Download - 10 Fundamental SCM Strategies_basic_mecol
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110 FUNDAMENTAL STRATEGIES AND BEST PRACTICESFOR SCM ORGANIZATIONS
Presented By
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2WHAT IS THIS MAN FAMOUS FOR???
Theory of Relativity
E=mc2
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3BUT 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 to doing 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 Practice is 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
PresenterPresentation NotesStrategy. In business, examples are: 1. Increasing market share2. Have a global approach and presenceBest Practices. In business this could be Following a standard way of doing things for continuous learningand improvement.
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7So lets examine 10 Fundamental Strategies and Best Practices to consider embracing to Achieve Supply Chain Excellence
1. Establish a governing council
2. Align the supply chain organization
3. Recruit supply chain professionals
4. Set the Strategic Sourcing strategy
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 and controls
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81. 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 early stages of planning and forecasting.
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92. 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 DrivenQ ASpend Areas-FutureCORE Commodities
StrategiesEfficienciesProcess ReviewDemand & Forecasting
WarehousingInventoryTransportationEnvironmentalDisposal
TYPICAL SCM ORGANIZATIONAL DESIGN
Release orders-KAPsSpot OrdersNon-Repetitive OrdersNON-CORE Commodities
Strategic Sourcing Tactical
SCM=Supply Chain Management KAP=Key Alliance Partners
Contract Management
Supply Chain Council
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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 needs2. Continually address the changing needs
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HAVE THE RIGHT MENTALITY
CONSIDERATION
COURAGE
LOSE / WIN
LOSE / LOSE
WIN / WIN
WIN / LOSE
LOW
HIGH
LOW HIGH
MY WAY OR HIGHWAY
Sacrifices Long Term relationships
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!!
The 7 Habits of Highly Effective People-Steven Covey
As Supply Chain Professionals,
We are evolving to here
WIN-WIN RELATIONSHIPS
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4. Set the Strategic Sourcing Strategy
What is Strategic Sourcing?? Collaborative and Organized approach to spend categories 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. This must 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 healthy2. Creates the needed platform for problem resolution3. Forum for developing continuous improvement goals for future4. Ensure that Performance Measurement objectives are achieved
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Strategic, impacts core business
Non-strategic, easily replaceable
Easy to manage, simplistic
High maintenance, emotional, complex
Exercise: Name some commodities & services in each category. How Do You View Them?????
ALLIANCE MGT
Our 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 measurable internal 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
Perceived Opportunity
Actual Opportunity Actual Opportunity
Total Cost Approach
Environmental Issues
Warehousing Costs
Maintenance Expense
Quality Costs
Procurement Practices
Warranty Terms
Freight
PresenterPresentation NotesPrice is only one element of the total, life-cycle cost of acquiring products and services.A sourcing effort that addresses price only misses a much, much greater opportunity to reduce internal design and process costs.A rule of thumb is that once you have told a supplier what it is you want to buy and what it must look like, you have already built in 80% of the purchase cost. By understanding and managing demand drivers and how specifications are developed to meet them, a client can often double or triple the savings.Inventory is another area where you can drive out cost by asking suppliers to manage stock or migrating to just-in-time deliveries.You will find other savings opportunities in every aspect of the internal supply chain.
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Buyer Cost
Interaction Cost
Profit
Supplier Cost
Buyer Cost
Interaction Cost
Profit
Supplier Cost
Traditional Focus
(price only)
Strategic Focus
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 Procedures Companywide2. Establish Central Repository that is Web Based3. Integrate with Financial ERP System4. Track Compliance more Frequently5. Improve Ability to Analyze Contract Performance6. 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) as
one Solution Current Market (mostly sellers vs. buyers market) will
challenge VMI programs Meet expected lead times Logistics issues particularly if sourced offshore
Need exist to Implement improved and effective demand 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 retrieve precise 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 Challenges and 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 Correct Technologies to Complement
1. First order of business is to establish your processes2. When this is completed, select the technology to
compliment your processes
Struggling Organizations often implement technology then develop 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 that improper 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 have guiding principles for success
Best Practices are a benchmark and guide for SCM Effectiveness and Improvement
Company leadership expects SCM Organizations to be more Transformational vs. Tactically focused
Good News: Company leadership is expecting more from our Supply Chain Management profession
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THANK YOU !!
M. Abidur Rahman CEO, MECOL Engineering Co. Ltd.
MBA (Strategic Management) [email protected]
01731501740
Slide Number 1WHAT IS THIS MAN FAMOUS FOR???Slide Number 3So what does Albert Einstein have to do with Building a Best in Class Supply Chain Organization?? Slide Number 5WHAT DOES BEST PRACTICE MEAN?Best Practice is 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 rewardSo lets examine 10 Fundamental Strategies and Best Practices to consider embracing to Achieve Supply Chain Excellence1. Establish a Govern Council2. Align the Supply Chain Organization 3. Recruit Supply Chain ProfessionalsHAVE THE RIGHT MENTALITY4. Set the Strategic Sourcing Strategy5. Establish Key Supplier AlliancesSlide Number 156. Manage Total Cost of OwnershipSlide Number 17Total Cost ApproachSlide Number 197. Manage Compliance and RiskTop SIX Contract Management Strategies(Aberdeen Group Research)8. Optimize Company Owned Inventory9. Gather Information on a Timely Basis10. Establish Processes and ControlsSUMMARYTHANK YOU !!M. Abidur RahmanCEO, MECOL Engineering Co. Ltd. MBA (Strategic Management)[email protected]