show them the money: building supply chains to increase profits michael hugos center for systems...

Show Them the Money:

Building Supply Chains to Increase Profits

Michael Hugos CENTER FOR SYSTEMS INNOVATION

[c4si]

© 2011 Michael Hugos Center for Systems Innovation [c4si]

Overview of Presentation

PART 1 – Changing Business Landscape PART 2 – Supply Chain Case Study

QUESTIONS - Ask any time…


PART 1

Changing Business Landscape


Efficiency requires predictability and stability Both are now conspicuously absent Responsive enterprise is to real-time economy as assembly line was to

industrial economy – source of wealth creation Use responsiveness to differentiate yourself or else participate in “grim race

to the bottom” Evolving mobile phone… efficiency or responsiveness? Respond to changing customer needs by wrapping products in blanket of

tailored, value-added services (information based)

A Continuum Between Two Needs

Efficiency Responsiveness


People Want More than Low Price

Products meeting higher level needs are worth more

Sneakers cost: $20 or >$100

Cars cost: $16,000 or >$40,000

As soon as basic needs are met, people want something more


The Value-Added Paper Cup

Ordering

Labeling

Delivering

Receiving

Invoicing

Usage Reporting

Budgeting

Surround commodity items with tailored blanket of value added services to increase their value by 2 – 4% (and sometimes more) to High Value Customers

Every product has two components

Actual Item or Service commodity, easily copied, low margin – efficiency driven

Information Component tailored to each customer to achieve desired results –responsiveness driven

“Never sell a naked commodity”


Profile of High Value Customers

Products you sell are “Mission Critical” to customer operations Spends significant portion of their procurement budget on your products

Interested in tailored bundle of products & services Open to outsourcing certain functions Profits compared to industry average: Above? Same? Below? Company is: Expanding? Steady? Contracting? Other characteristics …


The Value-Added Supply Chain

Increase product value and sales margins by wrapping products with value-added services to address specific customer needs

Product Bundle

Customer A

Manufacturer & Distributor

Customer B

Customer C

• e-Business services

• Product Usage Data

• Compliance Reporting

• Warehousing & Logistics

• Credit and financing

• Product training & support

• Customer Service


PART 2

Supply Chain Case Study


Respond to Continuous Fluctuations

“Bullwhip Effect”

Customer Demand

STORE

STORE

STORE

Customer Demand

Customer Demand

STORE

PERCEIVED DEMAND

DC

DC

DC


Case Study: The Tao of Supply Chains

• Share daily sales, forecasts and inventory data• Collaborate to produce and deliver inventory to meet demand

Customer Demand

Collaborative supply chains increase throughput while simultaneously reducing inventory and operating costs.

Retailer

InventoryInventory

Supplier Distributor

Inventory

DistributorInventory

DataInventory

Data

Sales & Forecast Data


Supply Chain Visibility

• 5,000 stores, 26 distributors, 40+ manufacturers

• Every day all parties transmit data as text files via FTP

• People log onto website and talk via conference calls

• Dynamic changed from defensive to collaborative


Performance Visible to All

Electronic Invoice

Electronic ASN Electronic

PO

Retailer

Distributor

Manufacturer

KPI Scorecard

Plan vsActual

Wk 1 Wk 2 Wk 3 Wk 4

Inventory Turns

Plan vsActual

Wk 1 Wk 2 Wk 3 Wk 4

Order Fill Rate

%

A B C D E

Supplier On Time Delivery Rate

Perfect Order Rate100%

90%70%

60%

80%

Compare PO to ASN to calculate On-Time Delivery and Order Fill Rate

Compare Invoice to ASN and PO to calculate Perfect Order Rate

Display KPI score cards through dashboards visible to all parties.

Set customer service alerts for quick response.


Key Performance Indicator Scorecards

• Tracked and displayed real time performance data

• Real time visibility creates peer group dynamic and desire to perform!

• Problems spotted early and brought to peoples’ attention

• Reduced excess inventory by 60%, reduced stockouts and increased profitability for all


Learn More…

Presentation excerpted from my book:

Essentials of Supply Chain Management, 3rd Edition

www.MichaelHugos.com

Center for Systems Innovation [c4si]

Best selling book worldwide on Supply Chain Management as reported by Amazon.com

Join the conversation on my CIO magazine blog “Doing Business in Real Time”

http://blogs.cio.com/blog/doing-business-in-real-time

show them the money: building supply chains to increase profits michael hugos center for systems...

Documents

systems innovation c4si

systems innovation c4si

profits michael hugos

customer operations

time slide

supply chain case study

naked commodity slide

tailored blanket of