducing inventory levels. • Having the right products readily available is critical to capturing
• Having the right products readily available is critical to capturing
• Devise an improvement plan to create high value in less than 3
• Devise an improvement plan to create high value in less than 3 the demand while keeping inventory levels low
the demand while keeping inventory levels low
months.
months.
How to go about implementing it
How to go about implementing it
Preparation Phase (4 weeks) Delivery Phase (8-24 weeks)
(8-
Express
Express
Opportunity Diagnostic
Opportunity Diagnostic
Identification Inventory Strategy
Data Analysis
Identification Inventory Strategy
Data Analysis
Inventory
Presentation and and Value Details Inventory
Presentation and and Value Details
Inventory
Demo Opportunity Inventory
Reduction
Demo Opportunity Reduction Performance
Performance
Optimization
Discussion Optimization
Discussion
Measurement
Measurement
Off-Shore Support
Off-
Off-Shore Support
Impacted Operational Metrics/Decisions Typical ROI
Impacted Operational Metrics/Decisions Typical ROI
Reduction in inventory levels without
• Inventory positioning and management strategies by SKU
• Inventory positioning and management strategies by SKU
• Optimized inventory and replenishment policies negative impact on service levels
• Optimized inventory and replenishment policies
• Increased inventory turns
• Increased inventory turns
• Higher service level, fill rate or similar fulfillment metrics
Higher service level, fill rate or similar fulfillment metrics
• Return On Investment
• Reduced distribution and procurement expenses
• Reduced distribution and procurement expenses
4 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

5. Rapid ROI Ideas for The Supply Chain
Inventory Reduction Case Study
Industrial Products
Background
Background
Facing a chaotic and very costly inventory situation, a leading industrial company secured our help for a quick MRO
Facing a chaotic and very costly inventory situation, a leading industrial company secured our help for a quick MRO
assessment project. Our effort lasted 4 weeks and consisted in assessing their MRO process, conducting a benchmarking
assessment project. Our effort lasted 4 weeks and consisted in assessing their MRO process, conducting a benchmarking
study and developing an improvement roadmap (6 months) based on an achievable and compelling business case.
study and developing an improvement roadmap (6 months) based on an achievable and compelling business case.
1
Operations Baseline
MRO Strategy
Inventory Reduction
2
Benchmarking & Inventory Tracking / Barcoding
Analysis
Inventory Optimization
3
Warehouse Location
Transformation
Value Prioritization
KPI / Scorecard Process
4 Improved Forecasting
Scenario Workshops
& Analysis
Material Movement
5 Supplier Management
Roadmap Creation
Reverse Logistics
Org Design
Strategic Analytical / Tactical Operational
Strategic Analytical / Tactical Operational
Phase I Cost Phase II Cost
5 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

6. Rapid ROI Ideas for The Supply Chain
SKU Rationalization
What is the idea? Why it matters
What is the idea? Why it matters
• Many years of sustained growth without discipline in
• Many years of sustained growth without discipline in • Complex product portfolio can lead to lower margins,
• Complex product portfolio can lead to lower margins,
product management have created a daunting complexity excess inventory
product management have created a daunting complexity excess inventory
• SKU portfolio analysis is proven to have great bottom line
• SKU portfolio analysis is proven to have great bottom line • Without processes and business rules in place, it can get
• Without processes and business rules in place, it can get
and top line impact on operational performance worse over time and become a recurring issue.
worse over time and become a recurring issue.
and top line impact on operational performance
How to go about implementing it
How to go about implementing it
Assessment Design Implement
(4 – 6 Weeks) (4 - 6 Weeks) (4 - 12 Weeks)
Customers Customers
 Stratify  Design process  Implement
 Stratify  Design process  Implement
$ $ $ $ $ $ $ $ $ $ $ $
products by Product
 Define
products by  Define Product
segment Management
segment segmented Management
segmented
Process
 Identify process
Internal
Internal
business rules Process
 Identify process business rules
 Implement
gaps and root to differentiate  Implement
gaps and root to differentiate
causes of services business rules
causes of services business rules
proliferation
proliferation
Suppliers
Suppliers
Impacted Operational Metrics/Decisions Typical ROI
Impacted Operational Metrics/Decisions Typical ROI
• Reduced Inventory (finished goods and raw material)
• Reduced Inventory (finished goods and raw material)
• Improved product profit margin
Improved product profit margin
•
Return on Investment
• Reduced SG&A cost
• Reduced SG&A cost
6 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

7. Rapid ROI Ideas for The Supply Chain
SKU Rationalization Case Study
Industrial Products
Background
Background
• 3% of sales and profit comes from 76% of SKUs which creates unnecessary complexity and higher costs
3% of sales and profit comes from 76% of SKUs which creates unnecessary complexity and higher costs
•
• These products compete for capacity at constrained period causing over time and poor customer service
• These products compete for capacity at constrained period causing over time and poor customer service
• High organizational complexity caused by needs to support these products and associated customers, leading to higher
High organizational complexity caused by needs to support these products and associated customers, leading to higher
•
SG&A costs
SG&A costs
Sales, Profits and Inventory Cost by Product
 Disproportionate gains made by
100%
cutting marginal products
Sales and profit
80%
% of total
 Inventory falls by much bigger
60% Inventory
Eliminate margin than sales
40%
Rationalize
20%
 Profitability of the total portfolio
Leverage
0%
increases substantially
525
656
787
918
394
1
132
263
1049
1180
1442
1311
1573
1704
 Operational complexity decreases
Products (#) 102 327 1352
% of total Products 6% 18% 76%
Sales (% total) 80% 17% 3%
Profit (% total) 80% 17% 3%
Inventory (% total) 64% 27% 9%
• Conducted customer and product stratification
• Conducted customer and product stratification
Cost Reduction
• Eliminated unnecessary products
Eliminated unnecessary products
Solution Business
•
• Rationalized product portfolio
• Rationalized product portfolio
Summary Results
• Implemented business rules to offer differentiated
• Implemented business rules to offer differentiated Inventory Reduction
services
services
7 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

8. Rapid ROI Ideas for The Supply Chain
Forecasting Process Improvement
What is the idea? Why it matters
What is the idea? Why it matters
• Lack of proper forecasting process or skills causes
• Lack of proper forecasting process or skills causes • Inaccurate forecast leads to systemic supply chain
• Inaccurate forecast leads to systemic supply chain
problems (e.g. excess inventory, lower manufacturing
unreliable forecasts. problems (e.g. excess inventory, lower manufacturing
unreliable forecasts.
efficiency and higher transportation costs)
efficiency and higher transportation costs)
• Limited collaboration with partners also leads to
• Limited collaboration with partners also leads to
inaccuracies in the forecast. • An improved forecast is the first towards improved financial
• An improved forecast is the first towards improved financial
inaccuracies in the forecast.
performance.
performance.
How to go about implementing it
How to go about implementing it
Assessment Design Implement
IBM Forecast (2 – 4 Weeks) (2 - 6 Weeks) (4 - 8 Weeks)
Engines
History
 Assess demand  Design  Implement
 Assess demand  Design  Implement
planning process forecasting Demand Planning
planning process forecasting Demand Planning
process Process
 Identify gaps process Process
 Identify gaps
Partner
 Define key metrics  Assess
 Make  Define key metrics  Assess
 Make
performance
recommendations performance
recommendations
Optimal
Causal
Forecast
Impacted Operational Metrics/Decisions Typical ROI
Impacted Operational Metrics/Decisions Typical ROI
• Reduced inventory (Finished Goods, WIP, Parts)
Reduced inventory (Finished Goods, WIP, Parts)
•
• Lower supply chain costs: material, manufacturing and logistics
• Lower supply chain costs: material, manufacturing and logistics
Return on Investment
• Improved forecast accuracy
• Improved forecast accuracy
8 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

9. Rapid ROI Ideas for The Supply Chain
Forecasting Process Improvement Case Study
Consumer Electronics
Background
Background
• Poor forecasting leads to high inventory and price protection costs in the channels.
Poor forecasting leads to high inventory and price protection costs in the channels.
•
• As a result of poor forecast, replenishment lead time is long and stock outs at store level frequently occurs
As a result of poor forecast, replenishment lead time is long and stock outs at store level frequently occurs
•
• Informal collaboration processes increases the “bullwhip effect” between true POS demand and manufacturer’s forecast
Informal collaboration processes increases the “bullwhip effect” between true POS demand and manufacturer’s forecast
•
• Newly formed demand management group with inexperienced staff is not equipped to do statistical forecasting
Newly formed demand management group with inexperienced staff is not equipped to do statistical forecasting
•
Suppliers CE OEM Client CE OEM Client DCs Retailer DCs Retailers Customers
Pull Signal
New Collaborative
New Collaborative
Demand Planning Replenishment
Demand Planning Replenishment
Process
Process Pull Signal
Material Forecast Demand
POS, Promotions
Supply Commits Consensus Forecast
Forecast Before
Forecast
Accuracy
Accuracy
After
Analysis
Analysis Forecast
• Demand forecasting and demand shaping
• Demand forecasting and demand shaping
Accuracy
Solution Business
• New product load in, POS and Promotions
• New product load in, POS and Promotions
Support
Summary Results
Support
Average
• Store level forecasting and replenishment planning weeks
Weeks from
• Store level forecasting and replenishment planning
Inventory
• Collaboration and VMI process with channel partners
• Collaboration and VMI process with channel partners
9 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation

10. Rapid ROI Ideas for The Supply Chain
For More Information:
Contact your IBM Account Executive or Relationship Partner
About The Authors:
About The Authors:
Mondher Ben-Hamida
Mondher Ben-Hamida
Associate Partner Additional Information Online: Visit www.ibm.com & Search:
Associate Partner
Supply Chain Strategy
Supply Chain Strategy
IBM Global Business Services
IBM Global Business Services
IBM’s 2009 Global Chief
Supply Chain Officer
Survey
Paul Brody
Paul Brody
Partner & Practice Co-Leader
Partner & Practice Co-Leader
Latest White Papers on
Supply Chain Strategy
Supply Chain Strategy
IBM Global Business Services Sales & Operations
IBM Global Business Services
Planning
Dynamic Inventory
Henry Dao
Henry Dao
Associate Partner Optimization Technology
Associate Partner
Supply Chain Strategy
Supply Chain Strategy
IBM Global Business Services
IBM Global Business Services
10 IBM GBS Supply Chain Strategy Practice © 2009 IBM Corporation