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2nd Supply Chain Leaders Forum 2013 CBS, 29th August 2013

GLOBAL SUPPLY CHAINS – HOW TO OPTIMIZE

THROUGH KEY PARTNERSHIPS

Jeffrey D. Tew, Ph.D.

Chief Scientist Cincinnati Innovation Center, TCS

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Global Supply Chains – Some Eye Opening Facts

and Trends Coopetition in International Business - Yadong Luo, Copenhagen Business

School Press DK, 2004

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Global Supply Chains – Some Eye Opening Facts and

Trends

Use structured and unstructured Data

Captured

Detected

Inferred

Made consumable and accessible to everyone, optimized for their specific purpose, at the point of impact, to deliver better decisions and actions through:

Descriptive Analytics

Prescriptive Analytics

Predictive Analytics

What happened?

What exactly is the

problem?

How many, how often,

where?

What actions are needed?

How can achieve the

best outcome and

address variability? Stochastic

Optimization

How can we achieve the

best outcome?

Optimization

What if these trends

continue? Forecasting

What could happen?

Simulation

What will happen next

if? Predictive Modelling

Analytics Sophistication

• Numeric

• Text

• Image

• Audio

• Video

Data is becoming more complex – sophisticated analytics is needed to make sense of it.

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A A typical day in today's global supply chain highlights the need for "flexibility"

Global

Weather

Warnings

Fuel Price

Spikes

Regulatory

Change

Labor

Stoppages

Quality

Issues

Order

Volatility

Natural Disasters

Oops!

” Global Supply Chains – Some Eye Opening Facts

and Trends

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The Proliferation of Volatile Supply Chain Data

Demands a Different Approach

Velocity Volume Variety ---- ----

INCREASING

Intelligent buildings

Statistical Process Controls

Tracking Inbound shipments

Warranty Claims

Purchase Orders

Late shipments

Invoices

Tracking Outbound Shipments

Hub Inventory

Customer Records

Real Time Data •Order Drops •End User sell

through •Warranty Returns

•Channel Pulls •Inventory status

Overnight Batch Processing

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The Importance of the Supply Chain is Continuing to

Increase

Top Supply Chain Companies Report (IBM, The Smarter Supply Chain Future, 2010)

– 22% Increase in performance

– 22% Increase in sales

– 10% Better lead times

– 3% Cost reductions

Companies that excel in supply-chain operations perform better in almost every financial measure of success. Where supply-chain excellence improves demand-forecast accuracy, companies have a 5% higher profit margin, 15% less inventory, up to 17% stronger “perfect order” ratings, and 35% shorter cash-to-cash cycle times than their peers. Companies with higher perfect-order performance have higher earnings per share, a better return on assets, and higher profit margins — roughly 1% higher for every three percentage-point improvement in perfect orders.

Source: AMR Research Inc, 2011

“User interest in supply chain analytics solutions is driven by a need to better understand supply chain performance. With the limited analytics in supply chain applications, which are focused on the application user, it is difficult for other supply chain players, as well as management, to get a clear picture of performance and to identify areas of underperformance. This is where general BI and spreadsheets have been used extensively to try to fill this performance management gap. However, although effective up to a point, these technologies have not provided a consistent, near-real-time performance management environment, with tight integration into the underlying supply chain business applications.”

Source: Gartner Research - Supply Chain Analytics: Driving Toward Product Performance Management, 2009

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Top challenges cited expose demand volatility, driving a need for visibility to create value

A Recent Survey (2011) Enterprise Executive Supports This

Top challenges

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The Myths of Global Supply Chain “Debunked”

Every supply chain has a “steady state”. (True or False?)

The “supply base” is constant. (True or False?)

The market or customer base is constant. (True or False?)

Most supply chains are “designed”. (True or False?)

Most supply chains meet customer expectations. (True or False?)

Most supply chains are designed to deliver “optimal performance”. (True or False?)

Most supply chains are designed to minimize operating cost. (True or False?)

Most supply chains are designed to handle variation. (True or False?)

Supply Chains are most often used as a strategic advantage. (True or False?)

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The Myths of Global Supply Chain “Debunked”

Every supply chain has a “steady state”. (False)

The “supply base” is constant. (False)

The market or customer base is constant. (False)

Most supply chains are “designed”. (False)

Most supply chains meet customer expectations. (False)

Most supply chains are designed to deliver “optimal

performance”. (False)

Most supply chains are designed to minimize operating cost.

(True)

Most supply chains are designed to handle variation. (False)

Supply chains are most often used as a strategic advantage.

(False)

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What Level of Supply Chain Performance do Your

Customers Expect?

They want the product or service provided “now”.

They expect that delivery is available from multiple channels.

They expect that access is ubiquitous and instantaneous for

both purchasing and fulfillment.

They do not want to pay for “heightened service”.

They want “choice” in products (e.g., they want what they want).

They expect “best price”.

They expect seamless and easy “reverse support”.

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How can a 3rd Party Supply Chain Partner optimize

Your Global Supply Chain?

Bring new technologies to the table.

Optimize coordination between “external” and “internal”

partners.

Provide deep market insights either through technology or

through market experience.

Focus on the “right” objectives.

Provide access to “on demand” capacity for increased supply

chain flexibility.

Help identify and grow the domestic talent in new markets.

Help manage the supply base (e.g. identify new suppliers).

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How can a 3rd Party Supply Chain Partner optimize

Your Global Supply Chain?

TCS POINT OF VIEW

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Understanding “Optimize”

Optimize = Address the mismatch between demand and supply Matching supply to demand Lower cost, greater stability, better quality

What is it?

Key driver: Change (expected or unexpected)

Why is it required?

Demand Changes Triggered by business

Supply Changes Triggered by environment and technology

Levers: Right-size, Right-source, Reengineer, Standardize, Share

How is it done?

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Optimize Examples

Demand Changes

Merger and acquisition Reengineer (e.g., SC rationalization and simplification)

Variation in workload Right-size and right-source (e.g., Construction of a hybrid SC)

Reduction in SC budget Standardize, right-size/source, reengineer, share (e.g., Optimize people, process and technology)

Supply Changes

Emergence of new products and service providers (e.g., OMNI Channel Distribution)

Reengineer (e.g., Technology and services transformation)

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Optimization Challenges

Understanding demand: Lack of end-to-end transparency Silo-based understanding Silos: Business vs. SC vs. Infrastructure; CTB vs. RTB

Supply diversity: Too many, rapidly changing solution options Characterized by constraints, costs, benefits, risks, side-effects No-one-size-fits-all; Difficulties in deriving a custom solution

Heavy reliance on tacit knowledge, intuition and experience People dependent; Variable quality; Low agility

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Optimizing Supply Chains

1 Understand demand Combine TCS’ end-to-end services understanding with analytics

2 Characterize supply Learn from vast experience in traditional supply-chain management Standardized catalogue of products and services

3 Automate optimization planning Virtual prototyping of SC (e.g., Discrete Event Simulation Models)

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Demand Characterization: End-to-end View

“Facebook for IT” (Entity-relationship models and analytics)

Top-down Service Modeling (Business IT Operational Services)

Everything-as-a-service (Hierarchical service composition)

Take a Page From Our IT Playbook -- Combine TCS’ end-to-end services experience with analytics

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Supply Standardization Models

Database of technology product and services options Characteristics (e.g., compatibility, quality) Pricing, support and warranty information Financial engineering options

Challenge Continuous evolution of supply options

Supply Management

Operations

Finance

S&OP

Forecasting

Market Insights

Manufacturing

Optimized Network

Optimized Pipeline Inventory

Distribution

Planning Demand Shaping

Optimized Cost Structures

Collaboration

Transportation

Key idea: Learn from vast knowledge about traditional supply-chain management

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Automating Optimization Planning

Key Idea: “Virtual prototyping of IT” (like manufacturing)

Another Page From Our IT Playbook -- TCS eTransformTM platform: Automated, fit-for-purpose derivation of optimization plan

Benefits Speed and accuracy of planning Evolvability: Rapid adaptation of optimization plan to accommodate emerging conditions

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What is Required to Make it Happen?

A clear vision for the “to be” – a working common template for the

future!

The right people – develop or hire people with the right skill set and

experience!

Strong network of strategic and operational partners – create a

dynamic and creative environment!

Open, accurate, and instantaneous information exchange – one true

message!

Collaborative culture – can’t we all get along?

Aligned metrics (for business units and personnel) – measure and

reward the behaviors you want and that are aligned with the “vision”.

Coordination and common view among operations, finance and IT –

one company equals one mission!

Constant review and improvement – it’s a journey!

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Additional Reading

“Supply chain vs. supply chain: the hype and the reality.” by James B. Rice, Jr. and Richard M. Hoppe (MIT) Supply Chain Management Review, Sep/Oct 2001. http://web.mit.edu/supplychain/repository/scvssc.pdf (Examines both sides of the argument, with their take on where it works and where not).

“Is it Supply Chain Versus Supply Chain?” An editorial in Supply Chain Digest by Dan Gilmore. http://www.scdigest.com/assets/FirstThoughts/06-08-17.cfm

– “… a company’s fundamental supply chain design is in fact the primary competitive weapon it has.”

– “Design also strongly impacts the ability of the supply chain to respond quickly to market/strategy …”

“Best value supply chains: A key competitive weapon for the 21st century” by David J. Ketchen, Jr., et al, Business Horizons (2008) v51 pp 235-243 – has a nice graphic. http://www.rtn.com/ourcompany/rtnwcm/groups/rtsc/documents/content/rtn_b_rtsc_wp_1.pdf

Book: “Competing Through Supply Chain Management,” by David Frderick Ross, Springer, 1998.

”Vertical and Horizontal Cooperation in a Supply Chain.” A related facet of competition. http://www.slideshare.net/uapippo/vertical-and-horizontal-cooperation-in-a-supply-chain

"New Co-opetition Approach for Supply Chain Applications...“ by Harald D. Stein, Romualdas Ginevicius.

http://dspace.vgtu.lt/bitstream/1/596/1/1092-1099_Stein_Ginevicius.pdf

“Emerging trends in supply chain architecture” by W. T. Walker. International Journal of Production Research, Vol. 43, No. 16, 15 August 2005, 3517–3528. A focus on velocity in SC. (attached) ->

http://ageconsearch.umn.edu/bitstream/10116/1/cp07ji03.pdf has a small discussion and also a nice competitive framework on p 13 on “Time Based Competition”.

http://executive.vanderbilt.edu/vanderbilt/data/research/2324full.pdf