HiTech Supply Chain Advisory Framework WHITE PAPER

Transcription

1 HiTech Supply Chain Advisory Framework WHITE PAPER NOVEMBER 2012

2 TABLE OF CONTENTS INTRODUCTION 3 THE INDUSTRY ANALYSIS 4 THE METHODOLOGY 6 AUTHORS 12 ABOUT HCL 13 2

3 INTRODUCTION BACKGROUND AND OBJECTIVE In this interlinked and globalized world economy, manufacturing companies are constantly transforming themselves to quickly adapt to market requirements to sustain their competitive advantage. Some of the key factors effecting this transformation are: y Huge but varied demand y Country-specific & changing risk, regulatory & compliance requirements y Complexity in global flows of information, goods & capital y Challenges in global resource & talent acquisition and their management Many of these factors link how a manufacturing company operates their business and has a big impact on their supply chain strategies. It is therefore prudent to revisit the supply chain components, re-plan as warranted and accurately execute to effect the desired transformation. The objective is to lay a foundation for improved supply chain visibility to respond appropriately to the changing global scenarios. In essence, this will aid in reducing logistics costs & inventory levels, reducing cash-to-cash cycles, yielding higher inventory turns, improving forecast accuracy and other important performance indicators thus having more profitable operations. This white paper outlines a framework to revisit the supply chain of HiTech manufacturing companies and identify the key transformation areas as relevant to their business. Complications for supply chain in HiTech Industries could be significant as the supply chain is generally spread across multiple geographies and is primarily forecast driven. The framework discussed in this white paper addresses the key issues and suggests means to streamline the irregularities. SUMMARY OF THE FRAMEWORK While the evolution of enterprise is advancing from a semi-functional enterprise to an integrated and extended enterprise, the objective of the supply chain should be to span the entire extended enterprise. The framework, in this white paper, has been developed to identify all major issues in the supply chain of HiTech companies including the extended enterprise. Once these issues are addressed and streamlined, the HiTech supply chain can achieve the desired state of an integrated and extended enterprise. The HiTech industry in our context comprises of the following subsegments: semiconductor, consumer electronics, electronic measuring equipments & instruments, storage, desktops & server, networking and peripheral devices manufacturers. 3

4 This advisory framework outlines a well-defined methodology to identify and address the supply chain issues and recommend possible solutions. Several tools and accelerators are also recommended for use at various stages of the framework. An industry analysis has been done to understand the key issues in HiTech supply chain through various sources. Research reports from Aberdeen Research and RR Donnelly have been referred to for industry analysis. Also, several key users in HiTech industries have been interviewed to understand the key pain areas. THE INDUSTRY ANALYSIS The primary objective of industry analysis is to identify the areas of focus, different key success factors in different segments and the logic of the industry. This analysis is also called external analysis. Aberdeen research reports have been used to identify the key areas of focus in the next months. Source: Aberdeen Research Webinar Oct, 2010 Table 1: Key Supply Chain Strategies for HiTech Companies Note from Table 1, that 55% respondents in HiTech industries have mentioned that forecast accuracy is their key areas of focus while 52% respondents have mentioned that inventory optimization is their key focus. Lead time reduction and collaboration with suppliers and customers (supply chain partners) are the next priority of supply chain activities as per the respondents (key users of HiTech supply chain) of this survey. Now refer to the RR Donnelley Report for HiTech in Table 2. The focus areas identified through this survey are almost similar to that of the Aberdeen Research survey. As per this report, improved forecasting, inventory reduction, improvement of supply chain visibility and managing supply chain complexities are the main areas of focus. 4

5 Areas in which Tools, Strategies or Technologies will be Invested, in the Next 12 Months Source: Eyefortransport s 2010 survey, RR Donnelley Table 2: Key Supply Chain Strategies for HiTech Companies Besides analyzing Aberdeen and RR Donnelley reports, key users in HiTech industries have also been interviewed. The areas of interest in the supply chain as described by the key users are mentioned below: y Joint capability building with suppliers and partners to do research and development work y Cost saving through proper forecasting, timely replenishment, operations and inventory optimization y Early adopters of concepts of integrated enterprise through B2B exchange y High visibility is required in the distribution channel with close collaboration with SCM partners y Reasonably good forecasting is required for launch of substitute product. Postponement technique is adopted to come out with new product quickly Considering the observations from above, there are four key areas of focus in HiTech supply chain. The cause and effect of these four areas are outlined below: y Forecasting Issue HiTech industry runs on forecast-driven supply chain. Semiconductor industry and consumer electronics industry in particular, depends on forecasting for their production planning, raw material planning and distribution planning. If the forecast is not accurate a possible bullwhip effect is expected in the supply chain. Small demand variability becomes more and more distorted resulting in unnecessary stock pile in different point of the 5

6 supply chain. There may be unexpected stock out situation also at different point of supply chain. y Collaboration Issue - HiTech Industry has a large vendor base and their distribution channel is spread across multiple geographies. Collaboration, therefore, is always an issue for them. There is demand mismatch among SCM partners at any point of the supply chain due to lack of information sharing and collaboration approach. Due to lack of collaboration, cost of procurement, cost of planning and cost of distribution goes up. It also affects the timely delivery and product quality. y Supplier Consolidation Issue - HiTech Industry has a large supplier base because of variation in product range and technical complexities. For most of the HiTech companies, supplier base is spread across multiple geographies. Because of transactional relationship with suppliers, cost of purchase goes up and proper supplier selection cannot be done because of lack of understanding of their capability. y Supply Chain Agility Issue - Since the product life cycle is short in HiTech industry, maximum sales should be achieved in a short span of time. Sensitivity analysis is done very frequently in marketing front and the supply chain does not always respond to that sensitivity analysis quickly. Because of less flexibility and adaptability in the supply chain there is loss of sales opportunity. THE METHODOLOGY A methodology has been conceptualized which comprises of six main steps which can address the above mentioned issues step-by-step. These are: y Assessment of performance indicators y VMOKRAPIS exercise y Issues Impact Action Enablers exercise y Conceptualization of new standard operating procedure y Analytic hierarchy process y SCOR metrics analysis 6

7 Table 3: The Methodology ASSESSMENT OF PERFORMANCE INDICATOR In the beginning, the performance indicators which impact the area of collaboration, forecasting, supplier collaboration and supply chain agility will be measured. A few examples of such performance indicators are cash-to-cash cycle time, inventory turn, order fulfillment cycle time, upside supply chain adaptability, downside supply chain adaptability and flexibility, return on supply chain asset, supply chain cost etc. HCL s proprietary tool PRIZM can help capture values of existing performance indicators in the organization. Once we get the values of existing performance indicators, these are compared against the benchmark performance indicator values. HCL has created a repository of benchmark performance indicators for best-in-class industry, average industry and laggards. This comparison will give a clear picture of the overall supply chain health check up of the organization. Areas of improvement will be identified clearly and the advisory work can be narrowed down to specific areas. Specific performance indicators can be identified where improvement is required. This step will set the directions for the rest of the steps in the methodology. 7

8 Key Result Area (KRA) Performance Indicator (PI) PI Values (Benchmark) Supply Chain Asset Mgmt. Supply Chain Reliability Visibility Visibility Supply Chain Responsiveness Cash-to-Cash Cycle Time Perfect Order Fulfillment Forecast Accuracy Visibility Across Supply Chain Agility Inventory Turn Best-in-Class 26 Days Average 55 Days Laggard 72 Days Best-in-Class 97% Average 89% Laggard 82% Best-in-Class - 82% Average 68% Laggard 42% Best-in-Class 60% Average 40% Laggard 20% Best- in-class 50% (Approx.) Average 30% (Approx.) Best-in-Class 46 Average 30 Laggard 15 The functional areas which will be covered are the followings: y Order Management y Inventory Management y Purchase Order System y Material Requirement Planning y Work in Process y S & OP Planning y Collaborative Planning y Accounts Payable y Accounts Receivable VMOKRAPIS EXERCISE The main objective of this exercise is to understand the strategic direction of the company. VMOKRAPIS stands for Vision, Mission, Objective, Key Result Area, Performance Indicator and Strategy. This is called topdown approach of strategy development. Strategic direction depends upon values of performance indicators. When performance indicators are identified for which enhancement is required, we need to validate whether strategies are in the right direction against those performance indicators. No new strategies will be developed for customers. Existing strategies will be validated once. If there is any major conflict, it will be highlighted. 8

9 As an example, to improve the value of performance indicators like Inventory Turn, Cash-to-Cash cycle time, Order fulfillment cycle time, it may be required to go for strong collaboration with suppliers and customers. The organization may need to share planning and operational data with its supply chain partners. However, if the organization-wide strategy prevents the company in doing so, this should be highlighted during the advisory work. ISSUES IMPACT ACTION ENABLERS EXERCISE In this step, all issues will be identified in relevant areas through standard questionnaire. Issues for areas of focus should be considered only. The area of focus is collaboration, forecasting, supplier consolidation and supply chain agility. For all issues, the impact will be identified. For each impact, proper actions should be conceptualized so that the impact can be overcome. For each action, proper enablers should be identified so that the actions can be implemented. Enablers will be the solution which can resolve the issue. These enablers will later be implemented by recommended IT solutions & recommended business process modifications or additions. Issues Impact Action Enablers High Procurement Lead Time, Fluctuating Procurement Lead Time y Uncertainty in Replenishment y High Procurement Cost y Activate Collaboration among Partners y Establishing Strategic relationship with Vendors y Jointly do Transportation y VMI Solution y CPFR Solution y Collaborative Vendors not Aligned with Forecast Trend, Lot Sizing Problem y Delay in Replenishment y High Cost of procurement y Visibility enhancement through Collaboration y VMI Solution y Inventory Planning Solution High Cost of Logistics (3PL/ 4 PL) y High cost of procurement y Establishing Strategic relationship with Logistic Service Provider y Jointly do Transportation y Collaborative Transportation Management Table 5 Issues Impact Action-Enablers Exercise NEW STANDARD OPERATING PROCEDURE The new standard operating procedure should be conceptualized where changes will be taking place through this advisory work. It is equivalent to drafting new business processes in the concerned area. HCL s tool PATHFINDER has a huge repository of standard business processes for different segment of HiTech industries. This repository can help in conceptualizing standard business processes for the area of focus. From Issues Impact-Action-Enablers exercise Impacts and Actions are important outcomes which will show the path of formulating new standard operating procedure. This step will make existing business process smarter and lean, and performance indicator s value gets improved. SCOR (Supply Chain Operations Reference) metrics, which are conceptualized by Supply Chain Council (SCC), should be analyzed at AS-IS state and at TO-BE state. TO-BE state can only be reached through implementation of proposed IT/ERP system. At AS-IS state SCOR 9

10 metrics value should be captured. These can be compared with TO-BE state value after implementation of IT/ERP system. ANALYTIC HIERARCHY PROCESS (AHP) Analytic Hierarchy Process is for structured decision making process. Each and every enabler may have multiple IT Solutions. The AHP helps decision makers find one that best suits the goal and the understanding of the problem. Users of the AHP first decompose their decision problem into a hierarchy of more easily comprehensible sub-problems, each of which can be analyzed independently. Each and every sub-problem will be given due weight and all options will be evaluated against these weighted points. A definite score will come up for all possible IT solutions. The option for which the score is highest will be recommended. For selection of IT systems, generally the following criteria are considered. y Assessment during product demo y Fit gap analysis y Suggested approach and methodology y Price y IT product company reference y Extent of support This exercise is based on possible enablers. Criteria, Sub Criteria and Proportionate weight is decided based on discussion with key users. Table 6: Analytic Hierarchy Process 10

11 CONCLUSION Today s supply chain in the HiTech industry is characterized by high complexity, change and new regulations. Add to this the high volatility of demands and thereby prices. The global nature of operations brings in a reliance on global partners and their operations. The value chain extends across to all these partners which effect the overall operations of the organization in discussion. Therefore, re-planning and execution agility are vital for the HiTech companies of today. The advisory framework discussed in this white paper attempts to address these through a structured methodology. The ultimate objective is the enhancement of the supply chain performance. Enhancement of performance indicator value in the area of collaboration, forecasting accuracy, supplier consolidation and supply chain agility will help bring the supply chain to the level of extended enterprise where the optimum level of supply chain efficiency can be attained. This advisory framework exercise will result in recommendations for solutions in various areas which when implemented will help improve upon the supply chain efficiencies. It is expected that this methodology will accrue benefits to help in: y Lowering inventory levels y Lowering logistics costs y Perfect order fulfillment y Increased agility for meeting forecast and demand driven scenarios This will overall impact in shorter cash-to-cash cycle and hence revenue growth and cost reduction. In summary this will help in more profitable operations. References: 1. Aberdeen Research Reports Strategic Supply Chain Planning (2010) Nari Vishwanath Beyond Visibility - Diving Supply Chain Responsiveness (2008) Viktoriya Sadlovska Inventory management (2009) Nari Vishwanath 2. McKinsey Reports The Challenges ahead for Supply Chain (2010) - Trish Gyorey, Matt Jochim, Sabina Norton 3. Emerald Papers Business Strategy Series Analysis of Fitment of ERP and Conceptualization of its Substitute for small segment A Strategic Approach (2009) Arindam Sen and Ranjan Bhattacharya 4. RR Donnelley Eyefortransport s 2010 survey, RR Donnelley 11

12 AUTHORS Arindam Sen, General Manager, HCL Technologies Ltd. Arindam Sen is part of the Vertical Solution team at HCL Technologies Ltd. Arindam s primary role in HCL is to devise solutions, IPs & frameworks to address business problems of customers in HiTech vertical. Arindam is a seasoned professional with 17 years of global experience of which the last 13 years were in Information Technology and his initial 4 years were in Production Operations and Supply Chain Management. He has extensive experience in ERP consulting including Business Strategy & Planning, Product Selection, Solution Building, Competency Development and Program Management. Arindam holds a Master in Management (General Management) from Asian Institute of Management (AIM), Manila. He is also a CSCP (Certified Supply Chain Professional) from APICS, USA. He completed his Master of Engineering (Production Management) from Jadavpur University, Calcutta and Bachelor of Engineering (Mechanical) from Bengal Engineering and Science University (BESU), Shibpur Thirthankar Banerjee, General Manager, HCL Technologies Ltd. Thirthankar is a seasoned professional with 25 years of experience in Senior Management, Solution Development, Sales and Marketing and Advisory Services. He is deft with strategy formulation and implementation and adept in Industry Analysis, Internal Analysis, Market Segmentation and Analysis of Competitors. Thirthankar has extensive experience in ERP consulting including Business Strategy / Planning, Product Selection, Solution Building, Account Management, Client relationship management, Competency Development and Program management. He is a graduate from IIT, Kharagpur. 12

13 ENGINEERING AND R&D SERVICES CUSTOM APPLICATION SERVICES ENTERPRISE APPLICATION SERVICES ENTERPRISE TRANSFORMATION SERVICES IT INFRASTRUCTURE MANAGEMENT BUSINESS PROCESS OUTSOURCING ABOUT HCL About HCL Technologies HCL Technologies is a leading global IT services company, working with clients in the areas that impact and redefine the core of their businesses. Since its inception into the global landscape after its IPO in 1999, HCL focuses on transformational outsourcing, underlined by innovation and value creation, and offers integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and BPO. HCL leverages its extensive global offshore infrastructure and network of offices in 31 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare. HCL takes pride in its philosophy of Employees First, Customers Second which empowers our 85,335 transformers to create a real value for the customers. HCL Technologies, along with its subsidiaries, had consolidated revenues of US$ 4.3 billion (22,471 crores), as on 30th September 2012 (on LTM basis). For more information, please visit About HCL Enterprise HCL is a $6.2 billion leading global technology and IT enterprise comprising two companies listed in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The HCL team consists of over 90,000 professionals of diverse nationalities, who operate from 31 countries including over 500 points of presence in India. HCL has partnerships with several leading global 1000 firms, including leading IT and technology firms. For more information, please visit