Supply Chain Strategiesto Create Value

Supply Chain Strategiesto Create Value

Presented by:

Harold Anagnos

January 2006

Presented by:

Harold Anagnos

January 2006

Presented to:

OutlineOutline

Create Supply Chain Value

Create Value Through Speed

Create Value By Aggregating

Tailoring Value Creation

Creating Supply Chain Value

Creating Supply Chain Value

Surplus =customer value -

cost of production anddelivery to customer’s door

The ChallengeHow to manage chain to grow surplus

Surplus =customer value -

cost of production anddelivery to customer’s door

The ChallengeHow to manage chain to grow surplus

Where You Find Value in the ChainWhere You Find Value in the Chain

Overstocking:Amount available in excess of demand (liquidate, make

obsolete, hold)

Overstocking:Amount available in excess of demand (liquidate, make

obsolete, hold)

Understocking:Amount at hand not enough to meet demand (lost future

and present sales, lost margins)

Understocking:Amount at hand not enough to meet demand (lost future

and present sales, lost margins)

=Supply Demand

Key to Matching Supply & DemandKey to Matching Supply & Demand

When would you place your bet?When would you place your bet?

A B C D

A. A month before horse race?A. A month before horse race?

B. Monday before horse race?B. Monday before horse race?

C. Morning before horse race?C. Morning before horse race?

D. Lead horse an inch from finish line? D. Lead horse an inch from finish line?

Push / Pull Version of ChainPush / Pull Version of Chain

Push Process Pull ProcessPush Process Pull Process

Procurement, Manufacturing and

Replenishment Cycle

CustomerOrderCycle

CustomerOrder Arrives

Demand, Uncertainty & Forecasting

Demand, Uncertainty & Forecasting

Forecasts are usually wrong Forecasts are usually wrong

Good forecasts include measure of error in forecasting (like standard deviation)

Good forecasts include measure of error in forecasting (like standard deviation)

Forecast horizon must be at least for as long as lead time. The longer the horizon, the less accurate the forecast.

Forecast horizon must be at least for as long as lead time. The longer the horizon, the less accurate the forecast.

Aggregate forecasts are more accurate than details ones

Aggregate forecasts are more accurate than details ones

Create Value With SpeedCreate Value With SpeedShorten time of

INFORMATION andPHYSICAL flows material

Shorten time ofINFORMATION and

PHYSICAL flows material

1. Reduce replacement lead times1. Reduce replacement lead times

2. Increase re-order frequency2. Increase re-order frequency

3. Reduce supply uncertainty3. Reduce supply uncertainty

4. Reduce INFORMATION need to capture and fulfill demand.

4. Reduce INFORMATION need to capture and fulfill demand.

Structure of Supplier PortfolioStructure of Supplier Portfolio

Tailoring to Quick Response!!Tailoring to Quick Response!!

STRATEGY

------------------------

Volume baseddual sources

Product based dual sources

Models familyof productsdual source

PRIMARYSOURCE

------------------------

Fluctuations

Unpredictable products, small

batches

Newerfamilies

SECONDARY SOURCE

-------------------

Stable demand

Production of large batches

Older,stable ones

Creating Value Through Aggregation

Creating Value Through Aggregation

What are Pro’s and Con’s of Two Systems?What are Pro’s and Con’s of Two Systems?

SYSTEM A

(De-Centralized)

SYSTEM B

(Centralized)

Value by Aggregation at Value by Aggregation at

Geographic Aggregation: One location in USA; Three world-wide

SKU Aggregation: Postponement via component

commonality

Geographic Aggregation: One location in USA; Three world-wide

SKU Aggregation: Postponement via component

commonality

Manufacturing of Common Components

Final Assemblyand Delivery

Customer Calls Order

Value Creation Through Tailoring Aggregation

Value Creation Through Tailoring Aggregation

Think of the supply chain of the insurance industry -

matching premium collections to paying claims.

(reserves to payouts)

Think of the supply chain of the insurance industry -

matching premium collections to paying claims.

(reserves to payouts)Tailor the allocation of risk to various players based on capabilities

Tailor the allocation of risk to various players based on capabilities

Speed and aggregation are reserves to be used in case of uncertainty

Speed and aggregation are reserves to be used in case of uncertainty

Tailor the useof these reserves

Tailor the useof these reserves

How Benetton Tailors Aggregations with Risk Sharing

How Benetton Tailors Aggregations with Risk Sharing

Thread Cut Cloth/Finish SaleThread Cut Cloth/Finish Sale

No postponement. Cheap unit cost.

Postponement. Unit cost more expensive.

Raw Materials

Hold Materials

Order quantities by color:

100R 100B 100G

Order quantities by color:

100R 100B 100G

Ordering Recommendations

to Supply Locations

Ordering Recommendations

to Supply Locations

7 Months 1-3 Months 2 Weeks

In Advance In Advance In Advance

7 Months 1-3 Months 2 Weeks

In Advance In Advance In Advance

Up to 30% color adjustment (no change in total):

70R 70B 160G

Up to 30% color adjustment (no change in total):

70R 70B 160G

Up to 10% in any color Holding colored

thread, cheaper but have long lead times

Safety stock held and manufactured on demand

Only flexible capacity is owned by Benetton

Up to 10% in any color Holding colored

thread, cheaper but have long lead times

Safety stock held and manufactured on demand

Only flexible capacity is owned by Benetton