Supply Chain Strategic Assessment for the Digital Business Imperative…

1. Supply Chain Strategic Assessment for the Digital Business Imperative…

2. Digital Business Imperative “The storm that’s arriving—the real disturbance in the force—is when the thousands and thousands of institutions that exist today seize the power of this global computing and communications infrastructure and use it to transform themselves. That’s the real revolution.” - Lou Gerstner, IBM

3. Agenda • Supply Chain Strategic Assessment - Focus of Study • Phase I • The Supply Chain Processes • Methodology Overview • Phase II • Strategic Alignment for the Digital Economy • Methodology Overview • Question and Answers

4. Supply Chain Management Definition “the process of developing decisions and taking actions to direct the activities of people within the supply chain toward common objectives”

5. Why this multi-year study? • The need to determine the decision making processes that are key to effective supply chain performance. • The need for further definition of practices and PRINCIPLES that impact performance of the decision processes. • The need for a “conversation framework” to share issues and information about the decision processes.

6. Focus of Study • Explores the current decision making practices, principles and decision process performance in the four SCOR process areas: • PLAN, SOURCE, MAKE, and DELIVER. • Attempts to identify the practices and principles that best correlate to superior decision-making performance in Supply Chain Management.

7. The Supply Chain Decision Process Groupings Operational Strategy Planning Balancing Change Promise Delivery Demand Management Planning & Scheduling Distribution Management Procurement Plan Make Deliver Source Make Deliver Source Source Make Deliver Source Deliver Suppliers’Supplier Supplier Your Company Customer Customer’sCustomer Internal or External Internal or External

8. Methodology Overview Research Objectives • Determine what Supply Chain Management • practices relate to superior performance. • Determine the Best Practices that relate to • superior supply chain performance.

9. Methodology Overview Research Objectives • Determine how the “common themes” questions relate to performance. • Determine what practices "go together“. (strongest inter-correlation, factor analysis). • Determine the frequency and institutionalization for Best Practices.

10. Methodology Overview • Questions were developed through hundreds of interviews with practitioners. • Questions were organized by SCOR model area. • A survey questionnaire was developed using a scale measuring the frequency of the principle or practice. • 1- never or does not exist • 2- sometimes • 3- frequently • 4- mostly • 5- always or definitely exists

11. How Effective is Your Supply Chain Management? The Supply Chain Strategic Assessment Will Show You

12. The Supply Chain Maturity Model • What Is It ? • The means to assess the quality and • effectiveness of the supply chain • management process.

13. The Supply Chain Maturity Model • How Is It Used? • The model currently defines five levels of supply chain management maturity ranging from Ad hoc to Extended (world class).

14. The Supply Chain Maturity Model • How Is It Used? (Continued) • The model extends the value and capabilities of the SCOR Model by looking at • integration, strategy, cooperation, collaboration, • jobs, organization structure, • measurement systems, best practices, • customer focus and • the level of cross-functional and cross-company process definition, interaction and understanding.

15. The Supply Chain Maturity ModelPhase I • What Can I Learn From The Model? • Understanding and insight into the degree • of maturity and level of sophistication of • your supply chain management processes • relative to other enterprises and industries.

16. Levels of Supply Chain Maturity Ad Hoc , Level 1: The supply chain and the SCM practices are unstructured and ill-defined. Process measures are not in place and the jobs and organizational structures are based upon the traditional functions, not horizontal supply chain processes. Individual heroics and “working around the system” are what make things happen.

17. Levels of Supply Chain Maturity Defined, Level 2: The basic SCM processes are defined and documented. The order commitment, procurement and other processes, for example, are available in flow charts, and changes to these processes must now go through a formal procedure. Jobs and organizational structures include an SCM aspect, but remain basically traditional.

18. Levels of Supply Chain Maturity Linked, Level 3: The breakthrough level. Managers employ SCM with strategic intent and results. Broad SCM jobs and structures are put in place outside of traditional functions. One common indicator is the appearance of the title "supply chain manager."

19. Levels of Supply Chain Maturity Integrated, Level 4: The company, its vendors and suppliers, take cooperation to the process level. Organizational structures and jobs are based on SCM procedures, and traditional functions, as they relate to the supply chain, begin to disappear altogether. SCM measures and management systems are deeply imbedded in the organization. Advanced SCM practices take shape.

20. Levels of Supply Chain Maturity Extended, Level 5, World Class: Competition is based upon multi-firm supply chains. Collaboration between legal entities is routine to the point where advanced SCM practices that allow transfer of responsibility without legal ownership are in place. Trust and mutual dependency are the glue holding the extended supply chain together. A horizontal, customer-focused, collaborative culture is firmly in place.

21. Understanding the Supply Chain Management Maturity (SCM) Model • Using this framework, managers can pinpoint areas of • progress and stagnation. • A maturity scale matrixed against six measurement • categories provides a powerful visual scorecard of the • current situation in each area of opportunity.

22. The Supply Chain Management Maturity Model Advanced Process Documentation Advanced Process Focus Advanced SCM Measures Advanced SCM Practices Extended Integrated Advanced Process Structure Basic Operation Strategy Basic SCM Linked Basic Process Structure Basic SCM Measures Basic SCM Practices Defined Basic Process Jobs Basic Process Documentation Ad Hoc ProcessView Process Structures Process Jobs Process Values/ Beliefs Process Management / Measurement Best Practices Chassis Engine Group

23. Examples of Supply Chain Management Process Opportunities (SCOR View) • PLANExample Opportunities to Consider • Engage your suppliers /customers in plan • development, execution and review. • Integrate customer information into demand planning • and increase granularity of forecast by customer.

24. Examples of Supply Chain Management Process Opportunities (SCOR View) • SOURCE Example Opportunities to Consider • Integration of suppliers early in planning and • scheduling process. • Formalize a cross-functional “source” team that meets • on a regular basis. • Electronic and “people” integration of • suppliers into “source” process.

25. Examples of Supply Chain Management Process Opportunities (SCOR View) • MAKE Example Opportunities to Consider • Review and update “actual” monthly supplier • lead times. • Integrate customers planning / scheduling • information with yours.

26. Examples of Supply Chain Management Process Opportunities (SCOR View) • DELIVERExample Opportunity to Consider • Automatic replenishment of customer's • inventory and distribution.

27. Beyond the Supply Chain Management Maturity (SCM) Model? Digitization and Internet?

28. Beyond the Supply Chain Maturity Model Phase II The Digital Business Imperative

29. Supply Chain Evolution Framework • The Supply Chain configurations in this digital • economy are reshaping the historical “chain” into “networks”. • These configurations are quickly demanding the • evolution of supply chains beyond the “extended” stage of the SC Maturity Model.

30. The Virtual Face Digital Company-to-Company Structures Digital form of an existing non-digital function. Example: Web versions of newspapers Source: Burn, J.M. and Ash, C. (1999), “Knowledge Management Strategies for Virtual Organizations”, Information ResourcesManagement Journal, Jan-March 2000

31. Digital Company-to-Company Structures Co-Alliance Model • Shared partnership • Example: Collaborative design, engineering & support, and collaborative planning between a singular supplier and a customer Source: Burn, J.M. and Ash, C. (1999), “Knowledge Management Strategies for Virtual Organizations”, Information ResourcesManagement Journal, Jan-March 2000

32. Star-alliance Model Digital Company-to-Company Structures Hub represents interconnected members of coordinated networks surrounded by satellite organizations. Examples: New automotive “vertical” market Source: Burn, J.M. and Ash, C. (1999), “Knowledge Management Strategies for Virtual Organizations”, Information ResourcesManagement Journal, Jan-March 2000

33. Value-alliance Model Digital Company-to-Company Structures Range of products or services in one package Example: Defense contractors supplying parts and support to a certain weapons system Source: Burn, J.M. and Ash, C. (1999), “Knowledge Management Strategies for Virtual Organizations”, Information ResourcesManagement Journal, Jan-March 2000

34. Digital Company-to-Company Structures Market-alliance Model Members depend upon each other for the supply of actual products and services and operate in a digital market. Example: Amazon.com Source: Burn, J.M. and Ash, C. (1999), “Knowledge Management Strategies for Virtual Organizations”, Information ResourcesManagement Journal, Jan-March 2000

35. Virtual Broker Digital Company-to-Company Structures Designers of dynamic networks or net-market makers Example: B2B vertical marketplaces formed to bring buyers and sellers together. Source: Burn, J.M. and Ash, C. (1999), “Knowledge Management Strategies for Virtual Organizations”, Information ResourcesManagement Journal, Jan-March 2000

36. Supply Chain Strategic Assessment Phase I – SC Maturity Model The Extended Level Could Not be adequately measured. Now, the Internet makes it… …attainable; …affordable; …measurable.

37. Suggested Digital Supply Chain Definition “extending outward beyond company boundaries to your customers and suppliers and connecting with them through the use of digital technologies and integrating practices.”

38. Methodology Overview • Phase I - Questions were organized by SCOR model area. Include Integrating Practices for Digital Business Creation • Phase II – Digital Technology specific questions • A new survey questionnaire was developed using the existing scale measuring the frequency of the principle or practice. • 1- never or does not exist • 2- sometimes • 3- frequently • 4- mostly • 5- always or definitely exists

39. Methodology Overview • Digital Technologies Sample Questions • Do your customers place orders for your goods and services through the Internet? • Do you gather customer data (usage, forecast, ideas, complaints) though the Internet? • Do you gather information about your suppliers (and their products) through the Internet? • Do you gather supplier data (performance, forecast, ideas) through the Internet?

40. Methodology Overview Integrating Practices Sample Questions from Phase I “Extending outward to Suppliers and Customers” P15 Does this team (operations strategy team) participate in supplier and customer relationships? S8 Do you share planning and scheduling information with suppliers? S10 Do you "collaborate" with your suppliers to develop a plan?

41. Methodology Overview Integrating Practices Sample Questions from Phase I “Extending outward to Suppliers and Customers” P25 Does your demand management process make use of customer information? M13 Is your customer's planning and scheduling information included in yours? D12 Do you automatically replenish a customer’s inventory?

42. Beyond the Extended Digital Supply Chain By developing a Digital Supply Chain that goes beyond the “extended” level using the enabling power of the new digital technologies, a company can build unique capabilities that lead to a sustainable competitive advantage.

43. Thank You! Supply Chain Strategic Assessment

44. Questions and Answers Supply Chain Strategic Assessment Contact: Katie Kasper Sapient Corporation Kkaspe@sapient.com 614.207.9135