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1
PMAP – Purchasing Management Association of Philadelphia
TuesdayDecember 18, 2007 - TuesdayDinner Presentation
2
The Buyer of the Future –What Skills Will You Need?
Who Do You Gotta Be?
What Do You Need To Know?
4
Topics For Tonight
1. The Business World 2. Before Materials Management 3. Materials Management 4. On Our Way To Today 5. Supply Management 6. Supply Chain Management 7. The Global Supply Chain 8. The Organization of the Future 9. Knowledge and Skills 10. What Do We Need to Know, What Do We Need
To Do, What’s It Going to Take?
5
A Little Background Music
The Business World Today?Global Challenges and Impacts?Our Competitive Environment?Drivers of Better, Faster,
Cheaper?
6
Our Business World
Global Wide generational
spread Continuous change Greening of the
organization Sustainability
Dow Jones Social Responsibility
ISO 26000 Continual cost
reduction opportunities
Regulatory demands Lack of qualified staff Greater risk
possibilities Customer base Supplier integration Leadership Innovation and
creativity Outsourcing
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Before Materials Management
CEO
Purchasing Inventory Transportation WarehousingProductionPlanning
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Before Materials Management
Lack of communication between materials areas Excess inventory Functional focus Duplication/redundancy Conflicting goals Lack of clear understanding of the impact of one
function on another Competition for approval from CEO Focus on what was best for the
function/department not the organization or the smooth flow of materials or the ultimate customer
9
Materials Management
1. An integrated approach to managing materials and the people and resources that support the efficient use of materials
2. Functions involved in the managing of materials are integrated under one manager. Materials Manager VP of Materials
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Materials Management
3. Functions integrated Purchasing Inventory Control and
Management Transportation Customer Service Forecasting Production Planning
and Control Warehousing
including Receiving Shipping
4. All decisions made based on trade-offs Those decisions
that were best for the organization and the lowest ultimate cost of managing materials
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Materials Management
CEO
MATERIALSMANAGEMENT
QUALITYFINANCE MARKETING SALES
Transportation PurchasingProductionPlanning
Scheduling
CustomerService
Inventory Warehousing
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Materials Management
Reduction in inventoryImproved communicationBetter decisionsMore focus on the management of
materialsReduced costs of productionPositive impact on the bottom line
13
Materials Management
Focus on managing materials at the lowest ultimate cost
Not yet end-customer focusedNot integrated into other non-material
functions
14
Materials Management
Focus on managing materials at the lowest ultimate cost
Not yet end-customer focusedNot integrated into other non-material
functions
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On Our Way To Today Stockless Purchasing P-Cards VMI Consignment Group purchasing arrangements Contractual language E-Commerce Internal relationships Strategic sourcing Optimizing the supply base Tactical to strategic thinking Quality emphasis
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Supply Management
The forecasting, planning, sourcing, acquisition, storing, managing, and disposing of materials used or for potential use to support the organization’s production, distribution, and customer service.
Institute For Supply Management (ISM) Formerly the National Association of Purchasing
Management (NAPM)
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Supply Chain Management
The supply chain is a series of organizations that jointly create value for ultimate customers.
Supply chain management is the proactive management of supply chain links that are critical to an organization’s operations.
A systems approach to managing flows of information, materials, and services from raw materials suppliers through factories and warehouses to the end-customer.
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The Internal Supply Chain
R&D Engineering Purchasing Transportation Finance
A cross-functional team focusing on the design, implementation, and management of a series of activities that provide the ultimate customer with what they want.The design and management of seamless, value-added processes across departmental boundaries to meet the real needs of the end customer.
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Moving Downstream
The Internal
Supply Chain
Customer
Customer
CustomerCustomer
UltimateCustomer
Production Distribution
MarketingFinance
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Moving Upstream
SCMTeam
Tier1
Tier 3
Tier 2
Tier 3
Tier 2
Tier 2Tier 3
Tier 3
Tier 3
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The Total Global Supply Chain
The entire supply chain from cradle to grave including returns management, transportation providers, and other types of providers.
Upstream partners Enterprise Downstream partners
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Supply Chain Management
SCM encompasses all activities associated with the flow and transformation of goods from the raw materials stage through to end users, as well as the associated information flows
The networks, or chains of suppliers, producers, and customers involved in producing and marketing particular products.
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Supply Chain Objectives
Reduce or share risksImprove performanceReduce cycle timeReduce costsImprove customer service/satisfactionGenerate new incomeIncrease profits
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Supply Chain Management
Includes systems management, operations and assembly, purchasing, production scheduling, order processing, inventory management, transportation, warehousing, and customer service.
AT EVERY TIER OF THE SUPPLY CHAIN
Supply Tiers Internally Customer Tiers
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Supply Chain Management
Identify the processes necessary to meet customer expectations
Engineer SCM processes as the core of the business
Move from a silo to a team philosophy Integrate internal processes Define metrics Operate the internal supply chain Measure performance Integrate the internal supply chain with the supply
chains of other organizations
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The Global Supply Chain
Expands to include upstream suppliers anywhere in the world
Expands to include downstream customers anywhere in the world
Expands to an internal supply chain that may produce in global sites owned by the organization
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The Global Supply Chain
China
KoreaRaw Materials
FranceRaw Materials
UnitedStatesTransportation Mexico
Canada
Brazil
Seamless, value-added processes across organizational /country boundaries
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Global Sourcing
The ability of an organization anywhere in the world To purchase materials anywhere in the
worldTo produce anywhere in the worldTo transport materials anywhere in the
worldTo store anywhere in the worldTo sell anywhere in the world
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Portfolio Management
An organization’s analysis and cost structure for buying, producing, transporting, storing, and selling their products at various locations including transportation costs
A cost matrix implemented and maintained so that decisions can easily be made on how best to manage the entire physical chain of products in the face of potential or real risk disruptions
30
The Supply Chain Language
Core competencies Stakeholders Enterprise Downstream and upstream channel
members Best tiering Best shoring Tier management Off shoring Low cost country sourcing The bullwhip effect
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The Organization of the Future
20th Century Stability and
predictability Size and scale Command and control Rigidity Rules and hierarchy Guarded information Vertical integration Domestic market
21st Century Continuous
improvement Speed and
responsiveness Leadership for everyone Virtual organizations Information sharing Creativity and intuition Proactive Interdependence Collaborative advantage International focus Business models
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The New Rules
1. Don’t play by the dominant rules of your industry.
2. Get innovative or get dead. 3. Reexamine your organization for hidden
strategic assets, then leverage the heck out of them.
4. Create a bias for speed and action in your company.
5. Be proactive and experimental.
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The New Rules
6. Break barriers. 7. Use all of your people, all of their skills, all of
the time. 8. Globalize your perspective and knowledge base. 9. Admit that the eco-industrial revolution is well
and truly upon us. 10. Turn organizational learning into a corporate
religion. 11. Develop strategic performance measurement
tools. From: The Eleven Commandments of 21st Century
Management Matthew J. Kiernan
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Knowledge and Skills
Materials Management All of the functions in the MM
area Communication and conflict
management Relationship management Project management Tactical manager Strategic thinker Human relations
Supply Chain Professional Collaborative mindset Team orientation Facilitation of teams Manager of diverse
relationships Subject expert Financial understanding Risk manager Trade-off manager Global expert Change management End-to-end thinking Total cost perspective Revenue generator Profit generator Cultural expert Technology understanding
35
The Buyer of the Future
CostManagers
TradeoffManagers
Relationship Managers
ProfitManagers/Generators
Asset Managers
Revenue Managers
Generators
RiskManagers
36
The Supply Chain ProfessionalThe Buyer of the Future
Walking up and down the organization’s internal and external supply chains
=An understanding of how it all worksValue to all relationships
37
Supplier Relationship Management
Moving from arms’ length to partnerships, alliances, and collaborations
This includes divisions
38
Customer Relationship Management
Customer segmentationWhat do they need and want?
39
Alignment
Successful global supply chains align with business/organizational strategies.
Global supply chains are successful if the cross-functional supply chain team understands the mission, goals, objectives, and challenges of the organization.
40
Global Supply Chain Analysis
True internal costs Total Landed Costs
Unit Price +Inland transportation +Port fees +Export licensing +Export documentation +Maritime insurance +ocean/Air freight costs +Container screening +C-TPAT +Inspection
+Customs duties +Customs document
review +Bonded warehousing +Harbor fees +Import documentation +Customs Broker fees +Port fees +Import licensing +Letters of Credit +Special packaging +Inland transportation +Pipeline inventory +Communication +Travel
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Global Supply Chain Analysis
Country Study Template Government Infrastructure Potential employee base Laws and regulations Raw materials Transportation capabilities Business culture Country culture Unions and other employment practices
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Emerging Markets
Countries that are potential sources of materials and outsourcing opportunitiesViet NamLatin AmericaCambodiaEaster block nationsMalaysiaScotland Ireland
43
The Successful Global Supply Chain
All stakeholders are focused on the ultimate customer. On-demand, real-time data as to exactly what is happening
anywhere in the supply chain available to all stakeholders Total trust between channel members A supply chain that produces just what and how much is needed,
when it is needed, and where it is needed Metrics that align with business and supply chain priorities Strategies are put before technology. Risk management portfolio for the entire supply chain Collaborative internal, supplier, and customer relationships Flexibility built into the supply chain. Inventory in the right format at the right location in the supply chain An end-to-end focus by all channel members A cross-functional supply chain mindset
44
The Successful Global Supply Chain - Adaptive
Pattern Recognition
Demand patternSupply bases
Technology cycleProduct life cycle
Preparedness
Market entrance capabilitySupply network development
Product design flexibilityLook-ahead planning
Supply Chain StructureSupply and manufacturing bases
Outsourcing relationshipsDistribution channels
New markets and customers
45
The Successful Global Supply Chain - Agile
Responsiveness to uncertain demands, Robust to unexpected external
disruptions
InformationIntegration
Supplier Integration
Design forPostponement
Inventory/capacitybuffering
Contingencyplanning
EfficientLogistics
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The Successful Global Supply Chain - Aligned
Dimension Exchanges Objectives
Information
alignment
Information
knowledge
Common
shared
Identity
alignment
Role, work, responsibility
Efficiency and flexibility
Incentive alignment
Accountability
risks/
cost/gains
Equitable and
Overall performance
47
The Unsuccessful Supply Chain
Lack of understanding at all levels Lack of senior management buy-in Silo mentality Too many measurements and focus on the
wrong measurements Lack of alignment between business,
supply chain, and internal functions Inventory held at every tier Transactional activities Lack of tier management
48
Steps in Getting There
1. The existing organizational culture
2. Level of trust at all levels and with suppliers/customers
3. A change management process
Introduction of trust A supply chain
awareness training Steps in undoing
wrongs from the past A champion for
change A strategy for moving
the masses to supply chain thinking
49
Getting a Little Help From Other Concepts
Lean Thinking Value Value stream Value stream
mapping Flow the value
stream From push to pull Continuous
Improvement
Six Sigma A particular goal
of reducing defects to near zero
3.4 errors in a million tries
50
Six Sigma
Genuine focus on the customerData and fact-driven managementProcess focus, management, and
improvementProactive managementBoundary-less collaborationDrive for perfection, tolerate failure
51
The Principles ofGlobal Supply Chain Management
Visibility
Leverage
Technology
Scalability
KnowledgeManagement
SupplyManagement
Synchronization
Risk identification
Collaboration
Event ManagementRisk
Management
Connectivity
Inventory
52
The Principles of Global Supply Chain Management
Visibility The ability to see
activities throughout the supply chain virtually or near-virtually
Internet Supply chain
software Full integration of all
legacy and new software programs
Collaboration An integration of
planning and decision making across organizational boundaries
All stakeholders understand their roles in the supply chain, business processes, expectations
Everyone is focused on serving the ultimate customer
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The Principles of Global Supply Chain Management
Connectivity Strategic, tactical,
and operational connections between all supply chain organizations through open communication, technology, and architecture of the supply chains
Scalability The ability to
develop a set of supply chain business processes that can be duplicated with additional customers and third-party relationships
54
The Principles of Global Supply Chain Management
Leverage Core competency
focus Leverage the core
competencies of other organizations
Core customer focus Customer
relationship management
Technology Customer relationship
management Supplier relationship
management ERP Demand/Supply RFID E-procurement Warehouse
management Collaborative software
Sales and Operating Collaborative Planning
Forecasting and Replenishment
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The Principles of Global Supply Chain Management
Supply base management A documented total
supplier programSelection criteriaEvaluation ManagementDevelopment
Revisions of criteria Security Long-term growth Electronic expansion
Revisions of evaluation criteria
Performance management
Tier sourcing Tier management
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The Principles of Global Supply Chain Management
Synchronization Theory of constraints – the slowest link in
the supply chain will impact all other links All links should produce exactly what is
needed at every level, at the right time, at the right place, at the right volume, etc.
No inventory build-up anywhere in the supply chain
Supply Chain Links
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The Principles of Global Supply Chain Management
Information/Knowledge Management What information is needed? How will the organization get that information? How will the organization get that information
virtually? What systems and processes are in place to
move that information within the supply chain quickly?
How quickly can the supply chain act on the information
Product Information Customer information
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Material Expert
Titanium DioxideSoy oilWeatherViral outbreaksCost of goods
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The Principles of Global Supply Chain Management
Risk Identification Internal
Disruptions of internal operations Business risks Planning and control risks Mitigation and contingency risks
External Demand Supply Environment Business Physical plant
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The Principles of Global Supply Chain Management
1. Profile supply baseIdentify each raw material or componentIdentify strategic materialsUnderstand supplier’s organization
2. Assess vulnerabilitySupply risksDemand risksEnvironmental risksProcess and plant risksBusiness risks
3. Evaluate implications 4. Identify mitigation and contingency actions 5. Complete cost/benefit analysis
61
The Principles of Global Supply Chain Management
Business Continuity Planning
Awareness Internal External
Prevention
IdentificationAssessmentTreatmentMonitoring
RemediationPlan Measure Impact Duration ResourcesExecution
KnowledgeManagementTrack resultsThings gone wrongThings gone rightFuture Action list
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The Principles of Global Supply Chain Management
Portfolio DesignMultiple supply sourcesMultiple manufacturing locationsTransportation modesTransportation channelsSpecial conditionsCosts for each possible source Create various supply chain scenariosSystem will provide total cost per
example
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The Principles of Global Supply Chain Management
Inventory ConsiderationsPostponementReduction of inventory at every level of
the supply chainForms of inventoryLocation of inventory within the supply
chain
64
The Principles of Global Supply Chain Management
Event ManagementA supply chain event
Any individual outcome or non-outcome of a supply chain cycle,
(sub) process, activity, or taskSupply chain event management
The application of statistical process and technology identification and control solutions to standard and non-standard supply chain events
Event categoryA logical grouping of supply chain events
65
The Hierarchy of the Global Supply Chain Evolution
FunctionalProcess Unit
Intra-Enterprise
Inter-Enterprise
External
Total Business System
Enterprise Integration
Corporate Excellence
Partner Collaboration
Value Chain Collaboration
Full Network connectivity
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The State of the Union
Impact of supply chain management on cost savings and revenue improvement Up to 20%
Supply chain evolution in various industries
Inter-enterprise collaboration
Alignment of business strategies and supply chain strategy
Challenges Software as the cure-all Customer satisfaction
and supply chain competency
Understanding relationships between business and technology
Importing/exporting Teamwork Vulnerability reviews
Potential disruptions International freight
movement
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Future Expectations
At the third level or higher on the hierarchy model
One to three points of new profit for a typical three-year supply chain effort
– longer initiatives the points increase to five to eight
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The State of the Union
Strategic sourcing of direct materials
Sales and operations planning
Strategic sourcing of indirect materials
Strategic inventory planning
Advanced planning and scheduling
Senior management commitment
Metrics aligned to supply chain outcomes
69
“It’s not enough to be busy… the question is:
What are we busy about?”
Henry David Thoreau
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Now It’s Your Turn
What three new ideas did you gain from this presentation that you want to find out more about?
What steps could you take to implement some of these ideas?
What do you want more information on?