Supply chain actions for a harsh(er) economy

Transcription

1 Supply chain actions for a harsh(er) economy Professor Alan Braithwaite, The Stables, Ashlyns Hall, Chesham Road, Berkhamsted, HP4 2ST UK Tel: +44 (0) Fax: +44 (0)

2 First a quick introduction Only Only Post Post Grad. Grad. University Executive Education focus focus Europe s premier Supply Chain and and Logistics Institute Strong focus focus on on research Business resilience a focus focus Working with with British Government Working with with manufacturers, retailers and and service providers Leading specialist consultancy Focus on on operations management and and supply chain chain Contributing to to Cranfield Research and and teaching Clients include the the world s two two largest companies Working internationally Retained by by some some of of the the world s largest retailers, manufacturers and and service providers 2

3 Passion for Logistics and Supply Chain 3

4 Agenda The harsher economic environment CEOs shifting priorities Why it is important to be positive! The idea of competitive processes 6 Maxims for success Unpacking the Maxims Making a transformation Discussion 4

5 The economic environment is challenging! From NICE to S Non I nflationary Continuous E xpansion Seriously Sir Mervyn King: Governor of the Bank of England 5

6 In 4 months we have gone from risk to reality IMF in global 'meltdown' warning The world financial system is teetering on the "brink of systemic meltdown", the head of the International Monetary Fund (IMF) has warned in Washington. Dominique Strauss-Kahn 12 th October 2008 Profit warnings and sagging retail sales add to recession fears Sarah Arnott Saturday, 18 October

7 CEOs are shifting their priorities + + $: : + = Growth Margin Velocity Return Cash Show me the growth because the performance will follow! Find more margin! Increase responsiveness! Maximise returns! Release assets Release cash!! Adapted from What the CEO Wants You to Know by Ram Charan 7

8 Where may the typical corporate focus be now? + + $: : + = Growth Margin Velocity Return Cash Service & International Customers are more valuable don t let them down International opportunities provide continued growth Purchasing & Procurement 55% to 75% of revenue is bought in and sometimes > 90% Terms, consolidation, specifications Operating cost / consolidation Outsourcing, Offshoring, shared services for back office Operational rationalisation, lean initiatives Merger & acquisition Old style cost down Working and fixed capital turn S&OP, Off Balance Sheet trade finance, Sale and Lease back, Outsourcing CASH is KING Investment deferral Working capital release, Non-core business disposal, New business terms 8

9 Lots of black humour But we think it is important to think positive! 9

10 We can chose to work in a traditional and in a positive space TRADITIONAL SHORT-TERM Old fashioned Cost down Purchasing Terms Sales terms CONVENTRIONAL RE-STRUCTURING Site closures - rationalisation Outsourcing - offshoring Company performance in the downturn Working capital (stock) Organisation change POSITIVE INVESTMENT Manufacturing change Net profit Costto-Serve 6 sigma operations excellence Channel alignment Process redesign Cost-to-Serve is a registered methodology of LCP Consulting Ltd 10

11 Positive thinking - investing in competitive processes Those processes that outperform the competition The strategic diamond determines the future success of the business The processes that provide future required competences Competitive processes Common industry processes Unique processes necessary to exist in your industry Transformation Programmes EXTERNAL THREATS Qualifying Processes Underpinning Processes Adapted from Edwards & Peppard

12 Agenda The harsher economic environment CEOs shifting priorities Why it is important to be positive! The idea of competitive processes 6 Maxims for success Unpacking the Maxims Making a transformation Discussion 12

13 6 Maxims for the downturn - competitive processes 1. Reduce unprofitable complexity - customers & products 2. Build in customer service excellence 3. Become the preferred customer of your key suppliers 4. Design, plan and execute for agility 5. Synchronise / integrate to eliminate waste and cost 6. Collaborate to share resources and leverage scale 13

14 Reduce unprofitable complexity - customers & products Net profit management through Cost-to-Serve Net Profit 10,000k 9,000k 8,000k 7,000k 6,000k 5,000k 4,000k 3,000k 2,000k 1,000k 0k No. of SKUs SKUs / Customers 12,000k 10,000k 8,000k 6,000k 4,000k 2,000k 0k Cost-of variety & complexity Common experience that > 50% of net profit is eroded by some product / customer combinations Profit Revenue 14

15 Build in customer service excellence Company's Performance SVC 1 Over-provide SVC 4 SVC 7 SVC 6 SVC 5 SVC 8 SVC 2 SVC 3 Under-perform Importance to Customers Understand the current performance and the service features that the market values and how the company is doing against them Align your organisation to the valued components; ensure actual performance is excellent on the things they value 15

16 Aligning to customers through strategy Strategic supply chain management combines the four elements that must be aligned to implement effective capabilities. Strategy Human performance Business Processes Competitive Situation Strategy Culture Leadership Style Technology Infrastructure Rules Playing the Game Internal Capabilities Shaping & Creating Source: Gattorna 16

17 Become the preferred customer of your key suppliers Suppliers Suppliers Suppliers Suppliers Well Head Refinery Chems / Lubes Plants Distribution Centres Industrial Producers Lowest end-to-end cost through balancing and quality of execution My business with my suppliers is their most profitable yet we still have the lowest total cost of ownership VP of Procurement a world leading electronics manufacturer 17

18 Design, plan and execute for agility speed and decoupling Raw Material Supplier Manufacturers / Assemblers Retailer End - User Material Material Material Push Push Driven by Forecast Pull Push Pull Push Pull Driven by Demand Pull Buy to order (manufacturing postponement high) Make to order Assemble to order Make to stock Denotes a Stockholding Decoupling Point Push Pull Ship to stock (manufacturing postponement low) 18

19 The decoupling point Lean Agile Forecast at generic level Economic batch quantities Maximise efficiencies Demand driven Localised Configuration Maximise effectiveness Strategic Inventory 19

20 Synchronise / integrate to eliminate waste and cost Frequency, Order Quantities and Stock Plans Synchronised Rules govern the connection of the nodes and function and determine the service performance and inventory Suppliers Suppliers Suppliers Suppliers Well Head Refinery Chems / Lubes Plants Distribution Centres Industrial Producers Batch sizes, lead times, ship quantities Segmented by customer and product requirements and profitability 20 LCP Consulting

21 Collaborate to share resources and leverage scale Mutual dependence Supplier To Your Company Easy to to do do business eliminate waste, reduce transaction costs, Lo eliminate emergencies right right specifications, right right processes, shared forecasts, understand the the cost cost base Hi Process excellence to make it easy to do business us with them Risk Management - hedging Your Company To Supplier Critical Partnering Relationships ~ focus on total chain cost Process excellence to make it easy to do business them with us Hi 21

22 Agenda The harsher economic environment CEOs shifting priorities Why it is important to be positive! The idea of competitive processes 6 Maxims for success Unpacking the Maxims Making a transformation Discussion 22

23 Transformation is about supply chain and business model focus through capabilities and leadership style Companies manage not one but multiple, distinctly different supply chains. Market Behaviours/ Needs Behaviours/ Needs Behaviours/ Needs Behaviours/ Needs Customer Segments Identify and group like needs in the market. Strategy Value/ Service Propos. Value/ Service Propos. Value/ Service Propos. Value/ Service Propos. Distinct offerings The firm s strategic response to the prevailing market conditions. Culture Organisation/ Process / Capabilities Organisation/ Process / Capabilities Organisation/ Process / Capabilities Organisation/ Process / Capabilities Capabilities Capabilities to execute alignment through subcultures. Leadership Leadership Leadership Leadership Leadership Shaping & creating Leadership styles and models. Source: Gattorna (2003) 23

24 Transformation can be defined through actions all around the LCP Crystal processes driving systems changes business processes skills and ways of working Customer service performance management framework (KPIs) The LCP Strategic Transformation Crystal defines an integrated set of actions organisation design LCP Consulting Economic value added business systems network infrastructure 24

25 Making the transformation happen working through the levels The supply chain benefit hierarchy applied within and across a businesses gives focus for gaining benefit and the ability to take the step change. Benefit hierarchy benefit step change in performance current state desired future state Business Network optimization Customer Demand Customer Response Service Effectiveness Service Supply Business Business Chain Process Process Effectiveness Operational Effectiveness Effectiveness Progressive supply chain sophistication Rates Rates and and tariffs tariffs Time 25

26 Building trust across the functions Goal / KPI alignment Cost transparency Process integration 26

27 Supply chain Marketing IT Sales Finance Influence? Source: LCP and Cranfield Client

28 GM Influence Supply chain Marketi ng IT Sales Finance Influence? Source: LCP and Cranfield Client

29 The Rowers supply chain is a team concept TUNING: REFINEMENT: TRAINING: APPLICATION EXCELLENCE: 29

30 Thank you and questions