NEW HORIZON WITH DOGMA /CHALLENGES FOR FINANCIAL PROFESSIONAL SUPPLY CHAIN MANAGEMENT

Transcription

1 NEW HORIZON WITH DOGMA /CHALLENGES FOR FINANCIAL PROFESSIONAL SUPPLY CHAIN MANAGEMENT Mohammed Hanif Ismail Ajari Vice President Institute of Cost and Management Accountant of Pakistan Board member SAFA Board member Supply Chain Forum-Pakistan Strategic Director Getz Pharma FCMA, M.PHIL PhD, ISM CILT 1

2 Career guidance and worries 2 SCC New Member Introduction 1.0

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4 What Keeps You Up at Night? Stock Market Volatility, Oil Prices, Labor, Political Instability, Security Reducing Inventory/ Working Capital/ Asset Management Reducing Total Supply Chain Costs Supply Chain Resiliency & Sustainability: Risk Management & Green Providing Superior & Consistent Customer Service While Increasing Revenue & Margin Competing in a Global Market Business As Usual Has Been Cancelled Now What? 4 SCC New Member Introduction 1.0

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8 Sources: plants vendors ports Regional Warehouses: stocking points Field Warehouses: stocking points Customers, demand centers sinks Supply Production/ purchase costs Inventory & warehousing costs Transportation costs Inventory & warehousing costs Transportation costs

9 SC, if not managed effectively Reduced Profitability Higher Costs Poor Quality Lower Revenue Poor Availability High Inventory High Inventory Poor Service Copyright 2002 D. Simchi Levi Long Lead Times for Innovations And, many more

10 New-age Supply Chain Vendor Inbound Transportatio n Manufacturi ng Primary Transportatio n Warehousin g Secondary Transportatio n Customer Inventory Mgmt. Inventory Flows Cost Information Flow Risk Planning Relationships Pipeline Intergation Seamless/Visible Landed Cost Shared Shared SC Team Approach Focus on landed Cost Vendor Customer Information Intermediaries Product Copyright 2002 D. Simchi Levi

11 Supply Chain Management Definition: Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements. Notice: Who is involved Cost and Service Level It is all about integration Copyright 2002 D. Simchi Levi

12 Supply Chain Management Refers to all the management functions related to the flow of materials from the company s direct suppliers to its direct customers. Includes purchasing, traffic, production control, inventory control, warehousing, and shipping. Two alternative names: Materials management Logistics management Copyright 2002 D. Simchi Levi

13 Supply Chain Management Requires Many Different Functions Copyright 2002 D. Simchi Levi

14 Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage % of Revenue 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 5.4% 9.2% 5.3% 12.3% Total Supply Chain Management Costs (% of Revenue) 5.5% 10.7% Automotive Industrial Chemical & Advanced Materials 4.2% 10.0% 4.8% 10.7% 3.4% 9.1% 6.6% Best-in-Class Median 3.5% 3.6% 7.4% Computer Consumer Goods Pharmaceutical Semiconductor Telecommunications Equipment Best-in-class Companies Outperform Their Median Competitors with a 50% Cost Advantage Source: PRTM/The Performance Measurement Group 14 SCC New Member Introduction 1.0

15 But SCM is Paramount in Times of Economic Uncertainty In 2007, US business logistics costs rose to an all time high of $1.4 trillion (10.1% of US nominal Gross Domestic Product ) 3 Supply chain generally accounts for between 60% and 90% of all company costs 1 A 2% improvement in process efficiency for supplychain processes has 3000% 5000% the impact of a 2% improvement in efficiency for IT HR Finance 1 Sales 1 Exclusive of Financial Services companies 2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries 3 CSCMP 19 th Annual State of the Logistics Industry Fortune-10 Company Supply-Chain Cost as % of Total Costs 2 GM 94% Ford 93% Conoco 90% Wal-Mart 90% Chevron 88% IBM 77% Exxon 75% GE 63% Citi 1 0% AIG 1 0% Focused initiatives in Supply Chain Management can result in 30-35% cost reductions, liberation of working capital, and revenue increases of 3-5%! 15 SCC New Member Introduction 1.0

16 Private Sector Experience Cellular Manufacturing Kanban Competitive Benchmarking Efficient Consumer Response Statistical Process Control Problem-solving Skills Analytical Support Tools Quality Function Deployment MRP Operations Planning Workforce scheduling Bills of Material Master Production Scheduling Supplier Scheduling Supply Chain Optimization Global Visibility Automated Flow MRP II Technology Distribution Resource Planning Capacity Planning Financial/Human Resources Material Requirements Planning (MRP) Just-in-Time (JIT) Total Quality Management (TQM) Manufacturing Resource Planning (MRP II) Advantaged Applications Enterprise Resource Planning (ERP)

17 Private Sector Experience Cellular Manufacturing Kanban Competitive Benchmarking Efficient Consumer Response Statistical Process Control Problem-solving Skills Analytical Support Some ToolsOrg Quality Function Deployment MRP Operations Planning Workforce scheduling SCM is Here Bills of Material Master Production Scheduling Supplier Scheduling Supply Chain Optimization Global Visibility Automated Flow MRP II Technology Distribution Resource Planning Capacity Planning Financial/Human Resources Material Requirements Planning (MRP) The World is Here Just-in-Time (JIT) Total Quality Management (TQM) Manufacturing Resource Planning (MRP II) Advantaged Applications Enterprise Resource Planning (ERP)

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20 Supply chain is a instrument of creating value for shareholders The Supply Chain Impacts... All Financial Metrics... & Shareholder Value Improve customer service and response Optimize inventory flow, utilization & productivity Liberate Working Capital Reduce Improve Capital Efficiency Best-in-class customer relationships Differentiated service capabilities Best-in-class strategic supplier partnerships Leverage of outsourcing of business processes Unique supply chain models Fixed Capital Increase Revenue and Margin Optimize Cost Model Increase Profit Increase Shareholder Value Effective Supply Chain Management can increase a Return on Capital Employed by 30% and More! 20 SCC New Member Introduction 1.0

21 Copyright 2002 D. Simchi Levi

22 The SCOR Framework SCOR defines supply chain as the integrated processes of Plan, Source, Make, Deliver and Return, spanning your suppliers supplier to your customers customer, aligned with Operational Strategy, Material, Work & Information Flows. Plan Plan Plan Plan Plan Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Suppliers Supplier Supplier Internal or External YOUR COMPANY Return Customer Internal or External Supply Chain Operations Reference Model Customer s Customer

23 What is SCOR? SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management Organized around the five primary management processes of Plan, Source, Make, Deliver and Return Supplier processes Source Supply Chain Return Plan Plan Make Deliver Return Customer processes Developed by the industry for use as an industry open standard Any interested organization can participate in its continual development Process, arrow indicates material flow direction Process, no material flow Information flow 23 SCC New Member Introduction

24 Supply-Chain Product Management Supplier processes Product Design DCOR Supply Chain SCOR Sales & Support CCOR Customer processes 24

25 Supply-Chain Operations Referencemodel (SCOR) Processes Plan P1 Plan Supply Chain P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns Suppliers Source Make Deliver S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products S2 Source MTO Products M2 Make-to-Order D2 Deliver MTO Products S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products Customers Return Source Return Deliver Enable Copyright 2002 D. Simchi Levi

26 Supply Chain upstream Activities In In most supply chains, the the upstream activities respond to to forecast, while somewhere on on the the downstream side side the the chain waits for for orders to to be be placed. Consider these two two former fast fast slogans We do do it it all all for you! McDonald s Have it it your way Burger King Build to stock VS Build to Order

27 The Bullwhip Effect The bullwhip Effect is is a major cause of of higher costs and and inefficiencies in in supply chains. It It describes how how small fluctuations in in demand at at the the customer level are are amplified as as orders pass up up the the supply chain through distributors, manufacturers, and and suppliers. As As an an example, consider disposable diapers. Babies generally consume diapers at at a more or or less less consistent rate rate when aggregated over over a large group of of customers. Nevertheless, order fluctuations invariably become considerably larger as as one one moves upstream in in this this chain. Consequences of of the the Bullwhip Effect include excess/ fluctuating inventories, shortages/stockouts, longer lead times, higher transportation and and manufacturing costs, and and mistrust between supply chain partners

28 The Dynamics of the Supply Chain Order Size Distributor Orders Retailer Orders Customer Demand Production Plan Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, Copyright 2002 D. Simchi Levi

29 The Dynamics of the Supply Chain Order Size Customer Demand Production Plan Copyright 2002 D. Simchi Levi Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management,

30 Supply Management s Impact on Net Income and the Bottom Line Increased Sales: Faster to Market Improved Quality Pricing Flexibility Innovation Lower Total Cost: Acquisition Cost Processing Cost Quality Cost Downtime Cost Risk Cost Cycle Time Cost Conversion Cost Non value Added Cost Supply Chain Cost Post Ownership Cost World Class Supply Management SM, ISBN Copyright 2003 by The McGraw

31 Our Challenge... Cellular Manufacturing Kanban Competitive Benchmarking Efficient Consumer Response Statistical Process Control Problem-solving Skills Analytical Support Tools Quality Function Deployment MRP Operations Planning Workforce scheduling Some Military Logistics is Here Bills of Material Master Production Scheduling Supplier Scheduling Supply Chain Optimization Global Visibility Automated Flow MRP II Technology Distribution Resource Planning Capacity Planning Financial/Human Resources Material Requirements Planning (MRP) The World is Here Just-in-Time (JIT) Total Quality Management (TQM) Manufacturing Resource Planning (MRP II) Advantaged Applications Enterprise Resource Planning (ERP)

32 Our Solution... Cellular Manufacturing Kanban Competitive Benchmarking Efficient Consumer Response Statistical Process Control Problem-solving Skills Analytical Support Tools Quality Function Deployment MRP Operations Planning Workforce scheduling Bills of Material Master Production Scheduling Supplier Scheduling Supply Chain Optimization Global Visibility Automated Flow MRP II Technology Distribution Resource Planning Capacity Planning Financial/Human Resources Material Requirements Planning (MRP) Just-in-Time (JIT) Total Quality Management (TQM) Manufacturing Resource Planning (MRP II) Advantaged Applications Enterprise Resource Planning (ERP) Education + Best Practices + Partnerships * Chart adapted from, Lanvater, 1997, pp 2