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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 co

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