Best Practices in the Supply Chain to Drive the Perfect Order Kiran Garimella (Panel Moderator) VP, BPM Solutions, Software AG
Agenda Introduction Panel Discussion Measure First for Supply Chain Visibility Richard North, Fonterra Supply Chain Integration at Woolworths Walter DeWildt, Woolworths Driving Agility within Motorola s Supply Chain V. Dyke Millard, Motorola Industry Observations Ellen Reilly, BearingPoint Audience Q & A Best Practices in the Supply Chain to Drive the Perfect Order Page 2
Measure First for Supply Chain Visibility Richard North Logistics Project Manager, Supply Chain Strategy, Fonterra Best Practices in the Supply Chain to Drive the Perfect Order Page 3
Fonterra Key Facts Co-operative structure owned by 16,800 farmers Assets approx USD 9B Revenue approx USD 10.5B Sells approx 2.5M metric tonnes per annum 20% of sales are sourced outside of NZ 95% of milk produced is exported from NZ Fonterra is approx 40% of global cross border trade 20% of NZ s GDP 140 sales countries USD 350M per annum spent with 3PL vendors Best Practices in the Supply Chain to Drive the Perfect Order Page 4
Business Challenges 2 1 1 ORIGIN DESTINATION 3PL NUMBERS AND DEPENDENCY VOLUME OF MILESTONES LIKELY EXCEPTIONS TRANSACTION VISIBILITY UNPLANNED COSTS LOGISTICS PROCESS DEFINITION VENDOR INTEGRATION IN HOUSE SUPPLY CHAIN EXPERTISE Key: Customer expectation Current Fonterra Performance NZD28M p.a non compliance costs Best Practices in the Supply Chain to Drive the Perfect Order Page 5
Solution Visibility Supply Chain Transparency Develop tools and BAU processes that improve our visibility of our performance against customer expectations and allow us to focus on the critical areas for improvement Reduce the amount of cost and time spent at the interface between our customers and ourselves INTELLECTUAL CAPITAL (Experience of the best way to drive the technology in a business context) Fonterra OPERATIONAL EXPERTISE (logistics knowledge / control specific to location) Software AG TECHNOLOGY (Software - track and trace / exception management / interactivity) Containers are tracked from the Pack Plants through departure ports, transship ports, to the destination port, and on through to either warehouse or customer delivery. All container tracking events are received via B2B. Best Practices in the Supply Chain to Drive the Perfect Order Page 6
Results Business case approved on basis of conservative 18% IRR 10 month project Completion January 2008 Will cover 80% of our logistics activity and key compliance areas Will directly affect 400 operational, tactical and strategic users Primary focus is on the quality of the technical solution, user functionality and the quality of the data collected Secondary focus will be on analytics, reporting and understanding a different view of the world Only then will we look to make permanent change to our business Best Practices in the Supply Chain to Drive the Perfect Order Page 7
Challenges / Learnings Solution selection is key Controlling the enthusiasm Changed our view of service providers Visibility work does not have a finite end point CONSOLIDATION 2 Business model changes Vendor base changes DEGREE OF; END TO END VISIBILITY QUALITY DATA ANALYSIS MINDSET CHANGE PROCESS COMPLIANCE AUTOMATION INTEGRATION DEPENDENCY + - BEFORE TOOLSET Silo reporting limited data reach Manual analysis Afther the fact issue resolution Some visibility development Ocean freight portal CONSOLIDATION 1 Data quality Vendor performance Dashboard Reporting Benefit realisation CURRENT PROJECT system / vendor integration Track and trace Passive alerting Dashboarding NEXT PHASE 1 Extend within current functionality Geography extension Vendor extensions Process extension TIME IN YEARS -1 0 0.5 1.0 1.5 2.0 2.5 NEXT PHASE 2 Workflow management Partner access Business models Best Practices in the Supply Chain to Drive the Perfect Order Page 8
Supply Chain Integration at Woolworths Ltd Walter Dewildt Integration Competency Center Manager Woolworths Best Practices in the Supply Chain to Drive the Perfect Order Page 9
Woolworths Limited is an Australian company, with its head office in Sydney. We operate almost 3,000 stores, petrol sites and hotels in Australia and New Zealand and are involved in a consumer electronics joint retail venture with the Tata Group in India. Woolworths employs around 175,000 people. Some 50,000 of our employees are in rural and regional areas. Woolworths Limited has annual sales of over $38 billion. Best Practices in the Supply Chain to Drive the Perfect Order Page 10
Business challenge Time to market for store facing initiatives Existing Mainframe hub for store integration MQ and XCOM standard for File transfer and Messaging Ok for transactions that start/end on Host but inflexible and expensive to develop and manage store initiatives that do not. Corporate Functions Retail Outlets 100+ IS servers supporting corporate functions today wm IS B2B TN wm IS LMS MQ Super market 20+ corporate applications connected via Fabric wm IS WMS Fabric wm IS TMS Mainframe Liquor XCOM Petrol Best Practices in the Supply Chain to Drive the Perfect Order Page 11
Fabric platform extended to retail outlets (2000+) Integration Server in each retail outlet Real time Messaging (Async) Real time web Services (Sync) Automated deployment and Configuration wm IS B2B TN wm IS LMS wm IS Super market wm IS Petrol 2000+ stores planned 200+ deployed today Smart routing Mainframe Fabric File - Message WebService -JMS wm IS TMS wm IS WMS Corporate Functions wm IS Liquor Retail Outlets Best Practices in the Supply Chain to Drive the Perfect Order Page 12
Benefits Consistent platform across multiple retail outlets Implementation speed/cost New messages/files are setup with a configuration change to a central repository that stores are configured against. Support Visibility Transactions are audited at each step and a central console can search and discover the status of individual messages. Flexibility Business has options for more real time transactions interfacing with non-host back office functions. E.G. Epay phone topups available from each register (POS) Customer loyalty accrual and redemption services from each POS. Smart Routing of files through the enterprise. (FTA) Best Practices in the Supply Chain to Drive the Perfect Order Page 13
Challenges and Lessons Learned Broker Gateway Document Sync & Routing Getting documents flowing through the gateway and setting filters to provide functionality to publish to all stores, or just selected stores was a challenge. We now have a solution that any store/back end server can publish to any other store, or region, or all stores. Number of Integration Servers With a rollout to all retail outlets we will be touching on up to 3000 integration servers over time. Store releases are tightly managed and need to be automated. We worked to create an Autobuild and Auto configure capability on top of the webmethods installer and Tivoli S/W distribution platforms. Support of 3000 Integration Servers Woolworths ICC is not geared to cater for support on this scale. working with Store Support teams we setup tools to allow store support personnel with limited webmethods training manage the day to day support of the environments. The Autobuild and Auto configure capabilities were crucial to this success. Best Practices in the Supply Chain to Drive the Perfect Order Page 14
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Driving Agility within Motorola s Supply Chain V. Dyke Millard Manager Business Process Management CoE Motorola Best Practices in the Supply Chain to Drive the Perfect Order Page 16
Everyone Knows Motorola Motorola is known around the world for innovation and leadership in wireless and broadband communications. Inspired by our vision of seamless mobility, the people of Motorola are committed to helping you connect simply and seamlessly to the people, information, and entertainment that you want and need. We do this by designing and delivering "must have" products, "must do" experiences and powerful networks -- along with a full complement of support services. A Fortune 100 company with global presence and impact, Motorola had sales of US $42.9 billion in 2006. For more information about our company, our people and our innovations, please visit www.motorola.com Best Practices in the Supply Chain to Drive the Perfect Order Page 17
Motorola has a huge, diverse Supply Chain How do you maintain product diversity, reduce stock-outs and improve service levels all at the same time? How do you design an agile, seamless logistics process for consumer, and enterprise product lines? Build Supply Chain processes that are simple, common and global In order to achieve this goal, Motorola has done the following: Organized all Supply Chain processes into a single, global business unit Incorporated product differentiation through postponement Established key partnerships to execute Manufacturing and Logistics activities Developed service-based and service-oriented technical solutions Best Practices in the Supply Chain to Drive the Perfect Order Page 18
External Manufacturing Suppliers (EMS s) One of the key Supply Chain initiatives implemented at Motorola is a new B2B interchange framework based on RossettaNet standards for our key Electronic Manufacturing Services (EMS) suppliers This framework was initially developed for a Motorola facility that was sold to an EMS partner Motorola needed a way to communicate demand signals to this partner and ensure that any gaps in the business process were quickly identified so they could be proactively addressed This solution is now our standard framework for all EMS partnerships Best Practices in the Supply Chain to Drive the Perfect Order Page 19
Process Flow for Business Activity Monitoring KPI / Alerts - Date conflicts -Profile validations - SLA Assurance KPI / Alert - Order Cancellation Data KPI / Alerts -ASN KPI / Alert- Shipment - WIP Status delays - Progress - Quantities - Updated Dates against - Discrepancies- Proof of Order Delivery KPI / Alerts - Delivery delays KPI / Alerts - Quantity +/- - Freight Terms - Packing Inst. -Hold Mgmt Best Practices in the Supply Chain to Drive the Perfect Order Page 20
Supply Chain Monitoring Results The results of this new framework include the following: Increased agility in making sourcing decisions Reduced transaction costs Proactive monitoring of shipment delays Increased visibility for day to day operations Auto-generated alerts based on business-defined criteria SLA management and tracking Real-time capture and display of transactional metrics Six Sigma error tracking Cost Penalty avoidance The primary value of Business Activity Monitoring is to the process owners within the business units not to IT teams managing technology components Best Practices in the Supply Chain to Drive the Perfect Order Page 21
Challenges and Lessons Learned 1) Change Management BAM is unlike traditional applications; process owners and project teams must help users understand and take advantage of this new type of capability 2) Scope of the Solution BAM solutions cover more process scope than most business (and IT) teams are used to dealing with in detail; comprehensive solutions need to be well thought-out; process modeling benefits are significant 3) New technology stack BAM solutions often increase technical complexity of the overall landscape; this must be balanced by driving simplification into the overall process from the user perspective; BAM alerts and process metrics should make the process easier to understand and control Best Practices in the Supply Chain to Drive the Perfect Order Page 22
Best Practices in Supply Chain to Drive the Perfect Order: Industry Perspective Ellen Reilly Managing Director, Supply Chain, BearingPoint Best Practices in the Supply Chain to Drive the Perfect Order Page 23
Companies Face Common Challenges for the Supply Chain Characteristics Common Challenges executes to various global plans and service levels integrates across functions and geographies decision support and governance for ongoing strategic decision process Lost sales due to missed orders or longer lead times Lower customer service due to stock-outs Excessive or insufficient capacity High material and order expediting costs Inability to meet differentiated customer needs in terms of product, service and channel offerings Excessive inventory carrying costs and write-offs Difficulties shifting production and warehousing facilities to low cost countries Inability to consolidate operations following mergers & acquisitions Metrics not aligned across various functions, departments and players across supply chain Disruptions resulting from cross border transactions Inability to respond to market driven price pressure on existing products Margin pressures resulting from shifts of volume to private labels (Retail and CPG) Portfolio quality pressure due to shorter product life cycles Service and margin pressures driven by increasingly complex product portfolios Inconsistent performance due to silo structure and lack of global learning mindset Best Practices in the Supply Chain to Drive the Perfect Order Page 24
Where Perfect Orders Fit in the Hierarchy AP Supplier Quality Demand Forecast Perfect SCM Order Cost Cash-to-Cash Inventory Total AR Assess Supplier RM Purchase Dir Mtl On-Time Inv Costs Costs Diagnose Perfect Order: % of orders that are complete, accurate, on time and in perfect condition. Cost Detail Production Schedule Variance Plant Utilization WIP + FG Inventory Order Cycle Time Perfect Order Detail Correct Source: AMR Benchmark Analytix Best Practices in the Supply Chain to Drive the Perfect Order Page 25
Inventory Management Industry Key Considerations Industry Key Challenges Inventory Response High Tech Difficult to predict market trend/customer demand Shorter product lifecycles and complex process to bring a product from concept to market Trend of outsourcing manufacturing and logistics extends the supply chain risks Manufacturing processes and bill of materials are becoming mo specific Flexibility in inventory policy dealing with market changes and pricing fluctuation Integrate product knowledge with inventory management Supplier collaboration to mitigate inventory risks Evaluate supply chain partners and project potential inventory issues Aerospace Lean MRO driven Guaranteed hourly cost Outsourcing management Component MTBR (Mean time between repair) Repair cycle time Shared Inventory owned by OEM, Repair Supplier or Distributor Outsource inventory ownership Long term agreement (LTA) relationships Ample supply is giving way to JIT and lean Supply Chain approach Retail/CPG Short product shelf life / rapid obsolescence Customers demand high fill rate / on-shelf percentage Global sourcing with longer lead times and greater supply uncertainty Supply chain variability ("bullwhip effect") Efficient consumer response (ECR) / Quick response Vendor inventory management / ownership Collaborative planning, forecasting and replenishment (CPFR) Supply chain visibility (including RFID) Synchronous demand networks (SDN) / demand-driven supply networks (DDSN) Inventory optimization / multi-echelon inventory planning Best Practices in the Supply Chain to Drive the Perfect Order Page 26
Inventory Management Industry Key Considerations Industry Key Challenges Inventory Response Oil and Gas Utilities Chemical MRO Driven preventative maintenance Repair cycle time Up-time utilization as high as possible MRO requirements drive inventory proliferation Capital projects drive unpredictable, unique requirements Implement simple, effective inventory controls for compliance Changing industry regulations Increasing demand and constrained supplies lead to poor customer service levels Increasing pressure to manage working capital High Asset Utilization Targets Long, expensive changeovers` Highest supply chain costs of any industry Contract Compliance Risks Ability to sell excess capacity in lean times Maximize profit through allocation when constrained Management of remote inventories (consigned or outsourced terminals) Preventative maintenance driving critical spare inventory Reduce obsolescence Centralized warehousing to reduce safety stock Adopt leading practices from manufacturing companies, such as: Sales & operations planning Inventory Cycle Counting Warehouse Management Systems Product Lifecycle Management Lean Manufacturing Supplier collaboration Vendor Managed Inventories Standardize, simplify processes Adapt technologies such as bar-coding and RFID to simply inventory controls Strong Sales & Operations Planning processes, with emphasis on demand shaping and pricing optimization Efforts to streamline and automate processes (i.e., touch-less order fulfillment) Terminal management technologies Elimination of non-value added material handling steps Continued outsourcing of logistics activities Best Practices in the Supply Chain to Drive the Perfect Order Page 27
Typical Order Management Processes Customers Distributors FireWall Order Channels Web Portal EDI Paper Phone Fax Service Hub Customer Service BU-1 BU-2 BU-3 Illustration Best Practices in the Supply Chain to Drive the Perfect Order Page 28
Industry Best Practices Perfect Order vision is to enable full automation of the Order-To- Cash process from initial order booking through auto load of material, accounts receivable, application, and settlement. Supply Chain costs can be reduced by: Automating business processes that are currently manually intensive Identifying unprofitable customers and products that require excessive manual intervention Focusing on analytical, proactive improvement of more significant costs such as freight, expediting, etc. Provides the ability to unblock messages between various IT Platforms and automate previously manual process Allow for time based savings through improved business processes Allow for increased profitability and continuous information flow from supplier to manufacturer to end users. Best Practices in the Supply Chain to Drive the Perfect Order Page 29
Key Challenges: What prevents most companies from an efficient Order-To-Cash Process? Electronic orders are blocked in SAP Order information inaccurate Inability to assign a delivery date due to poor planning Material availability issues (ATP) Insufficient lead times Multiple line item handling process Freight consolidation issues Orders are created manually in the system and therefore The time it takes from taking the order from the customer to entering the order in the system is not efficient The amount of errors created through the manual entering process is higher than when this is done automatically Several steps during the execution of an order are done manually instead of automatic in the background Example are posting of goods issue document, creation of shipment cost document, Orders are changed multiple times during the following stages Sales order Delivery Shipment Post Goods Issues Billing Document Customer Freight Doc Shipment Cost Doc The underlying roots causes for these changes are Best Practices in the Supply Chain to Drive the Perfect Order Page 30
Best Practices: Continuous Improvement Process In addition to a process framework, No Touch Order establishes the foundation for Continuous Improvement Continuous Improvement Process: Enabled by the data collected Closed loop process to identify and improve process efficiency Phase Description Examples Corrective Enable Identify gaps, missing and inaccurate data and processes required to accurately process and schedule a sales order Enable processes that are currently manually intensive or subject to long cycle times Plan Do Review Develop plan to achieve and maintain operational performance goal Feedback Sustain the processes developed and seek to achieve new levels of performance Utilize appropriate weekly reports to monitor progress and implement corrective action if necessary Identify and correct planning data, such as lead-times, lot assignment rules, bills of material, etc.; identify individuals for targeted training and improvements; SOX compliance Flexible trading partners; consignment and remote inventory management; event-based exception handling Improve Differentiate Baseline processes and performance metrics and benchmark this with similar companies to understand performance gaps and opportunities Identify, define, implement and improve processes which provide a competitive environment in the marketplace Benchmark order cycle times; throughput and volume comparisons, Order Management FTE s per billion revenue, etc. Demand synchronization; market segment alignment; identification of success drivers and market differentiators Best Practices in the Supply Chain to Drive the Perfect Order Page 31
Audience Q&A Best Practices in the Supply Chain to Drive the Perfect Order Page 32
Thank You.