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Supply chain Evolution
How to successfully outsource – partnership not antagonism © The Delos Partnership 2008 page 1
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Traditional Supply Chain Management
Our business Supplier Tier Two Supplier Tier One Customer Tier One Customer Tier Two Sales Purchasing Manufacturing Supply Chain visibility Operation Inventory © The Delos Partnership 2008 page 2
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Features of “Traditional” supply chan management
Each company works to their own Vision and Strategy, plans and management processes Our company’s visibility of customer requirements is poor, determined by inaccurate forecasts Demand swings are amplified across the supply chain as each level attempts to destock or restock Purchasing is done with sales on the basis of minimum purchase price, with little acknowledgement of true cost/value Multiple suppliers are used in order to manage risk of lack of source of supply Inventory used at each step of the supply chain to buffer against failure of supply [made or bought]. © The Delos Partnership 2008 page 3
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We are now operating in a Global market for both supply and demand
This brings new challenges “Think global, act local” Optimise global resource React to demand swings across the globe Outsource our non-core business to suppliers Brings New risks Longer-lead times across the globe Failure to supply means need to switch production “at a moment’s notice” We are committed to suppliers on low-cost product in low-cost countries who do not necessarily have to supply us © The Delos Partnership 2008 page 4
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We also choose to focus on our core business – Pareto analysis
We review our product portfolio, and decide that 20 % of products account for 90 % of our margin – we eliminate many products, much to the resistance of Marketing 20 % of our purchased parts account for 80 % of our spend, so we seek to outsource our supply base © The Delos Partnership 2008 page 5
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“Focussed” Supply Chain Management
Our business Supplier Tier Three Supplier Tier Two Supplier Tier one Cust- omer Tier One Customer Tier Two Customer Tier Three Sales Purchasing Manufacturing Supply Chain visibility Operation Inventory © The Delos Partnership 2008 page 6
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© The Delos Partnership 2008
Key features Suppliers have responsibility for management of inventory – reorder point system used Relationship is contractual – long-term blanket orders, and call-offs against blanket orders Some electronic messaging of orders, and use of internet portals to download information Rigorous use of performance measures on time in full to quality. Large suppliers dominant force in relationship with small to medium size suppliers © The Delos Partnership 2008 page 7
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Focussed Supply Chain Management
POSITIVE OUTCOMES Reduced Cash Flow as inventory responsibility rests with suppliers/customers Reduced administrative requirement and purchasing overheads and order entry overheads Ability to have one or few suppliers handle multiple materials - less risk of failure to deliver RISKS TO FACE Lack of visibility Issues with quality of plan – particularly if e-enabled Development of New Products becomes difficult over a number of suppliers [used to be all in-house] Greater risk of supply chain failure – longer chain, more people involved Buffers get bigger.. © The Delos Partnership 2008 page 8
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“Focussed” Supply Chain Management
More Inventory Less Satisfaction More Demand Volatility Our business Supplier Tier Three Supplier Tier Two Supplier Tier one Cust- omer Tier One Customer Tier Two Customer Tier Three Sales Purchasing Manufacturing Supply Chain visibility Operation Inventory © The Delos Partnership 2008 page 9
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The choices to solve the problems
ARMS LENGTH Enforce contractual clauses on: Delivery Quality – send back product Insist on more safety stock Manage your customers’ processes Build in risk-management by having more suppliers TRUE PARTNERSHIP Share vision and strategy Share true demand information across the whole of the supply chain Flowcasting at the consumer end Replenishment planning replaces forecasting at every level of supply chain Help customers and suppliers develop their processes Have fewer suppliers to you who manage effectively Are you always that strong opposite all key Suppliers ? Requires trust and real partnership © The Delos Partnership 2008 page 10
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© The Delos Partnership 2008
The Delos Partnership supports the development of systems, processes and behaviour that generate real partnerships. Where processes are not in line with our platinum standards, then we will educate and facilitate the development of these between companies and more importantly across company boundaries. Successful implementation is not just about e-enablement, but about common-sense integration of people processes and tools It is also about sharing vision and strategy and having mutually beneficial measures of performance. We also support the development of a single set of numbers across the supply chain to reduce demand volatility and inventory – it is more about having inventory at the right place and at the right time to support the end-consumer, and not about offloading the risk to everyone else. © The Delos Partnership 2008 page 11
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The Delos Partnership solution Partnership along extended supply chain
Prime/ Supply Chain Leader Prime/ Supply Chain Leader © The Delos Partnership 2008 page 12
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© The Delos Partnership 2007
Extended Enterprise Leadership – shared process, aims measures, improvement programmes ….. People Measures Improvement Innovation Vision Strategy Prioritisation Demand Support Supply To be successful a business needs all links to work properly (like a body) © The Delos Partnership 2007 page 13
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Principles of Supply Chain partnership
Share Vision and Strategy as well as data and information Promise only what you can realistically deliver Communicate when you have a problem. Tell it as it is and not how you would like your partner to think it is. Measure performance openly and transparently, and work to continuously improve. Improve the processes, and don’t blame the people. Systems are only as good as the quality of the data. Make sure data is 100 % accurate. Accuracy is an attitude of mind and not the product of audits. Relationships are based on openness, honesty and trust, and don’t enter into a partnership unless these foundations are there. © The Delos Partnership 2008 page 14
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“Focussed” Supply Chain Management
Less Inventory More Satisfaction Less Demand Volatility Our business Supplier Tier Three Supplier Tier Two Supplier Tier one Cust- omer Tier One Customer Tier Two Customer Tier Three Operations Team Customer Team Manufacturing Team Operation Supply Chain visibility Inventory © The Delos Partnership 2008 page 15
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The Delos Partnership solution - Benefits and prerequisites
Key Benefits Prerequisites Improved visibility Reduction of risk Increased flexibility Joint Lean programmes Co-managed inventories Improved New product Introduction Risk Reduction Cost reduction Lower working capital requirement Lower cash flow requirement Better Management of change Understanding of benefits of partnership rather than antagonism Shared benefits and costs Understanding of Vision and Strategy across the supply chain Common strategy Common measures Understanding of how and where to optimise the supply chain Education © The Delos Partnership 2008 page 16
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