Supply chain management Pascale Vande Velde

1. UNIVERSITE LIBRE DE BRUXELLES Supply chain managementPascale Vande Velde Solvay Business School SEMINAIRE DE TECHNOLOGIES DE L’INFORMATION ET DE LA COMMUNICATION GEST 116

2. Content of eBusiness course Introduction – Part I Introduction – Part II Payments & security Supply chain management

3. Agenda Introduction SCM Case study : eprocurement Case study : esynchronization Case study : eplanning

4. Supply Chain functionality by segment Supply Chain Planning Manufacturing Strategy & Operations Consumers Distribution & transportation Mgmt Procurement and sourcing Inventory Management Sell Design Suppliers and Vendors Hold Make Move Buy Customers Synchronization and Execution – Fulfillment process

5. Agenda Introduction SCM Case study : eprocurement Case study : esynchronization Case study : eplanning

6. eprocurement Supply Chain Planning Manufacturing Strategy & Operations Consumers Distribution & transportation Mgmt Procurement and sourcing Inventory Management Sell Design Suppliers and Vendors Hold Make Move Buy Customers Synchronization and Execution – Fulfillment process

7. ILLUSTRATIVE —Impact of Indirect Procurement Cost Savings on Profit — Procurement Value Drivers • Purchasing determines an important part of the competitive position of most firms. • Purchasing is an area where large cost reduction can be made • An organisations spend makes up on average of 60% of revenue • Procurement cost savings go straight to the bottom line • Purchasing and Supplier collaboration can reduce the need for large inventories and quickly introduce goods and services to accommodate new product designs and changes in existing designs • Streamlining of processes allows organisations to acquire good more quickly. It is well recognized by most organizations that procurement cost savings are particularly attractive because they go straight to the bottom line — Before — — After — Revenue $1,000M - COGS 400M Gross Margin 600M - Labor 200M - Indirect Purchases 300M Net Income (before taxes) $100M Revenue $1,000M - COGS 400M Gross Margin 600M - Labor 200M - Indirect Purchases 270M Net Income (before taxes) $130M (10% reduction) (30% increase)

8. The Re-Emergence of Strategic Sourcing The need for Strategic Sourcing, both online and off, has become increasingly evident….everything is refocusing on the relationships between buyers and suppliers. eSynchronised Supply Chain eCollaboration eSettlement eFulfillment eIntelligence eAuctioning Outsourced eProcurement Services Marketplaces eRequisitioning Procurement Card Integrated ERP Strategic Sourcing

9. “When the goal is boosting profits by dramatically lowering costs, a business should look first to what it buys.” - Fortune The Re-Emergence of Strategic Sourcing Strategic Sourcing is not a new concept but companies are increasingly realising the importance of doing it and, just as important, doing it well….. • New focus on revenue and competitive advantage rather than cost and efficiency • Companies have not involved Procurement early enough in discussions about demand and specifications and significant sourcing opportunities have been lost • Traditional Strategic Sourcing has been a time-consuming, paper-based and manual process. Older methods have: • Limited the number of potential suppliers with which a buyer can negotiate • Forced many organisations to make decisions with sub-optimal information • Extended the overall length and cost of the sourcing cycle • New tools are enabling a sophisticated and rounded eSourcing Strategy • Recognition that whilst eProcurement is a key to sustain savings, the true value is achieved through Strategic Sourcing

10. Delivering and Maintaining Savings Neither eProcurement nor Strategic Sourcing on their own is enough to realise and maintain all potential benefits Performance Organisation • Performance and process focus supported by eSourcing tools • Right People in the Right place • Cross-Skilled, motivated teams Strategic Sourcing: • Consolidated Suppliers • Total Cost of Ownership • Strong Supplier Relations eProcurement • Increased compliance • Some process savings • Better Information Savings • Procurement initiatives fade • Supplier base expands Time

11. eSourcing • Direct / Indirect products / services • Deliver lowest total cost • Buyer / Supplier partnership • eMarkets / Auctions • Direct / Indirect products / services • Reduce price • Does not leverage existing contracts • eProcurement Applications • Indirect products / services • Automate processes • Leverage existing contracts eSourcing Tools: The Future? A new breed of eSourcing solutions is focused on enabling, embedding and speeding up the Strategic Sourcing process Strategic Higher Type of Process Buyer Power Tactical Lower Low High Value of Goods Traded

12. eSourcing Tools: The Future? Web enabled tools drive consistency, efficiency and best practice into the strategic sourcing process New Priorities • Strategic sourcing value opportunities have sometimes been missed due to lengthy and complex analytical processes • Non-value added work needs to be reduced to allow procurement professionals to concentrate on more strategic and higher value tasks New Opportunities • Tools are emerging to enable global & enterprise-wide sourcing strategies – paving the way for true eCommerce and new ways of working • New leading edge web application solutions can improve business processes and empower procurement professionals • Deeper functionality is coming available as technology matures • eAuctions are already producing proven results. They do though need to be integrated within overall Strategic Sourcing process for maximum efficiencies and benefits

13. eSourcing Tools: Solution Landscape Applying new technological solutions to the purchasing cycle • Online auction • multiple formats, languages & currencies • 3rd party services: event setup, training & facilitation • Online sealed bid • Online negotiation • eIntelligence from multiple buying tools • Online analysis • 3rd party service capability: spend analysis supported by strategic sourcing services • Industry-specific marketplaces • Buyer-led online ‘communities’ Research Develop Sourcing Strategy RFP/Tender Negotiate Implement Manage & Develop Suppliers • Manage demand • Analyse spend, identify opportunities • Analyse market • Source & qualify suppliers • Create & issue RFQ/ITT • Negotiate contract • Award & finalise contract Direction • Develop commodity specific strategies • Manage supplier relationship • Online process tools based on best practices • Analysis templates • Industry-specific supplier directories & marketplaces • Newsfeeds, online market intelligence, online corporate information • eRFI creation • eRFP/Q creation: • multi-line, multi-parameter • automatic weighting of responses to speed up the assessment & elimination of suppliers • Collaborative tool / template creation allows group-wide re-use • Weighting of bids to reflect total cost of commodity ownership & supplier track record • Online confirmation of contracts

14. Research 2 3 Develop Sourcing Strategy Project Direction 1 4 RFP/ Tender Manage & Develop Suppliers 7 5 Negotiate 6 Implement eIntelligence Tools to Support the Strategic Sourcing Process • eIntelligence • Buyer Portal • Benchmarks • Total Cost Focus • Spend Analysis • Capability Analysis • Procurement Knowledge Base • Strategy Analysis • (e.g. eProcurement) • SS On-line • X-fn. teams • eRFP • eTender Seven Step Process • Partnership Scorecard • Procurement Knowledge Base • Team Negotiation • eAuction • Tenders • eMarketplaces • eCommunication • eContracting • Process Standards

15. Research 2 Develop Sourcing Strategy 3 Project Direction 1 RFP/ Tender 4 Manage & Develop Suppliers 7 Negotiate 5 Implement 6 eIntelligence & Portal Overview ‘eIntelligence’ is internet-based information which can add value to the Strategic Sourcing process. It helps procurement professionals to analyse the marketplace, select suppliers and award contracts. • Key Tools: • Proactive delivery mechanisms, pushing tailored internal and external information to the desktop • Newsfeeds & free e-mails to subscription-based news services • Knowledge Management & internal search capabilities • Community features & discussion databases • Industry Vertical providers inc. B2B eMarkets • Applicable within the research and strategy steps of the 7 step • strategic sourcing process Arms procurement with detailed information to support ‘Total Cost of Ownership (TCO) based negotiation’ with suppliers.

16. From searching the internet to personalised portals and beyond……. VISION: Internal and external sources combine to deliver powerful information solution Value eSynchronised Integrated Solutions ERP Information Integration Personalised Portal Enterprise Portal B2B eMarkets eRequisitioning Communities Knowledge Management Category Newsfeeds Industry Newsfeeds Internet Searches Complexity

17. Shared Applications ERP Legacy Project Application eProcurement Application Personal Applications Market Application • Outlook 2000 • Mail • Calendar Collaboration e.g. Discussion Forum Personal Folders A procurement portal draws on many information sources internet www pages Procurement Portal Business Partners B2B 2Market intranet Newsfeeds B2B Central Vendor Database View & access Corporate Portal

18. eRFx Overview • eRFx is the process of: • Posting an RFI/P online utilising a secure web site • Collecting supplier responses • Bringing qualifying suppliers through to RFQ • Negotiating the contract either via sealed bid or Reverse Auction Project Direction • Integration of best practice • Strategic Sourcing Methodology ‘7 Step Methodology’

19. eSourcing Value Proposition Tools & Knowledge = Efficiency & Leverage = Savings Lowered Total Cost of Ownership • Strategic Sourcing Online tool enables effective strategic focus • Spend Analysis tools (OLAP) to aggregate and optimise spend • Reduce part proliferation More Effective Negotiation Through eIntelligence • Full use of new internet information sources • Provides facts fast for fact based negotiation • Leverages internal knowledge and contacts • Identifies significant industry trends Reduced Cost of Purchase • Reverse auctions deliver value (12–17%) • eTendering supports: • Focus on attributes beyond price • Identifies wider spectrum of suppliers to take part Cost Effective Solutions • Overall integration with online auction/sealed bid capability can bring as much as a 25% cost reduction • Fast ROI • Hosted solutions reduce risks and integration costs Online Process • Reduces average sourcing cycles • Online tendering on its own can reduce this time by as much as 30% • Drives reusability by bringing the process online Compliance and Consistency • eRequisition and eRFQ reduce maverick buying • Online methodology drives and guides process • Online RFI/P/Q ensure standard documentation and easier comparison

20. Case study : MRO in the steel industry (“MRO Steel”) • Consortium based marketplace • On June 22, 2000 the four consortium partners, who are leading steel producers, signed a Memorandum Of Understanding to study Trading Exchange • The four founding companies agreed to work towards forming a leading-edge eProcurement marketplace for metals. • The marketplace is focused on MRO (Maintenance, Repair and Operations), and vertically oriented.

21. What is a Marketplace/ Exchange ? Marketplaces are trading platforms that bring together multiple buyers and sellers on an Internet site to doindividually business with each other Vertical Marketplaces Many Many Provide specialized products and services which are tailored to specific industries Exchange Many-to-Many relationship Individual Buyers Individual Sellers

22. Power of an Exchange - traditional model Supplier EDI, custom, ... • Evolution towards an Exchange • Buyers wanted to connect electronically to their suppliers • Every buyer established a customized link to their suppliers • Eventually, a patchwork of customized links existed Supplier Buyer Supplier Buyer Supplier EDI, custom, ... Supplier Buyer Supplier EDI, custom, ... Supplier

23. Power of an Exchange – MRO Steel SUPPLIER SUPPLIER Partner steel producer SUPPLIER A standard and uniform platform SUPPLIER Partner steel producer SUPPLIER MRO Steel SUPPLIER Partner steel producer SUPPLIER SUPPLIER Partner steel producer SUPPLIER SUPPLIER SUPPLIER

24. Metalexplorer Steelscreen iSteelAsia GSX E-Steel Metalsite Metalspectrum Steel24-7 Ferrousexchange Kouzai.com Steel-N.com Initiatives in the Metal Spectrum Metalmaker MaterialNet Independent Sell-side Procurement Industry Consortia Operational Quadrem MRO Steel Announced Covisint Alliance/ acquisition Individual initiatives Bethlehem Steel Suppliers Metals producers Customers Position in value chain

25. What differentiates MRO Steel ? Liquidity Low transaction fee Speed-to-marketand partnership Value added services Liquidity provided directly by shareholders is MRO Steel’s true differentiating factor Process efficiency provides incentive to commit spend volume Ensure that MRO Steel has a competitive pricing level and compelling value proposition Economies of scale reached quickly due to shareholders’ liquidity Launch in short timeframe with fast ramp-up Signing up the right buyers, suppliers and other marketplaces Strive for global reach MRO Steel will constantly innovate by introducing value added services Effectively translate internal needs into tangible services Deeper integration of the supply chain between participants

26. Pilot: Scope overview MRO Steel The pilot will support the following eRequisitioning process 2 EBP Buying Tool 3 Catalogue 1 4 5 9 Business Connector 7 10 SAP ERP Order Mgt System 12 8 11 6 • User logs into EBP • From EBP, the user will “Punch-in” to MRO Steel to browse the hosted catalogue • Catalogue view will be restricted based on the user’s company/profile • Once items have been selected they are brought back to EBP (“Punch-out”), and added to the shopping basket • The shopping basket is sent from EBP to R/3 using standard interface and converted into a Purchase Requisition • Approval processes and the creation of the Purchase Order is done in R/3 • Once the PO is created, it is sent under in Idoc format to the Business Connector • The BC translates the iDoc into an XML format • The PO is then sent to MRO Steel where it will be displayed in the Order Management System • A purchase order acknowledgment is sent from BFM and processed by R/3, (steps 10 to 12)  Alternative scenario: shopping basket creation with selection of material, or based on free text

27. Phase III EBP – MRO Steel Integration Catalogue browsing Selected items Status information Requisition Purchase order BFM format XML Purchase order SAP format Receipt Confirmation BFM XML format Receipt Confirmation SAP format Phase II SAP – MRO Steel integration Phase I EBP – SAP integration Pilot: Three phased approach MRO Steel Catalogue EBP Buying Tool Order Mgt System SAP ERP Business Connector

28. Target situation MRO Steel EBP Buying Tool Catalogue SAP Steel producer 1 SAP Steel producer 2 Order Mgt System Business Connector SAP Steel producer 3 Common platform hosted at one of the steel producers SAP Steel producer 4

29. BC Production ITS Test/development E-requisitioning technical architecture Browser Browser Steel producer 2 Steel producer 3 64kbit/s 2 x 256 kbit/s Steel producer 2 Browser Corporate Telefonica ITS Production ITS Test/development Internet BC Test/development 1 Mbit/s W-gate W-gate W-gate 64kbit/s Infonet (Frame Relay 1 Mbit/s Network) ITS server SAP BC SAP BC ITS server SAP BC ITS server 1 Mbit/s DMZ TA-segment at Steel producer 1 FW 256 kbit/s Route Browser r SwB browser 10 Mbit/s Steel producer 1 Steel producer1 Lan ITS Production W-gate W-gate W-gate SAP R/3 SAP EBP test/ SAP R/3 production SAP R/3 acceptation SAP EBP production development development Aristos PSI Aristos ASI (PED) Aristos DSI (DEB) ITS 2 ITS test/development ITS 1 svism001 A-gate(s) A-gate(s) A-gate(s)

30. Status information Requisition EBP – SAP integration Demo: Creation of Shopping baskets EBP – MRO Steel Integration MRO Steel Catalogue Catalogue browsing EBP Buying Tool Selected items Order Mgt System SAP ERP Business Connector • Alternatives for catalogue browsing: • Selection of material in shopping basket • Free text entry • Usage of templates

32. Status information Requisition EBP – SAP integration Demo: Back-end system activities MRO Steel EBP Buying Tool Catalogue Order Mgt System SAP ERP Business Connector • Release Procedure Purchase requisition • Creation of purchase order • Send purchase order

33. Status information Requisition EBP – SAP integration Demo: Reformatting of purchase order MRO Steel EBP Buying Tool Catalogue Purchase order BFM format XML Purchase order SAP format Order Mgt System SAP ERP Business Connector SAP – MRO Steel integration

34. Status information Requisition Receipt Confirmation BFM XML format Receipt Confirmation SAP format EBP – SAP integration Demo: Treatment by BFM MRO Steel EBP Buying Tool Catalogue Purchase order BFM format XML Purchase order SAP format Order Mgt System SAP ERP Business Connector SAP – MRO Steel integration

35. Status information Requisition EBP – SAP integration Demo: Status update process • History update after • Purchase order creation • Goods receipt • Invoice verification • … MRO Steel EBP Buying Tool Catalogue Purchase order BFM format XML Purchase order SAP format Order Mgt System SAP ERP Business Connector Receipt Confirmation BFM XML format Receipt Confirmation SAP format SAP – MRO Steel integration

37. Agenda Introduction SCM Case study : eprocurement Case study : esynchronization Case study : eplanning

38. efulfillment Supply Chain Planning Manufacturing Strategy & Operations Consumers Distribution & transportation Mgmt Procurement and sourcing Inventory Management Sell Design Suppliers and Vendors Hold Make Move Buy Customers Synchronization and Execution – Fulfillment process

39. Inventory Long freeze periods Infrequent communication Inaccurate information transfer Current business architectureof the value chain Barriers Inventory levels Push • Variability causes most silos to be working on the wrong stuff

40. Current business systems architecture for the division SCM E-procurement Storefront CRM Design

41. Current business systems architecture for the enterprise

42. How Do You SolveThis Problem?

43. What do you need to do to improve? • Reduce complexity • Rationalize suppliers • Rationalize items • Generate better contracts • Increase visibility. Break down walls • Between divisions • Throughout processes • Between value chain partners • Between systems • Increase velocity • Key weapon against variability

44. Introducing dynamic valuechain management Dynamic value chain management (DVCM) is a business approach to continuously increase efficiency in the value chain by concurrently reducing complexity, increasing visibility and increasing velocity.

45. DVCM methodology: First key principle • How well you continuously improve the value chain efficiency depends on the speed and quality of the following cycle

46. DVCM:Second key principle Value chainconfiguration Value chainplanning Value chainexecution Reducecomplexity Increasevisibility Increasevelocity

47. DVCM methodologyStep 1: Configure your value chain • Rationalize your Bill Of Material’s and components • Rationalize your suppliers • Rationalize carrier contracts • Optimize supply network • Create contracts and business processes • Create collaborative response buffers • Continuously monitor, decide and act

48. DVCM methodologyStep 2: Plan collaboratively • Collaboratively forecast demand and plan supply • Influence demand and supply • Match supply with demand across multiple enterprises • Plan allocations • Create Available Through Promise across thevalue chain • Continuously monitor, decide and act

49. DVCM methodology Step 3: Execute collaboratively, implement a pull-based process • Promise and create the“perfect order” • Schedule the order at the factory • Immediately broker orders acrossvalue chain • Schedule fulfillment across multiple fulfillment organizations and systems • Replenishment signals generated automatically for collaborative response buffers • Settlement done automatically onreceipt of goods • Continuously monitor, decide and act

50. An ideal rapid response value chain: Planning happens in days, execution happens in hours Lowerinventory levels • Huge benefitsfor those who practice DVCM, despite limited participation from others Retailer Pull Componentsuppliers Applied DVCMmethodology Contract manufacturer OEM