Transcript Slide 1

Supply chain supporting the corporate strategy
CII Logistics summit – 2012
Chennai
12.06.2012
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Agenda
Supply chain – reality check
Significance of supply chain
Aligning supply chain with the corporate strategy
Key steps to align your supply chain with your strategy
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Supply chain – reality check
Still not considered as a core function in India
Many companies do not have a separate supply chain department
Perceived more as an operational function than a strategic one – relegated
as a sub function of either procurement / finance or marketing in some
organizations
Mostly seen as a tool to control and reduce costs
Logistics decisions are mostly reactive in nature
Low awareness among industries on all aspects of logistics – not much
planning done on logistics requirements leads to huge mismatch between
requirements and reality
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‘An army marches on its stomach’ - Napoleon
Unless soldiers are fed, the army cannot move
He clearly understood the significance of what
we now call an efficient supply chain
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Significance of supply chain
Increased customer awareness and easy access to information has
increased the customer expectation
Product differentiation is disappearing in many segments – products are
fast becoming commodities
Service levels which were the key differentiator earlier, have now become
industry standards / hygiene factor
One of the important differentiations lies in better supply chain
management
Gap between success and failure in logistics depends on
servicing emerging customers
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Business strategy constitutes the overall
direction that an organization wants to go
Supply chain startegy constitutes the actual
operations of the organization
Extended supply chain is to meet a specific
supply chain objective
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Aligning supply chain with the corporate strategy
Staying ahead of the velocity of business change
• Treat the business as an integrated one – do not operate in supply
chain Vs sales silos
• To be the first-mover – you also need to figure out what the unstated
and future needs of your customers are
Should be ready to handle uncomplimentary products
• Consider the supply chain ramifications of innovations when new
products and services are still on the white board
• New products may not be within the confines of your existing supply
chain
• Change in the size and shape could affect your ability to service
customers with the current transportation & warehousing plan
• Do not just tweak your supply chain – rethink end to end
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Aligning supply chain with the corporate strategy
Technology - The key differentiator
• As the world goes forward, the pace of advancing technology will
move faster and faster
• Technology will always play an important role in aligning your
strategy more efficiently
• Many companies discover technology but ignore the need to
implement it. While Kodak invented first digital camera but have
recently filed for bankruptcy as they believed future will remain in film
based technology.
• Think of technology as your own personal form of research and
development and this process should not stop
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Aligning supply chain with the corporate strategy
Avoid disconnect among the various stake holders
• Channel and demand management are part of the supply chain, too
• Build a robust S&OP process and drive your sales and marketing
teams with objectives that aren't at odds with your supply chain
objectives
• Common failure is when sales and marketing have no incentive to
control inventory. They will overdrive the forecast to guarantee
availability and supply chain could be left with the excess inventory
• All stake holders of the supply chain, should be aware of the
company’s goal and their action should also be aligned accordingly.
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Aligning supply chain with the corporate strategy
Last leg of supply chain – The most important and most ignored
• Many companies struggle with aligning their supply chain with their
customer-facing functions, sales & after sales
• Post transactional elements are most critical from the perspective of
customer’s perception about the company and its product
• Elements like product tracking, customer complaint handling,
warranty, claim settling, product replacement are as important as
timely delivery
Supply chain strategy is only as good as the company’s ability to
execute it
• Companies often have major gaps between their highest level
business strategy and their supply chain strategy
• Business failures due to poorly implemented strategy are more
frequent, which are the result of poor execution than the vision and
strategy development
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Aligning supply chain with the corporate strategy
Forward looking Supply chain
• Advance planning saves lots of other costs & maintenance
complexity - replacing the filter on a water dispenser, shows how
easy it is to significantly minimize the logistical complexity, and
cost which would have been incurred had the filter needed to be
replaced at the companies facility.
• Redefining distribution in advance looking to future expected
changes - GST
Planning cycles to be shortened
• Companies should at best have strategic planning cycles of two to
three years
• You can not go for decades without re-aligning your supply chain
strategy
• Put your supply chain strategy on the same schedule as the rest of
your organization planning - new products / areas / territories of
business
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Aligning supply chain with the corporate strategy
Differentiation point to be pushed towards customer
Differentiation can be in terms of
A
B
Product
Ownership (Hub & Spoke model)
Flexibility in terms of to improve product offering and final product to customer
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Aligning supply chain with the corporate strategy
• As a strategy any company would like to operate at an optimum
level of inventory
• Larger the variants, greater the choice - any retailer or sales team
would prefer it
• Practically it is almost impossible to keep all variants in stock as it
involves:
Huge inventory cost
Forecast limitation
• Forecast at retail point is low as compared to aggregate level as
plus / minus get adjusted but at retail level there is no such
flexibility which could lead in to lower level of customer service
• We need to push to certain extent product differentiation and
ownership differentiation towards customer.
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Aligning supply chain with the corporate strategy
Product Differentiation
• For some products, differentiation can be postponed till retail point
• Differentiation should not be pushed beyond customer tolerance
level
Hotel Industry
• No hotel separately prepares all the dishes shown in the menu
separately
• Items are prepared to the extent that they can make any dish from
the available ingredients keeping in mind the time customer would
be willing to wait for a dish
• With 3 different gravies and kept boiled vegetables they can go for
any specified item with out running the risk of carrying huge
inventory
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Aligning supply chain with the corporate strategy
Paint Industry
• Only base colours are supplied by the company to retailer and
based on customer requirement computer generated program
creates the required colour
• With differentiation point pushed to the point of sale it has
significantly reduced the logistics and operational complexity with
out compromising on customer service levels
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Aligning supply chain with the corporate strategy
Ownership Differentiation
• Postponing the ownership considering the following
a) Customer readiness to wait for product
b) Inventory efficiency
• Forecast accuracy is always better at aggregate level than at an
individual level
• Ideally no retailer should keep stock other than displayed
• Dealer should place order with company when he has a confirmed
order. It could result in to huge inventory efficiency provided your
delivery time is within customer’s tolerance level
• Company should push the product towards customer as far as possible
without transferring the ownership of the product which will give the
flexibility to bill it to any retailer/customer
• More flexibility means more inventory efficiency resulting into
less/optimum inventory
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Don't let your supply chain strategy develop in isolation
from the rest of the business.
By Jeff Wallingford, VP, Supply Chain Strategy, Riverwood Solutions
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Key steps to Align your supply chain with your strategy
Understand your customer requirements
• Does he need small or large quantities – small retailer will have
different need than a superstore
• How quickly does the customer need a product – An eatery may
need quick turnaround while large machines may be purchased
occasionally
• How large a variety does he need – super store may need a wide
variety of products while a small grocery store has a narrow variety
• What level of service does he require – quick turnaround and
customized orders or they can wait for their orders
• What price level will they pay for services – are they willing to pay for
a faster turnaround
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Key steps to align your supply chain with your strategy
Define company’s core competencies and roles in meeting those
requirements
• How is your company a part of the supply chain – are you a
producer, distributor, retailer or do value added services
• What does your company do to enable the supply chain – your core
competencies
• How does your company make money – In case your company is
capable of fast turnaround of product in its area, you may be able to
charge marginally higher prices where as personalized service may
not help you increase price but can help to retain customer
Develop capabilities to support these roles which are weighted
towards either responsiveness customized services as
opposed to efficiency where emphasis is on low inventory
levels, efficiency and cost.
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Napolean and Hitler were defeated on the road to
Moscow and Stalingard – they both knew the
significance of supply chain but same was not
alligned with strategy as they overstretched their
supply lines
Rommel had same fate in North Africa when his
tanks lacked enough fuel to fight Montgomery
effectively at El Alamein
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Thank you
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