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
Career guidance and worries
2
SCC New Member Introduction 1.0
What Keeps You Up at Night? Stock Market Volatility, Oil Prices,
Labor, Political Instability, Security
Reducing Inventory/
Working Capital/ Asset
Management
Supply Chain
Resiliency &
Sustainability:
Risk Management
& Green
Reducing Total Supply
Chain Costs
Competing in a
Global Market
Providing Superior & Consistent
Customer Service While
Increasing Revenue & Margin
Business As Usual Has Been Cancelled…Now What?
4
SCC New Member Introduction 1.0
5
6
Sources:
plants
vendors
ports
Regional
Warehouses:
stocking
points
Field
Warehouses:
stocking
points
Customers,
demand
centers
sinks
Supply
Inventory &
warehousing
costs
Production/
purchase
costs
Transportation
costs
Inventory &
warehousing
costs
Transportation
costs
SC, if not managed effectively…
Reduced Profitability
Lower Revenue
Higher Costs
Poor Quality
Poor
Availability
High Inventory
Poor
Service
High Inventory
Long Lead Times for Innovations
©Copyright 2002 D. Simchi‐Levi
And, many more……
New-age Supply Chain
Vendor
Inbound
Transportatio
n
Inventory Mgmt. Inventory Flows
Pipeline Intergation Seamless/Visible
Vendor
Customer
Information
©Copyright 2002 D. Simchi‐Levi
Manufacturi
ng
Cost
Landed Cost
Primary
Transportatio
n
Information Flow
Shared
Warehousin
g
Risk
Shared
Secondary
Transportatio
n
Customer
Planning
Relationships
SC Team Approach Focus on landed Cost
Intermediaries
Product
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
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
Supply Chain Management Requires Many Different Functions
©Copyright 2002 D. Simchi‐Levi
Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage Best-in-Class
Median
Total Supply Chain Management Costs (% of Revenue)
14.0%
12.3%
% of Revenue
12.0%
10.0%
10.7%
10.7%
10.0%
9.2%
9.1%
7.4%
8.0%
6.0%
6.6%
5.4%
5.3%
5.5%
4.2%
4.8%
4.0%
3.4%
3.5%
3.6%
2.0%
0.0%
Automotive
Industrial
Chemical &
Advanced Materials
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
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 costs1
• A 2% improvement in process efficiency for supply‐
chain processes has 3000% ‐ 5000% the impact of a 2% improvement in efficiency for… IT… HR…
Finance1… 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 19th 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%
Citi1
0%
AIG1
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
Private Sector Experience
Supply Chain
Optimization
Global Visibility
Automated Flow
MRP II
Technology
Distribution Resource Planning
Capacity Planning
Financial/Human Resources
Cellular Manufacturing
Kanban
Competitive Benchmarking
Efficient Consumer Response
Advantaged
Applications
Statistical Process Control
Problem-solving Skills
Analytical Support Tools
Quality Function Deployment
MRP
Operations Planning
Workforce scheduling
Enterprise Resource
Planning
(ERP)
Just-in-Time
(JIT)
Total Quality Management
(TQM)
Manufacturing Resource Planning
(MRP II)
Bills of Material
Material Requirements Planning
(MRP)
Master Production Scheduling
Supplier Scheduling
1960
1970
1980
1990
2000
2010
Private Sector Experience
Supply Chain
Optimization
Global Visibility
Automated Flow
MRP II
Technology
Distribution Resource Planning
Capacity Planning
Financial/Human Resources
Cellular Manufacturing
Kanban
Competitive Benchmarking
Efficient Consumer Response
Advantaged
Applications
Statistical Process Control
Problem-solving Skills
Analytical Support
ToolsOrg
Some
Quality Function Deployment
Enterprise Resource
Planning
(ERP)
The World
is Here
Just-in-Time
(JIT)
SCM is Here
MRP
Operations Planning
Workforce scheduling
Total Quality Management
(TQM)
Manufacturing Resource Planning
(MRP II)
Bills of Material
Material Requirements Planning
(MRP)
Master Production Scheduling
Supplier Scheduling
1960
1970
1980
1990
2000
2010
Supply chain is a instrument of creating value for shareholders The Supply Chain
Impacts . . .
Improve customer service and
response
• Optimize inventory flow,
utilization & productivity
•
Best-in-class customer
relationships
• Differentiated service
capabilities
•
Best-in-class strategic supplier
partnerships
• Leverage of outsourcing of
business processes
• Unique supply chain models
All Financial
Metrics . . .
Liberate
Working
Capital
Reduce
& Shareholder
Value
Improve
Capital
Efficiency
Fixed
Capital
Increase
Shareholder
Value
Increase
Revenue
and Margin
Increase
•
Optimize
Profit
Cost Model
Effective Supply Chain Management can increase a Return on
Capital Employed by 30% and More!
20
SCC New Member Introduction 1.0
©Copyright 2002 D. Simchi‐Levi
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
Deliver
Suppliers’
Supplier
Plan
Source
Make
Plan
Deliver
Source
Make
Deliver
Source
Make
Plan
Deliver
Supplier
YOUR COMPANY
Customer
Internal or
External
Return
Internal or
External
Supply Chain Operations Reference Model
Source
Customer’s
Customer
•
•
23
Organized around the five primary management processes of Plan, Source, Make, Deliver and Return
Developed by the industry for use as an industry open standard ‐ Any interested organization can participate in its continual development
SCC New Member Introduction 1.0
Supply
Supply Chain
Chain
Plan
Plan
Source
Source
Return
Return
Make
Make
Deliver
Deliver
Return
Return
Customer processes
processes
Customer
•
SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management Supplier processes
processes
Supplier
What is SCOR®? Process, arrow indicates material flow direction
Process, no material flow
Information flow
23
Supply-Chain
Product Design
DCOR™
Sales & Support
CCOR™
Customer processes
Supplier processes
Product Management
Supply Chain SCOR ®
24
Supply-Chain Operations Referencemodel (SCOR) 8.0 - Processes
Plan
P1 Plan Supply Chain
Source
S1 Source Stocked Products
S2 Source MTO Products
S3 Source ETO Products
P3 Plan Make
P4 Plan Deliver
Make
M1 Make-to-Stock
M2 Make-to-Order
M3 Engineer-to-Order
Deliver
D1 Deliver Stocked Products
D2 Deliver MTO Products
D3 Deliver ETO Products
Return
Deliver
Return
Source
Enable
©Copyright 2002 D. Simchi‐Levi
P5 Plan Returns
Customers
Suppliers
P2 Plan Source
Supply Chain upstream Activities In
In most
most supply
supply chains,
chains, the
the upstream
upstream activities
activities respond
respond to
to
forecast,
forecast, while
while somewhere
somewhere on
on the
the downstream
downstream side
side the
the chain
chain
waits
waits for
for orders
orders to
to be
be placed.
placed. Consider
Consider these
these two
two former
former fast
fast
slogans
slogans
•“We do
do itit all
all for
for you!
you!
•“We
McDonald’s
McDonald’s
•“Have itit your
your way
way
•“Have
Burger King
King
Burger
Build to stock
VS
Build to Order
The Bullwhip Effect “The
“The bullwhip
bullwhip Effect
Effect isis aa major
major cause
cause of
of higher
higher costs
costs and
and
inefficiencies
inefficiencies in
in supply
supply chains.
chains. It
It describes
describes how
how small
small
fluctuations
fluctuations in
in demand
demand at
at the
the customer
customer level
level are
are
amplified
amplified as
as orders
orders pass
pass up
up the
the supply
supply chain
chain through
through
distributors,
distributors, manufacturers,
manufacturers, and
and suppliers.”
suppliers.”
“As
“Asan
anexample,
example,consider
considerdisposable
disposablediapers.
diapers.Babies
Babiesgenerally
generally
consume
consumediapers
diapersat
ataamore
moreor
orless
lessconsistent
consistentrate
ratewhen
when
aggregated
aggregatedover
overaalarge
largegroup
groupof
ofcustomers.
customers.Nevertheless,
Nevertheless,order
order
fluctuations
fluctuationsinvariably
invariablybecome
becomeconsiderably
considerablylarger
largeras
asone
onemoves
moves
upstream
upstreamininthis
thischain.”
chain.”
Consequences of
of the
the Bullwhip
Bullwhip Effect
Effect include
include excess/
excess/
Consequences
fluctuating inventories,
inventories, shortages/stockouts,
shortages/stockouts, longer
longer lead
lead
fluctuating
times, higher
higher transportation
transportation and
and manufacturing
manufacturing costs,
costs,
times,
and mistrust
mistrust between
between supply
supply chain
chain partners
partners
and
Order Size
The Dynamics of the Supply Chain
Customer
Customer
Demand
Demand
Distributor
Distributor Orders
Orders
Retailer
Retailer Orders
Orders
Production
Production Plan
Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management,
©Copyright 2002 D. Simchi‐Levi
Order Size
The Dynamics of the Supply Chain
Customer
Customer
Demand
Demand
Production
Production Plan
Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management,
©Copyright 2002 D. Simchi‐Levi
Supply Management’s Impact on Net Income and the Bottom Line
Increased Sales:
•
•
•
•
Faster to Market
Improved Quality
Pricing Flexibility
Innovation
Lower Total Cost:
•
•
•
•
•
•
•
•
•
•
World Class Supply ManagementSM, ISBN 0‐07‐
229070 6 Copyright © 2003 by The McGraw
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
Our Challenge...
Supply Chain
Optimization
Global Visibility
Automated Flow
MRP II
Technology
Distribution Resource Planning
Capacity Planning
Financial/Human Resources
Cellular Manufacturing
Kanban
Competitive Benchmarking
Efficient Consumer Response
Advantaged
Applications
Statistical Process Control
Problem-solving Skills
Analytical Support
ToolsMilitary
Some
Quality Function Deployment
Enterprise Resource
Planning
(ERP)
Logistics is Here
MRP
Operations Planning
Workforce scheduling
The World
is Here
Just-in-Time
(JIT)
Total Quality Management
(TQM)
Manufacturing Resource Planning
(MRP II)
Bills of Material
Material Requirements Planning
(MRP)
Master Production Scheduling
Supplier Scheduling
1960
1970
1980
1990
2000
2010
Our Solution...
Supply Chain
Optimization
Global Visibility
Automated Flow
MRP II
Technology
Distribution Resource Planning
Capacity Planning
Financial/Human Resources
Cellular Manufacturing
Kanban
Competitive Benchmarking
Efficient Consumer Response
Advantaged
Applications
Statistical Process Control
Problem-solving Skills
Analytical Support Tools
Quality Function Deployment
MRP
Operations Planning
Workforce scheduling
Enterprise Resource
Planning
(ERP)
Just-in-Time
(JIT)
Total Quality Management
(TQM)
Manufacturing Resource Planning
(MRP II)
Bills of Material
Material Requirements Planning
(MRP)
Master Production Scheduling
Supplier Scheduling
1960
1970
1980
1990
2000
Education
Education +
+ Best
Best Practices
Practices +
+ Partnerships
Partnerships
2010
* Chart adapted from , Lanvater, 1997, pp 2