AAA Riding the Globalization Wave Final With Notes Latest

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Supply chain mangement

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  • Riding the Globalization Wave Presented byLori Sisk, CPMHewlett Packard Sponsored by Women In Leadership Group

  • AgendaIntroductionOverview Economic Factors Internal Impacts Risk vs. Reward Total Cost Analysis Enablers Conclusions

  • IntroductionLori Sisk, C.P.M. Over 20 years of Consulting/Industry global supply chain experience in automotive, aerospace, and home building industries Focus on saving companies money and increase efficiencies in business processes Career has been built from several different companies: Mazda, TRW, Ernst & Young Consulting (Lucas Aerospace, Fleming Foods, Covisint), Delphi, HP (GM, American Express) MBA and BSBA from Bowling Green State University ISM former Metro Detroit President, Women In Leadership Chairperson Speaker for ISM, APICS, PanHellenic Logistics and Supply Chain Institute, SAPICS

  • North America: Primary - Mexico/South America Secondary - Eastern Europe or AsiaWestern Europe: Primary - Eastern Europe Secondary - Asia or Mexico/South AmericaPacific Rim: Primary - Asia Secondary - Eastern Europe or Mexico/South AmericaWhere Should We Source?Regionalization

  • Reverse Globalization? Changes that have occurred over the past few years Less dominant labor costs As technology progresses and productivity improvements drive down labor hours required in many processes Increased infrastructure development Developing countries investing more in education and infrastructure, companies can now source confidently in any hemisphere Focus on supply chain risks Natural disasters, volatility of fuel prices, performance of supply chain partners, and financial stability of organizations seem to be the biggest risksNeed for more flexibility There needs to be a very quick response to the changing economic conditions and demand by the supply chain Have created many companies to move towards regional or hemispheric sourcing

  • Economic Factors Financial Volatility of commodities such as fuel Labor costs increasing globallyLogistics costs increasingly importantLanguage complexities Capacity in shipping industry Taxes Geopolitics Focus on energy

  • Internal Impacts Collaborative cross-functional effort to: Maximize supply assurance Reduce overall costs Identify hidden costs Review of previous sourcing decisions Material sourcing strategy considerations Source in LCC at lower cost or source regionally?Can LCC supplier utilize regional logistics hub to minimize risk?LCC may have 5 weeks in transit or airfreightLCC may be lower cost but to source regionally may be less risk and lower logistics costsTotal Cost Analysis

  • Total Cost of Ownership Typical costs included in a manufacturing TCO model: Design Costs Raw Material Purchased Parts Direct and Indirect Labor Fringe Benefits Machines Costs such as depreciation, interest, insurance, utilities Selling, General, and Administrative Costs Profit Acquisition Costs Duties, fees, taxesUsage Costs End of Life CostsEnsure that your TCO model includes the following risks:International freight Lack of logistics infrastructure which drives costIncreased inventory carrying costsLost sales/costs due to unreliable source of supplyCost of qualityHidden costs generated by poor communication and management misunderstandings Additional costs due to off-shoring

  • Total Cost Analysis Take another look: Logistics Costs- Expedited Shipments Repacking at warehouses Evaluate for types of shipment (container, truck, rail, LTL, parcel)Evaluate customs fees- fixed fee for all shipments whether a container is a load or a parcel.Additional Inventory Driven Costs to Evaluate:Price Protection and returns for channel inventoryCan too much channel inventory delay New Product Introductions?Material devaluation and Obsolescence CostsEngineering Change costs with 5 weeks of incoming materialUnderstand the cost drivers

  • June 19, 2009 1(1)Total Cost of Ownership Models: An Exploratory Study, The Journal of Supply Chain Management Copyright August 2002, by the Institute of Supply Management, Inc., Bruce G. Ferrin, Richard E. Plank

  • Risk vs. Reward Supply Chain Risk CategoriesInfluence, Alignment, Information SharingQuality, Delivery, Capacity, CostTurnover, Union IssuesMarket Power, Information Visibility Concentration, Disruption PotentialSize, Asset Utilization, Capitalization, ProfitabilitySocial Responsibility

    Relationship

    Performance

    Human Resources

    Supply ChainDisruption

    FinancialHealth

    EnvironmentalIndicators

    Supplier RiskScore

  • Honda of America Supplier Management EvaluationSource: Honda

  • Honda of America Supplier Management ProcessSource: Honda

  • Honda of America Supplier Management MessageSource: Honda

  • page *Risk Management Approach: Uncertainty is measured using forecast scenarios for demand, price, & availabilityHPHorizon build demand scenarios from historical data

  • Results of Supply Chain Risk Management implementation at HP Direct materials quantity commitments

    HP total materials spend in PRM contracts

    Realized Savings

    Program life

    >$1B+

    >$75M

    Indirect materials quantity commitments

    Commodity Cost SavingsCommit-mentCustom ASIC12%12 moScanner assy.8%12 moFlash memory5%6 moParts for repair & refurbishment4%3 moHard disk drives2.3%3 moDRAM0 10%3-6 mo Average6%

    Commodity Cost SavingsCommit-mentEnergy25%12 mo

  • Refining a Spend-Oriented Framework to Supply Chain Risk vs. Business ImpactSupply market complexitySpendReduce structuralrisk factorsImprove contingency plansHedge cost increases and guarantee supplyBusiness ImpactExtended supply chain complexity(i.e., probability of adverse risk event)From spend segmentationTo understanding risk vs. rewardSource: 2008 The Hackett Group*

    Leverage Strategic Tactical Bottleneck

  • Discuss how your organization is riding the globalization wave: Has changed its direction on globalization Manage risk vs. reward Review Total Cost of Ownership Collaborates across the organization on sourcing decisionsHas managed the economic factors and which ones have had the largest impact to your organization and how have you mitigated the risk Discuss what you can take back to your organization Institutionalize a risk management program/processRe-analyze past sourcing decisions with new information Review cost drivers have they changed? Other ideas?

    Networking

  • Automate Supply ChainDefine the end-to-end transaction / processConsolidate, standardize and automate the defined transaction / process whenever possibleIdentify, optimize and /or transform the transactions / processes that cannot be automated (e.g., move processing off-shore)Centers of ExcellenceCreate a winning best-shore location strategy Determine what strategies should be global vs. regional and which activities need to be centralized vs. decentralized Spend AnalyticsPerform spend analytics on a global basis using tools that can provide multiple dimensions to support the identification of new sourcing and savings opportunitiesTransaction ManagementActively manage compliance and demand management policies and procedures across the end-to-end supply chain through SLAs and KPIs

    Enablers

  • Enablers Supply Chain AnalyticsTotal Landed Costs- including all transportation costs, customsSupply Chain Network Design and Modeling and Optimization Tools- What-If Modeling to look for the most efficient cost and service levelsSupply Chain VisibilityLook both upstream and downstream and giving critical suppliers downstream viewAutomated Alerts and Notifications to Supply Chain Events- more efficient Buyers/PlannersCross Functional Supply Chain DashboardMinimize the effect of SilosSales and Operations Planning Process- Metrics back to executing the plan

  • Supply Chain Visibility Operational Improvements*Aberdeen Group 2009

    Chart1

    0.90.840.520.76

    0.890.780.10.24

    0.720.6500.1

    On-Time Delivery

    On-Time PO Receipts

    Decreased Total Landed Costs

    Decreased Out of Stocks

    Sheet1

    On-Time DeliveryOn-Time PO ReceiptsDecreased Total Landed CostsDecreased Out of Stocks

    Best In Class90.00%84.00%52.00%76.00%

    Industry Average89.00%78.00%10.00%24.00%

    Laggard72.00%65.00%0.00%10.00%

    To resize chart data range, drag lower right corner of range.

  • Benefits to SC VisibilityInventory Reductions: Companies that are Best in Class in Inventory Management are 2.4 times as likely to have implemented SC Visibility. Customer Service Levels are at 96% and Inventory Levels have been reduce by up to 30% since 2004.Cycle Times:Companies with SC Visibility are 3 times as likely to have a faster order to fulfillment as companies with plans for an SC Visibility implementation.On-Time Deliveries:Companies that track more than 80% of domestic shipments are 2 times as likely to have an on-time delivery rate of 95% or higher. *Aberdeen Group 2006

  • The Supply Chain Dashboard- The key to an Integrated Supply Chain Organization*Percent Improvement2003-2005Having End-to-End Supply Chain Visibility and Span of Control Enables the Business to Make Quick Resource Trade-Offs to Respond to Changing Market NeedSupply Chain Executive Board 2006

  • What does tomorrow bring? Future Trends of OrganizationsJoint ventures will increase View suppliers as external resources of innovation Linkage of sales to purchasing Demand driven supply chains Integration across supply chain Improvement of supplier relationships Rethinking of out-source vs. in-source and near-shoring vs. off-shoringRisk management formal programs to secure continuity of supply Collaboration with suppliers in the Product Lifecycle Management processIncreased reliance on outsourced logisticsVisibility and traceability of products has become increasingly important

  • Conclusions

    Economic factors will drive many companies direction for globalization As companies restudy total cost, there may be opportunity to source regionally and reduce cost Ensure that one has a supply management risk program that proactively alerts the organization when risk becomes too high and how to act upon it Understand the cost drivers in order to make effective and optimal sourcing decisions Trends will continue that will encourage companies to continually review reverse globalization

    *****ABC News

    Since transportation costs are proportional to the volume of goods being transported, Hyundai chose to manufacture their top selling U.S. vehicles at this plant to minimize these costs.

    Most high-end automakers who could afford to have their vehicles shipped into India since they already command a price premium are now being built in India for Indians. These include vehicles like the Audi A4, BMW 5 Series, and Mercedes C-Class.

    Coca-Cola, which used to be imported into India, is now being produced in plants once used by a local cola producer.

    Furniture designer Carol Gregg used to have her signature Chinese chests assembled in China, but such a luxury no longer seems viable, considering that some of her pieces now cost five times more to ship. So now Gregg is having the chests made in North Carolina, simply because its cheaper. Some large companies like Crown Battery are cutting expenses by moving jobs from Mexico to Ohio. And hair care company Farouk Systems plans to shift all of its production from China to Houston this summer _ bringing with it 1,000 jobs. DESA, a company that makes heaters to keep football players warm, is moving all its production back to Kentucky after years of having them made in China.

    Distance costs money, and when you have to shift iron ore from Brazil to China and then ship it back to Pittsburgh, Pittsburgh is looking pretty good at 40 bucks an hour."

    03/10

    Financial companies looking at all companies, not just strategic for financials China export suppliers going out of business in less than a year with little notice (01/10)

    Volatility - if raw material is not native to the country or region, fluctuations in currency and price may make the commodity unavailableis there any predictability of the material given the long-range and recent (6-12 months) of costing history? (0110) -of Capacity in marketplace as volumes return strength - Raw material inventory exposure is highly undesirable due to the need for cash flow improvement resulting in more local sourcing Labor costs in China shift from low-cost, labor driven growth to productivity growth - - physical infrastructure are reading the point of diminishing returns need to focus on human infrastructure education and healthcare which is lagging (08/09)in rural china, high school fees and tuition are still about 20 times greater than per capita income and does not have free public secondary educationWage inflation in recent years has reaching almost 20% over the past few years collapse of commodity pricing is balancing wage inflation (8/09) Average annual salaries have increased by 105% from 2000-2006 (SDC 07/09)Facility investment, raw material and machinery are also on the rise Between 2007 and 2008, real estate prices have climbed an average of over 11% in 70 cities across China

    Logistics Cost/capacity in shipping industry Aug 2009 (brad Skelton the shipping bloke) To reduce costs, some carriers are slow steaming to conserve fuel and travelling the cape of good hope rather than pay the expensive Suez Canal fees In break bulk and container trades, carriers are fighting for survival and rates and fuel surcharges are being increasedShipping capacity will soon exceed market needs between 50 and 70% Jan 5, 2010 Bruce Barnard Jan 2010 Active capacity of worlds largest ocean container carriers shrunk by 2.4% over the past year The top 20 lines actually boosted their combined fleets by 1.6 percent in the year to Jan. 1, 2010, but their effective capacity declined as they idled more vessels in response to lower cargo volume, according to Alphaliner, the Paris-based container shipping consultant.The combined capacity of the top 20 reached 10.81 million 20-foot equivalent units on Jan. 1, 2010, compared with 10.63 million TEUs a year ago.The leading carriers idled capacity 6.9 percent of their operating fleet. This is more than double on Jan. 1, 2009.A senior executive at Maersk Line said Monday the carrier expects the strong shipping growth early this year to slow down in the second half of the year because volume has outpaced gains in retail sales. The current supply and demand balance remains fragileIncrease of just more than 1 percent in U.S. retail sales in February far outpaced growth in U.S. containerized import volume. So apparently restocking is the driver of the increase in demand, he said. Maersk, the worlds largest containership operator, lost $2.088 billion last year, partly the result of what the carrier said was a 28 percent decline in average rates in 2009 from the year before. Ben Hackett of Hackett Associates, author of the Port Tracker report released by the National Retail Federation said he was more upbeat, forecasting 11 to 12 percent growth this year for trans-Pacific imports. The importers are being very cautious, he sai...