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Supply Chain Management

Supply Chain Management. Strategies for Success. Michelle Kalnas SVP American Electric Power. American Electric Power. Industry: Generation & Distribution Utility Size: $22 Billion in Revenues Capacity: 42,000 megawatts

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Supply Chain Management

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  1. Supply Chain Management Strategies for Success Michelle Kalnas SVP American Electric Power

  2. American Electric Power • Industry: Generation & Distribution Utility • Size: $22 Billion in Revenues • Capacity: 42,000 megawatts • U.S. electricity sales:Approximately 200 million megawatt hours • U.S. customers 4.9 million • Spend $3B • Miles of transmission lines: 38,000 • Miles of distribution lines: 186,000 • Service territory: 197,500 square miles • Geographic Area: 11 States Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, West Virginia

  3. Introduction • Since its inception in the early 1990's, the field of supply chain management has become tremendously important to companies in an increasingly competitive global marketplace. Supply chain management is one of the leading business process re-engineering, cost-saving and revenue enhancement strategies in use today. Effective integration of a supply chain can save millions, simultaneously improving customer service and reducing inventories; even greater gains are possible by bringing supply chain strategies to the table early in the design plans.

  4. Definition • Supply chain management is essential for most businesses. The failure to receive needed supplies on time can create catastrophic problems for any company. Excess inventory can reduce your cash flow and create additional expenses.Simply put • Supply Chain: • Sequence of activities and/or organizations involved in producing and delivering a good or service • Supply Chain Management: • The activities, decisions and initiatives that improve profits by lowering the total cost of supply while reducing risk

  5. Relationship Management Information, Product, Service, Financial and Knowledge Flows E N D US E RS FIELD SUPPLIER NETWORK M A T E R I A L S INTEGRATED ENTERPRISE DISTRIBUTIVE NETWORK Procurement & Contracting Materials Management Generation & Wires Capacity, Information, Core Competencies, Capital and Human Resources Operational Scope

  6. Where Procurement Spends Their Time

  7. Challenges • Leadership: buy-in and champions • Change management: giving up control • Enterprise view: pricing – cost savings • Flexibility: disruption, part availability • Measurement: within and across the business • Communication: manage timely shipment of parts and products • Social issues: antitrust, increased prices, regulatory • Measuring the contribution of Supply Chain

  8. Strategic Decisions • Merge three separate supply chain organizations into one. • Develop a workforce with a higher degree of formal training and certification. • Gain the trust of business units not using supply chain services (maverick spending). • Increase the effectiveness and efficiency of the combined organization through improved processes supported by technology.

  9. People • People are the most important asset in supply chain. Certified Professionals in Supply Chain = 30.67% • APP • CPM • CPIM Source: CAPS

  10. People • Average Salaries • Professional Exempt • Contract Management $60,450 • Supplier Management $67,750 • Purchasing $53,700 • Non-Exempt • Clerical Hourly $31,800 • Contract Employees $41,500 Source: CAPS

  11. Processes • The core business processes for supply chain begins with the identification of a need for materials, products or services and concludes with the payment for those products or services. • Request for Information • Request for Quote • Strategic Sourcing • Negotiations • Logistics • Materials Management • Accounts Payable About 21% of supply chain processes are automated

  12. eBusiness • This year there will be nearly $4 trillion dollars worth of transactions conducted over the Internet. • Subtract out the duplication caused by eProcurement and eBusiness and the estimated amount of eCommerce is $2.35 Trillion • B2B eCommerce = $1.65 Trillion • B2C eCommerce = $700 Million Source: Technolytics

  13. eBusiness • While eBusiness provides a significant channel for purchasing, the dollars transacted over that medium is very limited. • CAPS Research estimated that less than 10% of dollars are transacted over B2B applications. • 50% of utilities surveyed stated they currently had B2B applications installed and operational.

  14. Technology • EDI (electronic data interchange) as a technology has the largest percentage of dollar transactions. • Nearly 40% of total purchasing transactions processed via EDI. • AutoFax is another common mechanism for transacting purchases. • Nearly 20% of total transactions are processed through AutoFax.

  15. eMarketplaces • In the business-to-business (B2B) sector, new supply-chain models created by online electronic marketplaces (eMarketplaces) were said to offer firms significantly lower procurement costs, increased operating efficiencies, and expanded market opportunities.

  16. eMarketplaces • But Did They? • Why would you ever consider using an eMarketplace? • It aggregates total spend and allows all participants to leverage volume. • Size Matters • A multi-billion dollar company should be able to have enough leverage to get the best pricing without going to an open eMarketplace.

  17. eMarketplace • In 2000 industry analysts forecasted 53% of eCommerce would be conducted through marketplaces • Today the figure is actually 2% • Pantellos – non-auction eCommerce transaction value is equal to 3 or 4 of AEP’s large purchase orders • Enporium – has implemented numerous eMarketplaces for clients, case studies do not provide any hard evidence of real value creation.

  18. Measuring Performance Since People are so critical to the success of supply chain, measuring their performance is a must. Mean Purchasing Dollars Per Employee • $18,500,000 (CAPS Research) • $24,600,000 (AEP Current) On average $1,200 a year is spent on training for supply chain service’s staff.

  19. Measurement Dashboard • CEO and Board • Savings • Company Financials • Competitiveness • Suppliers • Supplier Performance • Quality and Delivery • Price Level • Business Units and Other Functions • Spend Analysis • Cost (Non-price) • Customer Satisfaction • Inventory • Staff • Organization and Productivity • Process Efficiency • Project Status

  20. The Bottom Line

  21. Summary – 4 Rules of Business • People are the most important resource in business. • Processes are the framework for efficiently and uniformly conducting business and delivering value. • Technology is a means not an end. It enables you to automate tasks and activities within your processes. It does not replace the need for skilled people. • eCommerce is a business tool; and like every other tool you must find the best way to use it within your organization to create competitive advantage.

  22. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Questions & Answers

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