Supply Chain Best Practices

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Supply Chain Best Practices

• Issues that are driving and
• will drive companies

by Tom Craig tomc_at_ltdmgmt.com
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Best Practice Topics

• Metrics
• Inventory velocity
• Cycle time compression
• Lean logistics
• Technology
• Supplier performance
• Segmenting supply chains

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Set the Stage
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SUPPLY CHAIN MANAGEMENT--FOUNDATION--

• Applies regardless
• of industry
• Make to Stock and Make to Order
• Runs from suppliers doors through to your
  customers doors or your stores
• Process
• Internal
• External

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3 Supply Chains Flows

• Product
• Information
• Finance

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Supply Chains

• Flow is important for supply chains
• Is not ONE supply chain
• Are series of supply chains supply chains
  within supply chains

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Big Guys and SCM

• Link supply chain to corporate strategy
• Optimize inventory and service with Best
  Practices (these tie together)--
• inventory velocity
• cycle time compression
• lean logistics
• supplier performance
• splinter supply chains

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Complex and extended real supply chain

• Why firms wants control

Are chains within chains
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Additional supply chain challenges
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Supply Chain as Competitive Differentiator
Lower performing companies are 3 times more
likely to view their supply chains as cost
centers.
Cost center necessary to conduct business 25
Market strategy competitive differentiator 27
Customer service competitive differentiator 30
Cost savings opportunity area to help fund RD or
business expansion 18
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The Opportunity for the Best
Laggards
Industry Average
Best in Class
Organization
Best in Class organizations have clear
competitive advantages over Industry Average
Laggards.
Knowledge
Technology
Performance Metrics
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Benefits of Best

• Revenue Lift
• Customer service enhancements
• Product quality improvements
• Increased quality availability

Revenue Enhancement
Profit Enhancement

• Reduced Supply Chain Costs by 10 to 15
• Operational efficiencies
• Process enhancements
• Procurement savings

Operating Cost Reduction
Shareholder Value Enhancement

• Reduced Working Capital Requirements by 20 to 30
• Inventory reductions
• Reduced cycle times

Working Capital Reduction
Invested Capital Reduction

• Reduced Supply Chain-Related Capital
• Capital asset transfer
• Enhanced asset utilization
• Capital procurement savings

Fixed Capital Reduction
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Walmart

• Private labels
• Buying direct
• Expanding leveraging
• More control of supply chain (going upstream)

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Walmart

• Take control of deliveries from suppliers (with
  its fleet--price cuts greater than what freight
  costs suppliersand possible warehouse
  inefficiencies for suppliers)
• Consolidating its purchasing with suppliers
  (Pepsi and potatoes)
• Orders 1Bil in supply chain savings (produce)

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Retailers

• Will Walmart expand their efforts to other
  products/categories?
• Will other retailers copy the programs?
• Taking total control of its total supply chain
  (de facto vertical integrationthrowback to
  Standard Oil and US Steel?) (does it change role
  for suppliers?)

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You

• Do you have a supply chain strategy (or do you
  just react?)
• Is it tiered by market segment and/or customers
  (or is it one size fits all?)
• How much do you spend annually on SCMinventory,
  sourcing, transport, warehousing, people,
  technology, etc?

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Your Supply Chain

• Do you know how well it performs?
• Do you measure? (Or is it by complaints or
  chargebacks?)
• How much do you expedite/fight fires?
• What metrics do you use to measure?
• Do you look at it as a process or in functional
  terms or tasks freight, warehousing?

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LSPs

• Do you initiate best SCM practices?
• How do you develop/lead best practices?
• Way to create value proposition
• Higher margins
• Greater customer retention
• Separate from other commodity service providers
• Way to gain share

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Best PracticeMetrics
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Metrics

• Metrics for sake of metrics
• Good vs bad from my article

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Are They Really Metrics?

• Financial measuresused as performance metrics
• Internal SCM KPIs
• Warehousingorders picked
• Freight costs
• Etc.

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QuestionWhich Are You

• Are you focused on freight and other logistics
  costs? (misdirection)
• --or--
• Are you focused on your supply chain and how well
  it performs?

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Key Metrics

• Customer orders DELIVERED complete, accurate, on
  time (customer service / chargebacks)
• Purchase orders DELIVERED complete, accurate, on
  time (critical to your SCM success)
• Inventory turns

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Metrics--More

• Measures that are strategic and complement
  company direction
• Time it takes from sales order through to
  payment is received from customer
• SCM has a key role in that PROCESS whether
  existing product, new product development, etc.
• Inventory turns or the corollary of how long
  inventory is in the supply chain

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Best PracticeInventory Velocity
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Ask

• Are you inventory rich and cash poor?
• How often does your inventory turn (Raw, WIP,
  Finished Goods)? Why does it not turn faster?
• How long does it take from when you know you need
  to reorder until the material is received? Why
  does it take so long?

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Inventory

• Raw, WIP, finished goods
• Buffer against uncertainty
• Inventory rich and cash poor
• More uncertainty (time) means more inventory
• Turns represent time company goes unpaid
• More warehouses means more inventory with safety
  stock (square root of the number of warehouses)
• Too muchmore than capital tied up and the
  opportunity cost becomes part of the company
  portfolio

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Inventory

• Out of stock of needed productscustomer service
  problems
• Too much of products that sell slowly or almost
  not at all
• Impact of long lead times on levels?
• Inventory rich and cash poor?

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Inventory Turns

• Is both a problem and a symptom
• Reflects how fast company is paid (like a salary)
• Aggregate turns and Breakdown
• A B C and .
• product category
• market segment
• revenue and profit contributions
• domestic vs imports

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Inventory/Time Measures

• Days in inventory Cost of Goods Sold / 365 Days
• Can understate total inventory in the supply
  chain excludes inventory that is on order and
  inventory in transit
• Manufacturers and wholesalersover 60 days of
  inventory
• Retailersover 90 days of inventory
• Factor in what is excluded makes it 25 more

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Increase Inventory Velocity

• Multi-step program
• Align with business strategy
• Key metric--Perfect Order--orders delivered
  complete, accurate and on-time
• Purpose/Direction
• Manage and reduce total supply chain costs
• Increase inventory velocity
• Compress cycle time
• Need for Lean success
• Provides structure, platform and integration for
  new processes internally and externally with
  suppliers

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Inventory Velocity

• How fast inventory moves through the supply chain
• Is more than turns
• Shows as days of inventory on hand
• Flaw because it excludes product on order and/or
  in transit

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Inventory Velocity

• Recognizes emphasis is beginning of supply chain
  with suppliers
• Transit time is one factor
• Avoid stopping inventory (lean)
• Supplier performance is key

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Inventory Yield

• Time is very important
• Issues with demand planning and time
• Internal battles can create discord to create
  inventory yield maximization and minimize supply
  chain costs, inventory and time--Procurement
  looks at low product price and Transport looks at
  low freight price

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Inventory Yield Maximization

• Yield Maximizationused to sell airline seats and
  hotel rooms
• Is a right time to sell
• View inventory is same way
• Too little inventorylost sales
• Too much inventorymark down and fire sales
• Inventory can go stale

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Best PracticeCycle Time Compression
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Cycle Time

• Time to convert a sales / replenishment /
  purchase order into finished product that is at
  the customer or at the store
• Ties to scope of supply chain
• Remember effect of time on inventory
• Cycle time often exceed demand planning
  credibility and capability
• Supplier performance is key

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Cycle Time Compression

• Recognize need for product till sales paid by
  customer
• Subsetssuch as time from recognize need (before
  PO is issued) until product delivered to you
• In Lean, time is waste

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Best PracticeLean Logistics
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Lean SCM

• Similarity with Lean principles
• Pull vs push
• Inventory reduction (reduce waste)
• Cycle time compression (reduce waste)

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Lean Logistics

• Extending it beyond domestic and factory walls
  (end to end)
• Waste
• Unnecessary, additional time
• Unnecessary, additional inventory
• Stopping or waiting on the flow of inventory and
  information (add no value to final product or
• value for customer)

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Lean

• Assess entire supply chain as to where time is
  spent and why
• Look especially at internal
• Smaller orders/more frequency from suppliers
• Do not store--cross dock at port or DC

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5Rs (Rights) of Lean SCM

• Right Product
• Right Quantity
• Right Condition
• Right Place
• Right Time
• Anything that does not contribute to the 5Rs is
  waste

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Examples of SCM Waste

• Over supply--Supplying product at a faster rate
  than customer requires, having it ahead of
  demand. Bringing in large quantities of product
  without matching demand creates excess inventory
  and can cause write-down and fire sales to draw
  down inventoriesand revenues and profits.
• Transportation. Unnecessary or slow movement of
  product adds no value (for lower freight cost).
  This can include movement of inventory between
  company facilities.

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SCM Waste

• Movement. Any unnecessary movement of product or
  people during their work is to be avoided. This
  may be seen in warehouses or in special
  operations such as kitting.
• Defective Service or Product. Poor quality,
  rework, or scrap because it does not meet the
  customer requirements adds no value.
• Over processing. This is doing more than is
  necessary.

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SCM Waste

• Inventory. Firms have more finished product, raw
  materials, or work in process than the absolute
  minimum. This includes inventory in transit,
  regardless of whether it is treated as inventory
  when it is delivered or not it is still
  inventory regardless of such transaction nuances.
• Waiting. Delays in previous supply chain steps
  cause unnecessary waiting of people or equipment.
  Inventory at warehouses reflect waiting.

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Becoming Lean

• Realize cause-effect impacts. Distinguish problem
  from symptom of a problem
• High freight cost can be a problem or a symptom.
• Inventory can be a problem or symptom of a
  problem
• Ask customers about how well your supply chain
  operates
• Comprehend the complexity of supply chains with
  multiple suppliers in multiple countries,
  distribution centers and customers
• Assess timeespecially internalfor waste

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Best PracticeTechnology
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Technology--IS
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Process Enabler

• Manage the buy even
• Important tool to deliver complete, accurate , on
  time

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Technology

• Supply chain execution tool for
• integration
• end-to-end global visibility
• dealing with complexity
• issue PO and changes to PO
• exception management

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Supply Chain Technology

• Much more than online track and trace
• Not about the containerabout whats in the
  container
• Its about the PO

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Best PracticeSupplier Performance
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Supplier Performance

• SCM success starts here
• Key to
• reduced cycle time
• increased inventory velocity
• improved inventory turns
• removing waste
• better demand planning

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Importance

• Supplier performance is critical to
• SCM success
• Inventory velocity and turns improvement
• Cycle time compression
• Lean SCM
• Costs, such as expedited freight
• And more

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KRALJIC MODEL
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Supplier Performance

• Start with Procurement Strategy
• Its about price and MUCH MORE
• Include
• Supplier rationalization
• Supplier collaboration
• Supplier development
• Spend management and compliance

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Best PracticeSegment Supply Chains
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One Size Does Not Fit All

• Is not one approach to SCM for all industries and
  all businesses
• Should be multiple approaches used by a company
• For A vs B vs C items
• For Tier 1 vs Tier 2 vs Tier 3 customers

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Different Approaches

• Segment use of speed--transport modes
• Where/how inventory is positioned
• Segment integrationinternal and external
• Cannot be everything to everybody

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Develop multiple supply chains

• Move away from monolithic supply chain approach
• Splinter/multiple supply chain approaches
• reduce static/noise with better focus
• increased flexibility and responsiveness
• enables better demand planning

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Types of SCM Splintering

• Master/prioritize/differentiate by--
• product demand, volatility, velocity
• where made or sourced
• when sold in quarter or year
• market segments

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Nothing will come of nothing King Lear Act 1,
Scene 1

• Doing the same thing over and over and expecting
  the same results.
• Einsteins definition of insanity