Measuring Internet Enabled Supply Chains Jim McGwin

1. Measuring Internet Enabled Supply Chains Jim McGwin

2. “Fortunes are won and lost in moments of transition, and the Internet is all about transition” Tom Meredith, CFO Dell Computer

3. The Internet is to the Information Age As Electricity was to the Industrial Age Impact "The Fifth Utility" • It Is Driving: • Fundamental Changes • Customer Expectations • Business Models • The Use of Technology

4. Land-based retailer Internet retailer Profitability Models Operating profit ($m) 200 100 Virtual capital ($m) 100 200 300 400 -400 -300 -200 -100 -100 -200

5. Business Models

6. Wholesale Distributors Suppliers Logistics Providers Manufacturers Supplier Exchanges Logistics Exchanges Customer Exchanges Customers Virtual Manufacturers Contract Manufacturers Information Flow Logistics Providers Goods Flow Emerging Internet-Connected Supply Chains Source: AMR Research, 2000

7. AVL management • Tooling lifecycle mgmt • Critical path monitoring • Reporting tools • RFQ/Online bidding • Capacity Analysis • Utilization Analysis • Asset Management • AVL management • Supplier score carding • Forecast sharing • Technical specifications • Design feasibility/DFM • Document access/transfer • Supplier selection • Target costing • Tooling design Engineering Procurement Sourcing Concept Design RFQ Forecast Ongoing • Consistent Processes • RFQ • Early involvement • Forecast visibility • Utilization tracking • Capacity visibility • Scorecard visibility • Early design involvement • Visibility to Forecast • Capacity planning • Asset Management Suppliers Manufacturing Product Life-Cycle Management Example: Collaboration and Tracking Throughout the Process Plus Logistics and Finance

8. Searching Suppliers Documents Waiting Responses Changes Preparing Documents Spreadsheets RFQ’s Preparing Documents Bid Package Selecting Suppliers FedEx/UPS Waiting Responses Contact Faxes Reviewing Quotes Response time Selecting Supplier Waiting Reviews Feedback GO Ahead Award Design Concept RFQ Quote Review What % is spent on non-technical activities? Time to Market Opportunities for Savings/JustificationConcept to Award Process

9. Customers Distributors Suppliers Sales Suppliers MIS MIS Finance Finance Finance Sales MIS Sales Marketing Marketing Marketing Engineering Logistics Logistics Manufacturing Manufacturing Engineering Engineering Logistics Manufacturing Vertically Integrated Enterprise The Supply Chain Integrator Virtual Enterprise Increasing Enterprise Extension The Move To The Virtual Enterprise Source: Gartner Group

10. The Internet Accelerates Margin Pressure Price erosion on increasingly commoditized products Net prices $ Profit margin squeeze Gross costs Increased logistics services/costs to serve the customer Time

11. Technology Architectures

12. Stage 3 The Extended Enterprise Stage 2 Internal Process Integration Stage 1 Functional Stage 0 Informal Plan Source Produce Deliver There is Internal and External Process Integration, Allowing Each Enterprise to Focus on its Customers, Core Competencies and Creating Value ? ! With Alignment Across all Sub-processes and Levels of Management, Processes are Integrated and Display World-Class Performance and Continuous Improvement Functional Orientation Sub-Optimizes Enterprise Performance in Asset Management, Cost, and Customer Satisfaction The Lack of Functional Policies/ Processes and Basic Operations Management Can Result in Unpredictable Quality and Supply Based on The Supply Chain Council SCOR Model In this model, the maturity of an organization’s value chain is categorized in one of four stages: informal; functional; internal integration; and extended enterprise integration. This spectrum illustrates the level of integration across an organization’s trading partner environment, and this corresponds directly to cost savings and value added to the organization and its customers. Stages of Maturity Matrix

13. Business Application Migration Portals and Exchanges Global APS Visibility and Complexity Enterprise ERP MRP II MRP Transactional Manual 21st Century BC 60s 70s 80s 90s

14. One to One vs. Many to Many… Integration Models vs. eChain Dynamic Trading Networks/Communities

15. CBP Call Centers Mode Processes Legacy CFAR FAX Data Whs. IVR eCRM EDI C/S Design ERP Internet eProcurement Wireless eFulfillment Other Bus. Applications eMerge Technology Architecture Application layer Dynamic Integration Inter enterprise Visibility Integration Adapters Information Translation Process to Application Logic Security / Monitoring Neuro- Implants? enterprise……………………….inter-enterprise

16. Integration Approach vs. Value Process Integration Delta Value Function Integration Delta Data Integration Complexity

17. Migrating to the Extended Enterprise * See Forrester Report 8/99

18. Measuring The eValue Chain

19. Income statement Gross revenues Net revenues + Profit before tax Gross profit ”Revenue leakage" + - Profit margin Percent + - Cost of goods sold - ¸ Operating costs Net revenues Profitability % X Current assets Inventory Net revenues + Capital turn-over rate Times/year Accounts receivable + + Assets + Miscellaneous current assets ¸ Fixed assets Owner´s equity + Buildings, machinery, miscellaneous + Liabilities Accounts payable + - Other short- and long-term liabilities + Balance sheet Traditional Measures

20. Increase sales in existing market • Access new markets • Introduce new products • Increase price • Reduce margin erosion Revenue Increase Profit • Reduce support costs • Reduce procurement costs • Reduce logistics costs • Reduce Taxes Cost Increase EVA • Increase WC turnover • Reduce inventory asset • Stretch payables • Reduce receivable asset Working Capital • Consolidate production facilities • Outsource • Change fixed asset financing Fixed Investment Manage Investment Intangible Investments • License intellectual property • Lower “other” expenses EVA

21. Conduct Internal Measurement First Segment Processes Adapt Existing Re-engineering Studies Develop or Adapt Industry-Specific and Value-Chain-Specific Metrics Link E-Commerce Metrics to the Bottom Line Measure E-commerce’s Value to Trading Partners Measure the Contribution to Competitive Advantage Source: Gartner Group Seven Ways to Measure E-Commerce Value

22. Customer-Facing Internal-Facing SCOR Level 1 Metrics Delivery Performance/Quality Cost Assets Flexibility and Responsiveness Delivery performance 3 Order fulfillment performance 3 Perfect order fulfillment 3 Supply-chain response time 3 Production flexibility 3 Total supply-chain management cost 3 Value-added productivity 3 Warranty cost or returns processing cost 3 Cash-to-cash cycle time 3 Inventory days of supply 3 Asset turns 3

23. Design Design Design Design Design Sell Sell Sell Sell Design Design Sell Sell Service Service Service Design Source Source Make Make Deliver Deliver Make Make Deliver Deliver Source Source Source Source Deliver Deliver Make Make Make Make Source Source Deliver Deliver Deliver Deliver Deliver Source Source Source Source Design Design Suppliers’Supplier Sell Sell Sell YourCompany Supplier Design Customer’sCustomer Customer Time The eValue Chain Supply Chain is the flow and transformation of components into products and services from the element suppliers, through production and distribution to the ultimate customer. Supply Chain Models are primarily Product/Process centric Implementations are typically focused on the enterprise level

24. InformationCycle Product& Service Cycle Design Design CashCycle Design Design Design Sell Sell Sell Sell Design Design Sell Sell Service Service Service Design Source Source Make Make Deliver Deliver Make Make Deliver Deliver Source Source Source Source Deliver Deliver Make Make Make Make Source Source Deliver Deliver Deliver Deliver Deliver Source Source Source Source Design Design Suppliers’Supplier Sell Sell Sell YourCompany Supplier Design Customer’sCustomer Customer Time The eValue Chain Value Chain is the complete integration of the critical elements of Value, being: information; product and cash across all entities that comprise the supply chain. Maximizing benefit to key stakeholders including end customers and stockholders of the participating entities.

25. Poor Leader 180 75 30 2 10 eValue Chain Enabled by the capabilities of eTechnologies, eliminates latencies in information product and cash. The primary metric of complete integration and value-added performance is the IPC ratio. IPC Ratio TM Information : Product : Cash Comparative Cycle Times Pointing in the wrong direction Time in Days Information Cycle Product& Service Cycle CashCycle

26. 20 25 15 Cash Cycle TimesPersonal Computer Peripheral Supply Chain Tier 1 Supplier 135 90 Component Supplier 45 Inventory Turns >200 <5 10 Internet retailer -45 -90 Complete Value Chain Cash Cycle Time -30 + 75+ 150 = 195 Cash Cycle Days

27. Information Business Value eValue Chain Strategy Goods & Materials The value and strategic importance of information across the value chain has surpassed that of the goods & materials it describes. Supply Chain Management Time What is the eValue Chain

28. “If the rate of change outside your business exceeds the rate of change inside your business, the end is in sight.”Jack WelshGeneral Electric Some Words of Wisdom “The warning to every business is that even if no one in your industry jumps in early, big online players, trying to fill every commerce niche, will move into yours.” Bill Gates Business @ The Speed of Thought “Work…yours and mine…as we know it today… will be re-invented in the next ten years. It’s as simple as that. And as profound.” Tom Peters The Work Matters "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change"Charles Darwin The best way to predict the future is to create it. Peter Drucker