Best Practices in Supply Management

8/9/2019 Best Practices in Supply Management

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Why Study Best Practices ?Why Study Best Practices ?

Third Millennium : Horse Race in Business

Only the Best of the Best Companies will survive :

DANTOTSU: a Japanese word for Best ofBest

Instead of reinventing the wheel, a study of Best

Practices helps to adopt the ones most suitable

Benchmarking has become a science

Benchmarking for an ideal home: How do you do it ?


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BENCHMARKING GOES TOPSYBENCHMARKING GOES TOPSY

Heaven is :Living in an English House

With a Japanese wife

Having Chinese Food

On an American Salary

Hell is :

Living in a Japanese House

Eating English Food

On a Chinese Salary

With an American Wife


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ASIAs 50 MOST COMPETITIVE Cos.ASIAs 50 MOST COMPETITIVE Cos.

-- Asia Inc., HongkongAsia Inc., Hongkong

Sundaram Fastners Ltd. (16th)

(Winner of General Motors Supplier of the

Year award)

Reliance Industries (9th)Ranbaxy Laboratories (11th)

Bajaj Auto (20th)

Other International Companies :Sony Corporation

Toyota Motor Corporation

Singapore Airlines


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Sundaram Fastners Ltd.Sundaram Fastners Ltd.

SFL supplies almost all of GM North Americas

requirements of metal caps, some four-and-a halfmillion a year for several types of GMsrequirements in cars, buses, trucks and there hasnot been even a SINGLE rejection in full one year.

Winning this award is an awesome achievementsince the recipients have exceeded theexpectations of their toughest customers GMbuyers, GM engineers, & GM plants

- Harold R Kutner

VP-Prodn. & Logistics, GM North America


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BEST PRACTICESBEST PRACTICES

1. Target 10 : Every year, a cost-saving project with its

vendors is launched, calling for a 10 per cent

reduction in the production cost by improving

material, process and design.

Suppliers Cost Structure is attackedSuppliers Cost Structure is attacked, not profits.not profits.


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2.2. Tear Down Analysis :Tear Down Analysis : Get a sample of the

component, take it apart and work out the cost

structure. For each cost driver, allow a variance

of 15-25 per cent. Calculate the variance of final

cost stage (usually 15-20 per cent) and then

negotiate in this range.


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3. Purchase Managers Pass Book3. Purchase Managers Pass Book

A Purchase Manager is held responsible for agroup of components, any increase in the

purchase price is debited to his/her account,

while any decrease in the price is credited to

him/her. The manager must maintain a positive

balance at all times. The purchase manager is

not allowed to place orders if his/her balance

becomes negative. She/ he can do so only afterobtaining special permission.


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4. Challenge 10204. Challenge 1020

Two tiered Rating : Static Rating

Static Rating : For judging for the first time

A supplier is visited by a Commodity Business TeamCommodity Business Team

(CBTCBT) consisting of Purchase, Materials & Quality

(PMQ)


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Rating of Vendors-contd.Rating of Vendors-contd.

CBT gives its rating on a five category scale, based on:Quality, technical competence, financial stability,locational aspects, systems & procedures, managerialcompetence and industrial relations in following fivecategories:

FM :FM : Fails to meet Requirements

MM:MM: Meets Minimum Requirements

MR :MR : Meets Requirements

ME :ME : Meets and Exceeds RequirementsMeets and Exceeds RequirementsCE :CE : Clearly Exceeds Requirements

Supplier with MM or lower is rejectedSupplier with MM or lower is rejected


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Dynamic RatingDynamic Rating : Cross between a quarterly

report on quality and a monthly report on

delivery. The rating is on a 100-point scale.With 60% on Quality (PMQ), 20% on Delivery

(Material) and 20% on suppliers response to

orders (Purchase).

Challenge 1020Challenge 1020 involved adding 10 per cent of

new capable suppliers and removing the bottom

20 per cent of the non-performers. This helps inimproving quality, costs and the expenses

incurred for servicing the vendor chain.


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5. STABLE VENDOR MODEL OR CHURN5. STABLE VENDOR MODEL OR CHURN

VENDOR MODELVENDOR MODEL

If a new supplier decides to supply at the

reduced price, the existing stable supplier is

expected to lower his cost further to new or

face the option of vacating the slot.

Cut costs, not corners !Cut costs, not corners !


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THE VENDOR ARCHETYPETHE VENDOR ARCHETYPE

Best Practices in handling vendor chains thatare in vogue :

Strategic Items :

Focus at the stable

Vendor chain

Cubbyhole items :

Design & ask

Vendors to adhere

to the

specifications

Leverage/genuine items:Such commodities can be

bought with the quotation.

For these Vendor

Churn should be made

feasible


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6.6. Look at TAC : At TACLook at TAC : At TAC

Maintaining a static relationship with vendorscan be suicidal. Vendor base becomes stagnant.

Project at TAC : Look at Total Acquisition CostProject at TAC : Look at Total Acquisition Cost

(TAC = sum of pure cost, cost of rejection,inventory, tax, inspection, inward expenditure

and line rejections and not pure costs)

Found a 25-35 per cent difference between the

two.

Hindustan Motor reactivated their Vendors BaseHindustan Motor reactivated their Vendors Base


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7. Empower/ Arm Your Vendors7. Empower/ Arm Your Vendors

ssure the start-up a competition-freeenvironment initially, position engineers at

new 6endors operations, help obtain financial

and technical tie-ups.

Annual Vendors Meets, Work3hops, V)sits

Business w)th a handshake

No written contracts; work on Relationships

Consumer Operated Lube Oil Depot (COLD)Vendors officers posted at Buyers premises

as Guest Officers, and the concept of Mother,

Daughter Companies followed in Japan.


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8. Vendor Satisfaction Index8. Vendor Satisfaction Index

(a) Bharati Telecom follows a system of 360 Degappraisal by the Vendor i.e Vendor is asked

to give a feed-back about how he evaluates

the buying company through an evaluation

format.

(a) Source Rationalistion Index : (Eichers)

Suppliers per part reduced from 2.5 to 1.1


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9. SFLs Fruit Salad : Quality practice of9. SFLs Fruit Salad : Quality practice of

Parts Per Million Co.Parts Per Million Co.

If one wants to eat fruit-salad, one has to wash

each fruit, peel each fruit, cut each fruit, mix

with the necessary cream and it is ready to eat.

On the contrary, you cannot get fruit salad byrunning a road roller on all the fruits.

Quality is an obsession and organization wideQuality is an obsession and organization wide

cultureculture

Quality has become EQUALITY and is anQuality has become EQUALITY and is an

essential to do businessessential to do business


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10. Other Best Practices10. Other Best Practices

CTOCTO Cost Take Out ProgrammeKIPKIP Knowledge Improvement Programme

ZISZIS Zero Inventory of Scrap

ZINZIN Zero Inventory of Non-moving items

ZIIZII Zero Investment Improvements

CEOCEO Meets, Materials Management Week/DayCelebrations

NIRMANIRMA A fine network of kiosks and constantlymoving delivery vans

AMULAMUL Cooperative sourcing milk from small farmersLIJJATLIJJAT Cooperative of rural women

Bombays Dubba WallasBombays Dubba Wallas : Perfect example ofDistribution


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Best Practices emerge from a creative mindset ..Best Practices emerge from a creative mindset ..

If you do business today, with theIf you do business today, with thepractices of yesterday, You will be outpractices of yesterday, You will be out

of business tomorrow. !!of business tomorrow. !!


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Thank You


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WORLD CLASS MATERIALSWORLD CLASS MATERIALSMANAGEMENTMANAGEMENT

1


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CHALLENGES OF THE BUSINESS ENVIRONMENT

WORLD-CLASS ORGANISATION

WORLD CLASS MATERIALS MANAGEMENT

CHARTING PATH FORWARD

PROFILE OF 21ST CENTURY MATERIALS

MANAGER

OUTLINE OF THE PRESENTATIO

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1.1 LIBERALISATION

1.2 GLOBALISATION

1.3 COMPETITION

1.0 CHALLENGES OF THE BUSINESS ENVIRON

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1.4 SPEED :EVERYTHING MUST BEFASTER, SOONER, NEWER,QUICKER

1.5 CUSTOMEREXPECTATIONS:

PRODUCTS MUST BEBETTER YET CHEAPER

1.6 INVENT THE FUTURE :

NO MORE PREDICTIONS

.0 CHALLENGES OF THE BUSINESS ENVIRONM

4


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1.7 ONGOING PRACTICE OF :ANTICIPATE CUSTOMER NEEDS &COMPETITOR S MOVES

1.8 EXAMINETRADITIONAL BUSINESS

CYCLES & SUPPLY CHAINS

1.9 ELIMINATE PROCESSES THAT DO NOT

ADD VALUE TO PRODUCTS ORMARKET

POSITION

1.0 CHALLENGES OF THE BUSINESS ENVIRON

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The quality Advantage

The speed Advantage

The dependability Advantage

The flexibilityAdvantage

The cost Advantage

Doing it RIGHT

Doing things

FAST

Doing things on

TIME

Changing what

you DO

Doing things

1.10 TO GAIN COMPETITIVE ADVANT

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2.0 WORLD CLASSORGANISATIONS

2.1 WORLD-CLASS IS NOT A FIXEDSTANDARD

IT IS A MOVING TARGET

WHAT IS EXCELLENT TODAY MAY

BECOME AVERAGETOMORROW

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2.2 WORLD CLASS IS NOTNECESSARILYWORLDSCALE

WHAT IS WORLD CLASS ?

CONFEDERATION OF BRITISH

INDUSTRIES

AGENDA FOR COMPANIES ASPIRING TOBE

WORLD CLASS :


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Manufacturing yesterdayA sea of inventory

Longsetup

tim

Productioninflexibility

Equipmentdowntime

Lowmotivation

Qualitydefects

PoorProduction flow

Inaccurateinflexiblescheduling 9

W ld l f t i


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World-class manufacturingJust in Time production

Shortset uptime

Flexibleproduction

Noequipmentdownti

me

Rs WIP Rs

Highmotivation

Zeroqualitydefect

s

In lineproduction flow

Rapidflexiblescheduling

10


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2..3 AGENDA FOR COMPANIES ASPIRING

TO BE WORLD-CLASS

ESTABLISH A CLEAR SENSE OF STRATEGIC DIRECTION ENSURING THIS IS COMMUNICATED,

UNDERSTOOD AND IMPLEMENTED THROUGHOUT THE BUSINESS AND ITS SHAREHOLDERS.

BENCHMARKAGAINST THE BEST PERFORMERS IN AREAS LIKE PRODUCTIVITY, TIME TO MARKET

AND STOCK-TURN.


11


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DEVELOP GREATER CUSTOMER FOCUS IN EVERY

FACET OF

BUSINESS

RECOGNISE THAT INNOVATION WILL

DIFFERENTIATE

WINNERS AND LOSERS

RECOGNISE THAT PEOPLE ARE THE CRUCIAL

FACTOR IN THE

BUSINESS AND INVEST IN THEM

2.3 AGENDA FOR COMPANIES ASPIRING TO

WORLD-CLASS (contd...)

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.0 WORLD CLASS MATERIALS MANAGE

BENCHMARKING AGAINST BEST PERFORMERS

CUSTOMER FOCUS (INTERNAL & EXTERNAL)

DEVELOP & INVEST IN PEOPLE.

PARTNERSHIP SOURCING.

CONTRIBUTE TO INNOVATIVE PRODUCTS &PROCESSES.

SENSE OF STRATEGIC DIRECTION13

3 1 OPERATIONAL3 1 OPERATIONAL


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Efficiency :The ratio of input to usable out

Doing Things Right (DTR)

Effectiveness :

How well expected

or desired resultsare achieved

Doing Right Things(DRT)

OPERATION

AL

EXCEL

LENCE

3.1 OPERATIONAL3.1 OPERATIONAL

EXCELLENCEEXCELLENCE

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3.2 STRATEGIC3.2 STRATEGIC SUPERIORITYSUPERIORITY

VISION : The lowest total costs on the

planet

MISSION : To obtain the highest quality

material at the lowest overall

cost with the greatest

flexibility.

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OPERATIONS & STRATEGY MATRIXOPERATIONS & STRATEGY MATRIX

?

??xSTRATEG

Y

Wrong Right

OPERATIONS

WORLD CLASS = OE + SS

Wron

g

Right

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PURCHASING STRATEGY !?PURCHASING STRATEGY !?

COMPLE

XIT

Y

VALUELOW HIGH

HIGH

LOW VALUEHIGH COMPLEXITY

HIGH VALUE

LOW COMPLEXITY

LOW VALUE

LOW COMPLEXITY

HIGH VALUEHIGH COMPLEXITY

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3.3 ELECTRONIC COMMERCE3.3 ELECTRONIC COMMERCE

EC IS THE ABILITY TO EXECUTE TRANSACTIONS BETWEEN TWO

OR MORE PARTIES USINGCOMPUTERS LINKED TOGETHERBY NETWORKS

(like phone lines, cable, TV lines,leased lines, land-line radio, orsatellite radio)

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3 4 ELECTRONIC3 4 ELECTRONIC


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3.4 ELECTRONIC3.4 ELECTRONIC

E - COMMERCE-LINGOE - COMMERCE-LINGO

1.Electronic Catalogues

Graphical / Descriptive catalogues of goods and services

2.Electronic Data Interchange (EDI)

The Computer-to-computer exchange of business data in astandardised format.

3.Value-added Network (VAN)

A third party entity which electronically exchanges in

formation between subscribers and trading partners.

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E-Commerce Lingo contd......E-Commerce Lingo contd........

Electronic Funds Transfer (EFT)

5 The electronic transfer of cash between

accounts at different financial institutions :

DIGITAL CASH

Electronic / Digital Signature :

5 A mechanism which allows the receiver of an

electronic transmission to verify the sender

and the integrity of transmission through theuse of an electronic key (code) which is shared

by the sender and the receiver

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-DIRECTORIES

-INTERACTIVE APPLICATIONSEducational

InformationalAllow search across legal text and contracts e.g.

Contract Manager

-STORAGE TOOLS

3.5 Purchasing via CD-ROM /INTERNET

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A PROVEN BEST PRACTICE particularly for small value PURCHASESCard providers upgrading their systems, reports, and software

Ensure Savings - as number of transactions get eliminated, and

Transaction costs get reduced

3.6 PROCUREMENT CARDS3.6 PROCUREMENT CARDS

CHASEBANK

CITI BANK

HASING CARD

YOUR PURCHASING MORE PRODUCTIVE

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3.7 MEASURING PURCHASING PERFORMANCE3.7 MEASURING PURCHASING PERFORMANCE

Making purchases that arrive on timeMaking purchases that pass incoming quality

assurance inspection

Meeting target costsKnowledge of commodities in the purchasers

area

of responsibility

Ability to control purchase order cycle time

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MEASURING PURCHASINGMEASURING PURCHASING


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Ability to cultivate qualifiedsuppliers

Ability to perform work with a

minimum of errorsAbility to determine the bottomprice a supplier will

takeAmount of complexity ofcommodities in

purchasers responsibility

MEASURING PURCHASINGMEASURING PURCHASING

PERFORMANCEPERFORMANCE

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TYPES OF MEASUREMENTSTYPES OF MEASUREMENTS

Cost reduction - the reduction of costs either indepartment

processes or in current purchases made by thepurchasing department.

Material Price & Availability - effectively trackingchanges in material price and availability and analysingthe historical data for improved price negotiations.

Since purchasing has the potential for

making a significant contribution to theorganisation, select measurements thatshow value

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3.8 PURCHASING PERFORMANCE BENCHMARK3.8 PURCHASING PERFORMANCE BENCHMARK

The original 19 benchmarks developed by CAPS are :

1. Purchase rupees as a percent of sales rupees

2. Purchasings operating expense as a percent of sales rupees

3. Purchasings operating expense as a percent of purchase rupees

4. Purchasing employees as a percent of total company employees

5. Sales rupees per purchasing employee

contd.....

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Purchasing Performance Benchmarks contd........Purchasing Performance Benchmarks contd........

6. Purchase rupees per purchasing employee

7. Purchase rupees per professional purchasing

employee

8. Active suppliers per purchasing employee

9. Active suppliers per professional purchasing employee

10. Purchase rupees spent per active supplier

contd......

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11. Purchasings operating expense peractive supplier

12. Change in the number of active

suppliers during the

reporting period

13. Percent of purchases spent with

minority-owned

suppliers

14. Percent of purchases spent with

Purchasing PerformancePurchasing Performance

Benchmarks contd........Benchmarks contd........

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Purchasing Performance Benchmarks contdPurchasing Performance Benchmarks contd


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Purchasing Performance Benchmarks contd........Purchasing Performance Benchmarks contd..........

16. Percent of active suppliers accounting for 90 percentof purchase rupees

17. Percent of purchase rupees processed throughelectronic data interchange (EDI)

18. Percent of goods purchases handled by thepurchasing department

19. Percent of services purchases handled by the

purchasing department.

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Types of Measurements contd........ Types of Measurements contd........

The cost of lead-time and its improvement

AUTOMATION

Automating the purchasing and supply department

PRODUCTIVITY

Responsiveness to internal customers

Co-operation with other organisational functions

Supplier development and success of suppliercertification

programs

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3 9 CEOS PERCEPTIONS3 9 CEOS PERCEPTIONS


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3.9 CEO S PERCEPTIONS3.9 CEO S PERCEPTIONS

ABOUT PURCHASING FUNCTIONABOUT PURCHASING FUNCTION

81% PURCHASING IS IMPORTANT

55% IT IS EFFECTIVE

36% THOUGHT ADDS VALUE TO FIRMS BOTTOMLINE

41% HIGH INTEREST IN PURCHASE MEASURES

46% AVERAGE INTEREST

13% NO INTEREST ????

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Remember, for a measure to beeffective, it should be easy tounderstand, relevant to yourneeds, quantifiable, meaningfulto customers, strategicallymotivated and tacticallydeployed, and aligned with

organisation business needs andgoals.

By Michael Harding, C.P.M.,CPIM, Principal of Harding &

Associates in Bristol, Vermont,and Steven Kranz, C.P.M.

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CEOS PERCEPTIONS OF PURCHASING PERFORMANCECEOS PERCEPTIONS OF PURCHASING PERFORMANCE

Quality of purchased item

Key supplier problems that couldaffect delivery of materials

Internal Customer Satisfaction

terested in non-quantitative measuresterested in non-quantitative measures

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CEOS HAVE CAUSED ORALLOWED THE PURCHASING OF

GOODS AND SERVICES TO BESPLINTERED IN VARIOUSDEPARTMENTS

NOTAM

AJOR

CONTRIB

UTOR

TOMOST

DECISION

MAKING

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A HIGH PERFORMANCE DEPT.

REPORT SUCCESS : BOTTOMLINE IMPACT TALK LANGUAGE OF MONEY :

RELATE YOUR ARGUMENTS TO PROFIT &LOSS

PRESENT YOUR CASE FROM THE CEOs

PERSPECTIVE

DEMONSTRATE THAT YOUR IDEASCONTRIBUTE TO CORPORATE GOALS

WHAT THE CEO WANTS?

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3 10 INNOVATION


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Innovation

ContinuousImprovement

Improvement

Time

3.10 INNOVATION

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3.11 INTER-DEPENDECIES : EMPLOYEES3.11 INTER-DEPENDECIES : EMPLOYEES

5 WITH EVERY PAIR OF HANDS YOU GET A FREE BRAIN

5

CORRECTING & DIRECTING TO LISTENING & LEARNING5 COMMAND & CONTROL TO COMMITMENT (SEE

ILLUSTRATION)

5 STOCK TYPE (LIFE TIME EMPLOYMENT) & FLOW TYPE

(TEMPORARY)

5 ON-THE-JOB TRAINING IN JAPAN, WEST-OFF THE JOB,

OBSESSED WITH QUALIFICATIONS

5 THE DAYS OF THE MACHO-MANAGERS IN WORLD-CLASS

COS ARE IN THE PAST

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4 0 CHARTING PATH FORWARD


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4.0 CHARTING PATH FORWARD

WHERE ARE WE TODAY?

WHERE DO WE WANT TOGO ?

HOW DO WE GET THERE ?

GOALS > OBJECTIVES >38


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5 5.0 PROFILE OF 21ST CENTURY

MATERIALS MANAGER

JOBS IN THE FUTURE CANNOT BEASSURED BY THE SKILLS OF THEPAST

TACTICAL STYLE MMs WILL BECOME

A RARE BREED

INSTEAD OF GETTING KNOWN FOR

YOUR TOOLS BUILD A REPUTATION39


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COGNITIVE ABILITIES

INTELLECTUAL POWER

HOLISTIC THINKING

ANALYTICAL SKILLS

INTERPERSONAL ABILITIES

SELF-AWARENESS SKILLS

COMMUNICATION SKILLS

INFLUENCE SKILLS

TECHNICAL ABILITIES

PROBLEM SOLVING

COMMODITY KNOWLEDGE

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CHANGE


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FROM REACTIVE TO

PROACTIVE FROM TO DEFENSIVE TOASSERTIVE

FROM INWARD TOOUTWARD

FOCUSED

FROM TRADITIONAL TODYNAMIC

FROM EXECUTIVE TO

ENTREPRENEUR

CHANGE

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Isnt it getting a bit hot?


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Isn t it getting a bit hot?Well, it will probably soon pass

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Im having the time

of my life!

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Boiled - MORTAL

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THANK YOUTHANK YOU

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BENCHMARKINGBENCHMARKINGBENCHMARKINGBENCHMARKING


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ContentsContents

1. Benchmarking

2. Thought

3. Definition

4. Definition

5. Definition

6. Who does it

7. Objectives

8. Change- How Benchmarking help

9. Types of Benchmarking

10. Variations of Benchmarking


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ContentsContents

11. Benchmarking : Fundamentals

12. 10- Step Benchmarking process

13. 5 Phases of Benchmarking

14. 5 Phases of Benchmarking

15. Benchmarking16. Who can help

17. Benchmarking Companies

18. AI&Ts 12- Steps19. ALOAs Six Steps

20. Benchmarking Purchasing performance


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ContentsContents

21. Benchmarking Purchasing Performance22. Epilogue

23. Epilogue

BENCHMARKINGBENCHMARKING


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BENCHMARKINGBENCHMARKING

INVENTED BY : TAIICHI OHRO

who also developed the Just-in-Time inventory system in

Toyota. He compared the movement of components in Toyota

with that of consumer products in American Super Markets.

THE HOTTEST AND LEAST UNDERSTOOD TERM

Benchmarking isBenchmarking is


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Benchmarking is Benchmarking is

AN ONGOING INVESTIGATION AND LEARNING

EXPERIENCE SO THAT BEST INDUSTRY PRACTICESARE UNCOVERED, ADOPTED, AND IMPLEMENTED.

A PROCESS OF INDUSTRIAL RESEARCH THAT

ENABLES MANAGERS TO PERFORM COMPANY TOCOMPANY COMPARISONS OF PROCESSES ANDPRACTICES TO IDENTIFY THE BEST OF THE BESTAND ATTAIN A LEVEL OF SUPERIORITY ORCOMPETITIVE ADVANTGE.

A METHOD OF ESTABLISHING PERFORMANCEGOALS AND QUALITY IMPROVEMENT PROJECTSBASED ON INDSUTRYS BEST PRACTICES.

FORMAL DEFINITIONSFORMAL DEFINITIONS


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FORMAL DEFINITIONSFORMAL DEFINITIONS

THE CONTINUOUS PROCESS OF MEASURING PRODUCTS,SERVICES AND PRACTICES AGAINST THE COMPANYSTOUGHEST COMPETITORS OR THOSE COMPANIESRENOWNED AS INDUSTRY LEADERS

- Robert C Camp

BM IS A POSITIVE, PRO-ACTIVE PROCESS TO CHANGEOPERATIONS IN A STRUCTURED FASHION TO ACHIEVESUPERIOR PERFORMANCE.

BM is the process of identifying, understanding and adopting

outstanding practices, and processes, from Organizationsanywhere in the world, in order to help the Organizationimprove its own performance.


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D A N T O T S UD A N T O T S Ua Japanese word which means :a Japanese word which means :

Striving to be the BEST OF THE BEST

Logic : Searching out and emulating the best

can fuel the motivation of everyone involved,

often producing break-through results.

WHO DOES ITWHO DOES IT


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WHO DOES ITWHO DOES IT

Xerox, Ford, AT&T, DuPont, HP, J&J, IBM,

Motorola

Hindustan Lever, Citibank, RPG Group, Arvind

Mills

OBJECTIVESOBJECTIVES


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OBJECTIVESOBJECTIVES

1. To inculcate external orientation instead of

extrapolating from internal practices and past

trends.

2. To establish credible goals

3. To pursue continuous improvement

4. To meet ever-increasing customer expectations

CHANGE HOW BM HELPS ?CHANGE HOW BM HELPS ?


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CHANGE - HOW BM HELPS ?CHANGE - HOW BM HELPS ?

BELIEVE THERE IS A NEED FOR CHANGE : When

you see gaps between own Company and competition,you want to change.

DETERMINE WHAT YOU WANT TO CHANGE : By

understanding how industry leaders do things, you

identify what you have to change.

CREATE A PICTURE OF HOW YOU WANT TO WORK

AFTER THE CHANGE : By seeing what is possible and

the effect of its adoption by your Company.

BM MOTIVATES TO EVOLVE STRATEGIES TO DRIVE

EFFORTS.


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TYPES OF BENCHMARKINGTYPES OF BENCHMARKING

INTERNAL BENCHMARKING : Comparison of practices between similar operations within a firm.

COMPETITIVE BENCHMARKING : Comparison to the best face-off competitors

FUNCTIONAL BENCHMARKING :

Comparison of functional activities, even in dissimilar industries foruncovering innovative practices.

VARIATIONS OF BENCHMARKINGVARIATIONS OF BENCHMARKING


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VARIATIONS OF BENCHMARKINGVARIATIONS OF BENCHMARKING

PRODUCT BM :

Comparison between different features and attributes ofproducts.

PERFORMANCE BM :

Comparison of indicators of a business as a whole, or

divided into critical functions and processes.

PROCESS BM :

Comparison of processes - business, support services

and management

STRATEGIC BM :

Studying and outperforming strategies of competition.

BENCHMARKING :BENCHMARKING :


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FUNDAMENTALSFUNDAMENTALSKNOW YOUR OPERATION :

Assess Strengths & Weaknesses Document Work Process Steps & Processes

Define Critical Performance Measures

KNOW INDUSTRY LEADERS & COMPETITORS Practices

Performance Levels

INCORPORATE THE BEST & GAIN SUPERIORITY :

Involve line management : Gain Commitment Create World-class Work Practices

Achieve Superior Service Levels of Delivery

10-STEP10-STEP


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BENCHMARKING PROCESSBENCHMARKING PROCESS

10. Recycle the Process

9. Implement and monitor

8. Develop Action Plans

7. Revise Performance Goals

6. Communicate Findings

5. Project Future Performance Gaps

4. Analyze Performance Gaps

3. Collect Data2. Identify Whom to Benchmark

1. Decide What to Benchmark

FIVE PHASESFIVE PHASESPLAN ANALYSE INTEGRATE ACT IMPROVEPLAN ANALYSE INTEGRATE ACT IMPROVE


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PLAN, ANALYSE, INTEGRATE, ACT, IMPROVEPLAN, ANALYSE, INTEGRATE, ACT, IMPROVE

(MATURITY)(MATURITY)

1. PLANNING : What to Benchmark

Whom to Benchmark

Data sources and Data collection

2. ANALYSIS : Measuring the gap at present

Projecting the gap into the future

3. INTEGRATION : Evolve goals, objectives and strategies and integrateinto business plans and operational reviews.

Five Phases contd Five Phases contd


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4. ACTION & IMPLEMENTATION : Work out specific action plans, milestones, target dates,

persons responsible.

Implementation : by people who actually perform the

work

Measure progress and report on NEED TO KNOW BASIS

5. MATURITY : Stay current with industry changes and update

Incorporate best practices in all business processes, it

becomes a standard way of life to change to STAY

AHEAD.

BENCHMARKBENCHMARK


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BENCHMARKBENCHMARK

A BENCHMARK IS A STANDARD OF

EXCELLENCE OR ACHIEVEMENT AGAINST

WHICH OTHER THINGS MUST BE MEASURED

OR JUDGED.

WHO CAN HELP ?WHO CAN HELP ?


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WHO CAN HELP ?WHO CAN HELP ?

*AMERICAN PRODUCTIVITY & QUALITY CENTRE

Created

APCQ BENCHMARKING CLEARING HOUSE

*NAPMs

CENTRE FOR ADVANCED PURCHASING STUDIES

*In India

INSTITUTE OF QUALITY

NATIONAL CENTRE FOR QUALITY MANAGEMENT

BENCHMARK COMPANIESBENCHMARK COMPANIES


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BENCHMARK COMPANIESBENCHMARK COMPANIES

--------------------------------------------------------------------------Area Company

--------------------------------------------------------------------------

Assembly Automation .. Ford Motor Co.Billing & Collections .. American ExpressCustomer Focus .. Xerox

Employee Suggestions .. ToyotaIndustrial Design .. Black & DeckerInformation Systems .. General ElectricMarketing .. Proctor & GambleResearch & Development Corning

Supply Management .. Motorola, Xerox, Ford MotorCo.Training .. Caterpillar------------------------------------------------------------------------------

AT & Ts 12-STEPSAT & Ts 12-STEPS


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AT & T s 12-STEPSAT & T s 12-STEPS

1. Determining who the clients are 7. Verifying that the BM process is part ofthe business planning process.

2. Helping the clients understand the 8. Developing Implementation Plan

purpose of the Information

3. Testing the Environment 9. Analyzing the Data

4. Determining Degrees of Urgency 10. .Integrating the Recommended

Actions

5. Determining the Scope & Type of 11. Taking Action

Benchmarking Needed

6. Selecting & Preparing the Team 12. Continuing Improvement

ALCOAS SIX STEPSALCOAS SIX STEPS


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ALCOA S SIX STEPSALCOA S SIX STEPS

1. Deciding What to Benchmark

2. Planning the Benchmark Project

3. Understanding Your Own Performance

4. Studying Others

5. Learning From the Data

6. Using the Findings

BENCHMARKING PURCHASINGBENCHMARKING PURCHASING

PERFORMANCEPERFORMANCE


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PERFORMANCEPERFORMANCE1. Comparing total system against that of another

Company / Division.2. Comparing total system against that of a Competitor

3. Comparing total system against the best in another

industry

4. Comparing a specific purchasing component againstanother Division.

5. Comparing a specific purchasing against another

Competitor

6. Comparing a specific purchasing against any one in

the field


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7. Comparing firms paid prices against those of the

industry overall

8. Comparing Actual Budgets against PlannedBudgets.

9. Comparing Results of a Zero based Budgeting

Process.

10. Baselining good practices in each area.

11. Asking internal customers what they think of

purchasings performance.

J. Carinato

EPILOGUEEPILOGUE


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OGU

STATEMENT OF THE ORGANISATIONS

MISSION

EXPECTATIONS OF THE CUSTOMERS

STATEMENT OF EACH FUNCTIONs -

BROAD PURPOSES

SPECIFIC OUTPUTS : QUALITY

COSTS

EPILOGUE contd...EPILOGUE contd...


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EPILOGUE contd...OGU co td

BENCHMARKING IS NOT BLINDLY COPYING. IT

IS CREATIVE ADOPTION OF OTHERS

SUPERIOR PRACTICES.

BRINGS ABOUT LEARNING CULTURE,

EXTERNAL FOCUS STIMULUS FOR

IMPROVEMENT, INCREASED CUSTOMER

SATISFACTION, IMPROVED BOTTOMLINE,

INCREASED MARKET SHARE, IMPROVED

FINANCIAL RESULTS .END


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STRATEGIC ISSUES IN SUPPLYSTRATEGIC ISSUES IN SUPPLYCHAIN MANAGEMENTCHAIN MANAGEMENT


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STRATEGIC ISSUES IN SUPPLY CHAINSTRATEGIC ISSUES IN SUPPLY CHAIN

MANAGEMENTMANAGEMENT

Contents:Contents:


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Contents:Contents:

1.0 Global Scenario

2.0 Objectives of the Supply Chain

3.0 Supply Chain Management

4.0 Supply Chain Strategy/ ies

5.0 Barriers to MM & Root-causes6.0 Epilogue

1 0 Global Scenario1 0 Global Scenario


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1.0 Global Scenario1.0 Global Scenario1.0 Highly Competitive Environment :

Reduced Costs

Increased Quality Improved Responsiveness & Services

Flexibility

Better product availability

1.1 No Business is an Island : It is not enough to become efficient - Effectiveness has to be

created in Suppliers, the distribution channels and all associatedactivities to enable value to reach the customers.

1.2 Competition is not between individual businessesbut between groups of businesses. One supplychain competes against another supply chain.

2 0 Objectives of the Supply Chain2 0 Objectives of the Supply Chain


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2.0 Objectives of the Supply Chain2.0 Objectives of the Supply Chain

A well-oiled Supply Chain is expected to support

the strategic objectives of a business by adoptingthe following performance objectives defined inspecific measurable parameters :

Reduced Costs (C) Shorter Lead Time (T) Best Quality (Q) Flexibility (F) Enhanced Service (S)

Better Product availability & reliability (R)

Slack Vs Taut Supply ChainSlack Vs Taut Supply Chain


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Slack Vs Taut Supply ChainSlack Vs Taut Supply Chain

Supply Chain should be neither too slack to

be inefficient nor too taut to break :

Slack (inefficiency) : High Storage, delayed movement, poor

processing (under-utilization)

Taut (Fire Fighting) : Inadequate storage, frenzied movement

and poor processing (unacceptable quality).

SCM at Material & People LevelsSCM at Material & People Levels


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SCM at Material & People LevelsSCM at Material & People Levels

At Material level : Flow of materials through procurement,

manufacture, distribution, sales and consumption (disposal).

At People level : Social entity of people, organized as structures

and systems for delivering the desired value.

Material Flow

Information Flow

Design Supplies Pur &Stores

Mfg. Mktg. Customer

DefinitionDefinition


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DefinitionDefinition

The Integrated Management of all the

linkages and value-adding activities from the

suppliers supplier to the customers

customer in such a way that enhanced

customer value is achieved at lower costs.

4 0 Supply Chain Strategy4 0 Supply Chain Strategy


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4.0 Supply Chain Strategy4.0 Supply Chain Strategy

Strategic Supply Chain ManagementStrategic Supply Chain Management is directly

related to and draws strength from the business

strategy of an organization. It is developed from

business strategy.

Five aspects of Business Strategy / PolicyFive aspects of Business Strategy / Policy :(i) Products / Services for marketing

(ii) Market Segments (geographic) of operations

(iii) Customer Segments

(iv) Channels of Distribution (Distributors, Dealers,

Retailers)

(v) Customer Service

Five Elements of Supply Chain Strategy :


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pp y gy

Strategic Supply Chain Management

Components of Strategic Supply Chain Management

DistributionStrategy

Sourcing

Strategy InventoryStrategy

Customer

ServiceStrategy

Integration

Strategy

4.1 Sourcing Strategy :


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4.1 Sourcing Strategy :

Make or Buy

Sourcing

Strategy

Elements of Sourcing Strategy

Mfg.Management

CapacityManagement

Three Elements of Sourcing StrategyThree Elements of Sourcing Strategy


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Three Elements of Sourcing StrategyThree Elements of Sourcing Strategy

(i) Manufacturing ManagementManufacturing Management : Traditionally, PPC

Systems were designed to maximise efficiency oflabour and utilization of machines. These are no

longer adequate.

Now, production processes have to optimize

balance between Customer Satisfaction and

Efficiency.

(ii) Make or Buy DecisionsMake or Buy Decisions : Traditionally, factors such

as cost of inhouse manufacturing, cost of sourcedsupplies, labour cost changes, overheads,

capacity, availability and transport interruptions

were considered.

Now faster deliveries easy access for service


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Now, faster deliveries, easy access for service,

repairs and replacements and customer

preferences have also to be considered.

(iii) Capacity Management : Traditionally, the decision

on plant location were based on factors like cost of

land, Govt. subsidies, cost of power, availability of

labour, sales tax concessions etc.

Now proximity to customers, costs of distribution,

supply channel infrastructure availability, access to

service facilities, access to modes of transport

network and access to I.T. have also to be

considered.

4 2 Distribution Strategy4.2 Distribution Strategy


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Linkage between the firms customers and the sources

of its products or services that the firm provides to themarket place. This decision involves consideration of

distribution costs, long term commitment to certain

types of costs associated with a channel of distribution.

Distribution Strategy

Elements of Distribution Strategy

4.2 Distribution Strategy4.2 Distribution Strategy

Channel

Selection

Supply Chain

Management

Distribution

Planning

Elements of Distribution StrategyElements of Distribution Strategy


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gygy(i) Channel SelectionChannel Selection : Choice of Channel depends on the

products or services to be marketed, volumes involved,

geographical locations, long-term policy regarding marketingand level of customer service desired.

(ii) Supply Chain ConfigurationSupply Chain Configuration : Has a number of participants e.g.

sources of supplies, storage or stocking stations & distribution

channels till the supplies reach the end customers. Their

location has important bearing on the efficacy of supply chainsystem and the business results of the organization. Supply

Chain configuration calls for determining numbers and location

of each of the

participants, their role, etc. Factors such as Volume of supplies,

b f t hi l ti t f


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number of customers, geographic locations, cost of

transportation, distribution costs, level of customer delight and

vendor satisfaction are involved.

(iii) Distribution PlanningDistribution Planning : Wide variety of transport choices, faster

mode provides high level of customer satisfaction as well as

opportunities to seize business opportunities when there is a

sudden demand. Decisions whether to have own fleet or not,

costs of transportation, transportation mode, capacity, location,routing and the schedules of distribution so that supplies reach

the destination on time; are to be taken. Decisions ensuring JIT

supplies to customers are to be taken.

4.3 Inventory Strategy4.3 Inventory Strategy


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4.3 Inventory Strategy4.3 Inventory Strategy

This is the core of SCM. The major cost of a supply

chain, the level of customer satisfaction, the businessgrowth (or fall) are largely influenced by the Inventory

Strategy.

Three Elements of Inventory Strategy :Three Elements of Inventory Strategy :

Demand

Forecasting

Inventory

Strategy

Stock Facilities Inventory

Planning Planning

(i) Demand ForecastingDemand Forecasting : Regular, cyclical or


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(i) Demand ForecastingDemand Forecasting : Regular, cyclical or

seasonal demand. Demand forecasting enables

a Company to organize sourcing strategy and

stocking policies. A faulty demand forecastingcan throw supply chain haywire whereas an

accurate forecast results in smooth operations.

(ii) Inventory PlanningInventory Planning : Fixing levels of inventory,min/max stocks, ROLs, lead time of

procurement, order quantity etc. Inventory

Planning involves setting up of procedures for

monitoring inventories and exercising controls.Many softwares and tools are available.


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(iii) Stock Facilities PlanningStock Facilities Planning : Storage facilities,

handling equipment, proximity to rail/road

heads, closeness to distribution channels

are important.

4.44.4 CUSTOMER SERVICE STRATEGYCUSTOMER SERVICE STRATEGY


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The strategy defining methods and means to respond to

the needs and expectations of the customers in a manner

that maximises profitability. Companies do not sell theirproducts but relationships, solutions, supports and care.

Customer service has become the cutting edge and a

valuable business activity. Customer Service Strategy is

developed from three factors.

Input for Customer Service Strategy

Service

Needs

Customer

ServiceStrategy

Service

Cost

Revenue

Manage-

ment

(i) Identification of Service NeedsIdentification of Service Needs : The


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(i) Identification of Service NeedsIdentification of Service Needs : The

exercise calls for : Segmentation of customers

Identification of segments unique to the Company

Identification of service needs relevant to each customer

segmentation / product / geographic location.

(ii) Cost of ServiceCost of Service : The issues involved are asto how to improve the service so as to

maximise a firms profitability. This involves

determination of :

Service Costs incurred by the firm at current level ofservice

Cost of providing newly identified level of service


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(iii) Revenue ManagementRevenue Management : The principal of

maximising profitability and growth cannot

be sacrificed. Increased customer service

also must lead to these. Service is a profit

centre.

4.5 SUPPLY CHAIN INTEGRATION4.5 SUPPLY CHAIN INTEGRATIONSTRATEGYSTRATEGY

Traditionally suppliers and manufacturers


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Traditionally, suppliers and manufacturers

operate rather independently. Information on

stocks with manufacturer, distributors, dealers,retailers is not available. In an efficient SCM,

manufacturers, suppliers, distribution channels

and customers are linked in the form of a chain

to develop and deliver products as a singleorganization of pooled skills and resources.

This integration can have three forms in a spirit

of partnership :

Information Integration

Decision Integration

Financial Integration

Integration

Strategy


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(i) Information IntegrationInformation Integration : Share confidential &

critical information, EDI, IT applications like

ERP have been successfully tried. Planning

and implementation of information systems can

help to analyze product flows, order patterns,

inventories, obsolescence, levels of production

and supply costs.

(ii) Decision IntegrationDecision Integration : Joint decisions oninventories, distribution prices, etc. The entire

supply chain system would be behaving as if it

is a single company.


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(iii) Financial IntegrationFinancial Integration : It implies that each

of the participants has a financial stake in

operations of other participants. Suppliers

can be equity holders in the venture of

manufacturers and manufacturers extendtheir financial participation to the

distribution channels.

5.0 BARRIERS TO MM AND ROOT5.0 BARRIERS TO MM AND ROOTCAUSESCAUSES


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The old approach was to create a new

functional silo - Materials Management. Few

companies were successful in using

multifunctional teams to effectively manage

their material flows.

People were selected and promoted based on

perceived management skills and

professional certifications rather than theirskills in directing process improvements.

It was rare for companies to take holistic


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p

approaches to managing materials. Key measures

and systems were generally focused inward. Most

organizations were overly focused on their internaloperations and had inadequate focus, processes

and resources to manage supplier and customer

linkages and relationships.

A strategic approach was uncommon. Reach-out or

stretch goals were rarely put in place to generate

out-of-the-box thinking (Conventional goals yield

conventional solution).


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Conventional solutions were widelyadopted - for example computer systems

such as MRP and MRP II. Those with

vested interests in technical solutions

fought long battles with proponents ofcommon-sense approaches, such as JIT

and lean manufacturing. The most

common MRP and MRP II software, for

many years, did not contain effectivemeans to support the processes of

purchasing and supplier management.

This is still true today in many companies.


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Inappropriate financial information was widely

used in decision making. Considerable

outsourcing has occurred, and resources

have been eliminated. Insourcing will be

difficult. Bad decisions are hard to correctquickly.

Very little benchmarking was done as a

means to share best materials managementpractices (with the exception of systems,

which rarely were a best practice).

6.0 Epilogue6.0 Epilogue


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g

Finally, SCM encompasses all activitiesassociated with moving goods from raw

materials through to the end user.

These include Sourcing and Procurement,

Production Scheduling, Order Processing,

Inventory Management, Transportation,

Warehousing and Customer-service.

Best supply chain management programmes focus on actual

customer demand. Instead of forcing into the market a


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customer demand. Instead of forcing into the market a

product that may not sell quickly, they react to actual

customer demand.

So they minimise the flow of raw materials, finished product

and packaging materials at every point in the pipeline. SCM

systems pull data from every step of supply chain, providing

a clear, global picture of where the enterprise is heading.

By linking SCM applications with other business systems,companies can slash cycle time and reduce inventory. They

can also reach beyond their own corporate walls to better

connect with suppliers, distributors and end customers.

Documents

Best Practices in Supply Management