Fall Seminar ISM - supply chain research

Transcript Fall Seminar ISM - supply chain research

Fall Seminar ISM

Joe Walden CFPIM, DML Director, Supply Chain Leadership Institute

Today’s Agenda

• • • • • • • • • Background Back to the Basics – Supply Chain Leadership – setting the conditions for excellence Decision Making Model and Supplier Selection Benchmarking Supply Chains – Benchmarking background/foundation and supply chain metrics Supplier Scorecards – what and why Forecasting and Collaboration Reverse Logistics Supply Chain Security – the tie to homeland security

Back to the Basics

Supply Chain Management, SCOR, You and the Supplier

Supply Chain Management

• • • • •

First appearance – Financial Times Importance → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain 1982 Peter Drucker – last frontier Supply Chain problems can cause ≤ 11% drop in stock price – Hershey’s; Toys-r-us; FEMA Customer perception of company

Reference: www.supply-chain.org

SCOR

Supply Chain



All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer



A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction

Supply Chain

“The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.” APICS Dictionary, 10th ed.

Dell, USPS

Supply Chain Management



Synchronization of activities required to achieve maximum competitive benefits



Coordination, cooperation, and communication



Rapid flow of information – Wal-Mart

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Vertical integration - Anheuser Busch, Wal-Mart

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Core Competency

Supply Chain Uncertainty

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Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability



Inventory is a form of insurance – process maps; does wrong look right?



Distorted information is one of the main causes of uncertainty Bullwhip effect



Example – info, insurance, customer service

Information in the Supply Chain

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Centralized coordination of information flows

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Integration of transportation, distribution, ordering, and production



Direct access to domestic and global transportation and distribution channels



Locating and tracking the movement of every item in the supply chain - RFID

Information in the Supply Chain

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Consolidation of purchasing from all suppliers

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Intercompany and intracompany information access

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Electronic Data Interchange Data acquisition at the point of origin and point of sale

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Instantaneous updating of inventory levels Visibility

Electronic Business

In Theory:



Replacement of physical processes with electronic ones



Cost and price reductions



Reduction or elimination of intermediaries

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Shortening transaction times for ordering and delivery



Wider presence and increased visibility

Electronic Business

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Greater choices and more information for customers

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Improved service

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Collection and analysis of customer data and preferences

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Virtual companies with lower prices

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Leveling the playing field for smaller companies

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Gain global access to markets & customers

IT Issues

   

Increased benefits and sophistication come with increased costs Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient Security problems are very real – camera phones, cell phones, thumb drives Collaboration and trust are important elements that may be new to business relationships

Suppliers

    

Purchased materials account for about half of manufacturing costs Materials, parts, and service must be delivered on time, of high quality, and low cost Suppliers should be integrated into their customers’ supply chains Partnerships should be established On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work?

Sourcing

   

Relationship between customers and suppliers focuses on collaboration and cooperation Outsourcing has become a long-term strategic decision Organizations focus on core competencies Single-sourcing is increasingly a part How does of supplier relations single source differ from sole source?

Distribution Centers and Warehousing

   

DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities Flow-through facilities and automated material handling Final assembly and product configuration (postponement) may be done at the DC – example – Toyota Staging Centers

Warehouse Management Systems

  

Highly automated systems A good system will control item slotting, pick lists, packing, and shipping Most newer systems include transportation management (load management/configuration), order management, yard management, labor management, warehouse optimization

Vendor-Managed Inventory

     

Not a new concept – same process used by bread deliveries to stores for decades Reduces need for warehousing Increased speed, reduced errors, and improved service Onus is on the supplier to keep the shelves full or assembly lines running variation of JIT Proctor & Gamble - Wal-Mart

Collaborative Distribution and Outsourcing

    

Collaborative planning, forecasting, and replenishment (CPFR) started by Nabisco Allows suppliers to know what is really needed and when Electronic-based exchange of data and information Significant decrease in inventory levels and more efficient logistics - maybe not!

Companies work together for benefit of all of the supply chain

Supply Chain Reference Model

• • •

Supply Chain Council organized in 1996 By the release of SCOR 8.0 - 800 members worldwide Version 9.0 of the SCOR-model is the eleventh revision since the Model’s introduction in 1996

•

SCOR-model has been developed to describe the business activities associated with all phases of satisfying a customer’s demand

The SCOR Model

SCOR 9.0

• •

the Model is designed and maintained to support supply chains of various complexities and across multiple industries The Model is silent in the areas of human resources, training, and quality assurance

• •

The metrics are used in conjunction with performance attributes.

The Performance Attributes are characteristics of the supply chain that permit it to be analyzed and evaluated against other supply chains with competing strategies.

SCOR Model

Business Process Reengineering Capture the “as-is” state of a process and derive the desired “to-be” future state Benchmarking Quantify the operational performance of similar companies and establish internal targets based on “best-in class” results Best Practices Analysis Process Reference Model Characterize the management practices and software solutions that result in “best-in-class” performance Capture the “as-is” state of a process and derive the desired “to-be” future state Quantify the operational performance of similar companies and establish internal targets based on “best-in-class” results Characterize the management practices and software solutions that result in “best-in class” performance

SCOR Performance Attributes and Level 1 Metrics

Level 1 Metrics Perfect Order Fulfillment Order Fulfillment Cycle Time Upside Supply Chain Flexibility Upside Supply Chain Adaptability Downside Supply Chain Adaptability Supply Chain Management Cost Cost of Goods Sold Cash-To-Cash Cycle Time Return on Supply Chain Fixed Assets Return on Working Capital Reliability x Performance Attributes Customer-Facing Responsiveness Flexibility Internal-Facing Costs Assets x x x x x x x x x

Performance Attribute Supply Chain Reliability Supply Chain Responsiveness Supply Chain Flexibility Performance Attribute Definition Level 1 Metric The performance of the supply chain in delivering: the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer.

The speed at which a supply chain provides products to the customer.

The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.

Perfect Order Fulfillment Order Fulfillment Cycle Time Upside Supply Chain Flexibility Upside Supply Chain Adaptability Supply Chain Costs Supply Chain Asset Management The costs associated with operating the supply chain.

Downside Supply Chain Adaptability Supply Chain Management Cost The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital. Cost of Goods Sold Cash-to-Cash Cycle Time Return on Supply Chain Fixed Assets Return on Working Capital

Key – original commitment made to the customer is met through the supply chain

SCOR 9.0

• • New process elements have been added in SCOR 9.0 to manage WASTE DISPOSAL processes as part of the GreenSCOR integration.

New process added - Risk Management

SCOR and You

• • • • Applicable for any operation Metrics and Benchmarks established for common supply chain processes Customer Chain Operations Model Demand Chain Operations Model

• • • • •

Define Measure Analyze Improve Control

Six Sigma

Summary

• • • •

Supply Chain vs. Logistics Electronic business Suppliers and the supply chain SCOR – and six sigma – similar or different?

BACK TO THE BASICS QUESTIONS?

Next Session

Benchmarking Supply Chain Leadership – Setting the Conditions for Success!

Joe Walden Director, Supply Chain Leadership Institute

“Leadership is not taught. It is modeled.” -Dr. Emily Taylor, former Dean of Women at the University of Kansas

Session Agenda

• • • • • • •

Motivational Dysfunction ????

What is leadership? What is supply chain leadership What are the attributes of leadership that can be benchmarked?

Can you really benchmark leadership?

If so, what are the benchmarks?

Final thoughts and conclusions

Motivational Dysfunction and Leadership

• • •

What is motivational dysfunction?

What are the symptoms?

What are the cures?

The Attributes of World Class Leaders

• • • • • • • • • •

Loyalty Ethics and Honesty Attitude, Aptitude and Accountability Devotion, Dedication, Determination, and Discipline Equality, Expectations, Example, and Enthusiasm Respect, Responsibility, and Reliability Service and Self Development Humor, Humility, Health, Happiness and Heart Initiative, Interest in Employees, Supply Chain Intelligence Passion, Professional Pride, Perseverance and People

The Leader’s Scorecard

• • • • •

Scorecards and box scores Who are your leadership customers?

What metrics measure leadership?

How do you measure up?

What’s Next?

Leadership Metrics for Benchmarking

• • • •

Employee Retention – leading for the future not just the recession Employee Morale – what is it and how do you measure it? General Ridgeway Employee productivity – is it more than output/input?

The “Climate of Command” survey – what and why? Simply a military tool? Punctuality – part of the climate? Do people want to work in my department/section/company?

Benchmarking (Cont)

• • • • • • • • • •

Promotion Rates – internal and external On time delivery Perfect Order Fulfillment – “too hard to do?” Employee courtesy Employee burnout Distribution Center Cleanliness Customer Retention Rates Employee Recognition Dedicated Training Employee Pride

Benchmarking (Cont)

• •

Routines – “do the routine things routinely” Leading from the Front

Benchmark Employee Retention Employee Morale Employee Productivity Climate of Command Promotion Rates On time Delivery Perfect Order Fulfillment Employee Courtesy Employee Burnout DC Cleanliness Customer Retention Rates Employee Recognition Dedicated Training Employee Pride Routines Leading from the Front Score 1-10 >120 Good But Still Room for Improvement 100-120 may need additional leadership training <100 may want to bring in formal leadership training programs

Conclusion

• • • • •

Leadership Supply Chain Leadership Attributes Benchmarking Scorecards

The most important thing in leadership is truly caring.” - Coach Dean Smith

Next Session

• • • • • • • • •

Background Back to the Basics – Supply Chain Leadership – setting the conditions for excellence Decision Making Model and Supplier Selection Benchmarking Supply Chains – Benchmarking background/foundation and supply chain metrics Supplier Scorecards – what and why Forecasting and Collaboration Reverse Logistics Supply Chain Security – the tie to homeland security

Benchmarking Supply Chain Leadership – Setting the Conditions for Success!

Joe Walden Director, Supply Chain Leadership Institute

Leaders must never make the mistake of believing that they lead a company, department, or unit.

What they lead are the individuals that make up the enterprise.

“Leadership is not taught. It is modeled.” -Dr. Emily Taylor, former Dean of Women at the University of Kansas

Today’s Agenda

• • • • • • What is leadership? What is supply chain leadership What are the attributes of leadership that can be benchmarked?

Can you really benchmark leadership?

If so, what are the benchmarks?

Final thoughts and conclusions

So What – WIIFM?

• • • •

You can achieve operational excellence through the effective use of leadership! The difference between good and great is leadership!

It is all about the people! And getting them to do their best!!!

You can create your own supply chain excellence!!

Motivational Dysfunction and Leadership

• • •

What is motivational dysfunction?

What are the symptoms?

What are the cures?

What is leadership?

Leadership is influencing people – by providing purpose, direction, and

motivation

– while operating to accomplish the mission and improving the organization.

What Leadership is Not

• • • •

Arrogance Ego It is not about your Career It is not about telling people what to do – it is about inspiring them to do their best!

The Attributes of World Class Leaders

• • • • • • • • • •

Honesty

“Always tell the truth, and if that is not possible, tell the truth anyway.” Buck O’Neil

The Leader’s Scorecard

• • • • •

Scorecards and box scores Who are your leadership customers?

What metrics measure leadership?

How do you measure up?

What’s Next?

Leadership Metrics for Benchmarking

• • • •

The “Climate of Command” survey – what and why? Simply a military tool? Punctuality – part of the climate? Do people want to work in my department/section/company?

Benchmarking (Cont)

• • • • • • • • • •

Benchmarking (Cont)

• •

Routines – “do the routine things routinely” Leading from the Front

Can you teach leadership?

YES !!!!

• • •

Bad leader or poor training?

Experiential Learning Situational Learning “Remember, Good judgement comes from experience and experience comes from poor judgement.”

How do you Develop World Class Leadership?

• • • •

General Patton – “No effective decision was ever made from the seat of a swivel chair.” You have to get out of the office and walk the process.

Talk to the workers – what are their concerns?

Allow your subordinates to make mistakes and learn from them

Conclusion

• • • • •

Leadership Supply Chain Leadership Attributes Benchmarking Scorecards

The most important thing in leadership is truly caring.” - Coach Dean Smith

Next Session

• • • • • • • • •

Your Goal as a Leader: “Dare to Inspire Someone Every Single Day!”

Using the Military Decision Making Process to Solve Supply Chain Problems and Supplier Selection

Joseph Walden, CFPIM

Agenda

• • • •

What is the Military Decision Making Process? How is it used by the Military?

How to Apply it to Solving Supply Chain Problems Conclusions

Examples of Problem Solving Thought Processes

• Yogi Berra • Dilbert • Forrest Gump

Yogi Berra

“When you come to a fork in the road, take it.”

The Dilbert (Dogbert) Solution – Change the Name of the Old Program

Forrest Gump Method of Problem Solving “Run Forrest, Run!”

Additional Problem Solving Techniques

• • •

Theory of Constraints Six Sigma Do Nothing

What is Decision Making

Decision making is knowing if to decide, then when and what to decide.

It includes understanding the consequences of decisions.

What is Decision Making

Decisions are the means by which a leader translates his/her vision of the end state into action.

Decision Making is the means by which leaders and senior managers translate their vision of where the company/division should go from a vision to action

What is the Military Decision Making Process?

• • • • •

Analytical process Approach to problem solving Helps leaders to examine a situation and reach logical decisions.

Applies thoroughness, clarity, sound judgement, logic, and professional knowledge to reach a decision.

Detailed, deliberate, and sequential process when time allows.

Military Decision Making Process

• •

Helps the leader and staff examine a situation and reach logical decisions.

Develops leaders in how to think and not what to think

Advantages

• • • •

Analyzes and compares multiple courses of action to identify the best possible action Produces integration, coordination, and synchronization for an operation Minimizes overlooking critical aspects Results in detailed plan

Real Advantage

•

The military decision making process is a means to an end - the real value lies in the result and not the process

•

Common Framework to allow parallel planning at multiple echelons

The Decision Making Model

• • • • • • •

Receipt of the Mission Mission Analysis Course of Action Development Course of Action Analysis Course of Action Comparison Course of Action Approval Orders production

The Decision Making Model

• • • • • • •

Receipt of the Mission Mission Analysis Course of Action Development Course of Action Analysis Course of Action Comparison Course of Action Approval Orders production

MISSION ANALYSIS STEPS 1. Analyze the higher headquarters' order 2. Determine specified, implied, and essential tasks 8. Write the restated mission 9. Develop the initial commander’s intent 10. Issue the commander’s guidance 3. Review available assets 11. Review facts and assumptions 4. Determine constraints 5. Identify critical facts and assumptions 6. Conduct risk assessment 7. Plan use of available time

FACTS

• Statements of known data • Enemy and friendly dispositions (if known) • Available troops (workers)

Assumptions

Replace necessary but missing or unknown facts - include higher HQ’s assumptions ( not facts ) when appropriate Assumptions must pass:

–

Validity test

– Situation will exist when plan becomes an

order

–

Necessity test

– Essential to solution of the problem – Results of plan would change if assumption

was not made

“BOSS’ INTENT”

•

The key task(s) along with mission are the basis for subordinates to exercise initiative.

• Key tasks are those that must be performed by the

force or conditions that must be met to achieve the stated purpose.

• Key tasks identify that which is fundamental to the

force’s success.

•

If purpose is addressed, it does not restate the “why” of the mission statement.

•

The desired endstate .

Examples of Clear Guidance

• • •

President George H. W. Bush: “Get the Iraqis out of Kuwait” Colonel James Rusling on General Grant: “He made certain his subordinates knew exactly what he wanted, and why and when he wanted it.” John F. Kennedy

The Decision Making Model

• • • • • • •

Receipt of the Mission Mission Analysis Course of Action Development Course of Action Analysis Course of Action Comparison Course of Action Approval Orders production

COURSE OF ACTION QUALITIES Suitability: Does it accomplish the unit’s mission and comply with the commander’s guidance?

Feasibility: Does the unit have the capability to accomplish the mission in terms of time, space, and resources?

Acceptability: Does the cost justify the gain?

Distinguishability: Does it significantly differ from other COAs (reserves, task organizations, day/night operations, main effort, scheme of maneuver)?

Completeness: Who, What , When, Where, How, and Why

CONCEPTS

• Decisive point • Main and supporting efforts • End state

DECISIVE POINT

Conveys to subordinates a potential point of decision that the commander has identified through his estimate process to apply overwhelming combat power.

Main and Supporting Efforts

• •

The activity, business unit, or area that the commander determines constitutes the most important task at that time All other efforts and actions that support the success of the main effort

End State

• •

The conditions that, when achieved, accomplish the mission At the Operational Level: these conditions attain the aims set for the campaign or operation

Visualize - Describe - Direct

Visualize: Upon receipt of a mission, leaders consider their operational area and conduct a mission analysis that results in their initial vision, which they continually confirm or modify. Leaders use staff estimates, input from other leaders, and their experience and judgment to develop their vision.

Visualize Describe - Direct

•

Describe: Leaders describe their vision in their intent statement and planning guidance, using terms suited to the nature of the mission and their experience.

Visualize - Describe Direct

•

Direct: Armed with a coherent and focused intent, leaders and staffs develop the concept of operations and synchronize all supporting systems.

The Decision Making Model

• • • • • • •

Receipt of the Mission Mission Analysis Course of Action Development Course of Action Analysis Course of Action Comparison Course of Action Approval Orders production

Course of Action Analysis

• • • • • • •

Use of “war-gaming” Anticipate events Remain objective - avoid ownership Accurately record strengths and weaknesses of each course of action If course of action fails feasibility, acceptability, or suitability test - Reject it!

Avoid drawing premature conclusions Avoid course of action comparisons during “war gaming”

War Gaming Steps

• • • • • • •

Gather the necessary tools - process maps, course of action sketches/details, staff inputs List assets/resources List assumptions List known critical events and decision points Determine Evaluation Criteria Select Method to Record/Display Results War game and assess

The Decision Making Model

• • • • • • •

Receipt of the Mission Mission Analysis Course of Action Development Course of Action Analysis Course of Action Comparison Course of Action Approval Orders production

Course of Action Comparison

• • • • • •

Analyze and evaluate each course of action Highlight advantages and disadvantages for each course of action Which action has highest probability of success?

Which action poses the minimum risk?

Which action best positions the force for future operations?

Other considerations: latitude for initiative, flexibility to meet “unknowns”

The Military Decision Making Model

• • • • • • •

Receipt of the Mission Mission Analysis Course of Action Development Course of Action Analysis Course of Action Comparison Course of Action Approval Orders production

Tompkins Strategic Master Planning

• • • • •

Establish Objectives, requirements, and priorities Develop alternatives Evaluate alternatives Develop action plan Specify recommended plan Source: “Leadership: A Missing Ingredient in Strategic Master Planning,” Tompkins Associates

Supply Chain Applications

• • • • • •

New Distribution Center location New WMS ERP implementation Use of 3PL Outsourcing of non-core competencies Supplier Selection

Course of Action Comparison

COA/ Success criteria Cost ROI Improve Customer Satisfaction Posture for future operations Build Take over existing DC Expand Outsource Do Nothing

COA/ Success criteria Total Cost of Ownership Take over existing DC Cost

Supplier Selection

ROI Improve Customer Satisfaction Posture for future operations Expand Outsource Do Nothing

Supplier/ Success Criteria

Total Cost of Ownership Customer Service Order Cycle Time Continuous Process Improvement

Supplier Selection

Supplier 1 Supplier 2 Supplier 3 Supplier 4

Decision Brief to the Boss

• •

If, when, what Approval and execution

Personal Applications

Application to Vacation Planning

• •

Mission: Vacation that entire family will enjoy Mission Analysis: Guidance - must be affordable, everyone goes; Success Criteria - golf, shopping, beach/swimming

Courses of Action:

• • • • •

1. Hawaii 2. Palm Springs 3. Orlando 4. Las Vegas 5. Visit Relatives -

• • •

Analysis Comparison Decision

Conclusion

• • • • •

Simple Easy to Understand Multiple applications Mission - Intent - Course of Action development - Analysis - Guidance – Success Very similar to Scientific Decision Making Process

Think on These Things

“Your life today is a result of your thinking yesterday.

Your life tomorrow will be determined by what you think today.” Take advantage of this process to help determine the tomorrow for you and your company!

Questions?

Next Session

• • • • • • • • •

Benchmarking

Background and Basics

What is Benchmarking?

• • • • Measurement of the quality of a firm’s policies, products, programs, or strategies by comparing them with standard measurements or best in class standards A technique to make a service or product better in order to meet the needs of the customers A process of identifying, sharing, and using knowledge and best practices Learning from the best

Internal vs. External

• • Internal – compare processes or operations between ________________________ External – compare operations or processes of ___________________

Product vs. Process

• Product Benchmarking – what is it?

• Process Benchmarking – what is it?

Important!

• • • • • The first step in a successful benchmarking process – acknowledge _________________ Know what you are measuring Know why you are measuring Always measure from _____________ When you find useful processes – use them

What Benchmarking is not!

• • • Benchmarking is not industrial tourism Benchmarking is not industrial spying Benchmarking is not just a way to find out what the competition is doing

Brief History

• • • • • Xerox – late 1970’s 1989 - Robert Camp – Benchmarking – The

Search for Industry Best Practices that Lead to Superior Performance

1989 – MBNQA to Xerox Xerox went to L.L. Bean – why?

Southwest went to ________; why?

First Steps

• • • • • • • • How does your industry define best in class?

What are the measures of best in class for you and your company?

Who is the industry is best in class?

Do we need to go outside our industry?

What is our “as-is” situation?

What is our destination situation? (best in class) What is the delta? Gap analysis How will we conduct a gap analysis?

Benchmarking Steps

• • • • • • • Decide what to benchmark Study your own processes – why?; what? how?

Do you need benchmark partners?

Information/data gathering Analyze data Take action to implement changes Monitor for success

What should we benchmark?

• • • • • • • • • Customer order cycle time Dock-to-stock time Facing fill rates Fill rates Personnel retention rates Training program success rates Reverse logistics Supplier performance Customer satisfaction

How to Monitor – Use the After Action Review Process

• • • • • • • • What was the plan?

What actually happened?

What went right?

What went wrong?

Why?

How do we sustain the rights?

How do we prevent repeat of wrongs?

Who is responsible for the changes?

What is a good metric?

• • • • • Specific Measureable Actionable – can we take action with this metric to improve operations?

Relevant – are we measuring/benchmarking what is easy even if it is not really relevant to the company or customer satisfaction?

Time based – specific time period for metric

Benchmarking Suppliers

• • • What Why Measures:

Summary

• • • • What is Benchmarking What it is not Why Questions?

Next Session

Supplier Scorecards

Scoring and evaluating the supplier

• • • • • Quality Costs Cycle times Materials Delivery schedules

What

Why

• • • • • Know where the quality issues are Know which suppliers are performing to standard Establish supplier benchmarks Improve customer experience Improve product quality

• • • • Telecom Manufacturing Distribution Deliveries

Examples

Issues

• • • • • • Cost of quality Cost of poor quality Unforeseen supply chain shortfalls Cost of lost sales Cost of stockouts “Too hard to do!”

Summary

• • What, why, why not?

Issues

Next Session

Forecasting and the Supply Chain

Forecasting Survey

•

How far into the future do you typically project when trying to forecast the health of your industry?

less than 4 months 3% 4-6 months 12% 7-12 months > 12 months 28% 57%

Fortune Council survey, Nov 2005

• • • • • • • • •

Indices to forecast health of industry

Consumer price index 51% Consumer Confidence index Durable goods orders Gross Domestic Product 35% Interest rates/fed funds 59% 44% 20% Manufacturing and trade inventories and sales 27% Price of oil/barrel 34% Strength of US $ Unemployment rate 46% 53%

Fortune Council survey, Nov 2005

Forecasting Importance

• •

Improving customer demand forecasting and sharing the information downstream will allow more efficient scheduling and inventory management Boeing, 1997: $2.6 billion write down due to “raw material shortages, internal and supplier parts shortages” Wall Street Journal, Oct 23, 1987

Forecasting Importance

• • “Second Quarter sales at US Surgical Corporation decline 25%, resulting in a $22 mil loss…attributed to larger than anticipated inventories on shelves of hospitals.” US Surgical Quarterly, Jul 1993 “IBM sells out new Aetna PC; shortage may cost millions in potential revenue.” Wall Street Journal, Oct 7, 1994

Principles of Forecasting

• • • •

Forecasts are usually wrong every forecast should include an estimate of error Forecasts are more accurate for families or groups Forecasts are more accurate for nearer periods.

• • • •

Important Factors to Improve Forecasting

Record Data in the same terms as needed in the forecast – production data for production forecasts; time periods Record circumstances related to the data Record the demand separately for different customer groups Aggregate vs. Individual Model forecasting

Forecast Techniques

• •

Extrinsic Techniques – projections based on indicators that relate to products – examples Intrinsic – historical data used to forecast (most common)

Forecasting

•

Forecasting errors can increase the total cost of ownership for a product inventory carrying costs - obsolete inventory - lack of sufficient inventory quality of products due to accepting marginal products to prevent stockout -

Forecasting

• • •

Essential for smooth operations of business organizations Estimates of the occurrence, timing, or magnitude of uncertain future events Costs of forecasting: excess labor; excess materials; expediting costs; lost revenues

Forecasting



Predicting future events



Usually demand behavior over a time frame



Qualitative methods



Based on subjective methods



Quantitative methods



Based on mathematical formulas

Impact of Just-in-Time on Forecasting

• • • • •

Just in time as a inventory method Just in time as a Continuous process improvement program Just in time - one on the shelf Usage factors Single order vs. Case order

Strategic Role of Forecasting



Focus on supply chain management



Short term role of product demand



Long term role of new products, processes, and technologies



Focus on Total Quality Management



Satisfy customer demand



Uninterrupted product flow with no defective items



Necessary for strategic planning

Trumpet of Doom

• • •

As forecast horizon increases, so does the forecasting error (i.e., accuracy decreases) – shorten horizon by shortening of cycles or flow times Law of Large Numbers – as volume increases, relative variability decreases – forecasting error is smaller: goal – forecast at aggregate levels; collaborate; standardize parts Volume and activity increase at end of reporting periods – Krispy Kreme

Components of Forecasting Demand



Time Frame



Short-range, medium-range, long-range



Demand Behavior



Trends, cycles, seasonal patterns, random

Time Frame



Short-range to medium-range



Daily, weekly monthly forecasts of sales data



Up to 2 years into the future



Long-range



Strategic planning of goals, products, markets



Planning beyond 2 years into the future

Demand Behavior



Trend



gradual, long-term up or down movement



Cycle



up & down movement repeating over long time frame



Seasonal pattern



periodic oscillation in demand which repeats



Random movements follow no pattern

Forms of Forecast Movement

Time (a) Trend Random movement Time (b) Cycle Time (c) Seasonal pattern Time (d) Trend with seasonal pattern

Forecasting Methods



Time series



Regression or causal modeling



Qualitative methods



Management judgment, expertise, opinion



Use management, marketing, purchasing, engineering



Delphi method



Solicit forecasts from experts

Time Series Methods



Statistical methods using historical data



Moving average



Exponential smoothing



Linear trend line



Assume patterns will repeat



Naive forecasts



Forecast = data from last period

Moving Average



Average several periods of data



Dampen, smooth out changes



Use when demand is stable with no trend or seasonal pattern



stock market analysis - trend analysis

Weighted Moving Average



Adjusts moving average method to more closely reflect data fluctuations



Assign weights to previous months demands

Weighted Moving Average Example

MONTH August September October WEIGHT

17% 33% 50%

DATA

130 110 90

Weighted Moving Average Example

MONTH WEIGHT DATA August September October

17% 33% 50%

WMA

3 = 130 110 3



W i D i November forecast i = 1

= (0.50)(90) + (0.33)(110) + (0.17)(130) = 103.4 orders 3 Month = 110 5 month = 91

Forecast Accuracy



Find a method which minimizes error



Error = Actual - Forecast

Why is this important?

• • • • Impacts of bad forecasts Data gathering Why is forecast off What about Collaborative Planning Forecasting and Replenishment?

What is Collaborative Planning, Forecasting and Replenishment

• • • Started by Nabisco a concept that aims to enhance supply chain integration by supporting and assisting joint practices.

combines the intelligence of multiple trading partners in the planning and fulfillment of customer demand. CPFR links sales and marketing best practices, such as category management, to supply chain planning and execution processes to increase availability while reducing inventory, transportation and logistics costs.

Benefits

• • • • Customer Supplier Manufacturer in-stock percentage improvements of from 2 8% for products in stores, accompanied by inventory reductions of 10-40% across the supply chain.

Warehouse/Distribution Center Benefits

• • • • Greater visibility to improve replenishment accuracy Out-of-stock reduction Overstock reduction Production capacity aligned to meet customer demand

Problems

• • What is collaboration?

What if I share the wrong information and the competition gets it?

Questions???

Next Session

Reverse Logistics and Supply Chains

“In an ideal world, reverse logistics would not exist.”

Jim Whalen, “In Through the Out Door,” Warehousing Management, March 2001

“Now, more than ever, reverse logistics is seen as being important.”

Dale Rogers, Going Backwards, 1999

Reverse Logistics - What is it?

•

Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities

• • • • •

Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory Recycling packaging materials/containers Reconditioning, refurbishing, remanufacturing Disposition of obsolete stuff Hazmat recovery

Why Reverse Logistics?

• • •

Competitive advantage Customer service - Very Important: 57% - Important: 18% - Somewhat/unimportant:23% Bottom line profits

Reverse Logistics - New Problem?

• • • • •

Sherman Montgomery Ward’s - 1894 Recycling/remanufacturing in 1940s World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Key Dates in Reverse Logistics

• • • • • •

World War II – the advent of refurbished automobile parts due to shortages 1984 - Tylenol Scare - Johnson and Johnson 1991 - German ordinance that put teeth in environmental reverse pipeline Summer 1996 – UK Packaging and Packaging Waste Legislation 1998 - first real study of reverse logistics in the US University of Nevada, Reno 2001 – EU goal of 50-65% recovering or recycling of packaging waste

Reverse Logistics

A US Army Perspective

Operation Iraqi Freedom

The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Military Operations and Excess “In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered.” George S. Patton, Jr.

Jane’s Defence Weekly “Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

Does this create a problem?

From GAO Audit Report

Reverse Logistics

The Commercial Perspective

Reverse Logistics

• • •

Rate of returns?

Cost to process a return?

Time to get the item back on the shelf if resaleable?

Costs - above the cost of the item

–

Merchandise credits to the customers.

–

The transportation costs of moving the items from the retail stores to the central returns distribution center.

–

The repackaging of the serviceable items for resale.

–

The cost of warehousing the items awaiting disposition.

–

The cost of disposing of items that are unserviceable, damaged, or obsolete.

Costs

• • • • •

Process inbound shipment at a major distribution center = 1.1 days Process inbound return shipment = 8.5 days Cost of lost sales Wal-Mart: Christmas 2003 - returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers PalmOne - 25% return rate on PDAs

More Costs

• • • •

Hoover - $40 Million per year Cost of processing $85 per item Unnamed Distribution Company - $700K items on reverse auction 2001 - over $60 billion in returns; $52 billion excess to systems; $40 billion to process

Is it a problem?

• • • • • • •

Estimate of 2004 holiday returns: $13.2 billion % of estimated 2004/2005 holiday returns: 25% Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) Electronics: $10 Billion annually in returns Personal Computers: $1.5 Billion annually = approximately $95 per PC sold 79% of returned PCs have no defects Home Depot ~ $10 million in returns

Is it a Problem?

• • • • • •

European influence – spread to US - Green Laws Estee Lauder - $60 million a year into land fills FORTUNE 500 Company - $200 million over their $300 million budget for returns Same Provider - 40,000 products returned per month; 55% no faults noted K-Mart - $980 million in returns 1999 Warranty vice paid repairs

More consequences

• • • • • •

Increased Customer Wait Times Loss of Confidence in the Supply System Multiple orders for the same items Excess supplies in the forward pipeline Increase in “stuff” in the reverse pipeline Constipated supply chain

Impact?

• •

Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply.

Creates a “stockout” do-loop

Results?

• •

This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring.

More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

Reverse Logistics

• • •

According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, is an astounding 200-300%. “In the U.S. alone, the cost is an annual $100 billion.” Forbes, March 2005 Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

“The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.”

- Whalen, “In Through the Out Door”

• • • • • • • •

Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing Impacts of Reverse Logistics

Your Experiences

• • •

What is your experience with reverse logistics?

How do you handle it?

Is it a problem?

Questions???

• • • • • • • • •

Next Session

Supply Chain Security And Homeland Defense

Joseph L. Walden

Supply Chain Security

“We have proved to our management that good security is good business.”

— Ann Lister of Texas Instruments

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Agenda

• • • • • • •

What is Supply Chain Security How does it tie to Homeland Security?

Is it Important?

Is it a Problem?

Risk Assessment Risk Management Conclusions/Questions

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Important?

• • • •

September 11, 2001 - $2 billion per day lost Longshoremen Strike backed up – 300-500 ships Potential loss of attack to major port $20 billion estimate 2008 estimate ~ 12 million containers into US; up to 490 million containers world wide

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• • • • • • • • • • •

Problem?

Terrorism Obsolescence Pilferage Information Breach Proprietary Data – Camera Phones; Thumb Drives Cyberspace Security RFID Data Security 66% of Sealift Containers arrive at 20 Major Ports >58 % of all inbound containers come through New York/New Jersey, Los Angeles, Long Beach ~44% through Los Angeles/Long Beach in 2003 Lengthening of Supply Chains Globalization – coupled with

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Recent Headlines

• • • • •

“New Budget includes $10.2 Billion for Border Security.” “Battling the Bad Guys: 2005 Was a Tough Year” Dec 2005 Baseline Magazine “Major Data Theft Leads to Major Legal Problems” Baseline Magazine “Polo Ralph Lauren – Data” Lost Point of Sale “No One Stop Shopping to Stop Database Pilferages” E -Week, Dec 21, 2005

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Recent Headlines

• • • • • •

GAO Report: “Container Security – Customs Programs Will Require Greater Attention to Critical Success Factors” Expansion of Key “Security and Risk Strategy Become Integrated” – Top Trends for 2006, CIO Magazine, January 2006 “Computer Security Becomes More Critical” CIO Magazine, January 2006 “Supply Chain and Security Remain in the Forefront” “ISO Publishes Supply Chain Security Guidelines” Plant Engineering Magazine, Sep 06 New Budget Includes $10.2 Billion Increase for Border Protection

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Recent Headlines

• •

“Supply Chain Security Poses Opportunities, Obstacles” E -Week, Sep 23, 2005 “Supply Chain Risks Threaten the World’s Biggest Companies” Logistics Today – “Financial executives at some of the world’s biggest companies believe supply chain risks post the top threat to companies revenues.”

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Risk Assessment

“If you do things the way you’ve always done them, you’ll get the same things you’ve always got.”

-Darrell Waltrip This is not your Dad’s Supply Chain!

Security is an integral part of the Supply Chain and Homeland Defense

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Purpose of Risk Assessment

Identify those areas of the supply chain that are vulnerable to interruptions of support flow.

•

People

• • •

Processes Technologies External events The identification and of hazards assessment of hazards to determine risk to include the probability and the resulting severity.

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Risk Assessment

Supply Chains are inherently complex, dynamic, and fluid, characterized by uncertainty, ambiguity, and friction. These characteristics cloud the operating environment: they create risks

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Risk Assessment

• • • • •

Terrorism Port Security – over 200 million containers annually Port Security – 300 US Ports Longshoremen Strike – 2002 Potential Airport Attack – MPS; LGA LAX;

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• • • • •

Risk Assessment/Management Steps

Identify the hazards.

Assess hazards to determine risks.

Develop controls and make risk decisions.

Implement controls.

Supervise and evaluate.

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How do you identify your Supply Chain Risks?

• • • • • •

You have to know your processes Process maps Understanding processes Understanding where risks are Internal Risks External Risks

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What are your Hazards?

• • • • • • • • •

Theft Pilferage Competition Information Systems Cell Phones Thumb Drives Camera Phones Disgruntled Employees Lack of Training

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What is Risk Management?

“ The process of identifying, assessing, and controlling risks from operational factors and making decisions that balance the risk cost with the operational benefits.”

US Army Field Manual 100-14

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Risk Management

“Risk management takes a new shape in extended supply chain. Risk management and the security of supply chains took on a new emphasis after the attacks of September 11, 2001 and the reactions of the world to security. Included in this heightened security awareness are initiatives such as C-TPAT and Homeland Security initiatives.” - Logistics Today

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Risk Management

• • • • •

Identify the hazards.

Assess hazards to determine risks.

Develop controls and make risk decisions.

Implement controls.

Supervise and evaluate.

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Risk Management

• • •

Conserving resources while avoiding unnecessary risk Deciding on the approval of an alternative Identifying feasible and effective control measures where specific standards do not exist

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Risk Management Does Not:

• • •

Does not take away the leader’s/manager’s initiative or decision making ability Eliminate risk or establish a climate of zero defects Allow the leader/manager to violate any laws

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What is a Catastrophic Risk?

• • • • • •

Inaccurate receipts?

Customer Satisfaction?

Sloppy Warehousing?

National Emergency?

Hurricane?

Or, Only when it makes it to CNN?

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Risk Management Programs

• • • • •

Mitigate Risk Eliminate Risk Consequences of Risk or Mitigation – probability and severity Courses of Action Analysis – Feasible, Suitable, Acceptable?

Manage Risk not react to Risk!

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New Problem?

• •

“There were no ‘secure’ rear areas.”

General Joseph Heiser on Vietnam Logistics

Sun Tzu

War

– Chapter 1,

The Art of

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Supply Chain Security

• • • • • • •

Supply Chain Security must protect the path from the supplier to the customer.

End to End Security End to End Visibility Information Security – RFID Personal Daily Obligation Operational Security Security and Velocity

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Supply Chain Security

“If master small things, Anything becomes possible” - Mr. Miyagi “The Next Karate Kid”

233

• • • •

Risk Assessment Risk Management Operational Security Supply Chain Success

Conclusion

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Final Thought

With an estimated 12 million cargo containers coming into the United States, coupled with an increase in the amount of jobs taken off shore; The resultant increase in imports and an ever changing terrorist enemy: Supply chain security is extremely important to Homeland Defense!

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Questions??

236