pwc supply chain management accelerating cost effectiveness

PwC

Supply Chain ManagementAccelerating Cost Effectiveness

PricewaterhouseCoopers2

Supply Chain Management

• The supply chain used to be a simple serial process with raw materials slowly moving in one direction through manufacturing production and onward via a distribution system to retailers and customers.

• Today, the talk is of "supply networks", "parallel chains", "enhanced concurrent activities", and “customer centric” with new information platforms and technology set to cut both inventory and lead-times throughout the delivery pipeline further.


Top Issues Facing SCM Professionals

In a recent quantitative survey, SCM professionals were asked a open-ended subjective question, “What are the three biggest issues facing you personally in developing your logistics strategy?”

Source: AMR Research 2000

The top three responses were;Cost (21%), Systems Applications (20%) and Integration (19%)

21%

20%

18%

14%

13%

13%

12%

12%

11%

0% 5% 10% 15% 20% 25%

Cost

Systems Application

Integration

Qualified Associates

Support Management

E-Business

Organisation Structure

Global Management

Funding


SCM Benefits

Manufacturer Distributors/Wholesalers

Customers Suppliers Retailers

Materials Flows Information Flows

Cash Flows

US companies expect to reap $3-400B of savings through a variety of benefits (3 – 5% of revenues)

Source: PRTM


Move From Push To Pull

Manufacturers Distributors/ Wholesalers

CustomerSuppliers Retailers

Manufacturers Distributors/ Wholesalers

CustomerSuppliers Retailers

Make what we sell, not sell what we make!


Move to Cross-Functional Business Processes

Purchasing Manufacturing

Distribution Install/Maintenance

Sales

Source Make Deliver Install Sell

Order Fulfillment

Available-to-Promise

Sales & Operations Planning

Departm

ent P

erformance


Supply Chain Optimization

Synchronized, Sequential Planning

ForecastingDistribution

PlanningManufacturing

PlanningProcurement

Planning

Supply Chain Optimization

Synchronized, Concurrent Planning

DemandPlanning

DistributionPlanning

Manufacturing Planning

ProcurementPlanning


Purchasing Manufacturing

Distribution Install/Maintenance

Sales

Cross-Functional Supply Chain Metrics

Process Performance

Source Make Deliver Install Sell

Perfect Order Process

LSL USL LSL USLLSL USLLSL USL LSL USL


Sharing and Collaboration

Manufacturer

Distributors/Wholesalers

Suppliers

Retailers

Synchronized Production Scheduling

Collaborative Product Development

Collaborative Demand Planning

Collaborative Logistics Planning• Transportation services• Distribution center services


Full Value Procurement

Objective

Lowest total cost of ownership

• Quality meeting customer needs

• On-time delivery

• Acceptable supply risk

• Process efficiency

• Demand reduction

Underpinned by procurement infrastructure excellence

PurchasePrice

Acquisition

Installation

Maintenance

Disposal

Price is often just the tip of the iceberg!


Strategic Souring

Traditional Progressive

• Tactical Emphasis• Acquisition Cost Focus• Staff Function• Cost Center• Reactive

• Strategic Emphasis• Total Cost Focus• Profit Center• Proactive

Tactical

Strategic

Tactical

Strategic

Evolving Model of Procurement


Logistic and Transportation

• Logistics accounts for 8-12% of sales. In 1998, it accounted for over 10% of the US GDP

• Logistic is one of the glues that holds the supply chain together. The techniques that most manufacturers employ to increase speed and reducing cost is outsourcing

• Average cost reductions from outsourcing is 32%

• The 3PL market has enjoyed explosive growth over the past 5 years. Most 3PLs have reported annual growth rate of 25-50%

Source: industry week


Manufacturing

Material

. . . . .

BOM

PRT

Customerorder

Document Work center

Routing

etc.

• Manufacturing managers view efficiency and flexibility as two objectives which must be balanced in order to arrive the lowest total cost

• World-class companies adopt strategies and tactics such as pull system, JIT replenishment, and cycle time reductions that enables a company to have lower levels of inventory while still driving reductions in production unit cost

• Companies frequently underestimate the commitment required to achieve an effective quality improvement which result in operation cost increases.


StrategicBusinessPlanning

Forecasting and Planning

hour

s

days

wee

ks

mon

ths

year

+

Operational Tactical StrategicScheduling

Rolling

Forecast

Demand Planning

Manufacturing Planning

Scheduling

Distribution Planning

Transportation

OrderPromise

SourceMakeMoveStoreSell


Top Issues Facing SCM Professionals

e-Business is a relatively low priority, coming in sixth of the top issues facing SCM professionals.However, this does not reflect the impact that e-Business will have on Supply Chain Management

Source: AMR Research 2000

e-Business will fundamentally change SCM

21%

20%

18%

14%

13%

13%

12%

12%

11%

0% 5% 10% 15% 20% 25%

Cost

Systems Application

Integration

Qualified Associates

Support Management

e-Business

Organisation Structure

Global Management

Funding


ENTERPRISE OPTIMIZATION

ProcureProduceProducts

ManageLogistics

ForecastDemand

Optimize

NETWORK OPTIMIZATION

A

F

D

G

C

EB

Company Company

Company

Company

Company

Company

e-Business Is Driving a Fundamental Transformation in SCM

The larger the network of companies the greater the power of the network to reduce cost for its members

• Increased leverage with suppliers

• Broader market access for suppliers

• Expanded community and collaboration opportunities

• Greater integration across market supply chains

NetworkEffect

Economies of Scale

The larger the Meta-Market the faster it can form and launch facilitate the operational excellent

• Broader communities to allocate R&D cost

• Operational efficiencies via back office shared services

• Depth of industry and procurement knowledge and resources available to develop supplier contracts

Company


The Impact of e-Business on SCM

e-Business affects four broad categories that determine the production and transaction costs of a firm:

• The cost of executing a sale

• The costs associated with procuring production inputs

• The costs associated with making and delivering a product or service

• The cost associated with logistics


The Cost of e-Business SalesAccessibility

An e-Business web site is open 24

hours per day, 7 days per week. A

business no longer has to build

separate physical establishments

to attract a larger customer base. A

virtual storefront also allows an e-

business to manage one store

instead of multiple stores, thus

eliminating duplicate inventory

costs.


The Cost of e-Business SalesOrder Rework

Another aspect of e-Business is that it

enables more efficient order

configuration. For example, both

General Electric (GE) and Cisco

Systems reported nearly one-quarter of

their pre-Web-site orders had to be

reworked because of errors--a total of

more than 1 million orders, in the case

of GE. Since adopting a Web-enabled

customer interface, Cisco reports an

error rate of only 2 percent. Produce or Service Output

Critical Customer Requirement

Defects: Service

unacceptable to customer

B A


The Cost of e-Business SalesFundamental Shift

Clearly, e-Business represents a fundamental shift in how the sales process is executed by a company. As a result, e-Business compels existing businesses to re-examine how they interact with customers, even as new entrants exploit e-Businesses to reach customer bases previously thought unreachable.

Low HighCost of Sale

“Off-the-Rack”

Customised

Value-Addedof Sale

DirectSales

Face-to-face sales$500/sales contact

Distributors/VARs$2-300/sales contact

Telephone sales and service$25 per sales contact

No human contact$1 per sales contact

Resellers

Tele-channel

ElectronicChannels

Source: Dr. Rowland Moriarty, Cubex Corp.


The Costs Associated With Procuring Production Inputs

Web-based procurement of

maintenance, repair, and operations

(MRO) supplies is expected to reach

more than $100 billion worldwide by the

year 2000. MRO comprises those goods

required to run a company that are not

raw materials used in the direct

manufacture of a product or the

provision of a service.

SuppliersSuppliers

Suppliers Connected toSuppliers Connected to MarketPlace via Web or ERPMarketPlace via Web or ERP

BuyersBuyers

Buyers connected to marketplace Buyers connected to marketplace via E-Procurement Appvia E-Procurement App

B2B MarketPlaceB2B MarketPlace

Profit

OtherCosts

Purchases

100 100

45

50

45

47.5

5 7.5

-5%

A 5% reduction in purchase cost can result in a 50% increase in profit margin.

+50%


The Costs Associated With Procuring Production Inputs

Lower transaction costs coupled with the ability to enforce purchasing policy across the enterprise have been instrumental in driving Web-based MRO procurement.

Two additional factors have accelerated the trend. The first factor is a defensive reaction by firms that note the cost savings being enjoyed by rivals switching to an e-business procurement mode. The second, and possibly more important factor is the insistence by large firms such as Ford, that their suppliers link into their Web-based procurement systems as a condition of doing business with them.

Source: RB Weber

COST PER PO

POTENTIAL

COST

PER PO

CURRENTCOST

PER PO


The Cost of e-Business Supply Chain Management

Even the scope of MRO procurement pales beside the possibilities for reorganizing supply chains around e-business. Rather than increasing production and inventory in advance of actual customer demand, e-businesses are looking to make both their own supply chains and those of their customers and suppliers respond in real time to actual sales.

Supplier Manufacturer Distribution Retailer Consumer

CREDIT CARD

1234 5678 9012VALID FROM GOOD THRU

XX/XX/XX XX/XX/XX

PAUL FISCHER

Information


The Cost of e-Business Supply Chain Management

Visibility of the entire supply chain is necessary so a business can analyse the interplay between interactions such as procuring materials, components, and subassemblies from various suppliers; shifting production between installations or business partners; and moving goods to the final consumer. Understanding relationships between all players in a particular value chain allows an e-business to adjust to new contingencies in real time.


The Transformation of Logistics

e-Business transforms logistics from simply packaging and moving goods and turns it into an information business. Introducing online parcel order and tracking via a proprietary network in 1983, Federal Express took nearly 12 years to sign up 50,000 customers. In 3 years, between 1995-1998, after FedEx offered essentially the same service via the Web, the number of customers rose to 1 million. FedEx estimates nearly 70 percent of the 3 million packages it processes each day now are initiated via interactive networks.


Supply Chain

Management

Supply Chain

Management

e-BusinessDriving Transparency

When building visibility of the entire supply chain, this also includes customers. e-Business gives the customer access to the suppliers product data, ordering and delivery information. This drives transparency within the organization and forces the supplier to develop better delivery and support systems.

Product Lifecycle

Management

Product Lifecycle

Management

CustomerManagement

CustomerManagement

Supplier Collaborati

on

Supplier Collaborati

on

Design Partners

Design Partners

Consumers and

Channels

Consumers and

Channels


Recommendations

• Include e-business as part of your top three supply chain agenda items. Put in effort to articulate a value proposition for e-business within your company, and the impact it will have on your supply chain. Seek and gain cross-functional and key trading partner alignment on your strategy.

• Look for additional learning opportunities. Look at the early adopter or e-business-oriented companies, e-business consultants, system

integrators, and colleagues in supply chain management. Lessons can be learned in both the Business-to-Consumer (B2C), as well as Business-to-Business (B2B) domains.

• Broaden your perspectives on e-business beyond customer interaction and supply chain cost savings. Consider the broader implications of supplier and trading partner visibility, Business Community Integration (BCI), and partner collaboration. A broadened perspective can yield greater opportunities for leveraging e-business processes within the supply chain.

• Consider some form of electronic marketplace adoption as part of your supply chain strategy. Evaluate the long-term presence of trading exchanges according to the value-added services they can provide that are over and above procurement transactional cost savings. Evaluate your strategies to impact both the sell-side and the buy-side processes.

pwc supply chain management accelerating cost effectiveness

Documents

prtm slide

supply networks

manufacturing production

distribution system

customer centric

scm professionals

simple serial process

raw materials