ERPS. How many supply chains do you need? Summary of an A.T. Kearney Study

Transcription

1 ERPS How many supply chains do you need? Summary of an A.T. Kearney Study

2 ERPS European Center for Research in Purchasing and Supply c/o ÖPWZ, Rockhgasse 6, A-1014 Vienna The European Center for Research in Purchasing and Supply ERPS was founded 1997 by the European Purchasing Associations in cooperation with the global organisation IFPMM (International Federation of Purchasing and Materials Management) and the American research institute CAPS (Center for Advanced Purchasing Studies). ERPS is established in Vienna, Austria as a non profit association according Austrian law. The objective of ERPS is to develop and publish scientific research studies with an impact on purchasing, in the field of purchasing and supply and to assist purchasing managers and companies. The activities are done in cooperation with universities, European and international institutions with experience in research for the practical use and benefit of the economic community. ERPS has a cooperation with IPSERA (International Purchasing & Supply Education & Research Association). IPSERA consists of leading institutes of European Unive r- sities working in procurement research. 2

3 Studies published by ERPS (in English and German language): The Influence of the EURO on the Purchasing Function Dec E-Commerce based on Internet Technologies in Procurement The Profile of the Purchasing Function and its Future Challenges April 2001 Nov Outsourcing Sourcing Agencies April 2003 Order Placement and Contract Conclusion in E-Business Oct Global Supply Chain Management in fast growing Economies Feb From Complexity to Clarity Sept Managing Supply Chains in the 21 st Century Nov Unlocking value from E-Supply Management Nov Buying Professional Services what could be learnt from the public sector? Feb Supply Chains in a vulnerable, volatile world April 2005 China Sourcing Imperative June 2005 Combined Summary of Studies about China Business Sourcing: How China compares with the rest of the world Opportunity or threat? Global firms must learn to leverage China Will low-cost countries live up to their name? June 2005 Innovation Sept The Outsourcing Shuffle Sept Developing Strategic Sourcing Capabilities Oct The Real Offshoring Question Jan Check your Mindset at the Border March 2006 The Microsoft Experience: Managing its 45 Outsouring Partners April 2006 Making Procurement a Priority May 2006 How many Supply Chains do you need? May 2006 The Next Wave of Outsourcing June 2006 Offshore Business Model June 2006 How many supply chains do you need? July

4 Members of ERPS Ordinary members: Organisation Country ÖPWZ Austria BME Germany ABCAL Belgium CDAF France HALPIM Hungary IIPMM Ireland IPLMA Israel ADACI Italy NIMA Norway AERCE Spain SILF Sweden SVME Switzerland Extraordinary members: Organisation CAPS IFPMM Country AZ, USA Switzerland Board members: - Mr Svante AXELSSON, President - Mr Rolf JAUS, Vice President - Prof. Dr. Attila CHIKAN, HALPIM - Prof. Dr. Phil CARTER, CAPS - Dr. Holger HILDEBRANDT, BME - Bibiane SIBERA, AFPLMM, Controller Advisory Board members: - Mr Leif ÖSTLING CEO Scania AB, Sweden - Prof. Dr. Roman BOUTELLIER CEO SIG Holding AG, Switzerland - Prof. Dr. Michael ESSIG University Munich, Germany - Mr István LEPSÉNYI CEO Knorr-Bremse Fékrendszerek Kft., Hungary - Dr. Roland FALB CEO Roland Berger & Partner GmbH, Austria 4

5 How many Supply Chains do you need? Summary of an A.T. Kearney Study Aim of the study was to find a combined supply chain strategy. It is not always successful to transfer a well working strategy from one company to another because different branches and business models in the actual situation sometimes need a combination of different strategies. The challenge is to find new concepts and the right model of supply chains. The number of supply chains depends on the branches, the business strategy and the needs of the company. To fulfill the demands of the market the right products must be offered at the right time, at the right place and in the right quality. That is a complex task, the market and the customers must be observed and the strategy adapted. Mergers, acquisitions and product changes are often very surprising and exceed the facilities of supply chains because supply chains are oriented to normal developments. The result is a bad customer service. To adapt supply chains, A.T. Kearney identified some criteria: Identification of the important elements of the supply chain At first, it is necessary to recognize the customer demands. In a dialogue with important customers and suppliers we can define the product quality and logistics according to the demands of the customer and the facilities of the suppliers. Product differences could be solved by two supply chains. Important functions are volume, size, weight, life cycle and recycling of products which have an impact on the number of supply chains. For different segments, innovative strategies can be found in the combination of supply chains. But it is necessary to analyze the facilities of the sup- 5

6 pliers and where suppliers make profits. Some adaptions could help, combined with incentives. Segmentation of supply chains How many supply chains do you need to cover all segments of your customers? The answer depends on the customers and products. In some cases each segment must have a single supply chain. Generally, a common supply chain is sufficient. The solution depends on the complexity. Important is the customer, also the quality of products and the different demands for logistics and delievery. That, the costs of logistics and the supply chain management define the number of supply chains. The two models of supply chain segmentation: 1) Customer segmentation Service requirements: order lead time, fill rate Demand pattern: predictability (e.g. seasonal), order size and timing 2) Product segmentation Product attributes: volume, velocity, unit value, size, weight, perishability Supply volatility: lead time variability, quality, yield Development of specific supply chains How many supply chains do you need if you fulfill all customer demands? The answer is given by products and customers sometimes in the geographic situation. 6

7 We had to look for a restrictive balance between the customer wishes, the complexity and on the focus. Examples in the telecom industries showed that a reduction of supply chains to only one was followed by big storage costs of up to 15 % of material value. Many companies have to many supply chains. But it is necessary to maintain flexibility in respect of customer demands for a reduction of the supply chains. The considerations in a company are: How flexible are my suppliers? Are the suppliers prepared for collaboration? How can changes and adaptations be achieved? How big are the own capacities? Costs? Efficiency? Which measures are necessary to achieve the aims? The final concept must be a programme for a customer oriented supply chain. Additional questions are: What is the focus of the supply chain? Is it low cost, quick delivery, flexibility in changes, a minimum of total cost ownership or something else? What are the aims for costs and service to be competitive for our customers? What strategic aims are the company's advantage in competition? The answers for these questions are often to be found in a confrontation of complexity and value creation. An ideal solution is to have only one supply chain and another solution is to have so many supply chains that you can fulfill all customer wishes. Looking at branches and sizes of companies it is possible to define three groups: big customers, small customers, direct customers 7

8 Supply chains can follow this consideration adapted to different service tasks. An example of a telecom company lead in an analysis to 5 supply chains: Big customers, retail business, network service, small customers and spare parts. The result was 95 % delivery on-time and savings of 20 % in storage and administration. In any case, an analysis is necessary to find the real success factors. Combination strategies for supply chains Customer activities and own business strategies are important for the market position. Examples: Caterpillar/USA has only two supply chains. One for original equipment (OEM supply chain) and a second for spare parts. The OEM supply chain works for design, production and distribution. The spare part supply chain has a network of 220 traders in different countries. Traders have 80 % of the necessary spare parts, 20 % have Caterpillar. With a global ITsystem, a daily optimally functioning system was organized. Other companies in different branches must find individual solutions, perhaps with more supply chains for their business. 8

9 Focus on value creation The different roles of the partners of the supply chain in an upstream or downstream organization are important not the "make of buy" problem. Tesco, the giant UK based supermarket chain, redefined its new organization. Before the redesign, Tesco ran its own distribution centers that supplied its retail stores. It was more cost effective to turn its distribution centers into cross-docking operations where products from different suppliers destined for the same store are consolidated. Management of the distribution centers is now in the hand of the manufacturers. The result was a reduction of inventory by one-third and a saving on the supply chain costs of 20 %. Tesco doesn't have to invest energy and resources in that sector anymore, saves costs and has a higher efficiency. Choice of the right suppliers More companies realize that they need to leverage their supply base to meet both their cost and customer service objectives. Toyota and Nissan discovered that they pay significantly more for some key components than their competitors. Both Japanese companies transformed the structures of the supply chains from the traditional keiretsu model toward a set of global competitive suppliers and halved their numbers. The structure of supply chains must be guided by strategy, not supplier relationships. Elements for matching supply chains: In the strategic field: Efficient supply chain, quick response supply chain, innovative supply chain. Combined with: Customer integration, value-added focus, supplier structure and relationships, capacity and asset deployment. 9

10 The best solution depends on the branch, the product, the customers and the size of the company. Are you properly managing capacity? If we are talking about capacity in supply chains we think of production capacity, warehouse capacity plus strategic buffers needed to cushion against potential uncertainties in production, storage and time. The Spanish clothing manufacturer and retailer Zara, known for quick reaction to customer trends, has 2 buffers: One in the form of uncut fabric inventory and the other in surge capacity in its sewing operations to fulfill the volatile market demand. BMW, the automaker, reduced the delivery time for its 7-series cars from 28 to 12 days by a new type of customer oriented supply chain with high flexibility. The automaker keeps an inventory of painted auto bodies that are held back from final assembly. These painted bodies are treated as vendor parts and placed in intermediate storage in high-rise warehouses. Following the order of the car buyer the part is called in from storage and vehicle assembly begins. That model is known as build-to-order supply chain. Companies have to use their capacities, investments and values flexible, including the possibilities of the supply chains. Flexibility is the key. Companies that want to respond quickly to their customers favour a speculation strategy committing inventory before it is needed to achieve service objectives. Inventory and stock points are either closer to customers or the company relies on premium transportation to get it to customers quickly. The competitive solution is quick delivery on demand. Companies, such as Dell, Sony and UPS, synchronize customer delivery of make-toorder computers with in-stock monitors. Using postponement techniques will mitigate the negative effects of vaiety. 10

11 Supply chains designed to meet ordinary requirements are suddenly forced to meet the extraordinary requirements of making and distributing thousands of products to millions of customers. Define a reconfiguration plan A reconfiguration plan will depend on two steps: 1) Determine the current mismatch 2) Estimate the necessary degree of sharing to 1) Eventually, companies must reconcile any inconsistencies, overlaps and redundant processes in their various supply chains showing the degree of mismatch. Companies must eliminate everything in their supply chains that does not matter to the customer; driving waste out of processes, eliminating non-performing assets and improving velocity. A significant gap would suggest the problem is structural and will require systematic changes, not just more productive operations. to 2) The degree of sharing across supply chains will depend on the trade-off between economies of scale and the value of customization. In general, candidates for sharing include assets, activities and systems that are not directly affected by strategies defined in the previous step. But be careful not to over-customize any one supply chain. For example, information systems are usually flexible enough to accommodate different supply chain management approaches and can be shared without sacrificing uniqueness. An economic analysis will quickly point out areas that are too tailored. Once the degree of mismatch and the level of sharing are clear, the remaining tasks of defining the network, process, IT and organizational changes are relatively straight forward. 11

12 Conclusion Strategic customer and product alignement is too often overlooked as a source of superior supply chain performance. The approach outlined can lead to breakthrough insights and supply chain innovations. It also offers a perfect opportunity to engage all functions and partners of the supply chain to envision a new way of delivering value. Many leading companies have already applied this approach and achieved exceptional results. It is time, more companies do the same. 12