Assessing the value of the supply chain
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Transcript of Assessing the value of the supply chain
Assessing the value of the supply chain
Overview of the methodology
Contents
The goals of Supply Chain Management (SCM) 1
The scope of SCM 2
Why now? 3
Key questions 4
Value for shareholders 4
Summary 5
Functional scope 5
Activity scope 6
Methodology 6
Performance bridge 7
Components 8
Outcomes 8
Collinson Grant 9
1Assesing the value of the supply chain
The goals of Supply Chain Management (SCM)
Leading companies are exploiting their supply chains to outperform
competitors:
to achieve performance that creates more value for shareholders ¡
to re-defi ne processes and structures to eliminate costs ¡
to harmonise systems and technologies to exploit synergies and reduce ¡
costs
to generate transformational and iterative change ¡
to establish collaborative relationships to support e-commerce ¡
to maintain the prices and margins of products, despite severe ¡
pressure
to promote high performance, end-to-end visibility, customisation and ¡
lower costs
to manage complexity in a network of businesses and achieve ¡
international consistency
to foster a world-class image and uniqueness to protect lagging market ¡
capitalisation.
2
The scope of SCM
Effective SCM should align and control interactions between the buying and selling sides.
3Assesing the value of the supply chain
Business environmentCurrent market development
Static
S table
Dynamic
Unstable
Traditional Business
Environment
The
Future
n What flexibility do you have to
respond to frequent changes in
the supply chain
n Can you exploit that freedom?
n Can you react to customers’
short-term demands?
Better responsiveness
and use of assets
n Are metrics and processes
aligned to maximise overall
profitability?
n Are tools to support decision-
making used to improve
profitability?
Market / operating conditions
Cost efficiency
Market / operating conditions
Busi
nes
s en
viro
nm
ent
Business environmentCurrent market development
Static
S table
Dynamic
Unstable
Traditional Business
Environment
The
Future
n What flexibility do you have to
respond to frequent changes in
the supply chain
n Can you exploit that freedom?
n Can you react to customers’
short-term demands?
Better responsiveness
and use of assets
n Are metrics and processes
aligned to maximise overall
profitability?
n Are tools to support decision-
making used to improve
profitability?
Market / operating conditions
Cost efficiency
Market / operating conditions
Busi
nes
s en
viro
nm
ent
Why now?
The unstable business environment and dynamic operating conditions require that clients improve responsiveness and
reduce costs.
Current market development
Busi
ness
envi
ronm
ent
Market/operating conditions
4
Key questions
The main aim of the assessment is to work out the fi nancial value to your organisation of the performance of SCM. This
will require answers to the following questions:
What are the current capabilities for managing and planning SCM? ¡
What are the current baseline costs, and the measures of and benchmarks for performance? ¡
What are the current problems and opportunities in SCM? ¡
What improvements could be made and how would these affect the measures of performance and benchmarks? ¡
What is the fi nancial value of improving performance? ¡
What is the high-level implementation plan, showing the tasks necessary to achieve the improvements and realize ¡
the benefi ts?
Value for shareholders
The supply chain has a big effect on value for shareholders.
Revenue
Costs
Working
capital
Fixed capital
Value for
shareholders
Profitability
Invested
capital
The shareholder value tree
Cost of goods sold (COGS)
Productivity of assets
Cost of business operations
Costs of manufacturing, conversion and
sourcing
10 - 15%
costs
Inventories of raw, part-finished and
finished products
Order-to-cash cycle time
10 - 20%
inventory
Physical assets
- Plants, warehouses, trucks, office
and support locations10 - 20%
assets
Market share
Gross margins
Service to customers
Fewer lost sales
1 - 2%
margin
Typical targeted
benefitsImpact on supply chain
éé
ê
é
ê
êê
ê
ê
ê
é
Revenue
Costs
Working
capital
Fixed capital
Value for
shareholders
Profitability
Invested
capital
The shareholder value tree
Cost of goods sold (COGS)
Productivity of assets
Cost of business operations
Costs of manufacturing, conversion and
sourcing
10 - 15%
costs
Inventories of raw, part-finished and
finished products
Order-to-cash cycle time
10 - 20%
inventory
Physical assets
- Plants, warehouses, trucks, office
and support locations10 - 20%
assets
Market share
Gross margins
Service to customers
Fewer lost sales
1 - 2%
margin
Typical targeted
benefitsImpact on supply chain
éé
ê
é
ê
êê
ê
ê
ê
é
5Assesing the value of the supply chain
Summary
The Supply Chain Value Assessment (SCVA) sets out the capabilities required of the supply chain for organisations to be
successful.
The SCVA focuses on fi nding opportunities to increase value in operations. ¡
SCVA connects the organisation’s objectives, supply chain capabilities and key performance indicators together to ¡
produce fact-based, value propositions.
Analysis of leading practices is used to help fi nd opportunities. SCVA does not aim to produce standard ¡
benchmarks.
SCVA is not generic. It is customised to each business’s situation and objectives. ¡
Functional scope
Value assessment can cover:
Procurement ¡
Manufacturing and assembly ¡
The management of inventory and materials ¡
Warehousing ¡
Transportation ¡
Order fulfi lment ¡
Logistics operations that add value ¡
Service and support ¡
Projects. ¡
What affects me? How will the trends
affect my business
operations?
What capabilities
must I have?
What are the
leaders doing?
How much is
changing worth?
Sector
trends
Supply
chain
capabilities
Business
impactsLeading
practices
Value
propositions
What affects me? How will the trends
affect my business
operations?
What capabilities
must I have?
What are the
leaders doing?
How much is
changing worth?
Sector
trends
Supply
chain
capabilities
Business
impactsLeading
practices
Value
propositions
6
Activity scope
SCVA assesses business practices in the supply chain in several different dimensions.
Methodology
SCVA will fi nd the major opportunities to draw up a business case for change.
Sourcing and
procurement
Logistics and
service operations
Demand/supply
planningCustomer
n Segmentation
n Service
n Services/ products
§ Planning, optimization and detailed scheduling of SC functions:
§ Managing demand
§ Managing inventory
§ Managing logistics
§ Managing labour
§ Managing procurement
§ Managing production
§ Improving operational performance
§ Selecting vendors
§ Managing vendors of logistics
§ Managing freight
§ Managing the Rail/Air/Marine fleet
§ Strategic procurement
§ eProcurement
§ Managing suppliers
§ Procurement process
Categories of business process
Information
technology
Performance
measurement
Collaboration/
extend. enter.
§ Use of performance measures
§ Overall IT enablement
§ Supply chain technology
§ Supply chain visibility and event management
§ mCommerce
§ Collaborating with partners
§ Collaborating with suppliers and customers
Supply chain spanning categories
Supply chain
network
§ Physical network -configuration and optimisation
§ Plants
§ Warehouses
§ Service locations
§ Offices
Sourcing and
procurement
Logistics and
service operations
Demand/supply
planningCustomer
n Segmentation
n Service
n Services/ products
§ Planning, optimization and detailed scheduling of SC functions:
§ Managing demand
§ Managing inventory
§ Managing logistics
§ Managing labour
§ Managing procurement
§ Managing production
§ Improving operational performance
§ Selecting vendors
§ Managing vendors of logistics
§ Managing freight
§ Managing the Rail/Air/Marine fleet
§ Strategic procurement
§ eProcurement
§ Managing suppliers
§ Procurement process
Categories of business process
Information
technology
Performance
measurement
Collaboration/
extend. enter.
§ Use of performance measures
§ Overall IT enablement
§ Supply chain technology
§ Supply chain visibility and event management
§ mCommerce
§ Collaborating with partners
§ Collaborating with suppliers and customers
Supply chain spanning categories
Supply chain
network
§ Physical network -configuration and optimisation
§ Plants
§ Warehouses
§ Service locations
§ Offices
The process of SCVA
Assess RecommendPrepare Identify
Mobilize
team
Quantitative
dataPerformance
gaps
Presentation
and review
Current
performance
Levers and
recommen-
dations
Qualitative
data
Value
proposition
Targets and
expectations
Capabilities
Opportunities
Scope and
approach
Executive Review
0 21 3
Steering Review
NB: The timeframe for the value process will vary with the scope (at geographic, functional
and activity levels)
The process of SCVA
Assess RecommendPrepare Identify
Mobilize
team
Quantitative
dataPerformance
gaps
Presentation
and review
Current
performance
Levers and
recommen-
dations
Qualitative
data
Value
proposition
Targets and
expectations
Capabilities
Opportunities
Scope and
approach
Executive Review
0 21 3
Steering Review
NB: The timeframe for the value process will vary with the scope (at geographic, functional
and activity levels)
7Assesing the value of the supply chain
Performance bridge
We use a performance bridge to clarify the fi ndings about the value chain. This:
is adaptable and straightforward ¡
can be used for static data or time series ¡
can mix negative and positive fi nancials ¡
can be used qualitatively to show positive and negative factors, or where value is created and where it is ¡
destroyed.
The starting point is the top (or bottom) of each bar, moving left to right.
400 -450
Net
revenue
Cost of
goods
sold
Capital
sale
Loss before
interest and tax
Overheads
-60 -110 40
Interest
Income
100 -10 20
TaxesNet
profit
400 -450
Net
revenue
Cost of
goods
sold
Capital
sale
Loss before
interest and tax
Overheads
-60 -110 40
Interest
Income
100 -10 20
TaxesNet
profit
400 -450
Net
revenue
Cost of
goods
sold
400 -450
Net
revenue
Cost of
goods
sold
Capital
sale
Loss before
interest and tax
Overheads
-60 -110 40
Interest
Income
100 -10 20
TaxesNet
profit
Capital
sale
Loss before
interest and tax
Overheads
-60 -110 40
Interest
Income
100 -10 20
TaxesNet
profit
8
Components
Components of the value assessment are:
Qualitative surveys – to defi ne the relevant problems and opportunities ¡
Diagnostic tools – to help understand the problems and defi ne the opportunity ¡
Quantitative assessment – to defi ne the fi nancial value ¡
Sector benchmarks – to evaluate the impact of improvements in performance ¡
High-level roadmap for implementation - option. ¡
Outcomes
A qualitative assessment questionnaire can be employed to provide a top-down analysis to create a view of current
capabilities.
Capability Radar
0102030
405060708090
100Supply Chain Alignment
Customer Connectivity
Efficient Distribution
Demand Driven Planning
Lean Manufacturing
Supplier Management
Integrated SystemsAdvanced Information Technologies
Integrated Product Development
Outcome-Focused Performance Measurement
Teamwork
Aligned Organisation Structure
Execution of Change Plans
0102030
405060708090
100Supply Chain Alignment
Customer Connectivity
Efficient Distribution
Demand Driven Planning
Lean Manufacturing
Supplier Management
Integrated SystemsAdvanced Information Technologies
Integrated Product Development
Outcome-Focused Performance Measurement
Teamwork
Aligned Organisation Structure
Execution of Change Plans
Management
Operations
Opportunity matrix
Expected Benefit Low High
Easy
Complex
Ea
se
of
imp
lem
en
tatio
n • Consignment stock
• Monitor X% reserve
requirement
• Capture stock out
information
• Manage service level
• Forecast lifting for terminal
• Optimize boned stock
• Monitor Product Profitability
• Joint venture (purchase
inventory from the joint
venture partner
• Rationalize terminal
• Schedule discharging at
terminal
• B/L and swap
arrangement
• Disposition strategy
• Monitor product profitability
• Increase supply sale
• Capture in-transit volume
Illustrative
9Assesing the value of the supply chain
The aggregated benefi ts will form the basis of an integrated plan for implementation and a business case. For example:
Legislated reserve x.x x.x
In-transit volume x.x x.x
Optimize bonded stock at refinery x.x x.x
Optimize Replenishment Cycle x.x x.x
Reduce demand variability by customer segmentation x.x x.x
Improve customer service level x.x x.x
Monitor Product Profitability x.x x.x
B/L & Swap Arrangement x.x x.x
List of Opportunities Potential Value
Note :
1) Estimate benefit are based on average inventroy level in 1998 assuming that refinery has
avaliable capacity to keep as a bonded stock
2) Assume that the contraint on vessel avalibility can be managed and forecast accuracy are
improved by 50 %
3) Safety stock reduction is limited to the 3% reserve level if inventory is at 3% reserve level benefit
of the opportunity may be be realised
4) Opportunity identified during the course of analyses
First year Annual
OpportunityArea
Inventory
Shipping costs
Trucking costs
Contribution Margin
How to realise the benefits
Managing to safety stock targets, which are statistically set to reflect
actual, uncontrollable variability in demand and supply; releasing tank
heels of excess tanks
Changing drop routes and vessel sizes to optimise per unit costs
(accounting for impacts on average inventory); eliminating spot
vessel costs incurred as supplementary to replenishment by time-
chartered vessel
Using larger trucks and enabling ease of operations through efficient
scheduling to achieve better haulage rates (may require some
renegotiation of contracts)
Reallocating resources within customer segments to match customer
value; margin management imperatives in stock allocation and times
of critical supply; retaining/ acquiring more customers through supply
chain efficiency, guaranteeing service levels and managing customer
relationships; better price-related trading vs marketing decisions
Value(% of baseline)
17 - 21%
8 - 12%
2 - 5%
0.6 - 2%
Q3’99 Q4’99 Q1’00 Q2’00
Benefit Capture
Q3’00 Q4’00
Roll out InitiativeBenefit Capture Q2’99
- -
0.23
0.88 0.88
0.45
0.24
Supply Planning Performance
1)
2)
3)
.
.
.
.
.
>> Program managementTotal Savings by Quarter
( Million US$)
Internal Man-day
External Man-day
Benefits
Aggregate benefits
Implementation and delivery
IllustrativeLegislated reserve x.x x.x
In-transit volume x.x x.x
Optimize bonded stock at refinery x.x x.x
Optimize Replenishment Cycle x.x x.x
Reduce demand variability by customer segmentation x.x x.x
Improve customer service level x.x x.x
Monitor Product Profitability x.x x.x
B/L & Swap Arrangement x.x x.x
List of Opportunities Potential Value
Note :
1) Estimate benefit are based on average inventroy level in 1998 assuming that refinery has
avaliable capacity to keep as a bonded stock
2) Assume that the contraint on vessel avalibility can be managed and forecast accuracy are
improved by 50 %
3) Safety stock reduction is limited to the 3% reserve level if inventory is at 3% reserve level benefit
of the opportunity may be be realised
4) Opportunity identified during the course of analyses
First year Annual
OpportunityArea
Inventory
Shipping costs
Trucking costs
Contribution Margin
How to realise the benefits
Managing to safety stock targets, which are statistically set to reflect
actual, uncontrollable variability in demand and supply; releasing tank
heels of excess tanks
Changing drop routes and vessel sizes to optimise per unit costs
(accounting for impacts on average inventory); eliminating spot
vessel costs incurred as supplementary to replenishment by time-
chartered vessel
Using larger trucks and enabling ease of operations through efficient
scheduling to achieve better haulage rates (may require some
renegotiation of contracts)
Reallocating resources within customer segments to match customer
value; margin management imperatives in stock allocation and times
of critical supply; retaining/ acquiring more customers through supply
chain efficiency, guaranteeing service levels and managing customer
relationships; better price-related trading vs marketing decisions
Value(% of baseline)
17 - 21%
8 - 12%
2 - 5%
0.6 - 2%
Q3’99 Q4’99 Q1’00 Q2’00
Benefit Capture
Q3’00 Q4’00
Roll out InitiativeBenefit Capture Q2’99
- -
0.23
0.88 0.88
0.45
0.24
Supply Planning Performance
1)
2)
3)
.
.
.
.
.
>> Program managementTotal Savings by Quarter
( Million US$)
Internal Man-day
External Man-day
Benefits
Aggregate benefits
Implementation and delivery
Illustrative
10
Collinson Grant
Collinson Grant is a management consultancy with a history of profi table
growth. We help large organisations all over Europe and in the United States
to restructure, merge acquisitions, cut costs, increase performance and profi t,
and manage people. By building long-term relationships, we have kept some
clients for thirty years.
Our emphasis is on implementation, results and value-for-money. We expect
to give a substantial return on the investment in us. So we do not recommend
action unless we are sure that the outcome will be worth it. We are not afraid
to give bad news, or to champion ideas that may not be welcome.
Most of our work is on three themes – organisation, costs and people. We
use this simple framework to manage complex assignments - often with an
international dimension - and to support managers on smaller, more focused
projects. We help them:
to restructure and integrate - following acquisitions or to improve ¡
profi ts
to improve the supply chain. We examine every process and interface ¡
to improve effi ciency and service
to set up fi nancial and managerial controls. We create robust systems ¡
to improve decision-making and reduce risks
to refi ne business processes and introduce lean manufacturing. We ¡
analyse and improve how work is done, and use new ways to create
change and make it stick
to cut costs. We make systematic analyses of overheads, direct costs, ¡
and the profi tability of customers and products. This helps managers
to understand complexity, and to take fi rm steps to reduce it
to manage people. We draw up pay schemes and put them into effect, ¡
guide managers on employee relations and employment law, get better
performance from people, and manage redundancy.
Collinson Grant Limited
Ryecroft, Aviary Road, Worsley, Manchester, M28 2WF United Kingdom
Telephone (0) 161 703 5600 Facsimile (0) 161 790 9177
33 St James’s Square London SW1Y 4JS
Telephone (0)20 7661 9382 Facsimile (0)20 7661 9400
En France 03 20 65 18 81 Innerhalb Deutschlands 0211 4054 800
In the United States 1 508 358 3400
Web www.collinsongrant.com
Part of Collinson Grant Group Limited