Supply Chain Alignment Assessment: A Road Map

Supply Chain Alignment Assessment: A Road Map By Will Scott waersystems.com info@waersystems.com

Supply Chain Alignment Assessment: A Road Map Table of Contents PAGE Part I Supply Chain: A Definition 1 Part II The Scope of this Document 1 Part III What is an Alignment Assessment? 2 Part IV Reasons for an Alignment Assessment. 2 Part V Determining Whether You Need an Alignment Assessment 3 Part VI Questions to Ask Yourself Before Embarking 4 Part VII The Steps within an Alignment Assessment 5 Part VIII What To Do After an Alignment Assessment 7 Part IX About Waer Systems and How We Can Help 8 About this document: Supply Chain Alignment Assessment: A Road Map is the second in a three-part series created by Waer Systems. The series is designed to help OEMs and Tier I/II manufacturers especially those involved in the supply and procurement of high volume low cost parts better appreciate the value of a world-class supply chain. The other two parts in the series are The Nine Basic Rules of a Successful Supply Chain and A World- Class Approach To C-Class Components. They are available at no charge to qualified individuals. waersystems.com info@waersystems.com Waer Systems Inc. 1700 Park Street, Suite 104 Naperville, IL 60563, USA Tel: (630) 357-6567 Toll Free: 1-866-WAER-SYS Fax: (630) 357-7550 Waer Systems Inc. 25 Cecil Pashley Way Shoreham Airport Shoreham by Sea, UK Tel: +44 (0) 1273 466333 Fax: (630) +44 (0) 1273 466322 Waer Systems Inc. 27 Av Etienne Audibert BP 30169 Senlis Cedex 60305, France

Part I: Supply Chain: A Definition The Supply Chain is the process through which a company creates and distributes its products and services to the end user. It includes specific elements including production planning, material sourcing, transportation management, warehouse management and demand management. These functions are tightly integrated to provide the products and services to the end user in an efficient, timely and profitable manner. In addition to internal functions, the supply chain also encompasses the activities of external entities, including materials and parts suppliers, manufacturers, distributors, and transportation providers. The supply chain comprises not only the movement of goods between supply chain participants, but also the flow of information and funds. Supply Chain execution begins at the point a demand is created and is about the efficiency and efficacy with which that demand is fulfilled. Part II: The Scope of this Document The Supply Chain Operations Reference Model (SCOR) describes the supply chain as extending from the supplier s supplier to the customer s customer. The scope of this document will focus on the sections between the dotted lines. If the end user is a supplier or distributor, an assessment will look downstream (customer fulfillment process), if an end user, an assessment will look upstream (procurement process.) An assessment is therefore likely to involve at least two willing parties. Another illustration is provided below. Focus Source: Supply-Chain Council Waer Systems Copyright 2004, all rights reserved 1

While an overview of the entire supply chain should be understood (see our A World-Class Approach to C-Class Components white paper), the focus of this document has a narrower and more specific scope, specifically the process of procuring incoming goods and the relationship with the upstream supplier. The links in this supply chain are depicted as follows, highlighting the supply chain from supplier through OEM manufacturing. Suppliers & / or Distributors End User Logistics External Customer Goods Information Funds Sources End User Warehouse End User Manufacturing Part III: What is an Alignment Assessment? An Alignment Assessment is the detailed, step-by-step mapping of your current, actual supply chain and a comparison to two distinct kinds of capability sets: 1) The goals you have set out for your supply chain (the optimal supply chain model and benefits) 2) The world-class supply chain process for achieving these results After an Alignment Assessment you will clearly see: 1) Exactly how your current SCM works in detail 2) Where, how, and if it deviates from, or fails to meet, your desired SCM strategies 3) Precisely how and where your as is SCM differs from the world-class approach 4) The specific factors that limit your ability to achieve a world class SCM and/or meet your desired SCM strategies/goals Part IV: Reasons for an Alignment Assessment. There are two major reasons to create an Alignment Assessment and various benefits to each. They are: 1) The first step to improving your SCM is to have a detailed map of it. Over time, even the best-designed, most straightforward supply chain will begin to meander and change. Workarounds appear as cost and timesaving techniques are adopted. People vary processes to suit their individual ideas. New suppliers, end-users, requirements and parts or materials create change that might not be part of the original process plan. For these reasons, a detailed map of the actual process is the critical starting point to any increase in efficiencies and cost-saving efforts. Waer Systems Copyright 2004, all rights reserved 2

2) Mapping ROI: cost-savings, increased control, and competitive advantages. By identifying the exact and actual supply chain map, the company can identify the following: places where efficiencies might be added solutions to improve customer relationships methods to improve the company s ability to meet new objectives or include new technologies. Mainly, however, the reason for a detailed mapping of a supply chain is to discover places where likely cost savings due to excess inventories, inefficient processes, unnecessary actions, expedited shipments, shortages, lost visibility, etc. can be found and repaired. A more complete list of expected benefits follows: Measurable benefits in terms of comparisons to previous numbers or actual monetary savings: Reduced inventory Reduced working capital Reduced purchasing transaction costs Reduced component shortages Reduced lead times Reduced error rates Reduced waste and redundancy Increased data timeliness and accuracy Increased automation and visibility Increased, sustainable rates of growth Non-measurable intangible and non-direct benefits in terms of flexibility and competitive advantages: Increased control Increased profitability Increased, sustainable rates of growth Increased mastery of the exceptions Increased flexibility and responsiveness Improved ability to compete Faster, more accurate fulfillment of customer orders Higher customer satisfaction levels More time to spend on process improvements vs. troubleshooting Waer Systems Copyright 2004, all rights reserved 3

Part V: Determining Whether You Need an Alignment Assessment It is an old truism that you cannot plan your course without a road map. This leads one to believe that every company should always have a detailed, accurate and updated supply chain map on hand which requires periodic assessments of the actual SCM. That being said, there are certainly a) types of companies, b) present factors and c) supply chain structures that would indicate a greater need for an Alignment Assessment. Present factors: Large quantities of a variety of SKUs or part numbers Multiple suppliers (more than 10) and/or too much reliance on a select few suppliers The cost of a shortage or stock-out is high Bills of materials are often inaccurate Expediting fees are annually too high Multiple warehouses are controlled by a single office Inability to quickly rate any supplier s ability to hit deadlines Types of companies: Component manufacturers Distributors Logistics providers and outsource specialists Service providers End User (OEM) manufacturers C-class suppliers and manufacturers Consumables & spares providers Maintenance, repair & overhaul (MRO) companies Company size: Annual revenues in excess of $15 million Part VI: Questions to Ask Yourself Before Embarking: There are a number of questions that should be asked prior to developing the assessment plan and/or mapping the current process. While these vary by company type and need (see above), there are certainly some standard processes and a baseline starting point. Q1. What are the prime areas of concern? Where do you want to focus the most attention? a. Internal vs. External b. Business Unit c. Product Range d. Market e. Customer f. Supplier g. Department While all areas should be assessed, it is important to pay extra attention to the areas where management feels the greatest benefit will be gained. Waer Systems Copyright 2004, all rights reserved 4

Q2. Are figures available to enable numerical analysis? Obviously a significant amount of analysis can and will be performed on soft data. However, hard facts enable a more detailed view in some areas and also enable measurable improvements. (See Measurable Improvements above) Note: If you find you do not have hard figures available, this alone could be reason to perform an Alignment Assessment. Representative figures can be obtained by tracking sample runs, but an inability to quickly obtain hard data should be listed as an area of concern and assessed accordingly. (See Q1 above.) Q3. Do you have access to one or more of your major customers or suppliers? The supply chain is only as strong as its weakest link. In order to provide the fullest assessment of a supply chain and its relative strengths, mapping the operations of at least a representative customer and/or suppliers is invaluable. In doing so, one must not undermine the relationship nor in any way disparage the visited operations. Q4. What are management s expectations of any recommendations and what limits to change are likely to apply? Ask the management if they are looking to make small incremental changes or major step changes to the operation(s). Is there a time-scale for the desired changes or any current business reasons for implementing these changes? Q5. Outline some examples of why an assessment might be beneficial. a. Determine any problems the company has faced as a result of inefficiencies in its supply chain. b. Are there of examples of where competitors or partner s supply chain operations appear to have a more efficient/valuable supply chain or have led to particular successes? c. Have you seen competitors, customers or suppliers going along a similar route and what do you believe they have achieved/experienced? Part VII: The Steps within an Alignment Assessment Step One: Launch Meeting to explain to key participants: Why assessment is taking place The assessment plan and timeline The objectives and expectations of the assessment Identify any exclusion ( no-go areas) of the assessment Likely outcomes and possible next steps (see below) Create an Alignment Assessment team, incorporating at least one manager from each of the following areas (if relevant): 1. Senior Management 2. Sales / Support / Marketing 3. Final Dispatch 4. Final Product Warehouse 5. Value Adding processes e.g. Manufacturing 6. Component Warehouse 7. Goods-In 8. Procurement 9. Support Functions Quality, Finance, IT Answer any questions or concerns Waer Systems Copyright 2004, all rights reserved 5

Step Two: Supply Chain Mapping Exercise to reach common understanding of: Overall supply chain map (In order to provide a baseline for what the company believes is their current and/or optimized processes; see above.) Company s position in the supply chain Any future requirements that might not be apparent in the current process Step Three: Company-wide Supply Chain Assessment (Assessment of the Internal Portions of the Supply Chain) Careful attention must be taken to ensure that each area is only visited once Validates and corroborates Supply Chain Map developed above Highlights places where actual supply chain doesn t match believed and/or optimal one Provides checks and balances for answers from each area enabling weaknesses in understanding to be highlighted Step Four: Interim Analysis & Report Writing Collation of data from all team members Question/answer sessions to clear-up any misunderstandings or gaps Conversion into report and presentation to executive committee (see below) Step Five: Interim Review & De-Brief with Executive Committee Presentation of key internal findings to key client participants (same audience as Launch Meeting) Highlight key strengths and weaknesses Show areas where actual supply chain veers from expectations and optimal needs Plan for customer and supplier visits; revise baseline map per discoveries above Step Six: Customer(s) and/or Supplier(s) Visits (Assessment of the External Portions of the Supply Chain) Identify how client is situated in Supply Chain Identify how customers and suppliers interface with client Obtain view of client as compared to other companies in similar industries Interview (briefly) the customer/supplier sponsors to determine any desired modifications or concerns To determine if suppliers/customers roles in the supply chain are as expected and if there are o Any places where the supply chains overlap causing inefficiencies, etc. o Any gaps between the processes that limit visibility, etc. Step Seven: Final Analysis & Report Writing Collate all info and relate to information from Suppliers and Customer Present completed report Highlight customer / supplier perceptions and issues Compare actual supply chain map as well as desired modifications to the world-class model for similar companies Detail major recommendations Waer Systems Copyright 2004, all rights reserved 6

The final report should be broken down into the following categories: Scope / Objectives Process Used Assessment Results Analysis including project validation Summary Conclusions Recommendations Glossary Supply Chain definitions Case Studies / Best Practice Benchmarking figures where available The report should cover many aspects and include, but not be limited to, much of the following: Pull vs. Push systems (no recommendation of specific system) Structure of Supply Chain Product Flows Information Flows Savings Achievable Supply Chain Motivations Client, Departments, Customer and Suppliers Risk Assessment Business Readiness Analysis Technological Cultural Commercial Recommendations Transport Issues Quality Issues Supply Chain Map Kaizen Event recommendation (us as facilitators for areas expecting severe resistance) Price Break/EOQ Analysis Observations of the Assessment Team Observations of the Management Team Part VIII: What to Do After an Alignment Assessment Subsequent steps stem from the findings of the assessment and the goal is to revise the current supply chain to include any modifications that provide: An ROI above the cost of implementation, A competitive advantage matching the company s business objectives, and/or Intangible benefits the company feels are worth the time and effort involved. Getting the most from an Alignment Assessment requires a plan of attack for integrating change and an understanding of the Success Factors of the supply chain improvement process. Next Steps (at end of assessment) 1. Assess current status 2. Establish goals and objectives 3. Tailor the assessment results to the company s immediate needs 4. Develop action plans 5. Measure progress 6. Conduct monthly management reviews 7. Follow-up discussions and action planning as necessary Waer Systems Copyright 2004, all rights reserved 7

Critical Success Factors The success of a supply chain improvement process is determined by the: 1. Suitability of the plan 2. Degree to which the plan is implemented 3. Commitment of the Executive Board 4. Alignment with corporate strategy 5. Tasking a project champion or champions for the improvement process(es) Part IX: About Waer Systems and How We Can Help Two Decades of Supply Chain Innovation and Leadership Since the early 1980s, Waer Systems has been helping leading aerospace OEMs (e.g. Airbus, Bombardier, etc.), 3PLs (e.g. Satair, GE Supply) and Tier I/II manufacturers gain optimal profitability from their supply chains, as well as increasing the overall control and visibility they have over their warehouses and materials flow. Waer Systems specializes in providing lean techniques and innovative software solutions for Vendor Managed Inventory (VMI) and Replenishment Management Systems (RMS) in order to help increase the ready availability of parts while decreasing the reliance on safety stocks and excess inventory. To learn more about our capabilities visit www.waersystems.com. To learn more about how we can help provide a cost-effective and detailed Supply Chain Alignment Assessment visit www.waersystems.com/products_and_services/services or contact one of our main sales offices: Waer Systems Limited 25 Cecil Pashley Way Shoreham Airport, Shoreham by Sea West Sussex, BN43 5FF, UK Tel: + 44 (0) 1273 466336 Fax: + 44 (0) 1273 466322 infoeurope@waersystems.com Waer Systems Inc. 1700 Park Street, Suite 104 Naperville, IL 60563, USA Tel: +1 (630) 357-6567 Toll Free: 1-866-WAER-SYS Fax: +1 (630) 357-7550 infousa@waersystems.com Waer Systems Copyright 2004, all rights reserved 8