Supply Chain InsightsAligning for Action & Resolving Conflict

BRICKSMatterThe Role of Supply Chains in Building Market-Driven Differentiation

LORA M. CECERE CHARLES W. CHASE JR.

BookPublishes in August

2012

p. 3Supply Chain Insights, LLC © 2012

3

What’s in a name?

A rose by any other name would smell as

sweet.

William Shapespeare

4

p. 5Supply Chain Insights, LLC © 2012

Agenda

What is Supply Chain Excellence?

What is the Goal?

How do we make Decisions?

What do we Measure?

Wrap-up

p. 6Supply Chain Insights, LLC © 2012

Demand volatility

Need to improve profit margin

Supply prices

New product launch effectiveness

Need to increase market share

Change in global economy

Product consistency and reliability of manufacturing operations

Growth in global markets

Changes in competition

77%

76%

70%

66%

60%

59%

55%

50%

45%

21%

18%

12%

10%

9%

15%

16%

6%

12%

Impact of Supply Chain Challenges on Organization in 2011(7-Point Scale)

Extreme impact (7) Impact (5-7)

Impact of Supply Chain Challenges

Base: Total Sample (117)Q16. How much impact did the following supply chain challenges have on your organization in 2011?

Top 3 Supply Chain

Challenges

p. 7Supply Chain Insights, LLC © 2012

Inside-Out Inside-Out

Supply Chain Tipping Points

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

S&OP

Evolution of the PC

JIT

Theory ofConstraints

Supply Chain Organization

Re-Engineering the Organization

(Michael Hammer)

Internet/Email

eProcurement

Total QualityManagement

RFID

Vertical SiloExcellence

Efficient Order toCash Processes

+ Islands ofExcellence

ManufacturingExcellence

+

Supply Chain Excellence = Supply Chain Excellence =

p. 8Supply Chain Insights, LLC © 2012

Inside-Out Outside-In

Value-Based OutcomesDelivered by Horizontal Processes

+

Supply Chain Excellence = Supply Chain Excellence =

Supply Chain Tipping Points

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Y2K

Lean Six Sigma

.com

Demand Driven Concepts

Vertical SiloExcellence

Outsourcing Effectiveness

Social Responsibility

CSCO

Market-Driven Value Networks

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A Supply Chain

is a Complex System

with Complex Processes

with Increasing Complexity

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The Effective Frontier

p. 11Supply Chain Insights, LLC © 2012

Evolution of Supply Chain Process Excellence

Align

ResilientReliable

Adapt

Efficient

Building Horizontal Process Connectors

ContinuousTesting

LearningImprovingIn Market

OrchestrateDemand and Supply

Sense Demand

and Supply

Shape Demand andSupply based

on Market

DemandVolatility

Supply Volatility

Right Product

Right Place

Right Time

Right Cost

Cost

Procure to pay/order to

cash

p. 12Supply Chain Insights, LLC © 2012

Supply Chain Excellence Definition

Base: Total Sample (61)Q14. How does your company define supply chain “excellence?” Please select all that apply.

Right product, right place, right time at the right cost.

A responsive supply chain that can adapt as markets change.

A resilient supply chain that can withstand the shocks of demand and supply volatility.

The Efficient Supply Chain. Lowest cost per unit.

Right product, right place, right time.

70%

57%

52%

38%

20%

How Define Supply Chain “Excellence”

Most Mature

p. 13Supply Chain Insights, LLC © 2012

Agenda

What is Supply Chain Excellence?

What is the Goal?

How do we make Decisions?

What do we Measure?

Wrap-up

p. 14Supply Chain Insights, LLC © 2012

CostVolumeGrowth

Typical Organization14

CEO

Chief Customer

Officer

Chief Marketing

OfficerSales

Account Teams

COO

VP of Supply Chain

Customer Service Procurement Logistics

CFO

CIO

VP of Manufacturin

g

Quality

p. 15Supply Chain Insights, LLC © 2012

Yes 87%

No 10%

Not sure 3%

Have a Sales & Operations Planning Process

S&OP ProcessExistence, Goals & Processes

Match demand with supply

Maximize opportunity and mitigate risk

Develop a feasible plan

Determine the most profitable plan

Other

43%

32%

14%

8%

3%

S&OP Process Goal

1 2 3 4 5 More than 5

27%14% 20%

12% 9%19%

# Distinct S&OP Processes

5 S&OP processes on average

S&OP Evolution

Manufacturing-Driven

Deliver a Feasible Plan for Operations

Match Demand with Supply

Sales Driven

Match Demandwith Supply

Business-planning Driven

Maximize Profitability

Demand Driven

Maximize Opportunity Sense and

Shape Demand

Market Driven

Maximize Opportunity and Mitigate Risk. Orchestrate

DemandMarket to Market

Greater Benefit• Growth• Resilience• Efficiency

p. 17Supply Chain Insights, LLC © 2012

An Athlete Needs:

Strength

Flexibility Balance

p. 18Supply Chain Insights, LLC © 2012

What is Agility?

Base: Total Sample (117)Q11. How would you define what it means for your company’s supply chain to be “agile”? Please select the one that fits best.

49%

38%

10%3%

How Define Supply Chain “Agility”Shorter supply

cyclesFlexibility to make and deliver whatever is

ordered

Ability to adapt to

variations in demand and

supply

Ability to recalibrate plans in the face of mar-ket, demand and supply volatility and deliver the

same or comparable cost, quality and cus-

tomer service

p. 19Supply Chain Insights, LLC © 2012

Agility Importance vs. Performance

Base: Total Sample (117)Q12. How important is it for your company’s supply chain to be “agile” in 2012? Please base your answer on however your company defines agility.Q13. How would you currently rate your company’s supply chain in terms of being “agile”?

Importance Performance

89%

27%

5%

32%

6%

40%

Agility Importance vs. Performance (7-Point Scale)

Low (1-3)

Middle (4)

High (5-7)

62 % Points(Gap in Performance

vs. Importance)

Manufacturing View (

Units)

Sales View ($) Marketing View

($, U

nits)

Logistics View

(Units, Cases)

Ship-from Locations

Warehouses

Global

Production L

inesPlants

Global

Supply-side Views

Downstream Data

Account-LevelA

VMI C

DistributionNetwork

Supplier Supplier Supplier Supplier

DistributionNetwork

DistributionNetwork

Demand-side Views

Hole in Enterprise Architectures

Manufacturing View (

Units)

Channel View ($)

Accounts (Ship-to

locations

Countries

Global

Marketing View

($, U

nits)

Brands

Produ

ct

Catego

ries

Global

Logistics View

(Units, Cases)

Ship-from Locations

Warehouses

Global

Production L

inesPlants

Global

Supply-side Views

DemandTranslation

Downstream Data

Account-LevelA

VMI C

DistributionNetwork

Supplier Supplier Supplier Supplier

DistributionNetwork

DistributionNetwork

Demand-side Views

22

Business Planning

Forecasting

Constrained Forecast

Increasing levels of granularity

Increasing need for value network strategy alignment

A Forecast is not a Forecast is not a Forecast

Getting to Letter Perfect….

Common Practice Market-driven Focus

S Ask sales Focus on market drivers:How do we best shape demand?

& Direct integration to supply Design of the value chain to optimize trade-offs, minimize risk, balance cycles, and orchestrate demand

OP Manufacturing plan Trade-offs between make, source and deliver

23

The Need for Balance

24

S: Go-to-Market

Strategies

OP: Demand Orchestration

Commodity Strategies

Network Strategies: Make/Source & Deliver

Inventory: Form & Function

Competition

Market Drivers

&

Goal

p. 25Supply Chain Insights, LLC © 2012

Agenda

What is Supply Chain Excellence?

What is the Goal?

How do we make Decisions?

What do we Measure?

Wrap-up

p. 26Supply Chain Insights, LLC © 2012

Reporting Structure Where does S&OP Report?

Base: Total Sample (117)Q5. Please tell us how you define your company’s supply chain organization by selecting which function(s) report through the supply chain organization. Please select all that apply.Q7. To whom does your supply chain organization report? Q6. How would you characterize your company’s supply chain?

Chief Operating Officer

Gen Mgr of Business Unit

Leader of Manufacturing

Chief Financial Officer

Head of Procurement

Chief Information Officer

43%

26%

12%

9%

3%

2%

69% Profit Center

Managers

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S&OP Plan Execution

Base: Have a S&OP process (102)Q25. After your S&OP plan is generated, how is it executed? Please pick the one that describes it best.

Execution is not connected to S&OP plan

We try to execute the S&OP plan, but hardly do in practice

We execute the S&OP plan most of the time

We execute the S&OP plan nearly all of the time

We monitor market events and adjust to S&OP plan within limits

9%

25%

35%

19%

13%

S&OP Plan Execution

Sense & Respond

p. 28Supply Chain Insights, LLC © 2012

Yes 77%

No 23%

Whether Operate Globally

Global Operations

Base: Total Sample (61)Q12. Does your company operate “globally?”Base: Operate Globally (47)Q13, Which of the following best describes how your company operates “globally?” Please select the one that fits best.

19%

32%11%

38%

How Operate GloballyGlobal

(regions roll up into global team; plan

globally to act locally)

Multi-national

(countries roll up into regional operation;

global planning)

Multi-national (countries roll

up into regional operations;

regional planning)

Regional (regional opera-tions supported

by regional supply chains)

43% Multi-national

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Definition of best practices for process

Definition of supply chain metrics

Supply chain planning

Inventory strategies

Facilitation of horizontal processes, like S&OP

Evaluation of new technologies

Network design

Establishment of goals

Supplier development

Other

90%

82%

77%

74%

72%

69%

69%

51%

18%

3%

Primary Functions of Center of Excellence

Yes 64%

No 30%

Not sure 2%

Center of Excellence

Center of Excellence

Base: Total Sample (61)Q8. Does your company have a supply chain center of excellence – in other words, a dedicated team focused on improving supply chain process excellence?Base: Have Center of Excellence (39)Q9. What are the primary functions of your supply chain’s center of excellence? Please select all that apply.

6 functions of the center of excellence on average

p. 30Supply Chain Insights, LLC © 2012

Center of ExcellenceImportance vs. Performance

Base: Have Center of Excellence & Particular Function (varies by function) *CAUTION: SMALL BASE SIZE Q10. For each of the following functions of the supply chain center of excellence, how important is it to your overall company? SCALE: 7=Extremely important – 1=Not at all importantQ11. For these same functions, how would you rate your company’s performance? SCALE: 7=Excellent– 1=Poor

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

82%77% 74%

66%62%

57% 58%52%

21%

43% 44%

34%28%

20%

42%

30%

-61%

-33%-30% -31%

-34%-37%

-16%

-22%

Importance vs. PerformanceImportance (6-7) Performance (6-7) Gap (Perf - Impt)

NOTE: Supplier Development is not shown because not enough respondents report it is a function of their supply chain center of excellence

Base: Have

function 28* 30 27* 32 29* 35 19* 27*

p. 31Supply Chain Insights, LLC © 2012

IT Systems: Importance & Satisfaction

Base: Have 1+ Operational IT Systems (varies by system); *CAUTION: SMALL BASE SIZE Q16. How important are each of your current IT systems to your supply chain organization? SCALE: 7=Extremely important – 1=Not at all importantQ17. How satisfied are you with each of your current IT systems shown below? SCALE: 7=Extremely satisfied – 1=Extremely dissatisfied

Demand Planning

Enterprise Resource Planning

Order Manage-

ment

Tactical Supply

Planning

Price Manage-

ment

Production Planning

Transportation Planning

Product Lifecycle Manage-

ment

Manufacturing Execution Sys-

tems

Warehouse Management

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

86% 83% 80%76% 75% 73%

65% 63%59% 58%

30%24%

35%

20%28%

15%

42%

11%

25%

38%

-56%-59%

-45%

-55%

-47%

-58%

-23%

-52%

-34%

-21%

IT Importance vs. Satisfaction

Importance (6-7) Satisfaction (6-7) Gap (Sat - Impt)

Base: Have System

57 59 60 49 36 55 43 27* 44 48

p. 32Supply Chain Insights, LLC © 2012

Importance of S&OP Process for Agility

Base: Have a S&OP process (102)Q22. How important do you think your S&OP process is to improving the agility of your supply chain?

28%

42%

20%

7%3%

Importance of S&OP Process to Agility

Not important (1-3)

(4)

(5)

(6)

Extremely important (7)

90% Important

p. 33Supply Chain Insights, LLC © 2012

Agenda

What is Supply Chain Excellence?

What is the Goal?

How do we make Decisions?

What do we Measure?

Wrap-up

p. 34Supply Chain Insights, LLC © 2012

• Inventory Turns• Forecast Accuracy• Profit• Revenue• Customer Service

What do we Measure?

Looking at Supply Chain as a Complex System

Looking at Supply Chain as a Complex System

p. 37Supply Chain Insights, LLC © 2012

Benefits Received from S&OP Processes

Source: Supply Chain Insights, 2012What benefits have you received from your work with S&OP processes?

Increasing revenue

Improving forecast accuracy

Reduction of inventory

Improving asset utilization

Determining outsourced manufacturing

Determining procurement requirements

Improving new product launch

Transportation and warehouse management

Capital planning and asset management

Improvements in the perfect order

59%

57%

50%

42%

38%

36%

34%

32%

32%

30%

▲ 2%

▲ 5-7%

▲ 3-7%

▲ 3-6%

▲ 3-6%

▼ 10-15%

▼ 2-8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

100

200

300

400

500

600

700

Comparison of Revenue/Employee for the Period of 2000-2011

P&G Colgate Unilever Kimberly-Clark Nestle Kraft

Re

ve

nu

e/T

ho

us

an

ds

of

Em

plo

ye

e

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Comparison of EBIT/Employee for the Period of 2000-2011

P&G Colgate UnileverKimberly-Clark Nestle Kraft

EB

IT/E

mp

loye

e

2002 2003 2004 2005 2006 2007 2008 2009 201050

55

60

65

70

75

80

Consumer Products: Comparison of Days of Inventory

P&G Colgate Unilever Nestle Kraft

2002 2003 2004 2005 2006 2007 2008 2009 2010 201140%

45%

50%

55%

60%

65%

70%

Consumer Products: Cost of Sales as a Percentage of Revenue

Unilever Kellogg Kraft General Mills Campbell HersheyP & G

Co

st

of

Sa

les

as

a %

of

Re

vn

ue

p. 42Supply Chain Insights, LLC © 2012

Agenda

What is Supply Chain Excellence?

What is the Goal?

How do we make Decisions?

What do we Measure?

Wrap-up

p. 43Supply Chain Insights, LLC © 2012

Tried to get precise on inaccurate data.

Believed that the most efficient supply chain is the most effective supply chain.

Built efficient chains, but not effective networks.

Focused inside-out, not outside-in.

Rewarded the urgent, not the important.

43

Historically, we have:

p. 44Supply Chain Insights, LLC © 2012

Who is Lora?

•Founder of Supply Chain Insights

•Partner at Altimeter Group (leader in open

research)

•7 years of Management Experience leading

Analyst Teams at Gartner and AMR Research

•8 years Experience in Marketing and Selling

Supply Chain Software at Descartes Systems

Group and Manugistics (now JDA)

•15 Years Leading teams in Manufacturing and

Distribution operations for Clorox,

Kraft/General Foods, Nestle/Dreyers Grand

Ice Cream and Procter & Gamble.

p. 45Supply Chain Insights, LLC © 2012

Where do you find Lora?

Contact Information:

loracecere@gmail.com

Blog: www.supplychainshaman.com

(3500 pageviews/month)

Twitter: lcecere 2900 followers. Rated

as the top rated supply chain social

network user.

Linkedin:

linkedin.com/pub/lora-cecere/0/196/573

(2300 in the network)