Technology for Supply Chain in High Inflationary Environment

Ramakrishna PotluriSAP Labs

SCALE 2011

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Agenda

Inflation Overview – Effect on businesses

IT in Business to manage Inflation

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Inflation is taxation without legislation- Milton Friedman

“Inflation is bringing us true democracy. For the first

time, luxuries and necessities are selling at

same price” – Robert Orben

“Inflation is when you pay 15 dollars for the 10-dollar

haircut you used to get for 5 dollars when you had hair” -

Sam Ewing

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Inflation in India (CPI) - History

Source:global-rates.com

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Inflation in India (CPI) – 2010-11

Source:global-rates.com

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Profitable Business

CostPrice

Profit

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Inflation Costs Increase & Profits reduce

Price

Cost

Cost increase

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Price

Cost

Inflation Costs Increase Loss

Cost increase

Loss

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Effect of Inflation - Back to Basics

Costs &

Prices

Disposable

Incomes Consumption

Costs &

Prices

Disposable

Incomes Consumption

(Monetary Policy)

InterestsSavings

Cost of Inputs

Working Capital /Debt

(also Interest rates)

Bankruptcy risk

Prices

(Lag)Sales Bankruptcy risk

Working Capital /Debt

Inventory

Costs &

PricesInvestments Recession

(Monetary Policy)

InterestsSavings

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Managing Inflationary EnvironmentMonitor Cash, Operating Profit and Working Capital.

Understand the drivers Costs Prices Cash Flow

Costs Input costs Logistics costs Inventory Costs Financial costs Strength of Supplier base

Prices Price Elasticity

– Brand Strength

– Competition

– Innovation (Ability to launch new products rapidly)

Financial Costs Debt burden Cash flows

Prices

(Lag)Sales

Cost of Inputs Inventory

Working Capital /Debt

(also Interest rates)

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Agenda

Inflation Overview – Effect on businesses

IT in Business to Manage Inflation

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Can IT Help Businesses During Inflation?

Costs Input costs Logistics costs Inventory Costs Financial costs Strength of Supplier base

– N tier supplier ?

Prices Price Elasticity

– Brand Strength

– Competition

– Innovation (Ability to launch new products rapidly)

Financial Costs Debt burden Cash flows

How fast do you get Information back from your supply chain ?

Analyze Spend

Optimize Logistics & Transportation

Manage Supply Network to reduce inventory in network

Manage Liquidity

Hedging

Supplier Mgmt & Risk

Price & Promotion Analysis

Contract Mgmt

Supplier Network, Risk Mgmt & Benchmarking

SAP SPM

SAP TM

SAP SCM/SCPM

SAP Treasury

SAP CTRM

SAP Supplier Mgmt

SAP HANA

SAP SRM/ CLM

SAP Supplier Infonet

Manage Spend SAP Procurement

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Manage Spend, Compliance & Risk for All categories – Indirect, Direct & ServicesAddress Inflation Challenges

SupplierManagement

Contract Management

OperationalProcurement -

SAP Procurement

Strategic Sourcing

Spend Performance Management (SPM)

Can I source from low inflation regions ?

Can I source from ‘less risky’ suppliers ?

Do I have visibility of my supply base ?

How do I look at risk from ‘n-tier’ supplier ?

Am I managing my entire spend ?Do my buyers have time to look at strategic aspects ?Are my planning & procurement systems integrated ?Can I reschedule quickly ?Are my suppliers connected to make info flow faster?

Are the prices locked ? What are the escalation clauses ? Can I incorporate penalties/rebates ?Can I renegotiate contracts ?

Is my entire spend visible ?

Where are the opportunities to reduce/postpone / shift sourcing ?