Breaking the Supply Breaking the Supply ChainChain

Mergers & AcquisitionsMergers & Acquisitions

The Ailing EconomyThe Ailing Economy

61% of M & A fail to achieve expectations

Why are M & A’s Disappointing Share Why are M & A’s Disappointing Share Holders?Holders?

Adverse economic timesAdverse economic times

Extremely complexExtremely complex

Synergy plan lackingSynergy plan lacking

Supply Chain ContributionSupply Chain Contribution

Division 1 2 3 4 5 TOTAL EBITDASales 100 100 100 100 100 500 75COG % 55% 65% 65% 85% 75% 15%

COG $ 55 65 65 85 75 345

10% Synergy Opportunity 10% 22%15% Synergy Opportunity 15% 25%20% Synergy Opportunity 20% 29%

Synergy FocusSynergy Focus

1.1. S G & AS G & A

2.2. ProductsProducts

3.3. Market PenetrationMarket Penetration

4.4. Plants and ResourcesPlants and Resources

5.5. Supply Chain – Why?Supply Chain – Why?

Five Reasons Supply Chain is LastFive Reasons Supply Chain is Last

Silos

Don’t Understand

OpportunitiesPBD

Complex

ConsideredTo Be

Administrative

SCSynergies

Six Critical Success FactorsSix Critical Success Factors

Organization Structure

Pro

cess

Accou

nta

bility

Strategy Development

ManagementSupport

Metric

s

Management SupportManagement Support

Creating lasting synergiesCreating lasting synergies

Keys to Management SupportKeys to Management Support

Confront cultural boundaries.Confront cultural boundaries. Commit the needed resources.Commit the needed resources. Support decisions for the better of Support decisions for the better of

the whole.the whole. Develop company-wide adrenalin.Develop company-wide adrenalin. Provide tools needed.Provide tools needed.

StrategyStrategy

Outside In LookOutside In Look

Customer

Marketing

Marketing

Customer

Engineering

Suppliers

Purchasing

Manufacturing

QualityMPS

FMEA & Reliability

War

rant

y Fe

edba

ckReplenishment

Deman

d Pla

nning

Config

urat

ion

Mgt

.

Production Plans

PFMEA

NPD ProcessSource

ApprovalInventory

Agility

MakeBuy

VA/VETarget Costs

Strategy DevelopmentSupply Chain

StrategyStrategy External LooksExternal Looks

• Where is the marketWhere is the market• Where are my plantsWhere are my plants• Foreign and Domestic Foreign and Domestic

customscustoms• Landscape changes in Landscape changes in

productsproducts• Who are our customersWho are our customers• What are the customer What are the customer

expectationsexpectations• Existing Supply ChainExisting Supply Chain

• Must be CUSTOMER Must be CUSTOMER FOCUSEDFOCUSED

Supply ChainSupply Chain• Cost of distributionCost of distribution• Logistics/AvailabilityLogistics/Availability• Trade barriers/customsTrade barriers/customs

• Design integration RPDDesign integration RPD

• Value add contributionValue add contribution• Built in costsBuilt in costs

• 3-D Rationalization3-D Rationalization

StrategyStrategy

Internal LooksInternal Looks• CulturesCultures• ProcessesProcesses• SkillsSkills• InterfacesInterfaces• Resource AllocationResource Allocation• Information SystemsInformation Systems

Supply ChainSupply Chain• Compartmental vs. TeamCompartmental vs. Team• Advanced or developmentalAdvanced or developmental

• Overall knowledgeOverall knowledge

• Divergent/ConvergentDivergent/Convergent

• Stress factorStress factor

• AgilityAgility

3-D Rationalization3-D Rationalization

Competitive

Global

Service

Qu

ality

OrganizationOrganization

De-constructionDe-construction

&&

Supply Chain AbyssSupply Chain Abyss

Supply Chain AbyssSupply Chain Abyss

Centripetal

Structure

CentralizedSupplyChain

Division1

Division2

Division3

Division4

•Resistance•Lack of empowerment•Decisions are slowed•Supply chains are broken

De-constructionDe-construction

CentralizedStrategy

ContinuousImprovement

SourceSelection

MaterialAcquisition

Centrifugal

Structure

•Better performance•Still resistance•Slightly better execution•Often lacks leadership

CentralizedStrategy & Leadership

DecentralizedExecution

Synergy ApproachSynergy Approach

Division 1

Division 2

Division 3

Division 4

•Multi-function selection teams•Participation through representation.•Rapid decision deployment.

Commodity Team RepresentationCommodity Team Representation

Engineering

Supplier QA

Logistics

Sourcing

Organization VariationOrganization Variation

Key to Organization SuccessKey to Organization Success

Tell me and I will forget,show me and I may remember,involve me and I will care.

AccountabilityAccountability

Accountability Vs. ResponsibilityAccountability Vs. Responsibility

• The team must be accountable for the same The team must be accountable for the same things.things.

• Team must be part of the decision process.Team must be part of the decision process.• Performance must be measurable.Performance must be measurable.• All parties must be resigned to the target.All parties must be resigned to the target.• There must be a plan to support the what.There must be a plan to support the what.• Communication of expectations.Communication of expectations.

WhoWhatWhenHow

Summing UpSumming Up

ClearStrategicDirection

ClearOwnership

Empowerment

ConciseCommunication

Four Keys to High Performance

Teams

Supply ChainSupply Chain

MetricsMetrics

What happened to measure it – What happened to measure it – and it will get better?and it will get better?

<60% measure supply <60% measure supply base.base.

<50% of that measure <50% of that measure more than price.more than price.

<50% of that measure <50% of that measure more than delivery more than delivery and price.and price.

Typical Corporate Metrics IssuesTypical Corporate Metrics Issues

Not all divisions measure Not all divisions measure performance.performance.

Not all divisions measure equally.Not all divisions measure equally. Lacks wealth equilibrium.Lacks wealth equilibrium. Division IT systems lack flexibility.Division IT systems lack flexibility. No time to measure.No time to measure. Conversion costs.Conversion costs.

Supply ChainSupply Chain

ProcessesProcesses

4-Key Processes4-Key ProcessesMake or Break SynergiesMake or Break Synergies

Negotiation

Source Identification

Source Qualification

Source Selection

Objective Selection SystemObjective Selection System

Weighted Summary

0

10

20

30

40

50

60Mgmt. Philosophy & Customer Focus

Quality Records

Process Controls/ Documentation

Logisitics

Financial Stability

Warranty 3yr. Participation

Cost Effectiveness

Supplier Quality Management Process

Capacity

Proven Technologies

Reliability/Durability

Document Control

Design Verification Capabilities

Pro-E Capabilities

Prototype Lead Time

Design Expense

0 0 0 0 0 0

Six Key System ComponentsSix Key System Components

Objective criteriaObjective criteria QuantifiableQuantifiable Unbiased appraisalUnbiased appraisal Cross-division participationCross-division participation Cross-functional participationCross-functional participation Clear and concise feedbackClear and concise feedback

Negotiation Cost Opportunity ModelNegotiation Cost Opportunity Model% Opportunity vs. Cost Contribution% Opportunity vs. Cost Contribution

Margin

Mfg. Cost

Material Cost

Designed In Cost

Conversion Costs

% Savings Opportunity

Immediate

Short Term

Mid Term

Subtract

Savings Timing

Logistics

Summing it UpSumming it Up

Organization Structure

Pro

cess

Accou

nta

bility

Strategy Development

ManagementSupport

Metric

s

25 Companies4 Industries4 Experiences