Supply Chain Management Project

1. Supply Chain Management Project The single supply chain (SSC) vision

2. Contents • Introduction • Creating the vision • Supply chain breakpoints • Realising the benefits • Single supply chain processes 3 9 13 98 109

3. Introduction

4. Background • A report by the ANAO highlighted disparate practices within Defence supply chain management and identified them as a significant impediment to cost effective management • SCA has undertaken to deliver a uniform and optimal ADF supply chain and to improve the management of the ADF inventory

5. Background • The SCMP was established to examine the disparate ADF supply chains and to develop a proposal for a uniform supply chain to replace them • The project is being resourced primarily through the contracting of consultancy support

6. Project aims • The aims of the SCMP are to: • create a single set of processes to support the supply chain • improve service levels • exploit MIMS OE functionality • reflect good industry practice where appropriate • reduce total supply chain costs

7. Project scope • The scope is: • tri-service • “factory to foxhole” • (where foxhole = ship, unit or squadron)

8. Project scope • The project also recognises key interfaces with cores areas that are out of SCMP scope: • materiel maintenance • operations planning (Environmental commands) • financial management • human resources • engineering • technical integrity

9. Creating the single supply chain vision

10. Single supply chain vision • Why do we need a vision? • To enable the supply chain vision of SCA to be communicated throughout the organisation • To assist in the co-ordination of the many related projects

11. Customer Creating the vision As-is process detail Software best practices Leading practices The single supply chain As-is issues & opportunities Redesign Industry trends SCA mission and business requirements

12. As-is process mapping • Numerous workshops have been held with members of JLSA and the SCA components to establish the as-is processes • Maps have been made according to the IDEF0 hierarchical methodology:

13. Supply chain “breakpoints”

14. Supply chain “breakpoints” • During the visioning process we have identified the areas where we believe dramatic benefit can be provided to SCA and the ADF • We call these “breakpoints” • “Breakpoints” are those changes or initiatives where the benefits are disproportionately great compared to the effort required to implement them • They are not incremental changes or improvements, but step changes in performance

15. “Breakpoint” areas: • Integrated planning • demand planning • supply planning (how to fulfill the demand) • collaborative planning • eProcurement • a single tri-Service purchasing system • unique views tailored for users • Customer service management • demand tracking and visibility

16. “Breakpoint” areas: • Life-cycle management • information support for the disposal activity • Supply chain performance management • best practice supply chain measures • Automated workflow • extending the workflow to customers and suppliers • Deployable capability • ability to requisition, issue, purchase and have visibility of order status when deployed

17. “Breakpoints” discussion • We will discuss each “breakpoint” in turn, explaining: • the principles • the benefits • the change impacts • the challenges

18. “Breakpoints” discussion • The most highly impacted current process areas will be shown using the IDEF0 maps

19. Integrated supply chain planning

20. Integrated supply chain planning • Definitions: • Integration • The co-ordinated planning of activities that occur over time to forecast demand, procurement, and distribution of goods across the extended supply chain, from factory to foxhole • Visibility of the extended supply chain, using the same information to drive all business activities • Synchronisation • Getting supply chain partners to act in concert to match end-consumer demand as closely as possible

21. Integrated supply chain planning • In the commercial world, integrated planning includes: • sales and operation planning • demand planning • capacity planning • production planning • supply planning • Some of these are relevant to Defence • MPS, MRP I, MRP II, DRP • transport planning • category planning • launch / end of life planning

22. Integrated supply chain planning Years Supply chain network design Strategic Demand management (Sales and) Operations planning Supply chain planning Weeks / months / quarters Tactical Forecasting & demand planning Constrained DRP Deployment Manufacturing planning Available-to- promise Hours / days Transport scheduling Warehouse scheduling Finite scheduling Capable-to- promise Operational Areas relevant to Defence Areas not relevant to Defence

23. Integrated planning steps in Defence Operations Planning Operations Planning 4 Resolve issues 1 Demand Planning Supply Planning Distribution / Transportation Planning (DIDS will provide some of this) 2 3 Recommendedshipments Demand 5 Forecasts What do my customers want? What do I need, What can I provide? Where and When? How do we deliver efficiently?

24. Historical data Knowledge of events Operations plan Reserves requirement Materiel plan from maintenance Demand planning (Unconstrained) Demand Planning Demand plan Key inputs from customers are essential for good demand planning Statistical forecasting Market intelligence Causal forecasting

25. Demand planning screen examples Demand planning works by building on history based forecasts using causal (event-driven) forecasting and intelligence about customer operations to create a consolidated, time phased demand forecast Source: Manugistics

26. Purchasing forecast Purchase proposals Inventory movement requests Supply planning Constraints (e.g. network, financial, capacity, inventory) Supply planning Demand plan Actual demands A parallel demand and supply plan to support contingencies should be maintained Constraint issues can be resolved ahead of time Replenishment rules

27. Collaborative forecasting • The ultimate integration is to connect the supply chains of Defence and suppliers together in a collaborative forecasting environment • Collaborative forecasting enables: • the supplier to manage his operations to better serve the needs of Defence • Defence to be better prepared for constraints in the upstream supply chain • remedial actions to be pro-active

28. Collaborative forecasting • The SSC aims to lower the barriers for suppliers to collaborate with Defence in forecasting and inventory management • This can be achieved through a secure extranet approach • Defence should actively seek out or create the market for those suppliers willing to provide these extra services that increase the reliability of the supply chain

29. Integrated planning - Benefits • Greater ability to plan and deploy inventory better, leading to: • reduced stock-outs / better customer service • increase in ship-complete / on-time percentages • more reliable customer commitments • inventory reductions: • increased inventory turns • decreased inventory carrying costs • improved return (capability) for inventory investment

30. Integrated planning - Benefits • Operational benefits for the Environmental commands: • greater ability to plan support for operations • better feedback to environmental commands about what level of activity is supportable • better contingency planning across the whole supply chain • real-time capability to create strategies to fulfill volatile demand

31. Integrated planning - Change impact • The process for conducting integrated demand, supply and collaborative planning across the organisation will need to be developed for each category of supply • The existing supply network will need to be modeled and built into the supply planner program • This will require significant understanding of the major demand drivers and an amount of work to develop new models

32. Integrated planning - Change impact • The technical functionality needed to execute such integrated planning is not normally inherent in supply systems and may have to be bought or developed • Realising the benefits of integrated planning will require that personnel be educated in concepts of constraint-based planning and trained in operation of the SSC planning tools • Fully integrated planning will require cross-program, departmental and supplier participation and collaboration

33. Integrated planning - Change areas

34. Integrated planning - Challenges • Applying integrated planning appropriately: • by inventory segment (from Supply Chain Segmentation project - e.g. high usage value, high business impact, long lead time...) • by category (e.g. clothing, fuel, platform...) • planning at the right level • Establishing new rules to assist in decision making and managing the trade-offs • Capturing data to support processes (e.g. business impact for spares, item weight, cubes...)

35. Integrated planning - Challenges • Ensuring that RIs are appropriately supported - especially considering slightly different input data requirements

36. eProcurement

37. eProcurement • The online buying of goods and services, that drives significant savings through: • increased process efficiency • increased contract compliance • added negotiating leverage through increased purchasing visibility

38. INTERNET eProcurement enables distributed but controlled purchasing Goods and services delivered 1 Defence 5 6 2 3 Electronic product selection Requisition creation Electronic Approval of Requisition Electronic Approval of receipted goods 1 4 Catalogue Mincom Electronic match from eProcurement system 7 Bank 8 Trigger payment to suppliers eProcurement eProcurement eProcurement eProcurement Link to Mincom Internet link InTrade Mincom Mincom 1 - Selection from Defence eProcurement catalogue - availability, lead time etc. 1 - Selection from Web based catalogues (suppliers or content sites) 2 - Requisition creation or from stored requisition 3 - Approval of requisition by Authorizer 4 - PO created and information downloaded to Mincom 5 - PO sent to supplier 6 - Goods and services sent to Defence requisitioner and receipted 7 - Match made with PO data in Mincom (price, description , quantity etc.) 8 - Mincom triggers payment to supplier(s)

39. Catalogue Catalogue Catalogue eProcurement supports integrated systems Army Navy Air Force Supplier cat. Supplier cat. Supplier cat. Suppliers Message broker Gateway Internet • Order data can be sent in many forms: • XML • e-mail • CD-ROM • Fax • Hosted service access Catalogue data MIMS Other systems • Bank • Payment • Remittance info Reports

40. eProcurement • Automating the ‘requisition-to-cheque’ process (shop, select, requisition, order, approve, confirm, receive and pay) • Extensive use of online item catalogues • Reporting and tracking of purchases against established contracts, cost centres, operational groups/units • Data capture of actual spending

41. eBusiness portal • The SSC envisions the creation of an electronic trading community to work with Defence through a single internet ‘portal’ • supplier registration • tendering • on-line quotes • auctions • reverse auctions • collaborative forecasting

42. eProcurement - Benefits • Process efficiency • reduced transaction costs • reduced error rates • reduced processing time • reduced number of procurement steps • reduced on-site inventory • enabling procurement staff to focus their efforts on building strategic relationships with suppliers

43. eProcurement - Benefits • Increased contract compliance brings: • increased use of preferred suppliers • reduced off-contract spending • reduced processing errors • more goods purchased at agreed contract rates • Supplier rebates and volume discounts are captured

44. eProcurement - Benefits • Increased negotiating leverage of purchasing power, through the analysis of spend patterns with each supplier and product category • High level of configurability - users only see and access catalogue content that is relevant • Supply Chain Segmentation project identified many items for a “purchase on demand” approach - eProcurement is the desired mechanism for achieving this • Greater variety of items available via desk top purchasing

45. eProcurement - Benefits Before e- After e-procurement procurement Low 1. Spend Visibility High Manual 2. Requisition Process Automated Low 3. Contract Compliance High Moderate/High 4. Transaction Cost Low Days 5. Order production cycle Hours Moderate 6. Error Rate Low ? 7. Order Status Available On-Line Redundant 8. Data Input Single Point Capture

46. eProcurement - Benefits • Many ‘soft’ benefits are also generated, including: • improved customer service • reduced order cycle times • data availability/visibility • reduced inventory levels • consistent workflow/approvals • more time available to perform core operational tasks

47. eProcurement - Change impact • eProcurement will build on the existing EPU concept • eProcurement will create a need for greater participation from suppliers in the creation and maintenance of catalogues • Development of an eBusiness portal for the Defence marketplace will change the way in which suppliers interact with the Department • Additional technology and capability to support eProcurement and an eBusiness portal will be sourced and incorporated into the SSC solution

48. eProcurement - Change impact • Defence will need to focus on leveraging the efficiencies generated by the use of eProcurement to gain benefits in more complex and strategic procurement areas • The organisation will need to be disciplined in contract negotiation to ensure that contracts are compliant with an eProcurement approach - so that the process can truly be automated • A change in mindset from ‘cheapest price’ to ‘lowest total supply chain cost’ is required

49. eProcurement - Change areas

50. eProcurement - Change areas Additional activity to support vendor catalogues will be required