Managing Today’s Supply Chain

Council of Supply Chain Management Professionals

Grand Rapids, Michigan Roundtable

Managing Today’s Supply Chain

Trends, Leading Practices, and Risks

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AGENDA

What is a company’s Supply Chain?

Leading practices for managing evolving supply chains

What has changed or is changing in Supply Chain today?

Risks/Considerations

This session is a FACILITATED session….Not a Lecture!

What is a company’s Supply Chain?

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Definitions

Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements.

Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.

Council of Supply Chain Management Professionals (www.cscmp.org)

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CompanySuppliersSupplier’sSupplier

Suppliers CustomerCustomer’sCustomer

Purchase Pay

Typical

Advanced View

Supply Chain Management is the processes and activities that are involved in the identification, procurement, logistics, and management of Goods and Services within an organization, its suppliers, and its customers

“It’s Everything”

What has changed, or is changing, in Supply Chain?

Key Trends to Pay Attention To…

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The Drivers of Change

• Changing supply and customer markets• Globalization of supply chains• Unplanned or catastrophic events • Company consolidation and ownership changes• Increased emphasis on controls• Increase demands on time to market• Continued search for savings or revenue enhancement• Shortened financial market outlook and demand for rapid

response• Employees are changing• New technologies

• Changing supply and customer markets• Globalization of supply chains• Unplanned or catastrophic events • Company consolidation and ownership changes• Increased emphasis on controls• Increase demands on time to market• Continued search for savings or revenue enhancement• Shortened financial market outlook and demand for rapid

response• Employees are changing• New technologies

The following changes have resulted in where we are today…

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What’s Happening Today?

1. The SUPPLY MARKET has changed

2. Therefore, SOURCING STRATEGIES are changing

3. The LOGISTICS function (warehousing & transportation) is getting much more sophisticated

4. Increased use of TECHNOLOGY and suppliers’ capabilities to try and obtain full visibility to the supply chain

5. Re-focus on PROCESS capabilities

6. Organizations are changing

1. The SUPPLY MARKET has changed

2. Therefore, SOURCING STRATEGIES are changing

3. The LOGISTICS function (warehousing & transportation) is getting much more sophisticated

4. Increased use of TECHNOLOGY and suppliers’ capabilities to try and obtain full visibility to the supply chain

5. Re-focus on PROCESS capabilities

6. Organizations are changing

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What’s Coming?

1. Changes in Transportation Increasing fuel costs Increasing security requirements Decreased capacity

2. GREEN How much fossil fuel does your SC

burn? What is your carbon footprint?

3. Network Optimization The supplier and customer markets

have changed The economics have changed/will

change

The off shoring trend of the last 10+ years will reverse itself

Supply chains will become more regional

Leading Practices for Managing the Evolving Supply Chain

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Service/Cash Flow

So what is Supply Chain?

• It is your customer experience

• It is your cash flow

Meyer’s Rule for Supply Chain Design –

Time = Service = Inventory = Cost =

Profit

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“Best in Class”

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I want you to think about the MONEY first

If you focus on moving cash faster, it will drive total cost down

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Leading Practices

1. Develop and document a Supply Chain Strategy in alignment with the organization – or lead the organization through Supply Chain Strategy

2. Focus on the ability to connect people, processes, technology – shift thinking from linear to network

3. Simplify processes, controls, and metrics – customer satisfaction

4. Instill Total Cost of Ownership and Total System Cost mindset and metrics

5. Establish key Supplier and Customer Alliances – source and sell strategically

6. Focus on visibility, speed, and accuracy – invest in technology

7. Correctly organize the supply chain function and recruit professionals with correct skill sets

8. Focus on the cash flow

1. Develop and document a Supply Chain Strategy in alignment with the organization – or lead the organization through Supply Chain Strategy

2. Focus on the ability to connect people, processes, technology – shift thinking from linear to network

3. Simplify processes, controls, and metrics – customer satisfaction

4. Instill Total Cost of Ownership and Total System Cost mindset and metrics

5. Establish key Supplier and Customer Alliances – source and sell strategically

6. Focus on visibility, speed, and accuracy – invest in technology

7. Correctly organize the supply chain function and recruit professionals with correct skill sets

8. Focus on the cash flow

Risks in today's Supply Chain

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What was the impact of these events on your Supply Chain?

• Hurricane Katrina• Massive disruption of selected transportation routes, including Port of

New Orleans

• Shortages and price spikes for various commodities

• West Coast Port Strikes• 1997 Harbor Pilots

• 2002 Dock Workers

• California Power Crisis

• Commodity shortages – Steel, Energy, Raw Materials

Supply Chain Risk in the Headlines

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Potential Risk Factors

Research & Development

Market Feasibility & Beta Testing

Resource Acquisition Production Distribution

Point of Sale

Customer Service

& Transactions

The Physical Supply Chain

- Innovation- Market

Concentration

- RegulatoryRequirements

- Time-to-Market

- Cost-Supplier Relations

- Availability- Inbound Transport

- Facilities- Labor Relations

- Geography- Political Factors

- Outbound Transport

- Managing to Demand

-Data Integrity-Product Pricing

- Availability-Voice of the

Customer-Market

Perception-Cash

Payments-Cash

Collections

Risk Analysis 1

Risk Assessment 2

Risk Management 3- Information Sharing

- Transferring Exposure

- Reduction Program Implementation

- Avoidance

Mitigation Process

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Risk Management for the Supply Chain

Risk Analysis

Risk Assessment

Risk Management

• Provides an objective assessment of the Supply Chain and process weaknesses

• Provides an actionable list of improvements to be implemented

• Provides the foundation for a successful and sustainable security program

• Diagnostics of physical assets

• Mapping of Supply Chain flows

• Gap analyses

• Quantitative models and assessments

• Regulatory reviews

• Sustainable business continuity plans

• Documentation of exposures to Sarbanes-Oxley compliance

• Integrated and holistic Supply Chain strategies

• Broaden cooperation and collaboration between Supply Chain links

• Consider the tradeoffs between costs to implement the program versus potential losses

• Pay equal attention to non-quantifiable risk

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1. Fraud and/or Theft2. Product Delivery Interruptions3. Cost Control and Predictability4. Pricing Control and Predictability5. Supplier Relationship Sensitivity6. Customer Relationship Sensitivity7. Political & Legislative Effects8. Legal Effects9. Quality Control Issues 10. Lack of Safeguarding Company Assets11. Speed to Market Issues12. Inadequate Market Intelligence 13. Sarbanes-Oxley Non-compliance

Prime Supply Chain Risk Elements

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Risk Control Categories

Risk in relation to a business entity falls into two categories of control:

• Risks that are within the Company’s control• Risks that are outside of the Company’s control

Understand the controllable risks within your Supply Chain and manage them accordingly

Design contingency plans to minimize the potential adverse effects of risks that are outside of your control

Operational Risk

Control Risk

Financial Risk

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Area of Supply Chain Risk

Design Stage 1. Non-standardized processes 2. Not utilizing Suppliers 3. Not understanding Market capabilities

Planning Effectiveness 1. Potentially causes undue expediting 2. Impact on suppliers and costs

Purchasing Activities 1. Segregation of Duties 2. Inefficient and Ineffective

Receipt Acknowledgements 1. Lack of product knowledge 2. Inefficiency 3. Fraud

Warehousing 1. Lack of controls 2. Too many warehousing locations 3. Costly transportation 4. Inefficiencies (people and process)

Inventory Management 1. Inaccurate levels cause overstock or stock-outs

2. Lack of controls Invoice Processing 1. Fraud

2. Inefficient 3. Assumptions in matching process

Risks Within the Company’s Control

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Payment 1. Fraud 2. Duplication 3. Late Payment penalties

Scrap and Investment Recovery 1. Controlled Processes 2. Fair Pricing Obtained

Asset Management 1. Assets tracked 2. Accuracy of Records

Contracts 1. Creation and Approval 2. Inadequate Terms & Conditions 3. Inadequate Metrics 4. Intensity of maintenance 5. Internal stakeholder compliance

People 1. Theft 2. Inadequate training and development 3. Product knowledge issues 4. Misunderstanding processes 5. Confidentiality issues due unfamiliarity with

business controls and policies

Supplier Selection Process 1. Lack of controlled and business driven selection process

2. Over-reliance on incumbents


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Supplier Management Process 1. Lack of structure 2. Non-capture of issues and events (and successes) 3. Inability to identify and address trends 4. Lack of exposure to company’s issues creates

poor supplier performance

Internal Auditing 1. No audit of business processes or functions 2. Insufficient data impedes the audit trail

Data Integrity 1. Data put into system but processed incorrectly 2. System changes made – effects on data flow 3. Level of detail and standardization of input

Procedures and Policies 1. Not in place or reflective of actual process 2. Not followed or understood, lacking discipline 3. Not audited to measure compliance 4. Not stringent enough to support Sarbanes-Oxley

Goals 1. Undefined or unrealistic 2. Rewards (compensation) structure encourages

non-desired behavior 3. Congruent to the overall business goals of the

company


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Store Operations 1. Controls 2. Level of assumed authority 3. Inaccurate scanning or tracking of goods

Return Processing 1. Incorrect accounting 2. Area for Fraud 3. Investment recovery actions

Tax and Ownership Transfer 1. Proper determination of goods passing into company’s ownership

2. Ensuring appropriate tax is properly applied (point of use, city tax, etc.)

Rebates 1. Proper calculation and tracking 2. Understanding rebate structures (especially on

manufacturer/distributor rebates) Transportation issues 1 D.O.T. regulations

2. Hazardous Materials handling 3. Customs-Trade Partnership Against Terrorism Act

Quality Issues 1. Cost of reprocessing transactions 2. Potential impacts to customers 3. Potential scheduling issues


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Weather Indefinite interruption of company operations

Innovation Potential losses in competitive advantage or time-to-market

Market Pricing Market share fluctuation or erosion in price-sensitive industries

Inflation/Deflation Impacts to Profit & Loss or asset valuations

Political Actions Interruptions in flow of goods

Supplier Business Structure Business interruptions if sourcing contingency plans are undefined

Risks Outside of the Company’s Control

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1. Sensitivity of operational continuity during ERP implementations• Poor implementations may adversely impact the integrity and accuracy

of information flow

2. Off-shoring and outsourcing exposure3. Security of supply

• What to do in a Seller’s Market?

4. Mitigating risk through Contract Management• Consistent indemnification policy with written clauses adhering to

corporate guidelines established by Risk Management department• Proper insurance coverage• Performance Metrics ensuring agreements are in compliance and meet

expectations• Internal contract and agreement compliance programs minimize risks

associated with dilution of spend leverage due to stakeholder non-compliance

– Missed volume discounts– Deterioration of negotiating leverage

Additional Risk Considerations

THANK YOU!!!

Michelle Meyer

[email protected]

720-904-8562

Brian Cunningham

[email protected]

248-351-5904

mailto:[email protected]

mailto:[email protected]

Documents

Managing Today’s Supply Chain