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www.supply-chain.org.uk

Process Improvement – A Strategic Implementation

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Focus of the Day

Today we will look at how to address the main sources of stress (‘pressure points’) in organisations and their supply chains.

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A Key Question for You

1. What are the main challenges you face in running your business?

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Session 1

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The clash between the nature of external markets and the nature of internal resources

Market Requirements are….

Dynamic

Heterogeneous

Ambiguous

Operations Resources are….

Difficult to change Technically constrained

Complex

BT3

Princip

le

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Link Strategy With

Operations

Give an Operations Advantage

Externally supportive

Adopt best Practice

Correct the Worst

Problems

Increasing contri

bution of o

peratio

ns

Internally supportive

Externally neutral

Internally neutral

The strategic role of operations can be defined by its aspirations (after Hayes and Wheelwright)

STAGE 1 STAGE 2 STAGE 3 STAGE 4

The ability

to Implement

The ability

to support Strategy

The ability

to Drive

strategy

Stop holding the

organisation back

Be as good as

competitors

Be clearly the best in

the industry

Redefine the industry’s

expectations

Princip

le

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The 3 key attributes of operations

Operations Contribution

Implementing

Supporting

Driving

be Dependable

Operationalise strategy

explain Practicalities

be Appropriate

Understand strategy

Contribute to decisions

be Innovative

provide Foundation of strategy

Develop long-term Capabilities

The Strategic Role of the Operations Functions

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Operations can kick-start two virtuous cycles

Understanding of the processes

Competencies embedded in the

operation

Capabilities enhance innovation and improvement

World Class Operations

Competitiveness Strong marketing

High margin

Investment

Developing the resources which let the operation’s performance stay ahead of the competition

Developing customers’ competitors’ and stockholders; perceptions and expectations

Internal and ExternalPrincip

le

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Co

mp

etit

iven

essSpeed

Flexibility

Cost

Dependability

Quality

The operations function can provide a competitive advantage through its performance at the five competitive objectives

Being RIGHT

Being FAST

Being ON TIME

Being ABLE TO CHANGE

Being PRODUCTIVE

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Co

mp

etit

iven

ess

How is each performance objective being viewed?

QualityThe onset of “Total Quality Disillusionment” ISO 9000 sweeps the world (except Japan!)

Dependability Being monitored by customers

FlexibilityLong term technology flexibility proving difficult to achieveMore closely defined - “rigid flexibility”

Cost

Increasing cost pressuresOvercoming the volume and variety effectsNew ways of looking at costs

Speed

Value added methodology increasingly powerfulMajor benefit of BPRReturn of the JEDI

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Co

mp

etit

ive

Ob

ject

ives

are

p

rio

riti

zed

by

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ST

OM

ER

S a

nd

CO

MP

ET

ITO

RS

Co

mp

etit

iven

ess

Quality

Speed

Dependability

Flexibility

Cost

The first task of an Operations Strategy is to clarify the relative priorities of the competitive objectives

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Operations Strategy Decision Areas Determine Resource Deployment

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS

Resource Deployment

Capacity Structure

Process Technology

Supply Network

Development and Organisation

ISSUES -

• CAPACITY

• LOCATION

• FOCUS & SEGMENTATION

• L/T FORECASTS

ISSUES -

ISSUES -

ISSUES -• DEVELOPMENT RATE

• AUTOMATION

• SIZE

• INTEGRATION

• IN OR OUT-HOUSE DEVELOPMENT

• VERTICAL INTEGRATION

• SUPPLIER DEVELOPMENT

• DEVELOPMENT CHAINS

• STRATEGIC VALUE FACILITATION

• RESPONSIBILITY RELATIONSHIPS

• IMPROVEMENT STRATEGIES

• PERFORMANCE & CONTROL

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Cost

Co

mp

etit

ive

Ob

ject

ives

ar

e p

rio

riti

zed

by

CU

ST

OM

ER

S a

nd

C

OM

PE

TIT

OR

S

Mar

ket

Co

mp

etit

iven

essQuality

Speed

Dependability

Flexibility

Operations strategy is defined by the intersections of performance objectives and substrategies



Resource Deployment

Development and

Organization

Supply Network

Process Technology

Capacity Structure

Operations Strategy

Princip

le

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Cost

Co

mp

etit

ive

Ob

ject

ives

ar

e p

rio

riti

zed

by

CU

ST

OM

ER

S a

nd

C

OM

PE

TIT

OR

S

Mar

ket

Co

mp

etit

iven

essQuality

Speed

Dependability

Flexibility

Operations strategy is defined by the intersections of performance objectives and substrategies



Resource Deployment

Capacity Structure

Process Technology

Supply Network

Development and

Organization

key

key

key

key

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Trade-offs

“Do you want it good, or do you want it Tuesday?”

“No such thing as a free lunch.”

“You can’t have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same.” (Skinner)

“Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another.”

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Strategic Performance - Responsiveness of Your Operation

Failure Point

Stress Point

Per

form

ance

‘Force’

Response curve

Desired Capability

Operating Capability

STRESS

KEY To ZONES

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Some Current Pressure Points in Supply Chain

Lean is good! Agile is Better 6σ More customisation More products Use E-Commerce CRM ERP Collaborative Planning, Forecasting & Replenishment Direct Deliveries …………………………………………………………………..

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The Causes of Supply Chain and Operations Stress

Congruence Alignment to customer needs, potential degradation of delights Mismatched relationships with customers and suppliers Confusion over needs

Capabilities Processes are not able to meet the performance targets Service levels are inappropriate Capability Not Measured No laid down process maps or procedures

Capacity Poor utilisation, slow response to demand, too many set ups, high

or increasing variety Low Value Adding content Low T/E (throughput efficiency)

Control High Forecasting Errors ‘Bullwhip’ across the chain (Forrester Effect) Resource Scheduling and Inventory inaccuracies

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Gaining Insights into Your Business Operation

The SSRU at Warwick launched a major international benchmarking study.

You can contribute to better understanding of innovation and improvement by participating

The study aims to include over 200 Australian, US, and European participants by August 2003.

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To AUDIT your Business

Logon to http://www.supply-chain.org.uk Click on the SPA Methodology link Login to the ht2 site using:

Username spa** Password spa** (Same as your username)

I will allocate your number Complete the survey Your results will be emailed to you in early April as a

benchmark report

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Congruence in Your Strategic Priorities

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Com

pet

itive

Ben

efit

Achieved performance

qualifyinglevel

ORDER-WINNINGOBJECTIVES

QUALIFYINGOBJECTIVES

LESS IMPORTANTOBJECTIVES

+ve

neutral

-ve

Low High

Com

pet

itive

Ben

efit


+ve

neutral

-ve

Low High

Com

pet

itive

Ben

efit


+ve

neutral

-ve

Low High

The Basics Not all aspects of our

performance have the same impact:

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Low High

Negative

Positive

Neutral

Achieved Performance

Co

mp

etit

ive

Ben

efit

Time

Delights become Order winners and Order winners become Qualifiers

Delights

Adding Delights

Order Winners

Order Winners gain more business the better you are

Qualifiers

Qualifiers are the “givens” of doing businessPrincip

le

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Delights

Order Winners

Qualifiers

Today Tomorrow

Where will you be in the Future?ACTIVITY

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Prioritizing Objectives

Priorities should be determined by ......

The

IMPORTANCE

of eachcompetitive

objective

Your

PERFORMANCE

in each of thecompetitive

objectives

IMPROVEMENT PRIORITIES

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A method for identifying our ‘strategic’ operations priorities

Identify what is important to customers

Assess how well we perform

Relate our performance to customer’s or market requirements

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For this product group does this performance objective ......

1 - Provide a crucial advantage with customers

2 - Provide an important advantage with most customers

3 - Provide a useful advantage with most customers

ORDERWINNINGOBJECTIVES

4 - Need to be up to good industry standard

5 - Need to be around median industry standard

6 - Need to be within close range of the rest of the industry

QUALIFYINGOBJECTIVES

7 - Not usually important but could become more so in future

8 - Very rarely rate as being important

9 - Never come into consideration

LESSIMPORTANTOBJECTIVES

9 Point Importance Scale

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PRICE

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

1 2 3 4 5 6 7 8 9

X

X

X

X

X

X

X

X

X

IMPORTANCE to Customers

DOC. SERVICE X

Temperature controlled - Overnight serviceExa

mple

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For this product group is achieved performance ........

1 - Consistently considerably better than our nearestcompetitor

2 - Consistently clearly better than our nearest competitor

3 - Consistently marginally better than our nearest competitor

BETTERTHANCOMPETITORS

4 - Often marginally better than most competitors

5 - About the same as most competitors

6 - Often close to main competitors

SAMEASCOMPETITORS

7 - Usually marginally worse than main competitors

8 - Usually worse than most competitors

9 - Consistently worse than most competitors

WORSETHANCOMPETITORS

9 Point Performance Scale

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COST

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

1 2 3 4 5 6 7 8 9

X

X

X

X

X

X

X

X

X

PERFORMANCE against Competitors

DOC. SERVICE X

Temperature controlled - Overnight service

*

* Estimated

Example

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betterthan

sameas

worsethan

lessimportant qualifying

orderwinning

1

2

3

4

5

6

7

8

9

123456789

IMPORTANCEFOR

CUSTOMERSLOW HIGH

Volume Flex X

Drop QuoteX

Delivery XWindow QuoteX

Servqual (DISN)X

Doc Service X

XPrice/Cost Delivery Flex

X

X

Servqual (Order Take)

X

Example

Enquiry Lead-Time

PE

RF

OR

MA

NC

EA

GA

INS

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CO

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ET

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RS

GO

OD

BA

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Brainstorming

Identify and list 10-15 performance imperatives Identify what information you have about customer

requirements against each of these imperatives Identify what information you now need to gather

about customer requirements against each of these imperatives

Identify what information you have about your performance against each of these imperatives

Identify what information you need to gather about your performance against each of these imperatives

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CUSTOMERS

betterthan

sameas

worsethan

lessimportant qualifying

orderwinning

1

2

3

4

5

6

7

8

9

123456789

IMPORTANCEFORLOW HIGH

PE

RF

OR

MA

NC

EA

GA

INS

T

CO

MP

ET

ITO

RS

GO

OD

BA

D

URGENTACTION

IMPROVE

APPROPRIATE

EXCESS ?

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Why is the Importance/Performance Analysis Relevant?

Maximises the impact of efforts Minimises wasted efforts Directs strategic improvements Recognises the underlying dynamic nature of

process performance…………...

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Summary: The Importance / Performance Matrix

A Valuable, high level tool to help focus your efforts:

The process of constructing the Matrix is a critical element of the approach

Try to keep it specific Use it to:

To get consensus or, to identify disputed criteria

Revisit regularly (e.g every year; every time a new process, service or product is introduced)

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Process ImprovementA Guide to Some Valuable Tools, Techniques and

Methods

Session 2

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“In order to control, you must measure”

Lord Kelvin

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Today’s Message!

No measurement without recording

No recording without analysis

No analysis without action

No action without learning

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Operations Improvement

Today’s Key Questions

Can we do it OK? (Capability)

Are we doing it OK? (Control)

Have we done it OK? (Assurance)

Could we do it better? (Improvement)

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Measuring Process Performance

What do you do with your performance data? Report them? Graph them? Post them up? File them? Nothing?

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Time

Som

e m

easu

re o

f op

erat

ions

per

form

ance

Process control charting

Some aspect of the performance of a process is often measured over time

Questions

Is this OK? - Should I do something?

The Basics

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Time

Som

e m

easu

re o

f op

erat

ions

per

form

ance


Our tendency is to intervene in the operation of process

Question “How do we know if the variation in process performance is “Natural” in terms of being a result of random causes, or is indicative of some “Assignable” causes in the process?”

The Basics

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How do you Intervene?

Add more resource Change behaviour Alter some variable Introduce an incentive Panic!

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100

90

80

70

60

50

X

Now

Pe

rce

nta

ge

of

de

live

ries

on

-tim

e

Delivery* performance is 87% Is this good, bad, or indifferent ?

The Basics

*Could be any aspect of performance

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100

90

80

70

60

50

X

Customer expectation = 98%

Now

Pe

rce

nta

ge

of

de

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ries

on

-tim

e

Performance against customer expectations is POOR

Delivery performance is 87% Is this good, bad, or indifferent ?

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100

90

80

70

60

50


Now

Pe

rce

nta

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of

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ries

on

-tim

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Historical performance is GOOD


X

X

XX

XX

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100

90

80

70

60

50

X

XX

XX


Target performance = 95%

Now

Pe

rce

nta

ge

of

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on

-tim

e



Performance against target is POOR


X

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100

90

80

70

60

50

X

X

XX

XX


Target performance = 95%

Competitor performance = 81%

Now

Pe

rce

nta

ge

of

de

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ries

on

-tim

e



Performance against target is POOR

Performance against competitors is GOOD


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Time

Ela

psed

tim

e of

cal

lProcess control charting

E.G “The last point plotted on this chart seems to be unusually low.”

Is this just random variation - or is it the result of some change in the process which we should investigate?

Some kind of “Guide lines” or “Control limits” would be useful

The Basics

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The Normal Distribution- a simple example

The natural variation in processes can be described by a normal distribution

200 206 212Weight of rice in box (grms)

Fre

qu

en

cy


Fre

qu

en

cy


Fre

qu

en

cy


Fre

qu

en

cy


Fre

qu

en

cy

The Basics


Fre

qu

en

cy

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What defines the shape of the Normal Distribution?

Just Two Variables: The Mean (or average) - X (‘Xbar’) And the Variation of points from the Mean, known

as the ‘standard deviation’ (∑ - sigma)

_

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The Basics

40 Mean = 100 160elapsed time of call (secs)

Fre

qu

ency

The “standard deviation” is a measure of the “Spread” or Variation” of a distribution

standarddeviation = 20

-1 standardsdeviation



+1 standardsdeviation



The Basics

X-∑

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Process control chartingThe Basics

40 100 160elapsed time of call (secs)

Fre

qu

ency

The chances of measurement points deviating from the average is predictable in a normal distribution

A standarddeviation







68% of points

95.4% of points

99.7% of pointsThe Basics

+3-3X-

∑

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Using the Normal Distribution to Manage Processes

So, we can apply the normal distribution to our observed data chart - but how?:

1. Collect historical data for an aspect of process performance for, say, the previous six months

2. Feed it into an MS Excel Spreadsheet

3. Press the function keys to calculate the standard deviation (STDDEV)

4. Use it to calculate upper and lower Control Limits

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Time

Ela

psed

tim

e of

cal

lProcess control charting

The normal distribution describes random variation when the process is operating normally - we can use the normal distribution to set the Upper and Lower control limits

In this case the final point is very likely to be caused by an assignable cause, ie. the process is likely to be out of control

The Basics

(Only 3/1000 observations lie outside of the UCL and LCL)

LCL

UCL

X-

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We can be more sophisticated in terms of using the control charts

Thanks to the help of Statisticians we can use ‘science-based’ rules…….

So, in addition to points falling outside the control limits other unlikely sequences of points should be investigated (i.e we should only intervene when the rules tell us to)

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UCL

C/L

LCL

Alternating and erratic behaviour - Investigate Suspiciously average behaviour - Investigate

UCL

C/L

LCL

Apparent trend in one direction - investigate

UCL

C/L

LCL

UCL

C/L

LCL

Sudden change in level - Investigate

The Basics

Two points near control limit - Investigate

UCL

C/L

LCL

Five points one side of centre line - Investigate

LCL

C/L

UCL

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We can use the Normal Distribution when asking “Is my process Six-sigma capable?”

First, Identify the tolerance or Service Level Agreement for the process

Next, using actual data relating to the process variable calculate the +/- 6 range (or 12 standard deviations)

Use this ratio to calculate your ‘process capability’

If this is greater than 1 - process is ‘Six-sigma capable’ Less than 1 - process is not ‘Six-sigma capable’

Upper Tolerance - Lower Tolerance

12 (+/- 6)

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So, what’s this Six-Sigma all about?

To achieve 6 (or 6), a process must produce no more that 3.4 errors per MILLION.

(In Manufacturing this is described as a ppm (parts per million) error rate.)

An error means - ‘not to specification’

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Test Your Understanding:Is the process capable?

1: If the SLA range is A?2: If the SLA. range is B?The Basics

Fre

qu

ency

The Basics

+6-6

SLA Ranges

A

B

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How do I achieve Six Sigma

You could renegotiate your service level agreement! (it’s a perfectly valid way…)

You could try to improve the performance of your process

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Building Process Knowledge

Stage Term Knowledge Typical form of knowledge

1 Complete ignorance None Nowhere

2 Awareness Vague ideas but not written

3 Measurement Important aspects written

4 Control of mean Documented

5 Process capability Documented with relationships

6 Process characterisation Full cause-effect equations

7 Know why Scientific models

8 Complete knowledge Full

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Building Process Knowledge

Knowledge at Stage... 1 2 3 4 5 6 7 8

Nature of production Expertise based Procedure based

Role of workers Everything Problem solving Learning and improving

Location of Knowledge Workers heads Written and oral Databases and software

Nature of learning Artistic Natural experiments Controlled experiments

Problem solving Trial and error Scientific method Look it up

Training Learning by doing Learning before doing

Automation Can’t Suitable

Ease of transfer Can’t High

and simulations

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But: How can we drive process improvement?

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Traditional Western Perceptions of Job Functions

TopManagement

MiddleManagement

Supervisors

Workers

Innovation

Maintenance

Imai 1986

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Japanese Perceptions of Job Functions

TopManagement

MiddleManagement

Supervisors

Workers

Improvement

Maintenance

Imai 1986

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Japanese Perceptions of Job Functions (2)

TopManagement

MiddleManagement

Supervisors

Workers

KAIZEN

Maintenance

Imai 1986

Innovation

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Innovation... ...Kaizen

Short-term, dramaticLarge steps Intermittent Abrupt, volatile Few championsIndividual ideas & effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit

Short-term, dramaticLarge steps Intermittent Abrupt, volatile Few championsIndividual ideas & effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit

Effect Pace

TimeframeChange

Involvement Approach

Mode Spark Capex

Maintenance Focus

Evaluation

Long-term, undramaticSmall steps

Continuous, incrementalGradual and consistent

Everyone Group efforts, systematic

Protect and improveEstablished know-how

Low investment Large maintenance effort

People Process

Long-term, undramaticSmall steps

Continuous, incrementalGradual and consistent

Everyone Group efforts, systematic

Protect and improveEstablished know-how

Low investment Large maintenance effort

People Process

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Actual performance improvement with continuous improvement

Time

Per

form

ance

“Continuous”improvement

Standardize and maintain

Improvement

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Intended performance improvement with breakthrough improvement

Time

Per

form

ance

Breakthroughimprovements

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Actual performance improvement with breakthrough improvement

Time

Per

form

ance

Actual improvement

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Session 3

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Congruence in Supply Chains

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Prisoner’s Dilemma

Mr White gets 10 years

Mr Orange goes free

Mr

Wh

ite

Mr Orange

Confess

Confess

Don’t

Confess

Don’t Confess


Mr Orange gets 3 years

Mr White goes free




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Sotheby’s and Christie’s - the Classic Prisoner’s Dilemma in Practice

20 Years of price fixing

over commissions,

charges & fees

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Sotheby’s and Christie’s - the Classic Prisoner’s Dilemma in Practice

Alfred Taubmann - $7.5 m fine, + 1 Yr

Europe - £13m fine

Christie’s - ‘whistleblowers

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Prisoner’s Dilemma

Sotheby’s fined £13m, Directors resign

& CEO imprisoned

Christie’s go scot free

Sot

heb

y’s

Christie’s

Confess

Confess

Don’t

Confess

Don’t Confess

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A’s perception of its own

performance

B’s perception

of A’s performance

B’s perception of its own

performance

C’s perception

of B’s performance

A’s perception

of B’s requirements

B’s perception

its own requirements

B’s perception

of C’s requirements

C’s perception of its own

requirements

Supplier selection strategy

Supplier development strategy

Operation BOperation A Operation C

Market requirements

Operations performance

Gap? Gap?

Gap?

Gap?

Gap?Gap?

Gap?

Gap?

BT8

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The Impact of Strategic Supply Chain Relationships

Nokia experienced rapid growth in mid-late 1990s

Problems of product obsolescence and innovation

Recognised the need for a total supply chain solution.

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Controlling the supply chain

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Supply Strategy - The Benetton Video Case

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1. What are the strategic imperatives for:Benetton’s retail shops?Benetton’s Distribution?Benetton’s Manufacturing operations?Benetton’s contractor & sub-contractors?

2. How do these discrete elements of the network complement each other?

3. What are the differences between a network perspective and a Business Unit perspective?

Benetton - Some questions:

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Benetton’s supply network

spun wool & cotton producers

cotton &sheep farmers retail

stores

suppliersof cotton

jeans, velvet etc.

Contractors

Contractors

PONZANO VENETO

MONZAMBANO REGGIO EMILIA

RESANA

CASTRETTE

VILLORBA

Sub-contractors

Agents

Agents

Agents

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DistributionOperations

Operational & Strategic Imperatives Across Benetton’s Supply Network:

Retail

‹ reliable Quality of reliable Quality of productsproducts

‹ Timely selectionTimely selection

‹ high stock turnhigh stock turn

‹low stock levelslow stock levels

‹Attractive shopsAttractive shops

‹Welcoming Welcoming ServiceService

‹Convenient Convenient locationlocation

‹fast response during fast response during seasonseason

‹efficient logisticsefficient logistics

‹Dependable timingsDependable timings

‹Dependable order pickDependable order pick

‹Low cost operationLow cost operation

‹stable schedulesstable schedules

‹Consistent qualityConsistent quality

‹Dependable deliveryDependable delivery

‹Reliable contractorsReliable contractors

‹Flexible contractor & Flexible contractor & sub-contractorssub-contractors

‹Dye in greyDye in grey

‹Low cost supplyLow cost supply

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Target marketsMarketingLogisticsManufacturing

FUNCTIONAL elements of Benetton’s strategy:

A Dual System Involving:

1.’ Speculation’

Base plan locked in far in advance

Use of Subcontractors

Known Schedules

Low Cost

2. ‘Postponement’

Dyeing to order

Premium transport

Fast Response

High Cost

Central Control over Quality

Manager’s ownership of subcontractor firms

Dual system of distribution:

1. Conventional approach to the base order

2. Fast response and assured availability for reorder

Complex, costly supply logistics, including:

Multiple handling

Subcontractors

High transport costs

Channel:

controlled channel

Small stores

Low-inventory, high-inventory turn-over in stores

Timely assortment

Low margin

Liberal trade terms

Emphasis on ‘self-service’

Product:

good design

colourful

good value

Promotion:

Directed to ‘actives’

Store location important

Young Adults

Fashion conscious

Limited budget

Active

Interested in casual wear

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Elements of Benetton’s dual manufacturing strategy for woollen garments: Strategy element

proportion oftotal sales

cost

lead times

basic purposeof strategy

manufacturingcontrol

qualitycontrol

‘SPECULATION’ ‘POSTPONEMENT’

90% 10%

LOW (85% OF COMPETITION) HIGH (10% MORE LABOUR & OVERHEAD)

ABOUT 6 MONTHS FIVE WEEKS

LOW COST, ALLOW FOR USE OF SUBCONTRACTORS AND ASSEMBLY OF COMPLETE ORDERS

GOOD SERVICE, FASTER OVERALL INVENTORY TURNOVER

BY SUBCONTRACTORS BY BENETTON PLANT MANAGEMENT

AT BENETTON WAREHOUSE

AT BENETTON WAREHOUSEAND FACTORY

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Why Does Benetton’s Supply Chain Strategy Work?

Recognises the impact of Demand variation Ignores Forecasting Error! Minimises inventory risk Spreads risk & reward across the network

But WHY does it work????

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Matching Supply Chains with Products - Marshall Fisher’s Framework

Functional Products (e.gcontinuity products)

Innovative Products (e.g.Seasonal or promotional)

EfficientSupplyChain

Match Mismatch

ResponsiveSupplyChain

Fast

res

pon

se...

......

......

......

......

......

.Low

Cos

tLow

T/P

Tim

e....

......

......

....H

igh U

tilisa

tion

Dep

loye

d Inve

nto

ry...

......

..Min

. Inve

nto

ryFl

exib

le S

upplier

s....

....L

ow c

ost su

pplier

sMismatch Match

Predictable.........................................................UnpredictableFew Changes.....................................................Many ChangesLow Variety........................................................High VarietyPrice Stable...................................................Price mark downsLong lead time..............................................Short lead timeLow Margin.........................................................High margin

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Performance Implication of Supply Chain Alignment

FunctionalProducts (e.gcontinuityproducts)

InnovativeProducts (e.g.Seasonal orpromotionalproducts)

Efficient SupplyChain

High Revenue andEarnings

throughLow CostOperation

Poor RevenuePerformance through

high cost and lowavailability

Responsive SupplyChain

Low Earningsthrough High Costsand Excess Capacity

High Revenue andSales Growth

resulting from HighAvailability

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Consequences of lack of Clarity Across Supply Chains

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Supply Chain Stock Movements

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

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Supply Chain Dynamics - ‘The Bullwhip Effect’

T

T

N

T

Market

Tier 1

Tier 2

Tier 3

Increasing variatio

n in pattern

t1

t1

t1

t1

Q4

Q1

Q2

Q3

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Some definitions

‘E-Business’ - the conduct of business transactions, business planning and control, communications and information sharing over a common I.S. platform such as the web.

‘E-Commerce’ The conduct of business transactions and trading over a common I.S. platform such as the web.

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Why focus on Supply Chains?

Because the Internet is an Inter-Organisational Communication Channel

Because E-Business systems are both intra- and inter-organisational

Because organisations are adopting E-Business to manage within and across supply chains

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Three Main areas of E-Business Activity

Marketplaces - for trading

Knowledge sharing e.g. product development, customer strategies

Supply Chain Collaboration/ synchronisation

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select requisition approve status receive

The objective is to automate the ENTIRE supply chain from product and service selection through receipt.

Using solutions that offer real-time interactivity with trading partners and customers worldwide

Starting with the Customer’s Requirement

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Hottest Segment of B-to-B eCommerce?

Indirect 36%Indirect 36%

Direct 28%Direct 28%

Taxes13%

Taxes13%

HR 17%HR 17%

Profit6%

Profit6%

CEO ViewCEO View

Over 1/3 of cost to business

60% for service business

Clear Target!

Source: CAPS (Center for Advanced Purchasing Studies) Tempe, AZ, USA

Division of Corporate DollarDivision of Corporate DollarDivision of Corporate DollarDivision of Corporate Dollar

Typical Manufacturer

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Translate Costs into Profits!

3% reduction in indirect cost equals 50% increase in Profit



Taxes13%

Taxes13%

HR 17%HR 17%

Profit9%

Profit9%

Typical Manufacturer

Source: CAPS (Center for Advanced Purchasing Studies) Tempe, AZ, USA

CEO ViewCEO View

Division of Corporate Dollars

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Indirect Cost Reduction Targets

Source: National Association of Purchasing Managers.



TaxesTaxes13%13%

HR 17%HR 17%

ProfitProfit6%6%

Cost of GoodsCost of GoodsProcessingProcessing

EmployeeTouch

EmployeeTouch

InventoryInventory

Inter-Business Communication &

Document ExchangeWhat You Pay for Goods & Services

Carrying CostsInternal

procedures

Division of Corporate Pounds

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5

12

34

Focus B2C

Systems Email, Web, EDI

ProcessesSales, Order

taking, Payments

Strategies Sales growth

E-Business In the Supply Chain - Five Phases of Evolution

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Supply Chain eBusiness modelsSupply Chain eBusiness models

EDI

High speed complex data transmission to core customers & suppliers

Static publishing, email

Catalogues & information to users

EDI

High speed complex data transmission to core customers & suppliers

Static publishing, email

Catalogues & information to users

1998-20011998-2001

Wave 1 - Emphasis on Promoting to Customers

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5

12

34

Focus B2B

SystemsCRM / e auctions

ProcessesAccount

Management

StrategiesKey Customer Management


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Seller-side or buyer-side system connects with existing transaction systems Sales Order Systems - Web-based order taking Electronic Funds Transfer via BACS system

Seller-side or buyer-side system connects with existing transaction systems Sales Order Systems - Web-based order taking Electronic Funds Transfer via BACS system

2000-32000-3

Wave 2 - Emphasis on Transaction Systems


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Public Web• Each Seller offers products at list price

Exchange• Commodity Trading Venue (Auction)

Market Place• Independent Org provides access to many suppliers

Company Hub• Individual Companies manage multiple supplier Contracts

Ad

hoc

Ad

hoc

Negotiated

Negotiated

Buyer

Buyer

Buyer

Buyer

SupplierBuyer

ExchangeVenue Commodity

Market SuppliersSeller Extranet• Seller access to pre-neg products and services

Supplier

Suppliers

How transactions may be executed

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How E-Business Can Impact on your Demand

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Demand Profiles?

Cyclical

Stable

Volatile

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Reverse Auctionsfor Buyers

Auctionsfor Suppliers

A major phenomenon: electronic auctions

Streamlines strategic and off—contract buying

Leverages dynamic, Internet-based pricing

Dramatically lowers Cost of Goods

A large channel to new buyers

Cost effective method to liquidate inventory

More revenue from existing customers

Auctions May Benefit Buyers and Suppliers

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5

12

34

FocusRe-engineering

Process

SystemsERP,

Knowledge Management

ProcessesOperations

planning and control

StrategiesOperations

Improvement


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E-Procurement system integrates with enterprise control systems CRM system integrating across the organisation ERP system implementation

E-Procurement system integrates with enterprise control systems CRM system integrating across the organisation ERP system implementation

2002/52002/5

Wave 3 - Emphasis on Interfacing with Supply Chain


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5

12

34

Focus B2X

Systems E-Procurement

ProcessesSupply base managmeent,

Strategies Procurement


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Extended enterprise solution - integrating marketplaces, portals and auctions

Procurement and Sales via an E-Portfolio ‘Middleware’ adoption to integrate legacy systems

Extended enterprise solution - integrating marketplaces, portals and auctions

Procurement and Sales via an E-Portfolio ‘Middleware’ adoption to integrate legacy systems

2003/122003/12

Wave 4 - Emphasis on Coordination across the Supply Chain


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Emerging industry portals = many examples

$200bn

Global Supply Global Supply Chain worth Chain worth $178000bn$178000bn

Global Supply Global Supply Chain worth Chain worth $178000bn$178000bn

Auto Industry Example Covisint

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5

12

34

Focus Transparency

Systems E-Fulfilment

ProcessesTotal Logistics, Supply Chain Positioning

Strategies Supply Chain


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Integrated CAD/CAM/CSCM Tracking, Global Positioning as integral part of E-Fulfilment

systems Supply chain positioning a key strategic issue

Integrated CAD/CAM/CSCM Tracking, Global Positioning as integral part of E-Fulfilment

systems Supply chain positioning a key strategic issue

2002/102002/10

Wave 5 - Emphasis on Integrating the Supply Chain


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5

12

34

Focus B2C B2BRe-engineering

ProcessB2X Transparency

Systems Email, Web, EDI CRMERP,

Knowledge Management

E-Procurement E-Fulfilment

ProcessesSales, Order

taking, Payments

Account Management

Operations planning and

control

Supply base managmeent,

Total Logistics, Supply Chain Positioning

Strategies Sales growthKey Customer Management

Operations Improvement

Procurement Supply Chain


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E-Business project Critical Success Factors

€ If you can’t support the business case, then start again E-strategy must be seen as Cross-functional Based on Business first, ‘e’ second Clear E-Strategy project structure Technology experts in a key project role E-strategies identify new channels to customers - do you want

them?

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E-Business project Critical Success Factors - 2

What have customers said about CRM and E-Business? What are the implications of CRM for existing processes,

strategies and organisation? What are the skills needed? Where are the development needs? Be prepared to spend 75% of time presenting internally to CRM

teams,sales and others.

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E-Business project Critical Success Factors - 3

Integration with operations and logistics Logistics channel design MUST be an integral element of CRM

strategy implementation Understand the impact of E-Business on demand profiles What are the implications for relationships with existing

channels. Identify the portfolio: Which products/services/customers via

which channel?

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TechnologyPolicy &

Processes

People

Program Manage-

ment

Critical Elements of E-Business Strategies

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It’s not about technology...It’s not about technology...

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….but new ways of doing business….but new ways of doing business

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Remember To AUDIT your Business!

Logon to http://www.supply-chain.org.uk Click on the SPA Methodology link Login to the ht2 site using:

Username spa** Password spa** (Same as your username)

I will allocate your number Complete the survey Your results will be emailed to you in early April as a benchmark report

My email: [email protected]

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