Supply Chain Management

1. Supply Chain Management The Power of Supply Chains Dr. George HarrisCalyptus Consulting Group, Inc.222 Third Street, Suite 2242Cambridge, MA. 02142617.577.0041 (office)gharris@calyptusgroup.com

2. Objectives Participants will gain knowledge about: • Basic components of supply chain management • How to assess your organization’s supply chain • Benchmarked measures and targets • Key tasks for on-going supply chain management

3. What % of items are out of stock at any one time? 8.3% What is the impact of these shortages on sales? 4%

4. Toyota leased a cargo ship as a floating parking garage for 2,500 unsold cars.

5. Harvard Business Review, March 2011 • The Chief Supply Chain Management Officer (SCMO) • End-to-end Supply Chain Understanding • Cost-conscious outsourcing and internal solutions • Ability to partner with the CIO • Experience running a business unit • Collaborate across business units and global functions

6. Wall Street Journal Headline – March 4, 2011 “New iPad is Two-Edged Sword for Suppliers” • Asian electronics companies announce tablet computer offerings • Same 3 companies also provide electronics (chips) to Apple Conclusion: Your competitors are also your suppliers.

7. Defining a Supply Chain • A chain of activities that creates and delivers the products and services to customers. Examples of supply chain definitions Motorola – From approval of engineering concept to delivery to first customers • Pratt & Whitney – From need for engine parts (pull system) to raw material ordering by supplier • Bank of America – From customer application to decision on mortgage application

8. Aim of SCM: Lowering Total Costs • Lower delivery, installation, or financing cost • Lower the required rate of usage of the product • Lower the direct cost of using the product, such as labor, fuel, maintenance, required space • Lower the indirect cost of using the product, or the impact of the product on other value activities. For example, a light component may reduce the transport costs of the end product • Lower the buyer cost in other value activities unconnected with the physical product • Lower the risk of product failure and thus the buyer's expected cost of failure

9. Costs Across the Supply Chain

10. A Supply Chain: Visual Representation Chains of activities that create and deliver the goods and services of a firm’s value chain Suppliers Firm Customers 1st Tier 2nd Tier End Users 3rd Tier

11. Example: Supply Chain Service Travel Services

12. Resins Supplier Plant Assembly Interplant In-bound Mold/Die (Plastics Operations Movement Manufacturer) Logistics Maker Capital In-bound Equipment Logistics Manufacturer Supplier (Plastics Manufacturer) Outbound Logistics Transport Packing Distribution End Distribution and Dealer Operations User Centers Packaging Contractor Transport Customer/ End Integrator User Example: Supply Chain Product Injection Molding

13. What Does Managing the Supply Chain Mean? • Customer need • Supplier and sub-suppliers capability • Information and communications systems • Market trends • Ensure organization’s interests • Delivery

14. On-Time Delivery Rate (Median % Per Industry)

15. Benchmarks: Supply Chain Performance

16. Basic Components of Supply Chain Management Forecast / Demand Management Supply Product Transformation and Service Execution Distribution and Support • Source of Demand • Forecasting Process • Adjustment to Forecast • Production Scheduling • MRP Compliance • Continuity • Feasibility • Improvement • Cost Reduction • Lead-time • Lowest Costs • Inter-company Transfers • Transformation Process • Equipment • People • Utilities • Maintenance • Process Engineering • Warehousing • Transportation • Inventory Management • Packaging • Shipment • Documentation

17. Major Barriers to Supply Chain Optimization

18. Forecast/Demand Management Excessive forecast errors results in performance problems in many key business functions • Customer Service • Poor line item availability • Low percent of orders shipped complete • Large number of backorders • Poor on-time shipment performance • Customer complaints • Inventory Management • Low turns • High obsolescence • Transportation • Large volumes of transferred product • Heavy use of premium freight • Manufacturing • Production schedule breaks • Need for outsourcing • Increased overtime • Warehousing • Excess space / storage cost • Damaged product • Finance • Excess inventory carrying cost • Marketing • Excess packaging material

19. Actions to Improve Supply Chain Performance:Customer Demand

20. Supply • Strategic Sourcing is a structured methodology and process which utilizes cross-functional teams and analytical tools to make buying decisions • Built on simple premise that the purpose of each buying decision is to create value • Value = Savings and Improved Customer Service ExamplesLeverage Buying — aggregate spend across the business unit or company with fewer suppliers reducing costs: (volumediscounts, reduced inventory and process costs) • Total Cost of Operations — includes purchase price, processing costs, inventory carrying costs, logistics costs, installation and maintenance costs.

21. 2 X 2 Categories and Strategies Each quadrant has its own strategy High LeverageExamples: Staff Augmentation, Fittings, Wireless Hardware StrategicExamples: Professional and Plant Core Services, Valves, Radiation Waste Services RoutineExamples: Office Supplies, MRO Items, Lubricants BottleneckExamples: Plant Auxiliary Systems, Turbine Generators and Control Systems Low High Difficulty in Finding Suppliers

22. 2X2 Categories and Strategies Spend Categories Value Levers Result Routine • Reduced transaction costs • Reduced purchase price Process Efficiency Purchase Power Leverage • Reduced transaction costs • Reduced purchase price Process Efficiency Purchase Power • Reduced transaction costs • Reduced purchase price • Reduced inventory cost, cycle time, etc. • Improved visibility • Improved reach Process Efficiency Bottleneck Purchase Power Supply Chain Market Efficiency Process Efficiency • Reduced transaction costs • Improved reach • Reduced inventory cost, cycle time, logistics cost • Improved visibility • Improved coordination Strategic Purchase Power Supply Chain Aggregated Content

23. Analyze Decide Implement Strategic Sourcing Methodology Define CategorySpend Define Specifications Define Suppliers Define Strategy Obtain Business Unit Buy-In Implement Strategy Objectives: • Identify and profile opportunity • Define special requirements and issues • Identify issues in the marketplace • Develop strategy to maximize outcome • Business Unit adoption • Execute strategy Tasks: • Customer Requirements • Executive Mandate • Spend Analysis • Historic • Future • Long-Range Projects • Supply/Demand analysis • Strategic • Bottleneck • Routine • Leverage • Business Case Development • Identify key stakeholders • Cross-functional teams • Identify opportunities to improve TCO • Identify opportunities to improve current process • Approved Business Case • Presentations • One-on-ones • Blanket PO • Site Specific • Multiple BU • Auction • One-off Buy • Supplier Alliance • Consignment/Vendor Managed Inventory • Reverse Engineering • Change Standards • Performance Incentive based Contract • Supplier Selection • Material Standardization • Contract Implementation • Performance Management • Savings Reporting • Safety/Non-safety • Focus on standard, then custom • Market Analysis • Obsolescence • Approved Suppliers List • Preferred Vendors • Common Contract Deliverables: • Opportunity Profiles • Initial Business Case • Strategy Issues • Action Plan • Final Business Case • Schedule • Action Plan • Strategy Document • Validated Action Plan • Right part, right place, right time, right price • Signed contract • Validated Action Plan

24. Actions to Improve Supply Chain Performance: Supply PRODUCT/SERVICE PROCESS • Leverage volumes • Standardize requirements • Eliminate sole source supply relationships • Use value analysis • Look for global best-in-class sources • Collect spend data • Complete category plans • Develop sourcing strategies • Evaluate Total Costs • Ensure Effective Implementation • Develop supplier performance management system

25. Transformation • Key Elements of Strategy • Capacity • Facilities • Technology • Vertical Integration • Workforce • Quality • Production Planning / Materials Control • Organization

26. Influences on Transformation • Quality, time, and cost competition • Environmental control • New product development • Globalization and restructuring • Human resources and empowerment • Technology and innovation • Strategic alliances • Operations improvement

27. Transformation Economics

28. Bottleneck Analysis • Bottleneck • A resource whose capacity is less than or equal to the demand placed upon it • It is the evaluation of the capacity of resources and demand placed upon those resources and • It is a comparison of the demand for a resource to the capacity of a resource What is Bottleneck Analysis? Demand Capacity Vs.

29. Tools for Improving Transformation Bottleneck Analysis Step 1. Identify the following information about resources • Which resources are bottlenecks? • How often do the bottlenecks occur? • The severity of the bottlenecks. • Which resources are non-bottlenecks? • The amount of available non-bottleneck capacity. Step 2. Use the tool to allow for better decision making • Determine sales or profit gain or loss • Determine bottleneck management policies • Evaluate product mix decisions • Production planning and scheduling (inventory or overtime) • Resource optimization

30. Ways to Reduce Cycle Time • Expeditious design cycles • Focused plants • Efficient product flow • Streamline and decision-making processes • Dependable stream of supplier furnished product • Pull products through plant • Similar services grouped for volume purchasing • Alignment of service project completion dates • Value-added Indirect Staff effort

31. Actions to Improve Supply Chain Performance: Transformation PRODUCT PROCESS • Lower tolerances • Pool engineering change orders • Use standard processes • Promote design for manufacturability • Produce a generic product • Remove bottlenecks • Size buffers appropriately • Reduce set-ups • Shorten cycle times • Introduce self-managed work teams • Install buffer capacity

32. Distribution

33. Forces Influencing Distribution Activities Today • Geographic shifts in production and consumption • Increasing market segmentation • Low capital supply and high cost of borrowing • Revolution in manufacturing technology • New supply sources and constraints • Energy cost and availability • Regulatory changes • New labor management considerations • Internationalization of sources and markets

34. Costs of Distribution

35. Define Activities (Scheduled) Workload Analysis Define Activities (Routine) Receiving Put away Restock Stock Issues Tool issues Processing returns MIS updates • Cleaning • Inspections • Cycle counts • Special requests • Processing obsolete • Special projects

36. Actions to Improve Performance : Distribution • Supply Chain Collaboration • Collaborative Planning, Forecasting and Replenishment (CPFR) • Buyers and sellers share information on demand and product availability • Cross Docking • Move product from receiving dock to shipping dock without placing the product in storage • Merge-in-Transit • Orders brought together in hub, then shipped to customers

37. Actions to Improve Supply Chain Performance: Distribution

38. Examples of Supply Chain Transformation • Thyssen creates virtually integrated steel operations, linking workers on three continents by networks and software systems (12/10) Rotterdam Team Monitors Orders and Shipments End Customer40% N.A. Automakers Sepetiba BrazilProvides Steel Alabama PlantRolled and Treated for Use inCars, Construction, and Pipes Freighters(5 Days) Raw MaterialIron Ore(Brazil)

39. Managing Risk in the Supply Chain • Using Failure Mode and Effects Analysis (FMEA) can also help in evaluating, mitigating, and eliminating risks ISM Inside Supply Management Magazine, December 2010 – January 2011

40. 2011 New Thinking for SCM • Use of mobile devices to track supplier performance • Consideration of “Near-sourcing’ alternatives • Resurgence of customer service • Organic collaboration • Legitimate use of total cost as a decision-making tool

41. Supply Chain Diagnostic Tool • This is a tool you can use to assess your supply chain.

42. For additional information, please consult the addendum.