10 fundamental strategies & best practices
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10 FUNDAMENTAL STRATEGIES AND BEST PRACTICES
FOR SCM ORGANIZATIONS
Presented By
Bob Engel, C.P.M.
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WHAT IS THIS MAN FAMOUS FOR???
Theory of Relativity
E=mc2
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BUT HIS BEST WORK MAY BE HIS
DEFINITION OF INSANITY:
DOING THE SAME TASKS OVER AND
OVER AGAIN AND EXPECTING
DIFFERENT RESULTS.
ALBERT EINSTEIN.
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So what does Albert Einstein have to do with
Building a Best in Class Supply Chain Organization??
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Maybe Albert Einstein has hit on something:
Do it differently from the way you are use todoing things if you want different results.
Supply Chain Organizations today, want to be:
Effective
Relevant
Viewed as VALUED
Part of the Management Team
To accomplish this, we must have Strategies & Best
Practices in place to Execute our plans.
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WHAT DOES BEST PRACTICE MEAN?
Best Practiceis defined as:
A management idea which asserts that there is a :
technique, method, process, activity, incentive or reward
that is more effective at delivering a particular DESIRED OUTCOME
than any other :
technique, method, process, activity, incentive or reward
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So lets examine 10 Fundamental Strategies and Best Practices toconsider embracing to Achieve Supply Chain Excellence
1. Establish a governing council2. Align the supply chain
organization
3. Recruit supply chain
professionals
4. Set the Strategic Sourcingstrategy
5. Establish key supplier alliances
6. Manage TCO
7. Manage compliance and Risk
8. Optimize Company owned
inventory
9. Gather information on a timely
basis
10. Establish processes andcontrols
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1. Establish a Govern Council
This is listed first for a reason. Absolutely mandatory
Make up of the Council: Influential Business Unit leaders, C level suite,
and representation from supply chain management.
What does the council do?
1. Drives strategy. Gives direction to and helps align supply chain
strategy to be consistent with company strategy
2. Helps in removing barriers within the organization
3. Influences internal decision makers. Fosters internal buy-in from the
business units
4. Ensures that the supply chain organization is involved in the earlystages of planning and forecasting.
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2. Align the Supply Chain Organization
SCM must be properly organized in order to execute the plan
Decide: centralized or de-centralized? Answer depends and varies by
company.
No prescribed answer on how to organize
Common theme is Centralized Consensus with Decentralized execution.
In a perfect world, the supply chain organization will have the functions of
Sourcing
Materials Management
Logistics Contract Management
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Supply Chain Leader
PROCUREMENT LOGISTICS SCM ADMIN
KAP-Vendors
$ Volume Driven
Q A
Spend Areas-FutureCORE Commodities
Strategies
Efficiencies
Process ReviewDemand &Forecasting
Warehousing
Inventory
Transportation
Environmental
Disposal
TYPICAL SCM ORGANIZATIONAL DESIGN
Release orders-KAPs
Spot Orders
Non-Repetitive Orders
NON-CORECommodities
Strategic Sourcing Tactical
SCM=Supply Chain Management KAP=Key Alliance Partners
Contract Management
Supply ChainCouncil
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3. Recruit Supply Chain Professionals
Recruit SCM professionals with the right mentality
More focus on strategic thinking
Less focus on measuring transactional activity
Different skill sets needed today vs. historical
Interpersonal communication
Strategic Thinking
Value Oriented
Relationship management skills
SCM Leaders are looking for two distinct skill setsA. Technical Skills(analytical, subject matter expertise)
B. Project management Skills. Those who can:
1. Understand the customers changing needs
2. Continually address the changing needs
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HAVE THE RIGHT MENTALITY
CONSIDERATION
LOSE / WIN
LOSE / LOSE
WIN / WIN
WIN / LOSE
LOW
HIGH
COURAGE
LOW HIGH
MY WAY OR HIGHWAY
Sacrifices Long Termrelationships
Squelches Creativity
I am a loser - step on me
I am a peacemaker
Win/Lose people love!
Believe in Mutual Benefit
Long term relationship
Cooperative - Not combative
Where bad relationships go
Where 2 Win/lose people go to
Adversarial conflict
War!!
As Supply Chain
Professionals,We are evolving
to here
The 7 Habits of Highly Effective People-Steven Covey
WIN-WIN RELATIONSHIPS
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4. Set the Strategic Sourcing Strategy
What is Strategic Sourcing?? Collaborativeand Organizedapproach to spendcategories with objective of selecting suppliers best suited to provide maximum value.
Strategic Sourcing implements cross functional and geographic teams for unified
decision making process with Supply Chain Organization guidance and leadership. Thismust become a standard practice
Strategic Sourcing is the Cornerstone of Supply Chain Management
Benefits are:
Improved buy-in from the internal business units
Increased internal business unit satisfaction
Assures availability of goods and services (particularly in tight markets)
Increased responsiveness to customers changing needs.
Promotes teamwork
Streamlined Processes
Quality will be improved
Lower overall total cost and increased value
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5. Establish Key Supplier Alliances
Key Supplier selection is product of Sourcing Team
This best practice that needs to have more focus.
Supplier Management: the forgotten or ignored step in Strategic
Sourcing Process
Terminology: Alliance Management vs. Supplier Relationship
Management SRM suggest one way communication
Alliance Management more appropriate term: Two Way
Communication
4 Objectives of an Alliance Management Team:1. Provides a mechanism to ensure relationship stays healthy
2. Creates the needed platform for problem resolution
3. Forum for developing continuous improvement goals for future
4. Ensure that Performance Measurement objectives are achieved
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Strategic,
impactscorebusiness
Non-strategic,
easilyreplaceable
Easy to manage,simplistic
High maintenance,
emotional, complex
Exercise: Name some commodities & services in each category.How Do You View Them?????
ALLIANCE MGTOur focus is
most likely hereRoutine SRM
Routine SRM Routine SRM
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6. Manage Total Cost of Ownership
THIS IS ABOUT:
Instill Total Cost of Ownership / Total System Cost Mindset
Move away from looking at just lowest price
More focus on best value
Move towards process improvement as a measurableinternal goal
Evaluation of all factors that make up the cost of goods
and services
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A = Acquisition Cost (25-40%)O = Operating Costs
T = Training Costs
M = Maintenance Costs
W = Warehousing Costs
E = Environmental Costs
S = Salvage Value
60-75%
Total Cost of Ownership = A + (O+T+M+W+E) Less S
Source: The Executive Guide to Supply Chain Management, David Riggs/Sharon Robbins
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PurchaseCost
Demand Drivers
Specifications Standardization
Inventory Practices
Operational PracticesDisposal/Salvage Practices
PerceivedOpportunity
ActualOpportunityActualOpportunity
Total Cost Approach
Environmental Issues
Warehousing Costs
Maintenance Expense
Quality Costs
Procurement Practices
Warranty Terms
Freight
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Buyer Cost
Interaction Cost
Profit
Supplier Cost
Buyer Cost
Interaction Cost
Profit
Supplier Cost
Traditional
Focus(price only)
StrategicFocus
Total System Cost Savings
Traditional Strategic
Total System Cost
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7. Manage Compliance and Risk
Contract Management is a focal point for best of class companies
Sarbanes Oxley (SOX) demands controls and to mitigate risks
Aberdeen Survey to Leaders of SCM Organizations:
Question: How do you manage your companys contracts?
Answer: We cant even find them much less manage them
Effective Contract management:
Ensures contract compliance (using the agreements)
Mitigates risks by standardizing terms and conditions
Provides more spend visibility for future negotiations
Provides platform for viewing maverick spend
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Top SIX Contract Management Strategies(Aberdeen Group Research)
1. Standardize Contract ProceduresCompanywide2. Establish CentralRepository that is Web Based
3. Integratewith Financial ERP System
4. Track Compliancemore Frequently
5. Improve Ability to Analyze Contract Performance
6. Improve Automation(due dates, expiration dates, etc)
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8. Optimize Company Owned Inventory
Inventory is money. Ask any CFO or Controller!!
Inventory holding cost: 20-48%
Establish Vendor Managed Inventories (VMIs) asone Solution
Current Market (mostly sellers vs. buyers market) willchallenge VMI programs
Meet expected lead times
Logistics issues particularly if sourced offshore
Need exist to Implement improved and effectivedemand planning and forecasting methodology
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9. Gather Information on a Timely Basis
Gather Timely Information from the ERP System
a. One of the largest barriers is inability to retrieveprecise spend data
b. Consider deployment of Data Cleansing Software
c. Address multiple ERP system inadequacies and provide solution
d. Best of class companies Navigate these Challengesand Find a Way
within their information system to retrieve meaningful data:
1. Goal = Information available to users
2. Information used to target opportunities of spend or process
improvement
3. Information used to monitor compliance and controls
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10. Establish Processes and Controls
Simplify Processes and Controls-Then Select CorrectTechnologies to Complement
1. First order of business is to establish your processes
2. When this is completed, select the technology tocompliment your processes
Struggling Organizations often implement technology thendevelop processes to meet the needs of technology.
Make Policies and Procedures simple and easy to understand
Controls should be adequate to deter fraud or ensure thatimproper decisions are not being made and doing so without
adding unnecessary process steps
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SUMMARY
To expect different results, we may need updated roadmap
No two companies operate the same way But all haveguiding principles for success
Best Practices are a benchmark and guide for SCM
Effectiveness and Improvement
Company leadership expects SCM Organizations to be
more Transformationalvs. Tacticallyfocused
Good News: Company leadership is expecting more from
our Supply Chain Management profession
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THANK YOU !!
Bob Engel, C.P.M.Bob.Engel@Resources-us.com
713-403-1979
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