supply chain doctors scm fundamentals introduction planning sourcing making warehousing transporting...

Supply Chain Doctors

SCM Fundamentals• Introduction

• Planning

• Sourcing

• Making

• Warehousing

• Transporting

• Sharpening the Saw

Sourcing• Supply Base Consolidation

• Source Selection

• Make-Buy Decision

• Supplier Performance Evaluation

• Supplier Certification

• Supplier Relations – Understanding Customer Loyalty

What is Supply Base Consolidation?

Consolidation: A reduction in the number of suppliers.

Why Consolidate?

• Cost of Procurement• Price Decreases through

Consolidated Purchases

• Lead time reduced• Quality improved• Focus

The Ideal Supply Base

• Powerful improvement engine

• Fast• Flexible• Efficient• Good communicators

SurveillanceLow spend - high risk

Long-term RelationshipHigh spend - high risk

Contractual High spend - low risk

Low High

Annual Spend

Supplier Characterization Matrix

TransactionalLow spend - low risk

Surveillance Long-term Relationship

Contractual

Low High

Annual Spend

Transactional

Consolidate

Contractual

Low High

Annual Spend

Transactional

Consolidate

Contractual

Low High

Annual Spend

Transactional

Consolidate

ConsolidateRisk reduce &Consolidate

Barriers to Consolidation

• Fear of loss of competition

• Doubtful savings• Dilbert• Lack of commitment

to the selection process

• Pets

How Can I Be Successful? Keys to a Successful Plan

• Plan with your customers in mind– Transaction costs– Leverage– Capability development– Project support

How Can I Be Successful? Keys to a Successful Plan

Understand your internal customers’ supplier evaluation / selection process

& market accordingly.

Structured Supplier Evaluation

Evaluation Criteria

MaterialsMethods

TechnologyPeopleMoney

Environment

Supply Base Consolidation: Summary

• Consolidation can yield savings in:– transaction costs– leverage– inventory reduction– quality– loss of focus

• It is a key enabling strategy to other supply chain improvements.

Supply Chain Doctors 18

• Quality Assurance

• Cost (Labor, Overhead, Inventory, Transportation)

• Delivery Performance

• Lead Times

Factors in Choosing a Supplier

• Reputation and financial stability

• Location

• Flexibility

• Total Solution

Factors in Choosing a Supplier (cont’d)

Outsourcing• Purchased items account for 50 to 70% of

the cost of goods sold.

• Outsourcing allows firms to focus on their core competencies.

Organizations outsource when they decide to purchase something or some service they

previously supplied themselves.

Make or Buy• Current trend favors outsourcing all

activities that do not directly represent or support core competencies.

• What concerns would a company have about outsourcing products or services?

Global Sourcing

• Original strategy was to reduce production costs.

• The primary focus was on labor cost reduction.

New Focus of Global Purchase• Local content / market access• Product availability• Technology / information management• Delivery• Lead times• Labor availability and quality.

Supply Chain Management Performance Evaluation

• Quality

• Cost

• Delivery (Lead Time)

• Process Measures (Balanced Scorecard)– Reliability– Flexibility & Responsiveness– Expenses– Asset Utilization

Metrics

• Reliability– On-time delivery– Order fulfillment lead time– Fill rate– Percent order fulfillment

• Flexibility/Responsiveness– Response time– Upside production flexibility

Metrics

• Expenses– Supply chain management costs– Warranty cost as percent of revenue– Value added per employee

• Asset utilization– Total inventory days of supply– Cash-to-cash cycle time– Net asset turns

Typical Benchmark Key Performance Indicators (KPIs)

• Total supply chain management costs: – Order processing– Acquiring materials– Managing inventory– 4 - 6 percent of sales

• Upside production flexibility– Number of days required to achieve a 20%

increase in production– <= 2 weeks

Typical Benchmark Key Performance Indicators (KPIs)

• On time delivery– Percentage of orders fulfilled on or before the

customer’s requested date– 70 – 100 percent

• Cash-to-cash cycle time– Number of days between paying for raw

materials and being paid for product– 30 - 100 days

Supplier Certification• A guarantee of quality

– Good Housekeeping– UL– SAE– ISO– TNCPE– Inspection Free

Partnership Relationship• Continuing relationship involving

– a commitment over an extended time period,

– an exchange of information, and

– an acknowledgement of the risks & rewards of the relationship.

Why Long-Term Relationships?

A long-term relationship between purchaser and supplier is necessary for best economy. How can a supplier be innovative and develop economy in his production processes when he can only look forward to short-term business with a purchaser?

W. Edwards Deming, Out of the Crisis

Why Long-Term Relationships?

• Increasing trend toward global supply

• Higher baseline performance

• Increasing focus on time to market

• Dependence upon suppliers for technology

Family Strengths Research

• Strong families

• 20+ years of research

• Over 6,000 surveyed

Six Characteristics of Successful Supplier

Relationships• Trust

• Good communication patterns

• Ability to deal with crises (change)

• Spiritual wellness (principles-centered)

• Spending time together

• Appreciation / feedback

Trust: Concerns

• Is this the right supplier?

• What about commitment?

• Is management committed?

• What are the implementation

issues related to maintaining

commitment?

Special AttentionLow spend - high risk

Long-Term RelationshipHigh spend - high risk

ContractualHigh spend - low risk(Easily substituted)

Low High

Annual Spend

Supplier Relationship Matrix

TransactionalLow spend - low risk

Long-term contractsBuying Consortia

Partnerships

Distribution

Frequent visitsFMEA

Communication: Concerns

• Replace face-to-face communication with technology?

• Good communication = $$$

• Communication between technical groups

• Role of agent

Dealing with Change

• New product dev. process

• Common improvement process

• Performance measures

• Conflict resolution by team leaders

Shared Principles

• Principles Centered Leadership

• Two-Way Performance Measures

• Follow-through on Commitments

Spending Time Together

• Quarterly performance reviews

• Team building dinners

• Commitment to keep the schedule

Appreciation

• Celebration of critical improvement

• Recognition distribution

• Other forms of recognition

Buil ding S t r o ng C ust o mer -Suppl ierRel at io nships

Time To get herAppr ec iat io n/

Feedbac k

Capacityfor

Change

Capacityfor

Change

Strongcommitment

Commonpr incipl esCommon

pr incipl es

Excel l entCommunication

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