Supply Chain Operations Outsosourcing

8/7/2019 Supply Chain Operations Outsosourcing

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Supply Chain OperatiOnSOutSOurCing:

A Strategic Approach to Creating Significant Economic Value





Supply Chain OperatiOnS OutSOurCing

Table of Contents

I. Introduction..................................................................................... 1II. Demand Management...................................................................... 2

III. Value of Outsourced Demand Management ....................................... 2

Value o Demand Management .......................................................... 3

Outsourcing Value Above & Beyond .................................................... 4

IV. Why Now? ..................................................................................... 4

V. Determining Your Readiness for Outsourcing Demand Management ...... 7

Readiness Dictated by Supply Chain Structure ..................................... 7

Readiness Dictated by Technology Landscape...................................... 7

Readiness Dictated by Organizational Structure ................................... 8

VI. Enabling Technology....................................................................... 8

VII. How to Start the Journey .............................................................. 10

VIII. Summary................................................................................... 10

IX. About HAVI Global Solutions .......................................................... 11

X. About SAS .................................................................................... 11




Content or this paper was provided by SAS, the leader in business analytics

sotware and services, and HAVI Global Solutions, a supply chain services

provider with more than 30 years’ experience in optimizing the perormance

o customers’ supply chains. The two companies have partnered together in

a new approach to delivering supply chain value: a managed service solution

that provides advanced supply chain planning capabilities in an outsourced

environment.




I. Introduction

Countless articles, analyst reports and perspective pieces have been written on themerits and the pitalls associated with business process outsourcing (BPO). BPO is

widely accepted as a cost reduction vehicle that involves contracting the operations

and responsibilities o a specic business unction to a third-party service provider.

The predominant supply chain outsourcing today revolves around “peripheral”

supply chain unctions and processes. Peripheral supply chain processes are

essentially commodity unctions in that:

• Therearemanyestablishedprovidersthatoffertheservices.

• Theservicestendtobeuniforminqualityandhardtodifferentiate.

• Thebenetrevolvesprimarilyaroundcostreduction.

In the supply chain arena, BPO has traditionally ocused and thrived in the

warehousing and logistics unctions. Many companies today tap into expertise

o third-party logistics providers to execute the transportation, physical handling

and storage o products as they fow rom the point o creation to the point o

consumption. In many industries, the manuacturing process itsel is commonly

executed by outside partner companies.

Based on SAS’ and HAVI Global Solutions’ expertise in supply chain management

technologies and experience in providing managed services, we believe that the

next generation o BPO will ocus on outsourcing “central” supply chain processes

as a strategic approach to create signifcant economic value. By central supply

chain processes, we mean the demand management unctions (supply chain

planning and execution) that help determine customer demand, which in turn

drives the supply chain. These capabilities are considered central because they

can dierentiate a company strategically. I you perorm these unctions better than

yourcompetitor,youcancreateadominantadvantage.Consequently,outsourcing

these capabilities also carries the biggest risk perception.

In evaluating the possibilities associated with outsourcing central supply chain

unctions, companies oten ask themselves, “Is the work too strategically

important to outsource?” We suggest that or many organizations whose core

competencies do not include demand management unctions, the work is toostrategically important not to outsource. In this paper we address:

• Valueofoutsourceddemandmanagement.

• Whynowisanoptimaltimetooutsource.

• Readinessofanorganization.

• Enablingtechnology.

• Howtostartthejourney.

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II. Demand Management

In our denition, demand management consists o seven processes that dene how

a company understands true customer demand and executes the supply chain to

ulll the demand. Each process represents a capability that is critical in creating a

true demand-driven supply chain. These processes are also an integral part o a

sales and operations planning process (S&OP).

Executing a demand-driven supply chain has been widely accepted as a top priority

or supply chain executives across nearly every industry. In a recent AMR survey o 100

supply chain executives about the gaps between perceived perormance and business

importance o key supply chain unctions, demand planning was described as the

unction having the largest gap. This suggests that demand planning is the supply

chain process area with the biggest improvement opportunity or many companies.

However, while many companies recognize the value associated with a demand-driven

supply chain, their challenge lies in making it happen. Outsourcing specic demand

management unctions is a highly viable means or moving closer to this vision.

III. Value of Outsourced Demand Management

Demand management continues to be a top management priority that drives

a signicant portion o COGS (cost o goods sold) spend across the extended

supply chain. Suboptimal demand management drives those costs higher; it can

signicantly handicap a company’s inventory and working capital position. But savvy

outsourcing can reverse that scenario. Outsourcing specic demand management

unctions to a service provider with core competency in demand management – and

commitment to industry best practices – can lead to a signicant increase in overall

business perormance and accuracy. Many o these benets will stem rom a better

understanding o the demand stream.

2

Figure 1. Demand management processes.




VALUE OF DEMAND MANAGEMENT

In act, outsourcing specic demand management unctions can provide value

above and beyond increased business perormance. The benets o outsourcingoten signicantly outweigh the results that companies can achieve by perorming

these unctions themselves. And, o course, reeing your organization rom the

tactical execution o supply chain operations allows employees to ocus on the big

picture o steering the business and making smarter decisions.

3

Impact Area Beneft Process Enabler

Asset Utilization Improved workingcapital utilization

• Lower inventory-carrying costs via better forecastingaccuracy.

Revenue Growth Increased productavailability

• Maintain or increase service levels while bettermatching inventory plans to demand.

Improved promotionsmanagement

• More effectively anticipate and manage the strainsthat promotional activity puts on the supply chain.

• Improve product allocation.

Operating Margin Reduction in freightand logistics

• Reduce spending on expedited freight andunscheduled deliveries by better positioning inventory.

• Reduce spending on reverse logistics.

Reduction inobsolescence • Reduce stranded inventory.

• Reduce out-of-code product.

• Actively manage run-out ranges for limited-timeofferings.

Reduction in orderchanges

• Reduce quantity and date changes at the retail anddistributor level.

• Translates into fewer line schedule changes atsupplier.




Outsourcing Value Above & Beyond

Combined, the above and beyond value and the increase in business perormance

aorded by outsourcing provide competitive advantage. In this model, we are

not talking about realizing the same value with a dierent executor; we mean that

companies can reap signicant incremental value as a result o the outsourced

relationship.

IV. WHY NOW?

In determining the appropriateness o various strategic directions or your supply chain,

one o the challenges will be articulating why you believe that the timing is right. Relative

to supply chain operational outsourcing in the last two to three years, advances in process

management and technology have pushed the risk/reward pendulum to swing in avor o

reward. Furthermore, better understanding and management o key risks have come with

deeper experience in peripheral supply chain outsourcing.

4

Outsourcing Benefts Value in an Outsourced Environment

Quicker Time to Benet • Creat ion of a capabi li ty can be realized quickerby leveraging a service provider that has theprocess and supporting technical experience.

Capital Spending Avoidance • Clients avoid a signicant up-front expenditureby leveraging a service provider’s tools,processes and infrastructure.

• Clients can also save costs associated withmaintaining legacy systems, or avoid costsassociated with nonperforming packagesoftware investments.

Continuous Improvement • Service providers focused on the demandmanagement discipline embrace industry bestpractices and foster client-specic innovationand differentiation.

• Service-level agreements and incentives areoften tied to demonstration of continuousimprovement.

Reduced Cost to Capability • For developing a complex supply chaincapability, outsourcing can provide a lowertotal cost of ownership than in-housedevelopment.

Better Process Integration • The right service provider can play a role as asupply chain integrator – facilitating, or addingdiscipline to, S&OP or other existing processes.

Frees up Internal Resources • Outsourcing frees up internal resources and

improves productivity.

• Allows resources to focus less on operationalexecution, and more on operationalmanagement and other value-adding activities.




These collective experiences have allowed more companies to be both politically and

culturally accepting o outsourcing and managed-services approaches.

Simply put, the risks associated with supply chain operational outsourcing are now

manageable – as documented in the ollowing table:

5

Former Risks/Concerns Mitigation Strategies/Reality

Relinquishing control to a service provider • Relinquish execution but not control of key decisions.

• Successful demand management outsourcingrelationships are built by preserving client ownershipof the supply chain processes.

Too much integration required • Service providers can leverage existing supply chaindata marts or create cost-effective alternatives topower the demand management solution.

• The technical integration between a service providerand a client can be as limited as publishing a demandforecast.

Service providers don’t have the systemsrequired

• SAS® Business Analytics software, includingforecasting and data integration capabilities, is well-suited to perform in a managed service environment.

Experienced outsourcers don’t exist • HAVI Global Solutions has 15 years’ experience as anoutsourced provider of demand management and hassupported some of the world’s biggest brands.

Unclear where to start • Start small.

• Engage with a service provider to manage a category,

promotion or geography as a way of ensuring thatboth companies develop a proper partnership.

Our business is too complex • A successful ly managed service relationship isa marriage of industry best practices and client-specic knowledge.

• Managed service providers focus on best practicesand technology advances to better address thegrowing complexity associated with today’s currenteconomic challenges.

• Outsourced demand management relationshipssometimes result in a business simplication as aresult of business process evaluation.

• Complex business models are the most challengingand stand to reap the greatest benet from industrybest practices, demand management expertise, andleading-edge enabling technologies.

Outsourcing means a reduction in work force

• Demand management outsourcing is more aboutcreation of a supply chain capability than a reductionin staff.

• A program is initiated only when it is proven that theincremental benets associated with the service providea return that is greater than the incremental costs.




While the outsourcing risks have decreased, spiraling supply chain complexity is

increasing the risks o maintaining in-house operations. Over the past several years,

as companies have been orced to do more with less – yet meet the demands o

more complex customer segments and compete globally – they’ve begun to lag

technologically.Theycannotadequatelyevolvesystemsandprocessestomanage

the growing intricacy o their supply chains. Many businesses today simply do not

have the resources to solve complex demand management issues.

What’s more, the right human resources are scarce. High demand or analytic and

quantitativeskillsmakesitdifculttorecruitandretainthetypeofpeoplewhocanhone

demand management competency. Meanwhile, supply chain executives are aced

with continued pressure or new value-adding and cost-reducing vehicles. Economic

conditions are reinorcing the mandate or tighter, more ecient supply chains.

These actors can severely hamper in-house eorts to keep pace with what’s current

and applicable or your supply chain operations, rom both a process-advancement

and a technology perspective. Now more than ever, the time is right to explore supply

chain operational outsourcing.

6

Figure 2. Supply chain complexity.




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V. Determining Your Readiness For Outsourcing Demand

Management

Outsourcing components o your demand management processes can be an

innovative and strategic approach to maximizing supply chain value. However, it is

not or all companies.

The charts below identiy criteria by which companies can begin assessing the

suitability o supply chain operational outsourcing as a means or achieving their

goals. I your company meets several o these criteria, it is likely a good candidate or

outsourced demand management.

Readiness Dictated by Supply Chain Structure

Readiness Dictated by Technology Landscape

Criteria Traits o a Good Outsourcing Candidate

Demand Variability • Signicant demand variability brought on by seasonality,consumer trends, economic conditions, etc.

Advanced Buy Requirements • Procurement decisions that must be made months inadvance of product need or use.

Promotional Activity • Signicant promotional activity that relies on timelysupply chain operations.

Obsolescence Risk • High risk associated with gett ing demand wrong.

• Short shelf life and/or product life cycle, etc.

SKU Stability • Signicant introduction of new products.

Long Demand Planning Cycle Time • Long information latency (lead time).

• Business decisions based on out-of-date information.

Current Performance • Current demand management-related performancedoes not satisfy business goals.

• Current demand management capabilities cannotsupport advanced marketing events, such as limitedtime offerings.


Data Accessibility • Reasonable access to the best available demand stream– POS, shipment history, etc.

Data Integrity • Data accurately reects customer purchase behavior.

• Reasonable data quality.



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Readiness Dictated by Organizational Structure

VI. Enabling Technology

Whatever your current criteria, the supply chain service managed by HAVI Global

Solutions and SAS ensures the best possible technological oundation or your

outsourced operations: the platorm or SAS Business Analytics. Figure 3 represents the

SAS Business Analytics Framework that supports a supply chain management solution.


Process Discipline • Process-oriented company.

• Downstream processes in place to leverage demandplans.

Management Support • Existence of a strong champion within the companywho can drive change.

• Ability to manage and partner.

Competitive Culture • Is willing to change, and eager to gain a competitiveadvantage.

Resource-Constrained • Signicant resource time spent on activities that don’tadd value.

• Lack of sufcient quantitative resources and skills.

• Employees’ technical skills not fully developed.

Figure 3. The SAS Business Analytics Framework.




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The SAS Business Analytics Framework encompasses the ollowing components

to guarantee a comprehensive, fexible solution that accommodates – and helps

analysts anticipate – changing business needs:

• Data integration (ETL, data cleansing and enrichment). With these advanceddata management capabilities, the HAVI Global Solutions and SAS team can

integrate all o the components o your existing supply chain. We can combine

data rom every source, such as transactional and operational systems, and

cleanse and standardize that data or accurate, comprehensive analysis.

• Analytics. Using predictive analytics such as sophisticated orecasting

andmodelingtechniques,theteamwillgobeyondthebasicsofdemand

management.Itwillbeabletoanswerquestionssuchas,“WhyisXhappening?”,

“What will happen next?”, “What is the best that can happen?”, and “How

can we make it a reality?” (Figure 4 shows the totality o strategic vision that

your company can achieve through an outsourced solution based on the SAS

Business Analytics Framework.)

• Reporting. Using state-o-the-art technology, the HAVI Global Solutions and SAS

team will provide timely static reports and interactive, Web-based reporting tools.

These tools will allow users to see current data at various levels o detail across

the product, time and geography dimensions. Inormation such as top-line sales,

sales rates and actors that could infuence sales (e.g., weather) can be accessed

by users to evaluate cause-and-eect relationships.

The result: A solution that enables you to manage demand, cost-eectively source

material, plan products or production, optimize inventory, report key metrics and

support S&OP.

Figure 4. The complete landscape of analytical insight delivered by the service managed

by HAVI Global Solutions and SAS.



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VII. How to Start The Journey

As described in Section IV, one o the biggest challenges companies ace in

assessing the value associated with supply chain operational outsourcing is

determiningwheretostartthejourney.Developingenhancedsupplychain

capabilities via operational outsourcing is a strategic decision, and provision o these

services is relatively new. Your company needs to understand how the process will

work and where the incremental value exists.

A ocused opportunity assessment is a cost- and time-eective way o determining

a t or your company in outsourcing demand management unctions. HAVI Global

Solutions and SAS have developed a nonintrusive assessment approach, which

includes a combination o on-site interviews, process assessments and data

analysis. The initiative culminates with a hal-day on-site presentation o ndings and

recommendations. Experienced industry domain and technology proessionals workwith leaders in your organization to help determine:

– How well your company’s planning processes are structured to execute a

demand-driven supply chain.

– The specic benets your company would gain by rening its approach to

demand management.

– How your company’s processes and approach compare to relevant benchmarks.

– Where the specic opportunities to drive additional value are and how much value

a change could create.

– The impact to your company’s data management.

– Your organizational, technological and business process readiness.

– A road map to realize operational excellence and competitive advantage through

supply chain operational outsourcing.

VIII. Summary

The next generation o BPO is ocused on outsourcing central supply chain

processes as a strategic approach to creating signicant economic value. The risks

are manageable – and done properly, outsourcing sets your organization ree rom

tactical execution and provides competitive advantage.

In act, i your company does not have core competency in demand-driven supply

chain management, the stakes are too high not to outsource. Economic conditions

are reinorcing the mandate or tighter, more ecient supply chains. Yet so many

actors (many o which are hard to identiy, much less control) drive increasing supply

chain complexity.




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Service options managed by HAVI Global Solutions and SAS provide the analytical

sotware and expertise that are necessary to uncover those actors, accurately

orecast demand, and apply the resulting insights to streamline the supply chain and

improveprotability.Theirmanagedservicepossessestherequiredblendofbusiness

processes, best practices, technology and skilled resources to properly synchronize

an organization’s disparate supply chain components.

Now is the time to explore your outsourcing options. The potential to improve

business perormance and accuracy – and achieve signicant incremental value –

has never been better.

IX. About HAVI Global Solutions

Operational outsourcing has proven eective or some o the world’s largest supply

chains. HAVI Global Solutions has been a provider o demand management as a

managed service or 15 years and has developed expertise with granular orecasting

on a massive scale to support supply chain planning and execution. A ew key

statistics are listed in the table below.

X. About SAS

SAS is the leader in business analytics sotware and services, and the largest

independent vendor in the business intelligence market. Through innovative solutions

delivered within an integrated ramework, SAS helps customers at more than 45,000

sites improve perormance and deliver value by making better decisions aster. Since

1976 SAS has been giving customers around the world THE POWER TO KNOW®.

Element Solution Scale

Active Forecasting Models 3.9 Million

Daily Forecasts Created 1.9 Billion

Frequency of Updates Daily

# of Unique Promotions Managed Thousands / year.



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Supply Chain Operations Outsosourcing