SCM Orientation Class of 2015

1. SCM Orientation Class of 2015 Bruce Arntzen Supply Chain Concepts

2. Contents • Definitions and Overviews • Process, Information, Cash, Organization • Competitive Concepts • SC Risk Management

3. SCM is the art and science of integrating the flows of products, information and financials through the entire supply pipeline from the vendor’s vendor to the customer’s customer. Definition of Supply Chain Mgt Basic Supply Chain Vendors Distributors Manufacturers Wholesalers Retailers/ Customers PRODUCT/SERVICES INFORMATION FINANCES

4. In Reality, Many Participants Retail Central Warehouse Parts Depot Super Store (Wal-Mart) Raw Material Distributor Large US Supplier End User Specialty Manufacturing Shop Wholesale Distributor Large APAC Supplier 3PL Warehouse Cross Dock National Chain Store Final Assembly Operation Contract Manufacturer Value Added Reseller Small EMEA Supplier Order Fulfillment Center Agent Broker OEM Factory Retail Central Warehouse Small APAC Supplier Buyer VMI Warehouse Regional DC Independent Distributor Bonded Warehouse Small LACR Supplier Mom & Pop Store SC Execution: Asset Ownership: SUPPLIER YOUR COMPANY 3RD PARTY MANUF. LOGISTICS SUPPIER DISTRIBUTOR RETAILER BROKER OR AGENT RAW MATERIAL SUPPLIER YOUR COMPANY 3RD PARTY MANUF. OR VAR LOGISTICS SUPPIER DISTRIBUTOR RETAILER FUNDING PARTNER / BANK - • Today’s supply chains have many inter-company touch points: • - Information hand-offs • Product / Process hand-offs • Transfers of ownership

5. New England Sites Hudson Shrewsbury Springfield Westfield Franklin Salem Westminster Boston Marlboro Andover Supply Chains are very “International” Cultural Differences Tax Laws / Tax Havens Denied Parties List Export / Import Compliance Union Rules Quality Requirements / Laws Currency Fluctuations Duties, Tariffs, Classifications Computer Company Supply Chain Ayr S. Queensferry Kanata Hull Augusta Galway Clonmel England Nijmegen Colorado Burlington Kaufbeuren Villingen 10 New England Sites WCVC Valbonne Cupertino Tokyo Phoenix Greenville Albuquerque Shenzhen Tempe India Mexico Puetro Rico (2) Taiwan Hong Kong Singapore Brazil Sydney Legend: Factory Sites Chip and Media Site Module Site Logistics Sites

6. Contents • Definitions and Overviews • Process, Information, Cash, Organization • Competitive Concepts • SC Risk Management

7. Supply Chains have lots of Processes Planning & Management Product Management New Product Introduction Process Financial Management Forecasting Sales & Operations Planning Supply Base Mgt. Demand Planning Returns Management Order Management Customer Service Capacity Planning Materials Planning Purchasing Accounts Receivables & Payables Order Fulfillment Production Scheduling Outbound Transport Mgt Inbound Transport Mgt. Warehouse Mgt. Inventory Mgt. Order Picking, Packing Receiving, Put-away, Storage Trans-port Invoi-cing Ship-ping Manufac-turing Trans-port Collec-tions Ship-ping Execution

8. Supply-Chain Operations Reference SCOR) Model Plan P1 Plan Supply Chain P4 Plan Deliver P5 Plan Returns P3 Plan Make P2 Plan Source Source Make Deliver M1 Make-to-Stock S1 Source Stocked Products D1 Deliver Stocked Products Suppliers Customers D2 Deliver MTO Products S2 Source MTO Products M2 Make-to-Order M3 Engineer-to-Order S3 Source ETO Products D3 Deliver ETO Products Return Deliver Return Source Enable Supply Chain Council

9. Procurement Cycle Manufacturing Cycle Replenishment Cycle Customer Order Cycle Beer Game Process View of Supply Chains Customer • Four Primary Cycles • Customer Order Cycle • Replenishment cycle • Manufacturing Cycle • Procurement Cycle • Cycles Occur Between Stages • Customer • Retailer • Distributor • Manufacturer • Supplier • Not every SC will have all 4 Cycles Retailer Distributor Manufacturer Supplier Adapted from Chopra & Meindl “Supply Chain Management”

10. Best Practices: Process Supplier Rationali -zation VMI Design For Manuf. Std. Parts List Setup Reduction Integrated S&OP Fewer Saleable Items JIT / Kanbans Build To Order

11. Build to Forecast Forecast-Driven Demand-Driven FG Inventory Raw Inventory Distributors Batch Manufacturing Resellers Retailers PUSH PUSH PULL e-Customers • Forecast drives: • Material Planning • Purchasing • Material Transfer to Line • Manufacturing • Demand drives: • Order Fulfillment

12. Build to Order Forecast- Driven Demand-Driven Vendor’s Raw Inventory Distributors FG Inventory Manufacturing Resellers Retailers PULL PULL PULL e-Customers kanban • Forecast drives: • Material Planning • Purchasing • Long-term production staffing • Long-term capacity planning • Demand drives: • Material Replenishment of Line • Manufacturing Activities • Order Fulfillment

13. Typical Supply Chain IT “situation” SAP At the end of the month we have to stop and type all the data back into SAP so they can close the books.

14. Cash to Cash Cycle Time Definition Days of Sales Outstanding (DSO): # of days it takes for a customer to pay Inventory Days of Supply (IDS): # of days of inventory in the company Days of Payables Outstanding (DPO): # of days it takes the company to pay its inventory-related bills Cash to Cash - + + DPO IDS DSO Raw Mat’l Received Payment Received Expenses Paid Product Sold Time (Days) Day 1 DSO IDS DPO Cash-to-Cash Cycle Time

15. Typical Company Cash Flow Model Raw Material Supplier Raw Material Stocking 14 days on hand FG Stocking 21 days on hand Manu- Facturing 6 day cycle time Goods Goods Past Due 5 days Customer 30-day Payment Terms Billed upon shipping Bill on Ship, 10d transit $ $ 30-day Supplier Payment Terms $ Company Treasury funds 56 days of Working Capital Note: Cash to Cash Cycle Time is 56 days

16. “Dell” Model Cash Flow Model Dell Plant Bill on ship Bill on JIT VOI Raw Material Supplier Vendor Owned Raw Material 14 DOH Manu- Facturing 1 day cycle time Customer Goods Goods 10d transit JIT Customer Credit Card charged at shipping $ $ Company Treasury has 29 days of Customers’ Working Capital $ 30-day Supplier Payment Terms Note: VOI delays transfer of ownership by 24 days Payment by Credit Card accelerates payment by 35 days Resulting Cash to Cash Cycle Time is negative 29 days

17. Traditional SC Functions • Purchasing / Procurement • What to buy from who • Corporate vs Group • Inventory Control • How much to stock where • Trigger points • Replenishment plan • Warehousing • Storage, Mixing, Break bulk • Pick Pack and Ship • What to stock where in WH • Materials Handling • How to move product • Packaging, containerization • Storage layout • Order Processing • Receiving, Entry & Status • Order Management • Transportation • Inbound versus Outbound • Domestic versus International • Modal control (Rail, TL, LTL, Parcel, Air, etc.) • Customer Service • Geographic • Product Line Specific • Planning Group • Facility Location • Network Design • Demand Planning

18. Typical company organization CEO President Functional Organizations Vice Presidents are in charge of functions Information Systems Human Resources Supply Chain Engineering Finance Sales Marketing Run the Func-tion Run the Func-tion Run the Func-tion Run the Func-tion Run the Func-tion Run the Func-tion Run the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion Fix the Func-tion

19. Work gets done through Enterprise-Wide Processes CEO President Functional Organizations Information Systems Human Resources Supply Chain Engineering Finance Sales Marketing Order Creation through Collections Enterprise-wide Processes Forecasting through Production New Product Design through Introduction Return Request through Problem Resolution Financial Management and Budgeting

20. Note: many groups must cooperate to get anything done Enterprise-wide Processes Order Creation through Collections Customer’s Needs Outbound Transport Credit Check Delivery Order Entry Collections Order Picking Customer Management Invoicing Selling Shipping Quoting Forecasting through Production Capacity Planning Supply Planning Purchasing Supplier Mgt Production Customer’s Plans S&OP Raw Material Positioning Finished Goods Positioning Sales Forecast Demand Planning Inbound Transport New Product Design through Introduction Sourcing Customer’s Vision Product Specs Material Specs Supplier Qualification Pilot Builds Ramp-Up Quality Validation Market Research Portfolio Mgmt Product Design Manufacturing Process Design Prototype Build Return Request through Problem Resolution Customer Return Request Spare Shipped Customer Management Repaired Part Repositioned Spares Positioned Returns Authorization Defective Received Repair Process Diagnosis

21. Contents • Definitions and Overviews • Process, Information, Cash, Organization • Competitive Concepts • SC Risk Management

22. High Level View of SC Performance Customer Service: Predictability & Response Time Optimize Working Capital Performance: Cash to Cash Cycle Time Profit: Revenue, Costs Success comes from doing all three well at the same time.

23. Using Operational Leadership to Win High Tech Startups Your Company (excellent products but slow and expensive) Is anyone up here? Your Competitors (good enough products, cheaper, faster) HP seems to be shaking off Dell Product Leadership (Technology Leadership) Distribution & Logistics Companies *Reference: “Shifting Cultural Gears in Technology-Driven Industries” by Paul J. Kampas Operational Leadership

24. One size Does Not Fit all

25. Thinking like the Board Board Concerns Supply Chain Concerns Primary Concerns

26. Thinking like the Board Board Concerns Supply Chain Concerns • Profits • Market Share & Growth • Return on Investment • Stock Price Primary Concerns • Availability of Supply • Fulfillment of Customer Orders • Customer Lead Time This guy never sees the big picture. Today’s Crisis

27. Talking like the Board Supply Chain “Speak” Board Room “Speak” Availability Pull Flow Lead Time Fulfillment Takt time Quality Value Stream Costs Inventory Waste Revenue Net Income SG&A COGS IDS DSO DPO Growth ROA, ROCA EBITDA Working Capital P/E Ratio YOU MUST TRANSLATE CTC is a good place to start. Cash to Cash Cycle Time = Inventory Days of Supply (IDS) + Days of Sales Outstanding (A/R) - Days of Payables Outstanding (A/P) “Now I hear you!” “CTC”

28. Design Engineering Marketing & Product Management Sales Supply Chain Suppliers Getting Other Functions to Help What cooperation does the supply chain need from other functions? Reliable Forecasts Collaborative Demand Planning Sales & Operations Planning No End of Period Bargains Portfolio Management Fewer Saleable Items End of Life Planning Product Life Cycle Mgt. SC included in CM Sourcing Forewarning of Promotions High Part Commonality Use of Standard Parts List DFM / DFX Design for Postponement Use of Preferred Suppliers Visibility to Prelim. BOMS Operational Excellence VMI Raw Material Risk Mgt Visibility to Inventories Visibility to Orders Early Design Involvement Lead Time reduction

29. Design Engineering Marketing & Product Management Sales Supply Chain Suppliers Getting Other Functions to Help Cooperation is needed from many other functions to achieve Operational Excellence Reliable Forecasts Collaborative Demand Planning Sales & Operations Planning No End of Period Bargains Portfolio Management Fewer Saleable Items End of Life Planning Product Life Cycle Mgt. SC included in CM Sourcing Forewarning of Promotions High Part Commonality Use of Standard Parts List DFM / DFX Design for Postponement Use of Preferred Suppliers Visibility to Prelim. BOMS Operational Excellence VMI Raw Material Risk Mgt Visibility to Inventories Visibility to Orders Early Design Involvement Lead Time reduction

30. Contents • Definitions and Overviews • Process, Information, Cash, Organization • Competitive Concepts • SC Risk Management

31. SCRM has been in the news! BP Oil spill Iceland Stock Market

32. Japan exposed SC weaknesses

33. Wake-up call for SC Risk Management Apple iPad2 Li-Ion Batteries Apple, Japan • Other Electronics Companies • Apple’s Competitors (Polyvinylidene Fluoride) PVDF Polymer Resin Kureha, Corp. Iwaki, Japan 70% Global Supply So where is Iwaki ?

34. CLOSED Who will capture the other 30% of global supply?

35. How fast can you find these dependencies? Truck Engine General Motors, NY GM/Chevy Truck US, SP, DE, UK Lambda Sensor exhaust gas oxygen sensor • Other Automobile Companies • GM’s Competitors HITACHI, Japan 60% Global Supply

36. Acting fast is good. Being ready is better. HITACHI 60% of the world’s supply of Lambda Sensors GM Shreveport Plant Who will capture the other 40% of global supply? WAS CLOSED

37. Supply Chain Risk Leadership Council Cross-industry council of manufacturing & services companies Mission: Define best-practices and metrics. Promote consistency across industries. If you had to pick one group in SCRM to get involved with …

38. Risk Event Detection and Response As described by John Brown, SCRM Coca Cola

39. direct/empower lobby The Standards Business • Standards Endorsing Bodies • Governments, Industry Associations (DHS) • Select standards to require or recommend • Designate Accrediting Bodies to administer the standards 2 lobby 3 designate 1 lobby • Accrediting Bodies • Bodies designated to administer the standards • ANSI, ANAB in the US, UKAS in UK • Set rules and deputize (accredit) Certification Bodies to do the inspections • Standards Issuing Bodies • ISO, ASIS, BSI, NFPA • Sometime designate Accrediting Bodies • Hundreds of entities issue standards • Do research & have working groups to write standards • Compete to get their standards adopted • Lobby governments and industry associations to have their stds endorsed. designate 4 accredit $ • Certification Bodies • Hundreds of For-Profit Consulting firms / Services firms who are deputized to perform inspections to certify that your company meets the standard • Lobby Standards Endorsing Bodies to endorse more standards. • Lobby and Participate in the working groups of the Standards Issuing Bodies lobby certify CERTIFIED • Your Company • Pays the bill • Tries to implement the standards 5

40. How / Why is DHS involved? “DHS to establish a voluntary private sector preparedness, accreditation, and certification program” 9/11 Report Congress in 2007 “private sector not prepared for terrorist attacks” “Voluntary, yeah, right.” DHS PS-Prep Program • Deputize Accrediting Body • ANAB will accredit certification bodies • Endorse Standards • ASIS SPC.1-2009 • BSI 25999-2.2007 • NFPA 1600:2010 Publish List of Who has been Certified

41. ISO 31000:2009 Name: Risk management -- Principles and guidelines Note: “ISO 31000:2009 is not intended for the purpose of certification.”

42. ASIS SPC.1-2009 Organizational Resilience Topics Included: Management Commitment Risk Assessments Impact Analysis Roles & responsibilities Training & Awareness Communications & Warnings Documentation Control of Documents Incident Prevention Preparedness & Response Monitoring & Measurement Evaluation of Compliance Exercises & Testing Corrective Actions Internal Audits Management Reviews Know your Organization Policy Management Review Continual Improvement Planning Checking & Corrective Action Implementation and Operation 66 pages

43. BSI 25999-2.2007 Business Continuity Management (BCM) Topics Included BCM Policy BCM Program Management BCM Strategies BCM System Incident Management Structures Incident Management BCM Plans. Implementing and Operating the BCMs Monitoring and Reviewing the BCMs Audit and Self-Assessment BCM Testing Exercises BCM Maintenance Source: http://www.thebci.org/reports/JohnHele.pdf

44. NFPA 1600:2010 Disaster/Emergency Managementand Business Continuity Programs Topics included: Program Administration Records Management Planning Process Risk Assessment Business Impact Analysis Prevention Mitigation Communications and Warning Operational Procedures Emergency Response Employee Assistance and Support Business Continuity and Recovery Crisis Communications Incident Management Emergency Operations Centers Training and Education Testing and Exercises (+ more) 52 pages including 14-page self assessment guide

45. Hi-Viz Supply Chain Project CORPORATE DATABASES select and extract network data select and extract performance data Hi-Viz Supply Chain Displays: BOM Data Part Supplier Data Supplier Location Data Money Flow (Value at Risk) Forecast Data Working Capital Heat Map Strategic Network Display (SND) Inventory Data create Combinations of data to create other risk & resiliency indices Lead Time Data Cycle Time Accum. Diagram Capacity Data Identify Network Bottlenecks Cost Accumulation Diagram Cost Data

46. MIT Project to Automate SC Risk Displays HI-Viz Supply Chain Project V18 V13 V7 R2 V6 R1 P3 V1 D1 V14 V11 D2 R3 V19 P1 P1 W1 CM1 V2 R4 V8 D3 P4 V20 R5 V9 V15 V4 D4 R6 P2 P2 CM2 W2 V12 V16 V3 R7 R8 V5 V17 V10 V21 V = VENDOR, CM = CONTRACT MANUF. , P = PLANT, W = WAREHOUSE, D = DISTRIBUTOR, R = RETAILER 47

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