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Achieving Results through Supply Chain Planning

Pittiglio Rabin Todd & McGrath

Supply-Chain World Europe 2001

2 October 2001

Torsten BeckerDirector

Pittiglio Rabin Todd & McGrathSchillerstrasse 42-44

60313 FrankfurtGermany

Tel: +49 (0)69 219 94-0Fax: +49 (0)69 219 94-335E-Mail: [email protected]

© Copyright 2001 Pittiglio Rabin Todd & McGrath34872

2

Content

Approach to achieve business results with Supply Chain Planning

How to accelerate Supply Chain planning results achievement

Impact of Supply Chain Planning system on processes and organisation

Case study: Supply Chain Planning in the Telecom industry

Lessons learned from Supply Chain Planning software implementation projects


3

Founded in 1976 with a unique focus

! Technology-based companies! Over 5,000 successful

implementation projects

Operationalizing Strategies! “Results, not reports”! 90% level of repeat business

450 consultants! Technical backgrounds with

practical experience, and MBAs from top schools

! Low staff/director ratio ensures significant director involvement in all projects

Technical Competence

Results Focus

25-Year Track Record

TelecommunicationsTelecommunications

Process IndustriesProcess Industries Computers & ElectronicEquipment

Computers & ElectronicEquipment

SoftwareSoftware

Life SciencesLife Sciences

Aerospace & Defense

Aerospace & Defense

Automotive & IndustrialAutomotive & Industrial

SemiconductorSemiconductor

Glasgow

OxfordParis

Frankfurt

WalthamStamford

Dallas

Mountain ViewCosta Mesa Chicago

Washington DC

DetroitSan Francisco Tokyo

Preeminent Reputation in the Technology Sector

Global Footprint

Breakthrough Results

More than 1,200 technology sector clients

A global management consultancy to technology-driven business

Approach to achieve business results with Supply Chain Planning


5

There are four key characteristics of next generation supply chain excellence

ExtendedDriven by competitive pressure

Practical collaboration with partners internal and external to the global enterprise

TransparentDriven by process technology change

Supply chain-wide visibility of customers and suppliers to each other

SimultaneousDriven by process technology change

Intelligent, real-time reactions to changes and challenges across the supply chain

FlexibleDriven by competitive pressure

Ongoing alignment and adjustment of web-enabled

customer-facing supply chains to unique customer requirements

and characteristics


6

Plan Supply Chain practices are assessed using the “Stages of Capability” model

Operational Capability

eCla

ssEn

able

rs

• Discrete Supply Chain processes and data flowswell documented and understood

• Demand/supply information flows internally with no integrated processes across plants

Stage 4:Stage 4:CrossCross--

Enterprise Enterprise CollaborationCollaboration

Stage 3:Stage 3:External IntegrationExternal Integration

Stage 2:Stage 2:Internal IntegrationInternal Integration

Stage 1:Stage 1:Functional FocusFunctional Focus • Demand and supply

planning processes are being aggregated across the firm with functional accountability

• Improvements are made by comparison to historical performance

• Informal supplier relationships exist

• Strategic partnerships are fostered with suppliers and customers using direct, collaborative, electronic data exchange

• Supply-chain integration service agreements define specific roles and responsibilities in the planning process

• Companies consistently see effective planning as a competitive weapon

• Decision-making bodies are able to leverage and share information across the global supply chain

• Demand/supply decision-making meetings accommodate varied business approaches, including net markets


7

According to supply chain planning software vendors, supply chain planning is influencing three key drivers

Typical results from supply chain planning software implementation

Reduced assets! Reduced inventory days of supply

Reduced supply chain management costs

! Reduced planning costs! Reduced scheduling costs

Increased turnover! Higher turnover based on better

utilization of the supply chain

Considerations for effects of supply chain planning

Reduced assets! Impact of planning alone is mininmal

Reduced supply chain management costs

! Planning costs are very low! Scheduling costs are not identified

Increased turnover! Turnover increase only possible if

higher sales possible


8

Key supply chain metrics have been analyzed to analyzeimpact of supply chain planning

Forecast Accuracy

88.0%

95.7%

75.0%

85.1%

50%

60%

70%

80%

90%

100%

BIC '97 BIC '00 Average '97 Average '00

9% improvement

13% improvement

77.6 76.8

214.3191.9

0

50

100

150

200

250

Telecom 2000 CEE 2000

BICAverage

Day

s

Supply Chain Response Time

Results from PMG Benchmarking studies

Inventory Days of Supply –Computers & Electronic Equipment

38.8 37.7

92.9

75.5

0

20

40

60

80

100

BIC '97 BIC '00 Average '97 Average '00

3% improvement

19% improvement

Day

s


9

Correlation analysis on Supply Chain Benchmarking data describes the influence of key metrics on Days of Supply

Movement

Upside Production Flexibility

Supply Chain Response Time

Forecast Accuracy

Inventory Days of Supply

Driver

! Highly accurate forecasts do not necessarily ensure lower inventory, as forecasts are dependent on factors beyond an organization’s control

! As the Supply Chain Response Time decreased, the Inventory Days of Supply decreased accordingly

! As the Upside Production Flexibility increased, Inventory Days of Supply decreased

We correlated the inventory levels of individual organizations in the population against the drivers

Impact of Supply Chain Planning system on processes and organisation


11

4. Integration of process and tools enables collaborative Demand Supply Planning

2. High speed Supply Chain planning processes are enabled by a focus on critical

requirements

Supply Chain planning requires integrated processes, organization, and system architecture

All sources of demand data are easily aggregated and viewed in a single data model

1. Planning tools overcome complexity to enable effective decision making

3. Demand Supply Planning reconciles different objectives into one consensus supply

plan

Time

Geography

Product

Common Data ModelCommon Data Model

Planning tools provide visibility to critical information to all supply chain participants

Planning organization is structured to support rapid decision making with clear roles and responsibilities

DS balancing committee drives consensus on one supply plan

Decisions are made to optimize overall business objectives (service, cost, assets)

On-time Delivery Performance / Site Survey5/5/00 5/12/00 5/19/00 5/26/00 6/2/00 6/9/00 6/16/00

RBOC 1 32% 33% 35% 30% 28% 32% 33%RBOC 2 1% 3% 5% 2% 3% 2% 1%RBOC 3 80% 70% 82% 76% 55% 49% 12%RBOC 4 14% 18% 32% 26% 80% 22% 13%------RBOC NIXC 1IXC 2--CLEC 1CLEC 2----

On-time Delivery Performance / Turn Over Date5/5/00 5/12/00 5/19/00 5/26/00 6/2/00 6/9/00 6/16/00

RBOC 1 43% 42% 38% 32% 35% 33% 34%RBOC 2 7% 6% 7% 8% 8% 7% 8%RBOC 3 46% 50% 55% 52% 48% 55% 58%RBOC 4 10% 12% 50% 60% 70% 70% 72%------RBOC NIXC 1IXC 2--CLEC 1CLEC 2--

0

5

10

15

20

25

30

35

40

45

05/0

5/20

00

05/0

6/20

00

05/0

7/20

00

05/0

8/20

00

Demand by Customer

25

0

5

10

15

20

30

35

40

45

05/0

5/20

00

05/0

6/20

00

05/0

7/20

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8/20

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05/0

9/20

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05/1

0/20

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05/1

1/20

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05/1

2/20

00

05/1

3/20

0005

/14/

2000

05/1

5/20

00

05/1

6/20

00

05/1

7/20

00

05/1

8/20

00

05/1

9/20

00

05/2

0/20

00

05/2

1/20

00

05/2

2/20

00

05/2

3/20

00

05/2

4/20

00

05/2

5/20

00

05/2

6/20

00

Demand by Product

Exceptions are flagged for immediate attentionChanges in plans are shared in real-time across the extended supply chain

Disparate applications are integrated using shared work-flows and data models

Supply chain partners are selectively integrated with shared processes, common metrics and governance structures

Utilization Management

Managing Resource Supply for Maximum Utilization

Inventory Levels

Managing Inventory Levels for Service level requirements


12

Impact

Organisations objectives need to be focused to realize benefits of new technology

Customer Service

Inventory Cost

Manufacturing Cost

Distribution CostOrganisation Objectives

Sales and Marketing

Manufacturing

Distribution

Finance

Procurement

Operations

! Small quantities! Short lead-times! Variety/flexibility! Long runs! Long lead-times! Stable schedules! Full truck loads! Large orders! Rigid schedules! Low inventory! Low capital

investment! Price reduction! Volume buys! Visibility

! Low operating cost

Overall! Best customer

service! Lowest cost


13

Supply Chain Planning is made up of is made up of three Demand Supply Planning activities

Demand Planning! Collect and analyze demand

from sales, marketing and key accounts based on a structured work-flow and standard planning calendars

! Collaborate and develop consensus demand plan

! Publish demand plan for real-time visibility

Supply Planning! Proactively identify

constraints that inhibit capability to meet demand plan

! Make inventory investment decisions

Demand Supply Balancing! Balance supply and

demand based on business objectives

! Define and agree on actions to address current and future constraints

Demand Planning Demand Supply Balancing Supply PlanningCross

Functional CollaborationCross

Functional Collaboration

SupplySupplyDemandDemand

MrktMrkt EngEng R&DR&D SalesSales FinFin MfgMfg

Balancing Leader

TimeTime

GeographyGeography

ProductProduct

Common Data Model

Order Backlog

Customer Service

Order Backlog

Customer Service

New product introductionsBrand/categoryplansMacro economic effects

Marketing

Finance

Revenue Plan

Finance

Revenue Plan

Promotional dataForecast dataPricing changesKey account plans

SalesPromotional dataForecast dataPricing changesKey account plans

Sales

Historical sales data

Operations


Operations

Total Supply ChainVisibility

Total Supply ChainVisibility

Balancing BoardBalancing BoardMaterials supply

Inbound logistics

Manufacture

Warehousing

Distribution

Installation

Supply Chain Resources

Cust

omer

sCu

stom

ers

Supp

liers

Supp

liers

ComponentSupplier

AssembliesManufacturing

Final Assemble and Test

Distribution Sales Offices

Plan Supply Chain

Plan

DeliverMakeSource

Plan Source Plan Make Plan Delivery

Plan Supply Chain

Plan

DeliverMakeSource



14

Rapid scenario iterations allows planning to drive a feasible and optimized plan based on business objectives

Decision-making based on business objectives

Validated supply plan

Proposed scenarios form

input to Demand Supply

Balancing

SupplyDemand


Balancing Leader

120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777


Managing Resource Supply for M aximumUtilization

Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777

120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777

120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777

120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777

120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


! Revenue! Customer Service! Asset Utilization! Flexibility! Cost


15

Effective Supply Chain Planning challenges whether previous decisions are really achieving targeted business objectives

Last period’s performance

Set new performance objectives based on this period’s DSB

Develop supply plan! Were previous objectives achieved— Why

not ?

Demand Planning Demand Supply Balancing

Supply PlanningCross





Balancing LeaderTimeTime

GeographyGeography

ProductProduct

Comm on Data Model

Order Backlog

Customer Service

Order Backlog

Customer Service

New product introductionsBrand/categoryplansMacro economic e ffects

Marketing

Finance

Revenue Plan

Finance

Revenue Plan

Promotional dataForecast dataPricing changesKey account p lans

SalesPromotional dataForecast dataPricing changesKey account p lans

Sales


Operat ions


Operat ions

Total supply chain visibility



Inbound logistics

Manufacture

Warehousing

Distribution

Installation


Cus

tom

ers

Cus

tom

ers

Supp

liers

Supp

liers

ComponentSupp lier



Distr ibu tion Sales Offices

Plan Supply C hain

Plan

DeliverMakeSource

Plan Source Plan Make Plan Deli very

Plan Supply C hain

Plan

DeliverMakeSource


Demand Planning Demand Supply Balancing

Supply PlanningCross





Balancing Leader


Balancing LeaderTimeTime

GeographyGeography

ProductProduct

Comm on Data Model

Order Backlog

Customer Service

Order Backlog

Customer Service

New product introductionsBrand/categoryplansMacro economic e ffects

Marketing

Finance

Revenue Plan

Finance

Revenue Plan

Promotional dataForecast dataPricing changesKey account p lans

SalesPromotional dataForecast dataPricing changesKey account p lans

Sales


Operat ions


Operat ions




Inbound logistics

Manufacture

Warehousing

Distribution

Installation


Cus

tom

ers

Cus

tom

ers

Supp

liers

Supp

liers

ComponentSupp lier



Distr ibu tion Sales Offices

Plan Supply C hain

Plan

DeliverMakeSource


Plan Supply C hain

Plan

DeliverMakeSource


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777

120 180 200 220 267

80

100.0

0102030405060708090

100

P1 P2 P3 P4 P5 P6 P7MD80 BO777



Inventory Levels




Inventory Levels


0% - 20%Major

Opportunity

20% - 40%Disadvantage

40% - 60%Average

60% - 80%Advantage

80% - 100%Best-in-Class

On-Time Delivery (request date)

Order Fulfillment Lead Time

Fill Rate

Production Flexibility

Total Supply Chain Costs


Cash-to-cash Cycle Time

0% - 20%Major

Opportunity


40% - 60%Average

60% - 80%Advantage




Fill Rate






16

Plan Supply Chain

How much, when, where, priorities ?

Plan

DeliverMakeSource


Effective Supply Chain Planning integrates strategy, planning and operation

Invoicing

Manufacturing Scheduling

Order entry

Deployment

Purchasing and Materials

Management

Deployment Scheduling

Warehouse ExecutionTransportExecution

Warehouse Scheduling

Transport Scheduling

Order Promising

Manufact-uring

Materials Scheduling

Manufacturing Planning

Deployment Planning

Demand Planning

and Forecasting

Warehouse Planning

Transport Planning

Material Planning

Network Planning

Demand Demand Supply Supply Planning Planning FocusFocus

Scheduling Scheduling and and ExecutionExecution

Supply Supply Chain Chain DesignDesign

Strategy

Supply Chain Configuration

How to accelerate Supply Chain planning results achievement


18

When Implemented Properly Supply Chain Planning Tools are Speeding Time to Value

Measurable Results Through Focused ImplementationsMeasurable Results Through Focused Implementations

Practical modular solutions

Measurable results with each module implemented

Clear migration path for additional software system functionality

Value Delivered Supports the Business StrategyValue Delivered Supports the Business Strategy

Implement more than IT systems - ensure results

Realize results before system is fully implemented is preferred


19

Available and capable to promise

Unlike ERP systems Supply Chain Planning Systems can be implemented in incremental process steps

Supp

ly C

hain

Pla

nnin

g Pe

rform

ance

Stage 0Functional

Stage 1Internal

Integration

Stage 2AdvancedPlanning

Stage 4eClass

SC MgmtCost 9.6%

SC MgmtCost3.2%

Demand/SupplyPlanning and

Balancing

Single/Multi tier collaborative planning

Multi-site planning

Internet enabled Vendor Managed Inventory

Supply Chain modeling

Demand Planning and Forecasting

Supply Chain Planning Capabilities

Capacity Planning

Source: PMG 2000 Study- Electronic Equipment

Stage 3External

Integration

SC MgmtCost4.2%


20

Key issue: How far will the current Supply-Chain Planning Strategy take you towards a Best Practice—eClass Model?

Best Practice—Supply Chain

Planning Model

Stage 4

?Plan

DeliverSource Make SC Planning Strategy

Stage 2 Stage 32

1

3

4Baseline currentSupply ChainPlanning Best

Practice Strategy

Formulate Implementation/Migration Plan

Assess value of SC Planning

Best Practices

Develop BestPractices-based

SC PlanningStrategy

BIC PracticesIncorporated

As-Is

!Bestpractices

!

PerformanceMetrics

!Plan!Supply Chain Management!Collaborative Planning

Trade-offs

Business Partition

PRTM Helps Companies Develop and Implement Best Practice SC Planning Capabilities

Case study: Supply Chain Planning


22

Key planning issues

Planning Constraints! There are multiple production

resources for the same products! Multiple geographies with different

planning requirements! Different IT systems and numbering

systems based on company history and prior decentralized decisions

Demand Planning! The European Sales Forecast is a simple

consolidation of country level forecasts without validation

! Different sophistication by product line (some products without forecasts)

Demand / Supply balancing! No process to balance demand/supply! Multiple tools poorly are interfaced, mostly

Excel based

Production Planning! Production plan is set on a yearly basis

Distribution Planning! Distribution of goods between central and

local warehouses unclear! Central Logistics department had no

visibility to local inventory


23

What we did

Program ManagementProgram Management

Supply Chain StrategySupply Chain Strategy Performance ManagementPerformance Management

Change ManagementChange Management

Planning Planning process, systems, and organizational changesprocess, systems, and organizational changesProcess Element!Development /

implementation of new planning process

!Definition of interfaces between entities

!Alignment between business process and IT system

Planning Software and IT!Facilitation of selection process

and tools!Development of IT

implementation strategy!Definition of IT requirements

Organization!Definition of new SC

organization concept!Preparation and

implementation of new organization

! Overall program coordination! Project Management! Training development! Steering group and team

facilitation

! Implemented metrics! Implemented short term

visibility into inventory

! Production approach! Centralization/

decentralization approach

! Support all involved parties! Harmonized approaches

across multiple countries


24

PRTM led a significant effort aimed at designing and implementing a new SC Planning Organization

We helped to harmonize the supply chain planning processes

! Common demand planning information! Supply/demand balancing approach

We helped our client develop the organization concept

! Competence model! Job descriptions! Organization structure and chart

We facilitated the preparation of the transition to the target organization

! Ressources assessment and mutation plans! Launch strategy! Operating modes definition during transition! Communication plans

EuropeanSupply Chain

Planning andInventory

Mgmt

Orderprocessing

Purchasing


25

... but PRTM also changed the supply chain execution processes to reduce the need for planning

Direct delivery concept and eliminating local warehouses! A standard numbering system was implemented! A central warehouse concept was implemented in six key countries

Order fulfilment lead-time reduction approach! Streamlining the processes for order-taking and processing

Kanban replenishment of regional produced goods! Short replenishment time and easy control to reduce overall inventory

Reducing the complexity of the supply chain reduced the need forReducing the complexity of the supply chain reduced the need for a a supply supply chain planning solutionchain planning solution, so an , so an existing tool existing tool was was adapted adapted to to support the support the

supply chain planning decision makingsupply chain planning decision making


26

Benefits targeted

0% - 20%Major

Opportunity


40% - 60%Average

60% - 80%Advantage




Fill Rate





Initial situation

Target

Lessons learned from Supply Chain Planning software implementation projects


28

MRP and MRP II

Just-in-Time(JIT)

ERP* Batch Process

2001–mid-1990searly 1990s1980s

Solu

tion

Perf

orm

ance

* Enterprise Resource Planning

Planning Automation

Process ComplexityLimited Technology

Process ComplexityTechnology Complexity

Business Ready, Technology Not Capable

Technology Ready,Business Not Capable

We have entered an era of fast clockspeed and continuous change

Failed Projects; Expected Benefits Not Achieved


29

e-EnabledDynamic Supply

Chain Management

2001–mid-1990searly 1990s1980s

Solu

tion

Perf

orm

ance

* Enterprise Resource Planning

Process ComplexityLimited Technology

Process ComplexityTechnology Complexity

Simplified Process andTechnology

Business Ready, Technology Not Capable

Technology Ready,Business Not Capable

Now leading companies will build competitive advantage through new supply chain planning solutions

MRP and MRP II

Just-in-Time(JIT)

ERP* Batch Process

Planning Automation


30

Many companies have seen a poor ROI on their Supply Chain Planning investments

Planning-centric vision

ERP-inspired implementation approaches

Overly complex models

PlanDeliverSource Make

Products Time

Quantities

Product 2Product 1

Product 3Product 4

Period 1

Markets

Period 2Period 3Period 4

Market 1

Market 2

Market 3

Market 4

Quantity 1

Quantity 2

Quantity 3

Quantity 4


31

To obtain real business results, e-enablement is not enough...

Fragmented technology

Complex processes

Organisations not adequate

9

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Organisation & skills realignment

Right amount of technology

Solid supply-chain strategySimplified

processes

… the supply-chain solution must be supported by a solid supply-chain strategy, simplified processes, organisation and skills realignment and the right amount of technology

Plan

DeliverSource Make

Traditional Planning ApproachTraditional Planning Approach Supply Chain Planning SolutionSupply Chain Planning Solution


32

There are several critical implementation success factors

Relentless Focus on Value Creation

Minimize Risk

Drive Speed to Value

A value thread assures all project activities are based on and managed

against measurable targets

Speed to value is not a function of implementing software, but the extend

of support for business problems

Start with a pilot, demonstrate results in limited scope before changing the

whole company

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