AAA Riding the Globalization Wave Final With Notes Latest
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Transcript of AAA Riding the Globalization Wave Final With Notes Latest
Riding the Globalization Wave
Presented byLori Sisk, CPM
Hewlett Packard Sponsored by Women In Leadership Group
Agenda
Introduction Overview Economic Factors Internal Impacts Risk vs. Reward Total Cost Analysis Enablers Conclusions
Introduction
Lori Sisk, C.P.M. – Over 20 years of Consulting/Industry global supply chain
experience in automotive, aerospace, and home building industries
– Focus on saving companies money and increase efficiencies in business processes
– Career has been built from several different companies: Mazda, TRW, Ernst & Young Consulting (Lucas Aerospace, Fleming Foods, Covisint), Delphi, HP (GM, American Express)
– MBA and BSBA from Bowling Green State University – ISM former Metro Detroit President, Women In Leadership
Chairperson – Speaker for ISM, APICS, PanHellenic Logistics and Supply Chain
Institute, SAPICS
North America: Primary - Mexico/South America Secondary - Eastern Europe or AsiaWestern Europe: Primary - Eastern Europe Secondary - Asia or Mexico/South AmericaPacific Rim: Primary - Asia Secondary - Eastern Europe or Mexico/South America
Where Should We Source?
Regionalization
Reverse Globalization? Changes that have occurred over the past few years
– Less dominant labor costs » As technology progresses and productivity improvements drive down
labor hours required in many processes – Increased infrastructure development
» Developing countries investing more in education and infrastructure, companies can now source confidently in any hemisphere
– Focus on supply chain risks » Natural disasters, volatility of fuel prices, performance of supply chain
partners, and financial stability of organizations seem to be the biggest risks
– Need for more flexibility » There needs to be a very quick response to the changing economic
conditions and demand by the supply chain Have created many companies to move towards regional or
hemispheric sourcing
Economic Factors Financial Volatility of commodities such as fuel Labor costs increasing globally Logistics costs increasingly important Language complexities Capacity in shipping industry Taxes Geopolitics Focus on energy
Internal Impacts Collaborative cross-functional effort to:
– Maximize supply assurance – Reduce overall costs – Identify hidden costs
Review of previous sourcing decisions Material sourcing strategy considerations
» Source in LCC at lower cost or source regionally? Can LCC supplier utilize regional logistics hub to minimize risk? LCC may have 5 weeks in transit or airfreight LCC may be lower cost but to source regionally may be less risk and
lower logistics costs
Total Cost Analysis
Total Cost of Ownership • Typical costs included in a manufacturing TCO model:
– Design Costs – Raw Material – Purchased Parts – Direct and Indirect Labor – Fringe Benefits – Machines Costs such as depreciation, interest, insurance, utilities – Selling, General, and Administrative Costs – Profit – Acquisition Costs – Duties, fees, taxes– Usage Costs – End of Life Costs
• Ensure that your TCO model includes the following risks:– International freight – Lack of logistics infrastructure which drives cost– Increased inventory carrying costs– Lost sales/costs due to unreliable source of supply– Cost of quality– Hidden costs generated by poor communication and management
misunderstandings – Additional costs due to off-shoring
Total Cost Analysis
Take another look: – Logistics Costs-
» Expedited Shipments » Repacking at warehouses » Evaluate for types of shipment (container, truck, rail, LTL, parcel)» Evaluate customs fees- fixed fee for all shipments whether a
container is a load or a parcel.– Additional Inventory Driven Costs to Evaluate:
» Price Protection and returns for channel inventory» Can too much channel inventory delay New Product Introductions?» Material devaluation and Obsolescence Costs» Engineering Change costs with 5 weeks of incoming material
– Understand the cost drivers
June 19, 2009
1
(1)Total Cost of Ownership Models: An Exploratory Study, The Journal of Supply Chain Management Copyright © August 2002, by the Institute of Supply Management, Inc., Bruce G. Ferrin, Richard E. Plank
Risk vs. Reward Supply Chain Risk Categories
Relationship
Performance
Human Resources
Supply ChainDisruption
FinancialHealth
EnvironmentalIndicators
Supplier RiskScore
Influence, Alignment, Information Sharing
Quality, Delivery, Capacity, Cost
Turnover, Union Issues
Market Power, Information Visibility Concentration, Disruption Potential
Size, Asset Utilization, Capitalization, Profitability
Social Responsibility
Honda of America Supplier Management Evaluation
Source: Honda
Honda of America Supplier Management Process
Source: Honda
Honda of America Supplier Management Message
Source: Honda
Demand Forecast
0Q1 Q2 Q3 Q4
Dem
and
(uni
ts/p
erio
d)
High Demand Base Demand Low Demand
page 15
Risk Management Approach: Uncertainty is measured using
forecast scenarios for demand, price, & availabilityAvailability Forecast
0%
20%
40%
60%
80%
100%
120%
Q1 Q2 Q3 Q4
perc
ent a
vaila
ble
High Availability Base Availability Low Availability
HPHorizon build demand scenarios from historical data
Component Price Forecast
Q1 Q2 Q3 Q4
Uni
t Pric
e
High Price Base Price Low Price
Results of Supply Chain Risk Management implementation at HP
Direct materials quantity commitments
HP total materials spend in PRM contracts
Realized Savings
Program life
>$1B+
>$75M
Indirect materials quantity commitments
Commodity Cost Savings
Commit-ment
Custom ASIC 12% 12 moScanner assy. 8% 12 moFlash memory 5% 6 moParts for repair & refurbishment
4% 3 mo
Hard disk drives
2.3% 3 mo
DRAM 0 – 10% 3-6 mo Average 6%
Commodity Cost Savings
Commit-ment
Energy 25% 12 mo
Refining a Spend-Oriented Framework to Supply Chain Risk vs. Business Impact
Leverage Strategic
Tactical Bottleneck
Supply market complexity
Spen
d
Reduce structuralrisk factors
Impr
ove
cont
inge
ncy
plan
s
Hed
ge c
ost i
ncre
ases
and
guar
ante
e su
pply
Bus
ines
s Im
pact
Extended supply chain complexity(i.e., probability of adverse risk event)
From spend segmentation To understanding risk vs. reward
Source: 2008 The Hackett Group 17
Discuss how your organization is riding the globalization wave: – Has changed it’s direction on globalization – Manage risk vs. reward – Review Total Cost of Ownership – Collaborates across the organization on sourcing decisions– Has managed the economic factors and which ones have had the
largest impact to your organization and how have you mitigated the risk
Discuss what you can take back to your organization – Institutionalize a risk management program/process– Re-analyze past sourcing decisions with new information – Review cost drivers – have they changed? – Other ideas?
Networking
Automate Supply Chain– Define the end-to-end transaction / process– Consolidate, standardize and automate the defined transaction / process
whenever possible– Identify, optimize and /or transform the transactions / processes that
cannot be automated (e.g., move processing off-shore) Centers of Excellence
– Create a winning best-shore location strategy – Determine what strategies should be global vs. regional and which
activities need to be centralized vs. decentralized Spend Analytics
– Perform spend analytics on a global basis using tools that can provide multiple dimensions to support the identification of new sourcing and savings opportunities
Transaction Management– Actively manage compliance and demand management policies and
procedures across the end-to-end supply chain through SLAs and KPIs
Enablers
Enablers Supply Chain Analytics
– Total Landed Costs- including all transportation costs, customs…– Supply Chain Network Design and Modeling and Optimization Tools-
What-If Modeling to look for the most efficient cost and service levels Supply Chain Visibility
– Look both upstream and downstream and giving critical suppliers downstream view
– Automated Alerts and Notifications to Supply Chain Events- more efficient Buyers/Planners
Cross Functional Supply Chain Dashboard– Minimize the effect of Silos– Sales and Operations Planning Process- Metrics back to executing the
plan
Supply Chain Visibility Operational Improvements
21Aberdeen Group 2009
Benefits to SC Visibility Inventory Reductions:
– Companies that are Best in Class in Inventory Management are 2.4 times as likely to have implemented SC Visibility. Customer Service Levels are at 96% and Inventory Levels have been reduce by up to 30% since 2004.
Cycle Times:– Companies with SC Visibility are 3 times as likely to have a faster
order to fulfillment as companies with plans for an SC Visibility implementation.
On-Time Deliveries:– Companies that track more than 80% of domestic shipments are 2
times as likely to have an on-time delivery rate of 95% or higher.
22Aberdeen Group 2006
The Supply Chain Dashboard- The key to an Integrated Supply Chain Organization
23
Perc
ent I
mpr
ovem
ent
2003
-200
5
Having End-to-End Supply Chain Visibility and Span of Control Enables the Business to Make Quick Resource
Trade-Offs to Respond to Changing Market NeedSupply Chain Executive Board 2006
What does tomorrow bring?
Future Trends of Organizations– Joint ventures will increase – View suppliers as external resources of innovation – Linkage of sales to purchasing – Demand driven supply chains – Integration across supply chain – Improvement of supplier relationships – Rethinking of out-source vs. in-source and near-shoring vs. off-shoring– Risk management formal programs to secure continuity of supply – Collaboration with suppliers in the Product Lifecycle Management process– Increased reliance on outsourced logistics– Visibility and traceability of products has become increasingly important
Conclusions
Economic factors will drive many companies’ direction for globalization
As companies “restudy” total cost, there may be opportunity to source regionally and reduce cost
Ensure that one has a supply management risk program that proactively alerts the organization when risk becomes too high and how to act upon it
Understand the cost drivers in order to make effective and optimal sourcing decisions
Trends will continue that will encourage companies to continually review “reverse globalization”