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Supply Chain Best Practices

Supply Chain Best Practices. Issues that are driving and will drive companies. by Tom Craig tomc@ltdmgmt.com. Best Practice Topics. Metrics Inventory velocity Cycle time compression Lean logistics Technology Supplier performance Segmenting supply chains. Set the Stage.

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Supply Chain Best Practices

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  1. Supply Chain Best Practices Issues that are driving and will drive companies by Tom Craig tomc@ltdmgmt.com

  2. Best Practice Topics • Metrics • Inventory velocity • Cycle time compression • Lean logistics • Technology • Supplier performance • Segmenting supply chains

  3. Set the Stage

  4. SUPPLY CHAIN MANAGEMENT--FOUNDATION-- • Applies regardless— • of industry • Make to Stock and Make to Order • Runs from suppliers doors through to your customers’ doors or your stores • Process • Internal • External

  5. 3 Supply Chains & Flows • Product • Information • Finance

  6. Supply Chains • Flow is important for supply chains • Is not ONE supply chain • Are series of supply chains – supply chains within supply chains

  7. Big Guys and SCM • Link supply chain to corporate strategy • “Optimize” inventory and service with Best Practices (these tie together)-- • inventory velocity • cycle time compression • lean logistics • supplier performance • splinter supply chains

  8. Are chains within chains Complex and extended real supply chain Why firms wants control

  9. Additional supply chain challenges

  10. Supply Chain as Competitive Differentiator Lower performing companies are 3 times more likely to view their supply chains as cost centers. Cost center necessary to conduct business 25% Market strategy competitive differentiator 27% Customer service competitive differentiator 30% Cost savings opportunity area to help fund R&D or business expansion 18%

  11. The Opportunity for the Best Laggards Industry Average Best in Class Organization Best in Class organizations have clear competitive advantages over Industry Average & Laggards. Knowledge Technology Performance Metrics

  12. Benefits of Best • Revenue Lift • Customer service enhancements • Product quality improvements • Increased quality availability Revenue Enhancement Profit Enhancement • Reduced Supply Chain Costs by 10 to 15% • Operational efficiencies • Process enhancements • Procurement savings Operating Cost Reduction Shareholder Value Enhancement • Reduced Working Capital Requirements by 20 to 30% • Inventory reductions • Reduced cycle times Working Capital Reduction Invested Capital Reduction • Reduced Supply Chain-Related Capital • Capital asset transfer • Enhanced asset utilization • Capital procurement savings Fixed Capital Reduction

  13. Walmart • Private labels • Buying direct • Expanding leveraging • More control of supply chain (going upstream)

  14. Walmart • Take control of deliveries from suppliers (with its fleet--price cuts greater than what freight costs suppliers—and possible warehouse inefficiencies for suppliers) • Consolidating its purchasing with suppliers (Pepsi and potatoes) • Orders $1Bil in supply chain savings (produce)

  15. Retailers • Will Walmart expand their efforts to other products/categories? • Will other retailers copy the programs? • Taking total control of its total supply chain (de facto vertical integration—throwback to Standard Oil and US Steel?) (does it change role for suppliers?)

  16. You • Do you have a supply chain strategy (or do you just react?) • Is it tiered by market segment and/or customers (or is it one size fits all?) • How much do you spend annually on SCM—inventory, sourcing, transport, warehousing, people, technology, etc?

  17. Your Supply Chain • Do you know how well it performs? • Do you measure? (Or is it by complaints or chargebacks?) • How much do you expedite/fight fires? • What metrics do you use to measure? • Do you look at it as a process or in functional terms or tasks– freight, warehousing?

  18. LSPs • Do you initiate best SCM practices? • How do you develop/lead best practices? • Way to create value proposition • Higher margins • Greater customer retention • Separate from other commodity service providers • Way to gain share

  19. Best PracticeMetrics

  20. Metrics • Metrics for sake of metrics • Good vs bad from my article

  21. Are They Really Metrics? • Financial measures—used as performance metrics • Internal SCM KPIs • Warehousing—orders picked • Freight costs • Etc.

  22. Question—Which Are You • Are you focused on freight and other logistics costs? (misdirection) --or-- • Are you focused on your supply chain and how well it performs?

  23. Key Metrics • Customer orders DELIVERED complete, accurate, on time (customer service / chargebacks) • Purchase orders DELIVERED complete, accurate, on time (critical to your SCM success) • Inventory turns

  24. Metrics--More • Measures that are strategic and complement company direction • Time it takes from “sales order” through to payment is received from customer • SCM has a key role in that PROCESS whether existing product, new product development, etc. • Inventory turns or the corollary of how long inventory is in the supply chain

  25. Best PracticeInventory Velocity

  26. Ask • Are you inventory rich and cash poor? • How often does your inventory turn (Raw, WIP, Finished Goods)? Why does it not turn faster? • How long does it take from when you know you need to reorder until the material is received? Why does it take so long?

  27. Inventory • Raw, WIP, finished goods • Buffer against uncertainty • Inventory rich and cash poor • More uncertainty (time) means more inventory • Turns represent time company goes unpaid • More warehouses means more inventory with safety stock (square root of the number of warehouses) • Too much—more than capital tied up and the opportunity cost; becomes part of the company portfolio

  28. Inventory • Out of stock of needed products—customer service problems • Too much of products that sell slowly or almost not at all • Impact of long lead times on levels? • Inventory rich and cash poor?

  29. Inventory Turns • Is both a problem and a symptom • Reflects how fast company is paid (like a salary) • Aggregate turns and Breakdown • A B C and …. • product category • market segment • revenue and profit contributions • domestic vs imports

  30. Inventory/Time Measures • Days in inventory – Cost of Goods Sold / 365 Days • Can understate total inventory in the supply chain– excludes inventory that is on order and inventory in transit • Manufacturers and wholesalers—over 60 days of inventory • Retailers—over 90 days of inventory • Factor in what is excluded makes it 25% more

  31. Increase Inventory Velocity • Multi-step program • Align with business strategy • Key metric--Perfect Order--orders delivered complete, accurate and on-time • Purpose/Direction • Manage and reduce total supply chain costs • Increase inventory velocity • Compress cycle time • Need for Lean success • Provides structure, platform and integration for new processes internally and externally with suppliers

  32. Inventory Velocity • How fast inventory moves through the supply chain • Is more than “turns” • Shows as days of inventory on hand • Flaw because it excludes product on order and/or in transit

  33. Inventory Velocity • Recognizes emphasis is beginning of supply chain with suppliers • Transit time is one factor • Avoid stopping inventory (lean) • Supplier performance is key

  34. Inventory Yield • Time is very important • Issues with demand planning and time • Internal “battles can create discord to create inventory yield maximization and minimize supply chain costs, inventory and time--Procurement looks at low product price and Transport looks at low freight price

  35. Inventory Yield Maximization • Yield Maximization—used to sell airline seats and hotel rooms • Is a “right” time to sell • View inventory is same way • Too little inventory—lost sales • Too much inventory—mark down and fire sales • Inventory can go stale

  36. Best PracticeCycle Time Compression

  37. Cycle Time • Time to convert a sales / replenishment / purchase order into finished product that is at the customer or at the store • Ties to scope of supply chain • Remember effect of time on inventory • Cycle time often exceed demand planning credibility and capability • Supplier performance is key

  38. Cycle Time Compression • Recognize need for product till sales paid by customer • Subsets—such as time from recognize need (before PO is issued) until product delivered to you • In Lean, time is waste

  39. Best PracticeLean Logistics

  40. Lean SCM • Similarity with Lean principles • Pull vs push • Inventory reduction (reduce waste) • Cycle time compression (reduce waste)

  41. Lean Logistics • Extending it beyond domestic and factory walls (end to end) • Waste • Unnecessary, additional time • Unnecessary, additional inventory • Stopping or waiting on the flow of inventory and information (add no value to final product or value for customer)

  42. Lean • Assess entire supply chain as to where time is spent and why • Look especially at internal • Smaller orders/more frequency from suppliers • Do not store--cross dock at port or DC

  43. 5R’s (Rights) of Lean SCM • Right Product • Right Quantity • Right Condition • Right Place • Right Time • Anything that does not contribute to the 5Rs is waste

  44. Examples of SCM Waste • Over supply--Supplying product at a faster rate than customer requires, having it ahead of demand. Bringing in large quantities of product without matching demand creates excess inventory and can cause write-down and fire sales to draw down inventories—and revenues and profits. • Transportation. Unnecessary or slow movement of product adds no value (for lower freight cost). This can include movement of inventory between company facilities.

  45. SCM Waste • Movement. Any unnecessary movement of product or people during their work is to be avoided. This may be seen in warehouses or in special operations such as kitting. • Defective Service or Product. Poor quality, rework, or scrap because it does not meet the customer requirements adds no value. • Over processing. This is doing more than is necessary.

  46. SCM Waste • Inventory. Firms have more finished product, raw materials, or work in process than the absolute minimum. This includes inventory in transit, regardless of whether it is treated as inventory when it is delivered or not; it is still inventory regardless of such transaction nuances. • Waiting. Delays in previous supply chain steps cause unnecessary waiting of people or equipment. Inventory at warehouses reflect waiting.

  47. Becoming Lean • Realize cause-effect impacts. Distinguish problem from symptom of a problem • High freight cost can be a problem or a symptom. • Inventory can be a problem or symptom of a problem • Ask customers about how well your supply chain operates • Comprehend the complexity of supply chains with multiple suppliers in multiple countries, distribution centers and customers • Assess time—especially internal—for waste

  48. Best PracticeTechnology

  49. Technology--IS

  50. Process Enabler • Manage the “buy” even • Important tool to deliver complete, accurate , on time

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