supply chain executive's agenda for 2010: best practices for
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© AberdeenGroup 2009
Supply Chain Executive’s Agenda for 2010:Best Practices for
Weathering the RecessionIn a Global Environment
Nari ViswanathanVice President/Principal Analyst
October 6th, 2009
© AberdeenGroup 2009 2
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 3
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© AberdeenGroup 2009 4
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 5
It is a whole different world now……
Lowered demand from end consumersCash is king – credit crunchExtremely volatile financial marketsHigh inventory levels – finished goods, raw materials & work in progressVolatile fuel pricesIncreasing interest on sustainability and green supply chain concernsWhat should companies do?
© AberdeenGroup 2009 6
Today’s Complex Demand-Supply Networks
Customers
DistributorsRaw Material
ComponentFactory
Retail StoreSystemFactory
Enterprise
Suppliers
Customers
DistributorsRaw Material
ComponentFactory
Retail StoreSystemFactory
Enterprise
Suppliers
• Complexity has risen in multiples• Results in loss of control and visibility• Demand-Supply Networks compete with each otherrather than individual enterprises
© AberdeenGroup 2009 7
Customers
Suppliers
Raw Material
ComponentFactory
Retail StoreSystemFactory
Enterprise
Demand Network - Buyer of services and products
For e.g: Retailers, Distributors, Value Added Resellers (VARs),
Supply Network –System suppliers,
Contract Manufacturers, ODMs,Raw material suppliers
Enterprise – Sales, Marketing,Operations, Manufacturing,
Procurement
Logistics Network – 3PLs, Shippers, Carriers
Integrated Demand-Supply Networks
Flow of physical goods, supply chain data and financial information
© AberdeenGroup 2009 8
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 9
Top 2 SCM Pressures
35%
36%
37%
2%
8%
18%
21%
32%
0% 25% 50%
Other
Regulatory compliance mandates
Increased supply chain risk exposure (security/environmental/ financial instability or other risks)
Significant decrease in demand for our products
Escalating customer service demands
Rising supply chain management costs
Rising business complexity of managing anincreasingly global business network
Economic and financial volatility
% of Respondents
© AberdeenGroup 2009 10
Top Supply Chain Disruptions over the Past 12 Months
62%
42% 41%34%
0%
25%
50%
75%
Reduction incustomerdemand
Raw materialsprice volatility
Fuel pricevolatility
Commoditiesprice volatility
n = 209
Per
cent
of R
espo
nden
ts
62%
42% 41%34%
0%
25%
50%
75%
Reduction incustomerdemand
Raw materialsprice volatility
Fuel pricevolatility
Commoditiesprice volatility
62%
42% 41%34%
0%
25%
50%
75%
Reduction incustomerdemand
Raw materialsprice volatility
Fuel pricevolatility
Commoditiesprice volatility
n = 209
Per
cent
of R
espo
nden
ts
© AberdeenGroup 2009 11
Top SCM Actions Targeted at Combating Recession
45%
54%
20%
21%
32%
34%
45%
0% 20% 40% 60%
Reduced SCM process improvement budget
Closed distribution centers/ warehouse
Laid off people from the supply chain organization
Changed financial arrangements with customers or suppliers (e.g. stopped extending payment
terms for the customers, etc.)
Shifted focus from strategic to more tactical, short-term improvement projects
Restructured the supply chain organization to increase efficiencies
Reduced inventory at all levels
© AberdeenGroup 2009 12
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 13
Best-in-Class Definition Metrics:
Perfect orders delivered to customers (complete and on-time)Total landed costs (relative change over the past year)Cash conversion cycle (absolute and relative change over the past year)Forecast AccuracyCustomer Service Level
© AberdeenGroup 2009 14
BIC Differentiation
56%
58%
61%
63%
67%
36%
46%
51%
57%
52%
35%
43%
40%
46%
39%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Formalized supply chain risk management
Drill-down capability for executives todetermine causes of business level challenges
Executive position with end-to-end SCMresponsibility
Closed-loop integration of supply chainplanning and execution
Online visibility into supply chain issues /disruptions
Best-in-Class Average Laggards
Process
Process
Organization
Technology
Process
© AberdeenGroup 2009 15
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 16
3 Key Process Capabilities
1. Supply chain visibility and responsiveness, leading to better risk-management2. Closed Loop Inventory Management3. Integrated Business Planning
© AberdeenGroup 2009 17
1. Managing Supply Chain Risks
Less than one-third of companies in an Aberdeen study reported actively managing each individual risk
Trade complianceRaw materialsDemand fluctuationsProduct qualityRisk profile of suppliers and customersCurrency volatilityCatastrophic eventsLogistics capacity and congestionSupply chain security, and environmental disasters
© AberdeenGroup 2009 18
1. Gaining Supply Chain Visibility and Responsiveness
Level of Maturity
RO
I
B2B Integration
Data Mgmt.
ProcessCollaboration
Network Intelligence/
Performance Management
Visible Responsive
Level of Maturity
RO
I
B2B Integration
Data Mgmt.
ProcessCollaboration
Network Intelligence/
Performance Management
Visible Responsive
© AberdeenGroup 2009 19
2. Closed Loop Inventory Management
© AberdeenGroup 2009 20
2. Setting Inventory Targets is Still Manual
43% state that they follow rule of thumb approaches
Versus
57% state that they follow statistical methods
60% of companies do not include setting inventory targets as a part of S&OP process
© AberdeenGroup 2009 21
2. How to Position Inventory Management as a Strategic Area to the Financial Organization?
Cash-to-Cash Cycles = DSO + DIO - DPO
Reduce lead-timesso that orders can be delivered quicker andget paid faster
Automate AR Process
Stock the right inventoryat the right place
Adopt a build to ordermodel
Negotiate DPO extensionwith suppliers
Receivables Financing
Change customercredit policies
Use 3rd partyInventory financing
Use 3rd party financingto pay suppliers faster while extending terms for the buyer
While balancing other business objectives like customer service…..
© AberdeenGroup 2009 22
3. Traditional S&OP Outdated?Old concepts may be too supply chain focused:
The Sales and Operations Plan is a managerial tool used for manufacturing planning and control. Its fundamental objective isto reconcile sales forecasts with production plans in terms of volume[1]. To do so, the S&OP has to coordinate planning effortsamong the various departments involved in the process.
Time for the Next Generation S&OP?“Traditional sales and operations planning (S&OP) processes and supporting technologies are no longer sufficient in today’s high-pressured business environment. Sales and Operations Planning has evolved to become Integrated Business Planning.
It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy.”- “Technology Strategies for Integrated Business Planning”, June 2006
© AberdeenGroup 2009 23
Elements of Integrated Business Planning
Product Differentiation
Customer Service
Cost Reduction
Working Capital
Revenue Expansion
Levers
Results
Financial Planning
Pricing
Demand Forecasting
Demand Shaping
Rough Cut Capacity Planning
Inventory Optimization
New Product Introduction
Profit Optimized Supply-DemandPlanning
Metrics: Return on Net Assets, Profit Margins, Cash-Cash-Cycle, Customer Service Levels, Forecast Accuracy
BoostShareholder
Value
Business Goals IBP Levers
Product Differentiation
Customer Service
Cost Reduction
Working Capital
Revenue Expansion
Levers
Results
Financial Planning
Pricing
Demand Forecasting
Demand Shaping
Rough Cut Capacity Planning
Inventory Optimization
New Product Introduction
Profit Optimized Supply-DemandPlanning
Metrics: Return on Net Assets, Profit Margins, Cash-Cash-Cycle, Customer Service Levels, Forecast Accuracy
BoostShareholder
Value
Business Goals IBP Levers
Source: Upcoming article in Supply Chain Management Review
© AberdeenGroup 2009 24
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 25
Who Participates in S&OP Processes?
72%78%
91% 94%
72%61%
92%82%
66%59%
72%84%
0%
20%
40%
60%
80%
100%
Manufacturing Finance Logistics /Supply Chain
Sales
Perc
enta
ge o
f Res
pond
ents
Best-in-Class Average Laggards
n = 214
72%78%
91% 94%
72%61%
92%82%
66%59%
72%84%
0%
20%
40%
60%
80%
100%
Manufacturing Finance Logistics /Supply Chain
Sales
Perc
enta
ge o
f Res
pond
ents
Best-in-Class Average Laggards
72%78%
91% 94%
72%61%
92%82%
66%59%
72%84%
0%
20%
40%
60%
80%
100%
Manufacturing Finance Logistics /Supply Chain
Sales
Perc
enta
ge o
f Res
pond
ents
Best-in-Class Average Laggards
n = 214
BIC companies are 1.5 times more likely to have the sales organization driveS&OP process
© AberdeenGroup 2009 26
Skillsets for the new Supply Chain Organization
22%
31% 34%41% 42%
16%
27%
17%
38%
23%
11% 14%9%
25%
13%
0%
10%
20%
30%
40%
50%
"What-if"scenario
analysis todetermine
alternatives
Managecritical
relationshipsthrough theend to end
supply chain
ExceptionManagementprocess toidentify and
manageexceptions
Understandthe business
strategy,products, and
processes
Statisticalanalysis andfact baseddecisionmaking
Perc
enta
ge o
f Res
pond
ents Best-in-Class Average Laggard
n = 214
22%
31% 34%41% 42%
16%
27%
17%
38%
23%
11% 14%9%
25%
13%
0%
10%
20%
30%
40%
50%
"What-if"scenario
analysis todetermine
alternatives
Managecritical
relationshipsthrough theend to end
supply chain
ExceptionManagementprocess toidentify and
manageexceptions
Understandthe business
strategy,products, and
processes
Statisticalanalysis andfact baseddecisionmaking
Perc
enta
ge o
f Res
pond
ents Best-in-Class Average Laggard
22%
31% 34%41% 42%
16%
27%
17%
38%
23%
11% 14%9%
25%
13%
0%
10%
20%
30%
40%
50%
"What-if"scenario
analysis todetermine
alternatives
Managecritical
relationshipsthrough theend to end
supply chain
ExceptionManagementprocess toidentify and
manageexceptions
Understandthe business
strategy,products, and
processes
Statisticalanalysis andfact baseddecisionmaking
Perc
enta
ge o
f Res
pond
ents Best-in-Class Average Laggard
n = 214
© AberdeenGroup 2009 27
Agenda
1. Aberdeen Introduction2. Integrated Demand-Supply Networks3. Supply Chain Executive’s Challenges4. Best-in-Class Companies5. Process Areas of Focus6. Organizational Areas of Focus7. Key Takeaways
© AberdeenGroup 2009 28
Raw MaterialsSupplierComponent
Supplier
Global DC
Retail Store
Raw MaterialsSupplier
ComponentSupplier
RetailStore
Customers
Global DC
Global DC
Home Delivery
International visibility from satellites and cloud technology
10 Key Takeaways for Succeeding in the Global Supply Chain
© AberdeenGroup 2009 29
Top 10 Takeaways for Competing in the Global Supply Chain10.Develop and Deploy Sustainability Strategy9. Have a single point of contact for Supply Chain8. Think creatively
Working Capital Optimization – Supply Chain Finance
7. IT is not the fix it is the enabler6. Think FAST – flexibility and agility
* - Supply Chain Summit 2009
© AberdeenGroup 2009 30
Top 10 Takeaways for Competing in the Global Supply Chain5. Embrace “AND” – matrix management + dotted
lines4. Extend metrics across the supply chain – use it
enable accountability3. Engage the customer2. Business as usual does not work1. Supply chain is a concept and not an
organization
* - Supply Chain Summit 2009
© AberdeenGroup 2009 31
Aberdeen Supply Chain ManagementResearch Team:Nari Viswanathan, VP/Principal [email protected]
Bob Heaney, Senior [email protected]
Viktoriya Sadlovska, [email protected]
Scott Pezza, Research [email protected]
Additional Information:Supply Chain Management Practice Blog
Aberdeen SCM LinkedIn Group