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Show Them the Money: Building Supply Chains to Increase Profits

Show Them the Money: Building Supply Chains to Increase Profits. Michael Hugos CENTER FOR SYSTEMS INNOVATION [c4si]. Overview of Presentation. PART 1 – Changing Business Landscape PART 2 – Supply Chain Case Study QUESTIONS - Ask any time…. PART 1 Changing Business Landscape.

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Show Them the Money: Building Supply Chains to Increase Profits

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  1. Show Them the Money:Building Supply Chains to Increase Profits • Michael Hugos • CENTER FOR SYSTEMS INNOVATION[c4si]

  2. Overview of Presentation • PART 1 – Changing Business Landscape • PART 2 – Supply Chain Case Study • QUESTIONS -Ask any time…

  3. PART 1 Changing Business Landscape

  4. A Continuum Between Two Needs Efficiency Responsiveness • Efficiency requires predictability and stability • Both are nowconspicuously absent • Responsive enterprise is to real-time economy as assembly line was to industrial economy – source of wealth creation • Use responsiveness to differentiate yourself or else participate in “grim race to the bottom” • Evolving mobile phone… efficiency or responsiveness? • Respond to changing customer needs by wrapping products in blanket of tailored, value-added services (information based)

  5. People Want More than Low Price Products meeting higher level needs are worth more Sneakers cost: $20 or >$100 Cars cost: $16,000 or >$40,000 As soon as basic needs are met, people want something more

  6. The Value-Added Paper Cup Surround commodity items with tailored blanket of value added services to increase their value by 2 – 4% (and sometimes more) to High Value Customers Budgeting Ordering Usage Reporting Labeling Receiving Delivering Invoicing “Never sell a naked commodity” Actual Item or Servicecommodity, easily copied, low margin – efficiency driven Every product has two components Information Componenttailored to each customer to achieve desired results –responsiveness driven

  7. Profile of High Value Customers • Products you sell are “Mission Critical” to customer operations • Spends significant portion of their procurement budget on your products • Interested in tailored bundle of products & services • Open to outsourcing certain functions • Profits compared to industry average: Above? Same? Below? • Company is: Expanding? Steady? Contracting? • Other characteristics …

  8. The Value-Added Supply Chain Product Bundle Customer A Customer B Customer C • e-Business services • Product Usage Data • Compliance Reporting Manufacturer & Distributor • Warehousing & Logistics • Credit and financing • Product training & support • Customer Service Increase product value and sales margins by wrapping products with value-added services to address specific customer needs

  9. PART 2 Supply Chain Case Study

  10. Respond to Continuous Fluctuations PERCEIVED DEMAND Customer Demand STORE DC STORE DC Customer Demand STORE DC STORE Customer Demand “Bullwhip Effect”

  11. Case Study: The Tao of Supply Chains • Share daily sales, forecasts and inventory data • Collaborate to produce and deliver inventory to meet demand Sales & Forecast Data Customer Demand Supplier Distributor Distributor Retailer Inventory Data Inventory Data Inventory Inventory Inventory Collaborative supply chains increase throughput while simultaneously reducing inventory and operating costs.

  12. Supply Chain Visibility • 5,000 stores, 26 distributors, 40+ manufacturers • Every day all parties transmit data as text files via FTP • People log onto website and talk via conference calls • Dynamic changed from defensive to collaborative

  13. Performance Visible to All % A B C D E Supplier On Time Delivery Rate Plan vs Actual Wk 1 Wk 2 Wk 3 Wk 4 Order Fill Rate 80% 90% 70% 100% 60% Perfect Order Rate KPI Scorecard Plan vs Actual Wk 1 Wk 2 Wk 3 Wk 4 Inventory Turns Compare Invoice to ASN and PO to calculate Perfect Order Rate Manufacturer Electronic Invoice Distributor Compare PO to ASN to calculate On-Time Delivery and Order Fill Rate Electronic ASN Retailer Electronic PO Display KPI score cards through dashboards visible to all parties. Set customer service alerts for quick response.

  14. Key Performance Indicator Scorecards • Problems spotted early and brought to peoples’ attention • Reduced excess inventory by 60%, reduced stockouts and increased profitability for all • Tracked and displayed real time performance data • Real time visibility creates peer group dynamic and desire to perform!

  15. Learn More… Presentation excerpted from my book: Essentials of Supply Chain Management, 3rd Edition Best selling book worldwide on Supply Chain Management as reported by Amazon.com Join the conversation on my CIO magazine blog “Doing Business in Real Time”http://blogs.cio.com/blog/doing-business-in-real-time www.MichaelHugos.com Center for Systems Innovation [c4si]

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