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Synergy 2008

Supply Market Intelligence: the Foundation for Category Management and Supplier Relationship Management

Robert Handfield, PhDBank of America University Distinguished Professor of Supply Chain

ManagementNorth Carolina State University

Raleigh, NC 27695

Director, Supply Chain Resource CooperativePrincipal, Supply Chain Redesign, LLC

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Partner Companieshttp://scrc.ncsu.edu

Introductions…Rob Handfield, PhD• Bank of America University Distinguished

Professor of Supply Chain Management, NC State University

• Director, Supply Chain Resource Cooperative – top 3 MBA SCM programs in the US

• Adjunct Professor, Manchester Business School

Research and consulting supply risk projects with different industries including:

• Baxter BioScience• Bechtel • Boston Scientific• BP• Chevron • ConocoPhillips • Freightliner• General Motors• Guidant• Home Depot• Halliburton• Lyondell• Hess • Shell Lubricants

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Agenda

• The State of Supply Management Today

• Supply Market Intelligence - the Key to Category Management

• Managing Supply Chain Risk

• The Imminent Talent Shortage

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What Keeps Supply Management Executives “Up at Night”?

Pain Map

Probability / Frequency of OccurrenceLow (1)

Low

(1)

Sev

erity

Ver

y H

igh

(5)

Very High (5)

Immediate Action Required

To be watched:

High frequency can turn into severe impact

To be watched:

Increase in probability can lead into red zone!

Safe Area

6Probability / Frequency of Occurrence

Low (1) Very High (5)

Low

(1)

Sev

erity

Management Opinion

1. CommodityPrice Increase (10%)

1. IT Integration (5%)

1. IP (2%)

1. Collaboration & BI (10%)

1. Power Shift (8%)

1. Global Competition (10%)

1. Supply Chain Fragmentation (31%)

1. Lack of GlobalProject Resources (12%)

1. RegulatoryCompliance (7%)

1. DevelopingSCM Talent (7%)

Ver

y H

igh

(5)

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Basic Process/Practices

12 -24 Months Primary Returns 5-7%

Advance Practices24-48 Months

Secondary Returns 7-10%

OptimizationOn Going

System Wide Returns 7-10%

Glass Ceiling

Stabilize 6-12 Months

Implementation Waves v. SavingsOrganizational Maturity

Base Camp

Caution – Stabilization Danger Zone

From Vertical to Horizontal

Go live

Mat

uri

ty L

evel

1

2

3

4

5

05 06 07

Cu

mu

lati

ve S

avin

gs

(% s

pen

d)

0

0

5

12

20

Primary Returns:Transaction SavingsMaterial Cost ReductionProcess capabilitiesDirect cause / effectBasic Process Improvements

Secondary ReturnsOperational EfficiencyProject EfficiencyActivity EliminationRedeploy ResourcesComplex process Improvements

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Ad Hoc

Defined

Managed(Linked)

Leveraged(Integrated)

1. Source: “Procurement: Current Benchmark Findings.” The Hacket Group, 2004

Optimized

Benefits of Organizational Maturity

7700No. of SuppliersPer $B Spend 1.0

2.0

3.0

4.01700

No. of SuppliersPer $B Spend

1% of SpendProcurement

Costs

0.7% of SpendProcurement

Costs

104No. of FTEs

Per $B Spend

54No. of FTEs

Per $B Spend

RM ProcessesLT=1SS=1PO=1

RM ProcessesLT<40%SS<40%PO>40%

2. “The Quit Revolution in Supplier Management.” Aberdeen Group, 2004

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Anticipated Performance at the Top Maturity LevelsROI = 20% ROCE = 19.5%

Performance at Current Maturity Levels ROI = 16.5% ROCE = 16%

3. A Presentation to SCC Members “Supply Chain Practice Maturity Model and Performance Assessment”, The Performance Measurement Group, November 6th, 2001.

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LT = Lead-timeSS = Safety StockPO = Perfect Order

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CorporateStrategy

CorporateBusiness

Plan

Business Unit Plans & Goals

Category Mgmt Functional Goals & Plans

Manufacturing Functional Goals & Plans

Finance Functional Goals & Plans

Business Unit Results

CorporateResults

Business &Market

Intelligence

CategoryMgmt

Contributions toBusiness

Pro

gram

Develo

pm

ent

Supply Mgmt Results

Benefits Realization

Supply MgmtStrategy

P2P Buying Channels

IntegratedCategoryStrategiesDeployed

Company-Wide

Su

pp

ly C

hai

n S

tew

ard

ship

Supply MgmtVision

Deploying Category Management

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Agenda

• The State of Supply Management Today

• Supply Market Intelligence - the Key to Category Management

• Managing Supply Chain Risk

• Dynamics of Breakthrough Supply Management

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Fact: Vertical & Horizontal Disconnection of SC Organizations

Customer

Supplier

SC Organization Marketing & SalesManufacturing

Disconnection ofInternal BusinessIntelligence

Disconnection ofExternal MarketIntelligence

Loss of Innovation and Efficiency Improvement Possibilities-> Connection of Market Intelligence has to be a Supply Chain Management Driven Approach: CUSTOMER AND SUPPLY MARKET FACING

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CustomersSuppliers

Suppliers’ Environment Customers’ Environment

Company

Company’s Environment

Customer and Market Intelligence

Supplier and Market Intelligence

Business Intelligence

Supply Chain Intelligence is the convergence of four activities (information gathering, analysis, dissemination and response) both upstream and downstream in the supply chain.

TRADITIONAL FOCUS IS HERE

A GUESSING GAME

Supply Chain Intelligence

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The new Procurement Metric: Shareholder value preservation!

Stock price performance around announcement

-25

-20

-15

-10

-5

0

-61 -49 -37 -25 -13 -1 11 23 35 47 59

Trading day relative to announcement date

Ave

rage

sha

reho

lder

ret

urns

(%

)

Source: Hendricks and Singhal, Journal of Operations Management, 2004.

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SCM Enablers – Data, Information, Knowledge

SCM ProcessesSupply Chain Design, Supplier Rel. Mgmt, Perf. Mgmt, Supplier Quality Mgmt, Risk Mgmt, Cont. Improvement

Business Intelligence/Market Intelligence Enabling SCM Processes

Gather, Analyze, & Synthesize Data & Information

Business Intelligence

Spend

Demand

Performance

Finance

Quality

Market IntelligenceMarketsIndustriesGoods & CommoditiesFinanceSuppliersCompetitorsTechnologies

DATA

INFORMATION

KNOWLEDGE

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Business Intelligence Impact

Enhanced Negotiations

Risk Management

Supply Continuity

Internal Drivers

Competitive Analysis

Value Chain News Analysis

Market Drivers

Total Cost of Ownership

Supplier Relationship Management

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Agenda

• The State of Supply Management Today

• Supply Market Intelligence - the Key to Category Management

• Managing Supply Chain Risk

• Dynamics of Breakthrough Supply Management

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Three key elements of supply chain disruption management

Disruption Discovery

Disruption Recovery

Supply Chain

Redesign

Supply Market Intelligence Enables Supply Chain Risk Mitigation

• Disruption Discovery– What type of detection and

intelligence does a firm need to detect disruptions?

• Disruption Recovery– Once the disruption is

discovered, how does a firm effectively recover from a disruption?

• Supply Chain Redesign– How can a company

strategically re-design its supply chain over time to become more resilient and avoid or easily mitigate future disruptions?

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Time

Imp

act

of

Dis

rup

tion

($

, C

ust

om

er

Acc

ou

nt,

Ma

rke

t sh

are

)

DISRUPTIONDiscovery(A) Recovery (A)

Impact(A)

Discovery(B) Recovery (B)

Impact (B)

Disruption Discoveryand Recovery time (B)

Disruption Discoveryand Recovery time (A)

Disru

ptio

n A

mp

lifiers

(Glo

ba

lizatio

n a

nd

Co

mp

lexity)

Visibility Systems

Excess Resources

The key is prediction. This reduces possible disruptions or allows planning that minimizes

discovery and recovery time.

Disruption Discovery and Recovery

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PerformancePerformance

CAUSES (Categories of Predictive

Measures)DisruptionEVENTS

CONSEQUENCES (Impacts)

Human ResourcesHuman Resources

Supply Chain Disruption

Supply Chain Disruption

Financial HealthFinancial Health

EnvironmentalEnvironmental

RelationshipRelationship

Quality, Delivery, Service ProblemsQuality, Delivery, Service Problems

Supplier Union Strike,Ownership Change, Workforce Disruption

Supplier Union Strike,Ownership Change, Workforce Disruption

Supplier LockedTier II StoppageSupplier LockedTier II Stoppage

Supplier Bankruptcy (or financial distress)Supplier Bankruptcy (or financial distress)

Disasters (Weather, Earthquake, Terrorists)Disasters (Weather,

Earthquake, Terrorists)

Misalignment of Interests

Misalignment of Interests

Finished Goods Shipments Stopped Finished Goods

Shipments Stopped

Locate and Ramp Up Back up Supplier

Locate and Ramp Up Back up Supplier

Emergency Buy and Shipments

Emergency Buy and Shipments

ReputationReputation

Market Share LossMarket Share Loss

EFFECTSRevenueLosses

and Recovery Expenses

OTHERIMPACTSForgoneIncome

Emergency Rework and

Rushed FG Shipments

Emergency Rework and

Rushed FG Shipments

Recall for Quality Issues

Recall for Quality Issues

Sudden Loss of Supplier

Sudden Loss of Supplier

Driving Relationships to Mitigate Risk

Copyright© 2006 Supply Chain Redesign, LLC

Su

pp

lie

r A

ttri

bu

tes

Sit

ua

tio

na

l F

ac

tors

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Relationship

Supply Chain Disruption

Human Resources

Performance

FinancialHealth

EnvironmentalIndicators

Supplier Risk Score (RI)

Quality, Delivery, Capability, Service

Influence, Alignment, Information, Sharing

Turnover, Union issues, Pay Position

Market Power, Information VisibilityConcentration, Disruption Potential

Size, Asset Utilization, Capitalization, Profitability

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2

3

4

5

6 Market Dynamics, Mergers, Regulatory, Disasters, Transportation

Supply Chain Risk Categories

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Re

ven

ue

Imp

act

Supplier F

Supplier I

Supplier C

Supplier D

Supplier E

Supplier K

Supplier L

Supplier G

Supplier H

Supplier K

Supplier A

Supplier B

Supplier M

Supplier N

Risk Probability Index (RPI)

Supplier Risk Index

$3M

$2M

$1M

0

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Supplier Development Abilities

• Supplier Development: • Measuring the Impact of the Development Investment

Working with a supplier to improve Audits, or reduce SCAR and MRR occurances.

Before After

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Risk Escalation Process

LOW REV IMPACT, LOW P(RISK)

CONTINGENCY PLAN REQUIREDBuyer-Planner team

visits supplier, validates risk level, and discusses contingency plan with

Supplier and Manager, and escalates to next level

if investment justified.

HIGH REV IMPACT, LOW P(RISK)

Annual or quarterlyUpdate using RiskSurvey Tool

LOW REV IMPACT, HIGH P(RISK)

CODE BLUEEngage senior management in bi-weekly

review meeting or ASAP if required, establish strategic action plans to lower

risk score if possible.

HIGH REV IMPACT, HIGH P(RISK)

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Aligning Interests with Suppliers

Today 1 2 3 4 5 6 7 8 9 10 11 12 > 1 year

SRIM

No Impact - Uncontrollable Factors (without major product redesign)

Immediate Impact – “Quick Fix”(deploy resources immediately)

Long-term Solution – Significant InvestmentRequired (if enough of these occur, worth looking at the investment)

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Agenda

• The State of Supply Management Today

• Supply Market Intelligence - the Key to Category Management

• Managing Supply Chain Risk

• The Imminent Talent Shortage

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Ad Hoc Optimized/Extended

Traditional Competencies Integrity and ethical behavior Cost reduction focus Sense of urgency and results orientation Business process analysis

More people have problems succeeding due to lacking social competence than technical competence.” – Giunipero and Handfield

“

Supply Chain Maturity Competency Continuum

Defined Managed/Linked Leveraged/Integrated

Transforming the Organization

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Traditional Competencies Integrity and ethical behavior Cost reduction focus Sense of urgency and results orientation Business process analysis

Breakthrough Competencies Enterprise-wide perspective and

customer-focused decision making Business acumen and innovative thinking Operational improvement through

collaboration and team leadership Communications, influencing and

facilitating change

More people have problems succeeding due to lacking social competence than technical competence.” – Giunipero and Handfield

“

Ad Hoc Optimized/Extended

Supply Chain Maturity Competency Continuum

Defined Leveraged/IntegratedManaged/Linked

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The Single Point of Contact FallacyThe dysfunctional relationship model

Sr. ManagementSr. Management Staff Business Staff Business

LeadersLeaders Line Business Line Business

LeadersLeaders End UsersEnd Users

Sr. ManagementSr. Management Line of Business Line of Business

SpecialistsSpecialists R&DR&D Account ServicesAccount Services Geographic SalesGeographic Sales

AccountAccountOwnerOwner

SCM/ SCM/ ProcurementProcurement

The Customer The Customer OrganizationOrganization

The Customer The Customer OrganizationOrganization

The Supplier The Supplier OrganizationOrganizationThe Supplier The Supplier OrganizationOrganization

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Deep Listening and Multi-Level Dialogue

The healthy relationship model

Sr. Management Line of Business

Specialists R&D Account Services Geographic Sales

Account Account OwnerOwner

SCM/ SCM/ ProcurementProcurement

The Customer The Customer OrganizationOrganization

The Customer The Customer OrganizationOrganization

The Supplier The Supplier OrganizationOrganizationThe Supplier The Supplier OrganizationOrganization

Sr. ManagementSr. Management Staff Business Staff Business

LeadersLeaders Line Business Line Business

LeadersLeaders End UsersEnd Users

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IACCM Survey on Succession Planning

• What percentage of your staff will retire in the next 5 years?

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Do you have a program in place for succession planning in

SCM?

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Is succession planning a topic of discussion in your company?

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Approaches to Developing Talent

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Approaches to Developing Talent

LOW

HIG

H In

dust

ry-S

peci

fic K

now

ledg

e an

d Co

mpe

tenc

ies

LOW HIGHSupply Chain Competencies and Knowledge

SCM-Focused Universities(25%)

BU Subject Experts(25%)

General Business Universities(10%)

High Potentials Within SCMOrganization (40%)

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Observations

• There is an imminent dearth of talent that will occur both in SC management and skilled/unskilled labor in the next ten years that companies are unprepared to deal with.

• Most companies have NOT spent the time thinking through their succession planning and talent pipelines, and in many cases, have not even had the discussion!

• A targeted approach needs to be developed that explores multiple avenues for talent development.

Questions to Consider Today

• How is supply market intelligence created today? – Formal versus informal mechanisms– Methodology to keep current

• How are we managing supply risk? – Greatest sources of risk– How to measure and monitor?– Contingency planning mechanisms

• Do we have formal succession planning and talent development plans?– What are projected retirements?– How to deal with the imminent talent shortage?

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Final Thought

If you insist on beginning only with

certainties

you shall end in doubts;

but if you will be content to begin with

doubts

you shall end in certainties.

(Francis Bacon)

Email: robert_handfield@ncsu.eduPhone: 919 515 4674