Energy Supply Chain Development Seminar

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1 Energy Supply Chain Development Seminar Alberta Supply Chain Overview Government of Alberta Holiday Inn Express November 29 th,

2 What is a Supply Chain? Supply chain consists of the flow of products and services from: Raw Material Suppliers Component and Intermediate Manufacturers End Product Manufacturers/Assemblers Wholesalers and Distributors and Retailers/End Users Connected by transportation and storage activities Integrated through information, planning and integration activities Many large firms are moving away from in-house Vertically Integrated structures to Supply Chain Management 2

3 What is a Supply Chain? Product & Service Flow Recycling & Returns Raw Material Suppliers Intermediate Component Manufacturers End-Product Manufacturer (Assembler) Wholesalers/ Distributors End-Users (Customers) Transportation & Storage Activities Information/Planning/Activity Integration 3

4 Typical Alberta Supply Chain Typical Alberta supply chain consists of four basic players serving the Oil & Gas sector Four supply chain participants consist of: Industrial Distributor Product Assembler Component Manufacturer Material Supplier Participants can be local, within North America or Global (also applies to End-Users/Customers) 4

5 Customer and Supplier Relationships Supplier Relationship End-User Demand Industrial Distributor Assembler Component Manufacturer Material Supplier Customer Relationship 5

6 What is Supply Chain Management? The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer Institute for Supply Management Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels and delivery to the customer The Supply Chain Council The planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities also includes coordination with channel partners, which can be suppliers, intermediaries, third-party service providers and customers Council of Supply Chain Management Professionals 6

7 What is Supply Chain Management? Old Paradigm: Firm gained synergy as a vertically integrated business encompassing ownership and coordination of several supply chain activities Organizational cultures emphasized shortterm, company focused performance 7

8 What is Supply Chain Management? New paradigm: Firm in a SC focuses on area of specialization and enters into voluntary and trust-based relationships with suppliers and customers All participants in the SC benefit Boundaries are dynamic and extend from the firm s suppliers suppliers to its customers customers (i.e. 2 nd tier suppliers and customers) SCs now deal with reverse logistics to handle returned products, warranty repairs and recycling 8

9 Importance of Supply Change Management Businesses have discovered value-enhancing and long-term benefits Businesses with: WHO BENEFITS MOST? Large inventories Large number of suppliers Complex products Customers with large purchasing budgets BUT ALL BUSINESSES CAN BENEFIT 9

10 Importance of Supply Change Management Firms using Supply Chain Management: 1. Start with key players 2. Move on to other suppliers, customers and shippers 3. Integrate second tier suppliers and customers REMEMBER: second tier refers to the customer s customers and the supplier s suppliers 10

11 Importance of Supply Change Management Cost savings and better coordination of resources are reasons to employ SCM Reduced Bullwhip Effect the magnified reduction of safety stock costs based on coordinated planning and sharing of information Collaborative planning, forecasting and replenishment activities reduce Bullwhip Effect and lead to better: Customer service Lower inventory costs Improved quality Reduced cycle time Better production methods and Other benefits 11

12 Alberta Supply Change Management Examples Design and Steel Fabrication Facility (Edmonton) Custom design and welding services Formed a strategic alliance with a major steel supplier that initially supplied 5% of annual requirements Using sound supply chain principles, volumes grew to 75% of annual spend of steel bar and plate purchases During the process, reduced costs by up to 26% on selected materials Relationship resulted in faster turnover and thus, lower inventory levels to provide higher levels of service 12

13 Alberta Supply Change Management Examples Custom Metal Fabrication (Red Deer) Service oil & gas, agriculture and mining industries Has a secondary business to supply steel to other small manufacturers that are unable to attract interest from major suppliers Worked with their major supplier to increase delivery cycle but this increased their responsiveness Transportation costs increased only modestly but average inventory levels declined Cut their lead time in half by ordering less but more frequently Cash flow increased for all participants Expanded customer base 13

14 Alberta Supply Change Management Examples Manufacturer of Oilfield Equipment (Calgary) Primarily focused on the oil & gas sector Supply chain collaborative innovation program enabled them to build strong relationships with major suppliers Relationships allowed for: Better balancing of inventory levels Faster and more reliable supply Managed variability in time of high demand Reduced overall operating costs Allowed them to re-focus their Lean efforts 14

15 Alberta Supply Change Management Examples Manufacturer of Valves (Edmonton) Prime focus is on the oil & gas sector Supply chain collaborative innovation program allowed them to establish a strong alliance with a supplier based in Ohio New supplier: Offered improved technology and allowed replacement of a Texas-based supplier Allowed dramatically reduced inventory levels/improved cash flow Facilitated transport in flow Ultimately moved a portion of annual purchases to local foundry Operated at 1/3 less inventory than under Texas-based supply 15

16 Supply Chain Collaborative Innovation Program Overview All about building relationships with suppliers and customers to enhance performance of supply chain Hands-on and practical Based on Best Practices of organizations such as Cisco, Proctor & Gamble, Toyota, Honda and others Content contains some of the secrets that these organizations have used to achieve great results in: Reducing costs Improving on time delivery/reducing lead time and inventories Increasing cash flow/improving profitability Creating more innovation and a greater competitive advantage 16

17 Supply Chain Collaborative Innovation Program Two Phases Phase 1: Discovery process of why participants can benefit from collaboration along their supply chain and how to begin the process One-day working session, using simulations to demonstrate the power of Lean supply chain processes Phase 2: Takes participants through the process of learning Best Practices of how to do it Day and a half session followed by a half-day for participants to develop a 120-day Action Plan to ensure process moves forward ALL FOUR ALBERTA SUPPLY CHAINS PARTICIPATED IN AND BENEFITED FROM THE PROGRAM 17

18 Current Trends in Supply Chain Management Expanding the Supply Chain Businesses are expanding partnerships and building facilities in foreign markets Expansion involves: Breadth foreign manufacturing, office and retail sites, foreign suppliers and customers Depth second and third tier suppliers and customers 18

19 Current Trends in Supply Chain Management Increasing Supply Chain Responsiveness Firms increasingly need to be more flexible and responsive to customer needs Supply chains need to benchmark industry performance/meet and improve on a continuous basis Responsiveness improvement will come from more effective/faster product and service delivery systems 19

20 Current Trends in Supply Chain Management Purchasing Long-term supplier relationships Supplier management improve performance through: Supplier evaluation (determining supplier capabilities) Supplier certification (third-party or internal certification to assure product quality and service requirements) Strategic partnerships successful and trusting relationships with top-performing suppliers 20

21 Current Trends in Supply Chain Management Operations Demand management match demand to available capacity Linking buyers and suppliers via MRP and ERP systems Use JIT to improve pull of materials to reduce inventory levels Employ TQM to improve quality compliance among suppliers 21

22 Current Trends in Supply Chain Management Logistics Transportation Management trade-off decisions between cost and timing of delivery/customer service via trucks, rail, water and air Customer Relationship Management strategies to ensure deliveries, resolve complaints, improve communications and determine service requirements Network Design creating distribution networks based on trade-off decisions between cost and sophistication of the distribution system 22

23 Current Trends in Supply Chain Management Integration Supply Chain Process Integration: When supply chain participants work for common goal Requires intra-firm functional integration Based on efforts to change attitudes and adversarial relationships Supply Chain Performance Measurement crucial for firms to know if procedures are working 23

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