For london aligning for action

Supply Chain Insights
Aligning for Action & Resolving Conflict

BRICKS Book
Publishes

Matter
in August
2012

The Role of Supply Chains
in Building Market-Driven
Differentiation

LORA M. CECERE
CHARLES W. CHASE JR.

What’s in
a name?
A rose by any other
name would smell as
sweet.
William Shapespeare
3 p. 3
Supply Chain Insights, LLC © 2012

Agenda

What is Supply Chain Excellence?
What is the Goal?
How do we make Decisions?
What do we Measure?
Wrap-up

p. 5

Impact of Supply Chain Challenges

Impact of Supply Chain Challenges on Organization in 2011
(7-Point Scale)

Impact (5-7) Extreme impact (7)

Demand volatility 77%
21%
Top 3 Supply
Chain Need to improve profit margin 76%
18%
Challenges
Supply prices 70%
12%

New product launch effectiveness 66%
10%

Need to increase market share 60%
9%

Change in global economy 59%
15%
Product consistency and reliability of 55%
manufacturing operations 16%

Growth in global markets 50%
6%

Changes in competition 45%
12%

Base: Total Sample (117) p. 6
Q16. How much impact did the following supply chain challenges have on your organization in 2011? Supply Chain Insights, LLC © 2012

Supply Chain Tipping Points

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

JIT Supply Chain Internet/Email
RFID
Organization
Evolution of eProcurement
the PC

Re-Engineering the Total Quality
S&OP Organization Management
Theory of
Constraints (Michael Hammer)

Supply Chain Excellence = Supply Chain Excellence =
Islands of Manufacturing Vertical Silo Efficient Order to
+ +
Excellence Excellence Excellence Cash Processes

Inside-Out Inside-Out

p. 7

Supply Chain Tipping Points

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

.com Social
Responsibility
Y2K
Demand Driven
Concepts CSCO
Lean Six Sigma
Market-Driven
Value Networks

Supply Chain Excellence = Supply Chain Excellence =
Vertical Silo Outsourcing Value-Based Outcomes
+
Excellence Effectiveness Delivered by Horizontal Processes

Inside-Out Outside-In

p. 8

A Supply Chain
is a Complex System
with Complex Processes
with Increasing Complexity

p. 9

The Effective Frontier

Profitable Growth

Revenue Cost of Goods

Working Capital

Corporate Social Responsibility

R&D Strategy and Investment Asset Strategy and Investment

Forecast Accuracy Customer Service Inventory

Channel Strategy Product and Supplier Strategy
Service Portfolio
Sales Distribution Manufacturing Logistics Procurement
Policies Policies Policies Policies Policies

Returns Backorders First Pass Yield Empty Miles Material Yield

p. 10

Evolution of Supply Chain Process
Excellence
Continuous
Testing
Align Building Horizontal
Process Connectors Learning Orchestrate
Demand and Supply
Improving
In Market

Adapt
Resilient
Reliable
Right Product Efficient
Sense Demand
Demand Volatility
and Supply Right Place Cost

Shape Right Time
Procure to
Demand and Supply pay/order to
Supply based Volatility cash
on Market Right Cost

p. 11

Supply Chain Excellence Definition

How Define Supply Chain “Excellence”

Right product, right place, right time at the
70%
right cost.

A responsive supply chain that can adapt as
57% Most Mature
markets change.

A resilient supply chain that can withstand
52%
the shocks of demand and supply volatility.

The Efficient Supply Chain. Lowest cost per
38%
unit.

Right product, right place, right time. 20%

Q14. How does your company define supply chain “excellence?” Please select all that apply. Supply Chain Insights, LLC © 2012

Agenda

What is the Goal?
What do we Measure?
Wrap-up

p. 13

14
Typical Organization

CEO

Chief
Customer COO
Officer

Chief
VP of Supply VP of
Marketing Sales CFO
Chain Manufacturing
Officer

Account Customer
Procurement Logistics CIO Quality
Teams Service

Growth Volume Cost

p. 14

S&OP Process
Existence, Goals & Processes

Have a Sales & Operations Planning S&OP Process Goal
Process
Not sure Match demand with supply 43%
3%
No
10% Maximize opportunity and mitigate risk 32%

Develop a feasible plan 14%

Determine the most profitable plan 8%

Yes Other 3%
87%
# Distinct S&OP Processes

5 S&OP 27%
14% 20% 19%
processes 12% 9%
on average

1 2 3 4 5 More than 5

p. 15

S&OP Evolution
Greater Benefit
Business- • Growth
Sales Driven
planning Driven • Resilience
Match Demand
Maximize • Efficiency
with Supply
Profitability

Market Driven
Manufacturing- Demand Driven
Driven Maximize
Maximize
Opportunity and
Deliver a Feasible Opportunity
Mitigate Risk.
Plan for Operations Sense and
Orchestrate
Match Demand Shape
Demand
with Supply Demand
Market to Market

An Athlete Needs:

Strength

Flexibility Balance

p. 17

What is Agility?

How Define Supply Chain “Agility”
Shorter supply
Flexibility to make cycles
and deliver
whatever is ordered 3%
10% Ability to recalibrate
plans in the face of
market, demand and
supply volatility and
49% deliver the same or
comparable cost, quality
and customer service
38%
Ability to
adapt to
variations in
demand and
supply

Q11. How would you define what it means for your company’s supply chain to be “agile”? Please select the one that fits best. Supply Chain Insights, LLC © 2012

Agility Importance vs. Performance

Agility Importance vs. Performance
(7-Point Scale)
6%
5%

40% Low (1-3)

89% 32% Middle (4)

62 % Points
(Gap in Performance
vs. Importance)
27% High (5-7)

Importance Performance
Base: Total Sample (117)
Q12. How important is it for your company’s supply chain to be “agile” in 2012? Please base your answer on however your company
defines agility. p. 19
Q13. How would you currently rate your company’s supply chain in terms of being “agile”? Supply Chain Insights, LLC © 2012

Demand-side Views Supply-side Views

Hole in Enterprise
Architectures

Account-Level
VMI C
A Supplier Supplier Supplier Supplier

Downstream Data Distribution Distribution Distribution
Network Network Network

Demand-side Views Supply-side Views

Demand
Translation

Account-Level
VMI C
A Supplier Supplier Supplier Supplier

Downstream Data Distribution Distribution Distribution
Network Network Network

A Forecast is not a Forecast is not a Forecast

Increasing need for value
network strategy alignment

Business Planning

Forecasting

Constrained Forecast

Increasing levels of
granularity

22

Getting to Letter Perfect….

Common Practice Market-driven Focus
S Ask sales Focus on market drivers:
How do we best shape demand?
& Direct integration to supply Design of the value chain to
optimize trade-offs, minimize risk,
balance cycles, and orchestrate
demand
OP Manufacturing plan Trade-offs between make, source
and deliver

23

The Need for Balance
S: Go-to-
OP: Demand
Market
Strategies & Orchestration

Goal

24

Agenda

What is the Goal?
What do we Measure?
Wrap-up

p. 25

Reporting Structure
Where does S&OP Report?

Chief Operating Officer 43%
69% Profit
Center
Gen Mgr of Business Unit 26% Managers

Leader of Manufacturing 12%

Chief Financial Officer 9%

Head of Procurement 3%

Chief Information Officer 2%

Q5. Please tell us how you define your company’s supply chain organization by selecting which function(s) report through the supply chain
organization. Please select all that apply. p. 26
Q7. To whom does your supply chain organization report? Q6. How would you characterize your company’s supply chain? Supply Chain Insights, LLC © 2012

S&OP Plan Execution

S&OP Plan Execution

Execution is not connected to S&OP plan 9%

We try to execute the S&OP plan, but hardly do
in practice 25%

We execute the S&OP plan most of the time 35%

We execute the S&OP plan nearly all of the
time 19%

We monitor market events and adjust to S&OP Sense &
plan within limits 13%
Respond

Base: Have a S&OP process (102) p. 27
Q25. After your S&OP plan is generated, how is it executed? Please pick the one that describes it best. Supply Chain Insights, LLC © 2012

Global Operations

Whether Operate Globally How Operate Globally
Global Regional
(regions roll up (regional
No into global operations
23% team; plan supported by
globally to act
locally)
19% regional supply
chains)

38%
Yes Multi-
77%
32% national
Multi- (countries roll
national 11% up into regional
operations;
(countries roll up into regional
regional operation; planning)
global planning)

43% Multi-national

Q12. Does your company operate “globally?”
Base: Operate Globally (47) p. 28
Q13, Which of the following best describes how your company operates “globally?” Please select the one that fits best. Supply Chain Insights, LLC © 2012

Center of Excellence

Primary Functions of
Definition of best practices for process 90%
Not sure 2%
Definition of supply chain metrics 82%
Supply chain planning 77%

No Inventory strategies 74%
30%
Facilitation of horizontal processes, like… 72%
Yes Evaluation of new technologies 69%
64% Network design 69%
Establishment of goals 51%
Supplier development 18%
Other 3%

6 functions of the center of excellence on average

Q8. Does your company have a supply chain center of excellence – in other words, a dedicated team focused on improving supply chain process excellence?
Base: Have Center of Excellence (39)
p. 29
Q9. What are the primary functions of your supply chain’s center of excellence? Please select all that apply. Supply Chain Insights, LLC © 2012

Importance vs. Performance

Importance vs. Performance
120%
Importance (6-7) Performance (6-7) Gap (Perf - Impt)
100%
82% 77% 74% 80%
66% 62% 57% 58%
52% 60%
43% 44% 42%
34% 30% 40%
28%
21% 20%
20%

0%

-16% -20%
-22%
-33% -30% -31% -34% -37% -40%

-61% -60%

-80%
Facilitation of Supply chain Network design Definition of Inventory Definition of best Establishmt Evaluation of
horizontal planning supply chain strategies practices for of goals new technologies
processes, like metrics process
S&OP
Base:
Have 28* 30 27* 32 29* 35 19* 27*
function

NOTE: Supplier Development is not shown because not enough respondents
report it is a function of their supply chain center of excellence

Base: Have Center of Excellence & Particular Function (varies by function) *CAUTION: SMALL BASE SIZE
Q10. For each of the following functions of the supply chain center of excellence, how important is it to your overall company? SCALE:
7=Extremely important – 1=Not at all important p. 30
Q11. For these same functions, how would you rate your company’s performance? SCALE: 7=Excellent– 1=Poor Supply Chain Insights, LLC © 2012

IT Systems:
Importance & Satisfaction

IT Importance vs. Satisfaction
Importance (6-7) Satisfaction (6-7) Gap (Sat - Impt)
120%

100%
86% 83% 80% 76% 75% 73% 80%
65% 63% 59% 58%
60%
42% 38%
30% 35% 40%
24% 28% 25%
20%
15% 11% 20%

0%

-21% -20%
-23%
-34% -40%
-45% -47%
-56% -55% -52%
-59% -58% -60%

-80%
Demand Enterprise Order Tactical Supply Price Production Transportation Product Manufacturing Warehouse
Planning Resource Management Planning Management Planning Planning Lifecycle Execution Management
Planning Management Systems
Base: Have
57 59 60 49 36 55 43 27* 44 48
System

Base: Have 1+ Operational IT Systems (varies by system); *CAUTION: SMALL BASE SIZE
Q16. How important are each of your current IT systems to your supply chain organization? SCALE: 7=Extremely important – 1=Not at all important p. 31
Q17. How satisfied are you with each of your current IT systems shown below? SCALE: 7=Extremely satisfied – 1=Extremely dissatisfied Supply Chain Insights, LLC © 2012

Importance of S&OP Process
for Agility

Importance of S&OP Process to Agility
3% Not important (1-3)
7%

20%
(4)

(5)
90% 42%
Important
(6)

28%
Extremely important (7)

Base: Have a S&OP process (102) p. 32
Q22. How important do you think your S&OP process is to improving the agility of your supply chain? Supply Chain Insights, LLC © 2012

Agenda

What is the Goal?
What do we Measure?
Wrap-up

p. 33

What do we Measure?

• Inventory Turns
• Forecast Accuracy
• Profit
• Revenue
• Customer Service

p. 34

Looking at Supply Chain as a Complex
System

Profitable Growth

Revenue Cost of Goods
Corporate
Trade-offs Working Capital

Corporate Social Responsibility
Investment
Trade-offs R&D Strategy and Investment Asset Strategy and Investment

Forecast Accuracy Customer Service Inventory
Supply Chain
Trade-offs Channel Strategy Product and Supplier Strategy
Service Portfolio
Sales Distribution Manufacturing Logistics Procurement
Supply Chain Policies Policies Policies Policies Policies
Waste
Returns Backorders First Pass Yield Empty Miles Material Yield

Benefits Received from S&OP Processes

Increasing revenue ▲ 2% 59%

Improving forecast accuracy ▲ 5-7% 57%

Reduction of inventory ▼ 10-15% 50%

Improving asset utilization ▲ 3-7% 42%

Determining outsourced manufacturing 38%

Determining procurement requirements 36%

Improving new product launch ▲ 3-6% 34%
Transportation and warehouse
management ▼ 2-8% 32%

Capital planning and asset management 32%

Improvements in the perfect order ▲ 3-6% 30%

Source: Supply Chain Insights, 2012
What benefits have you received from your work with S&OP processes?

p. 37

Comparison of Revenue/Employee for
the Period of 2000-2011
P&G Colgate Unilever Kimberly-Clark Nestle Kraft
700
Revenue/Thousands of Employee

600

500

400

300

200

100

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Comparison of EBIT/Employee for the
Period of 2000-2011
P&G Colgate Unilever Kimberly-Clark Nestle Kraft
140.0

120.0

100.0
EBIT/Employee

80.0

60.0

40.0

20.0

0.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Consumer Products: Comparison of
Days of Inventory
P&G Colgate Unilever Nestle Kraft
80

75

70

65

60

55

50
2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Products: Cost of Sales as
a Percentage of Revenue
Unilever Kellogg Kraft General Mills
Campbell Hershey P&G
70%
Cost of Sales as a % of Revnue

65%

60%

55%

50%

45%

40%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Agenda

What is the Goal?
What do we Measure?
Wrap-up

p. 42

Historically, we have:

Tried to get precise on inaccurate data.
Believed that the most efficient supply chain is the most
effective supply chain.
Built efficient chains, but not effective networks.
Focused inside-out, not outside-in.
Rewarded the urgent, not the important.

43 p. 43

Who is Lora?
•Founder of Supply Chain Insights
•Partner at Altimeter Group (leader in open research)
•7 years of Management Experience leading Analyst
Teams at Gartner and AMR Research
•8 years Experience in Marketing and Selling Supply
Chain Software at Descartes Systems Group and
Manugistics (now JDA)
•15 Years Leading teams in Manufacturing and
Distribution operations for Clorox, Kraft/General
Foods, Nestle/Dreyers Grand Ice Cream and Procter
& Gamble.

p. 44

Where do you find Lora?

Contact Information: loracecere@gmail.com
Blog: www.supplychainshaman.com (3500
pageviews/month)
Twitter: lcecere 2900 followers. Rated as the
top rated supply chain social network user.
Linkedin: linkedin.com/pub/lora-
cecere/0/196/573 (2300 in the network)

p. 45

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