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Supply Chain Transformation Yesterday an Option, Today a Requirement for Survival March 31, 2009.

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Presentation on theme: "Supply Chain Transformation Yesterday an Option, Today a Requirement for Survival March 31, 2009."— Presentation transcript:

1 Supply Chain Transformation Yesterday an Option, Today a Requirement for Survival March 31, 2009

2 Copyright © 2009 Penske. All rights Reserved.Page 2 The Current Environment The Necessity for Change An Approach for Achieving Transformation The Value Proposition Continuous Improvement – The Journey Never Ends The Current Environment The Necessity for Change An Approach for Achieving Transformation The Value Proposition Continuous Improvement – The Journey Never Ends Agenda

3 Copyright © 2009 Penske. All rights Reserved.Page 3 The Global Meltdown We’re in for a tough couple of years globally and cash is king.

4 Copyright © 2009 Penske. All rights Reserved.Page 4 Pharma Patent Expirations So what? You will be asked to do more with less & to challenge the current status quo.

5 Copyright © 2009 Penske. All rights Reserved.Page 5 Acquisition & Merger Focus Everyone is looking to put together the correct pieces to overcome the future revenue shortfall & as a method to reduce costs! Pfizer + Wyeth? Or Sanofi + Medley? Or Roche + Genentech? or King + Alpharma? Or Lilly + ImClone? Or Teva + Barr?

6 Copyright © 2009 Penske. All rights Reserved.Page 6 Increased Regulation The new administration in Washington & the requirement for solutions like e-Pedigree will only heighten regulatory complexity in the future.

7 Copyright © 2009 Penske. All rights Reserved.Page 7 Agenda The Current Environment The Necessity for Change An Approach for Achieving Transformation The Value Proposition Continuous Improvement – The Journey Never Ends

8 Copyright © 2009 Penske. All rights Reserved.Page 8 The World is Flat and Much of Your Future Opportunity is in Emerging Markets How will you get your products to these markets?

9 Copyright © 2009 Penske. All rights Reserved.Page 9 The Extended Supply Chain What are the specific requirements for the extended supply chain? Contract manufacturing, outsourced customer service, long lead-times, supply chain disruptions – all symptoms of of the extended supply chain. All requirements of the new paradigm in global trade.

10 Copyright © 2009 Penske. All rights Reserved.Page 10 The level of complexity is heading in one direction – UP! “10 + 2” C-TPAT NVOCC TSA Property Brokers License Importer Self Assessment American Society of Industrial Security Harmonized Tariff Schedule Certificate of Endorsement Duty Rate “24 Hour Rule” Special Duty Programs Ocean Transportation Intermediary Customs House Broker Permit Unauthorized Shipper INCO Terms Ocean Forwarder License Secure Freight Initiative Automated Manifest System The International Transportation Challenge

11 Copyright © 2009 Penske. All rights Reserved.Page 11 Local Conditions The specific modes of transportation vary from geography to geography This only adds additional risk to the management of global supply chains Along with risk – complexity is again increased Service quality can be compromised if all activity is not closely managed Service Providers may also introduce risk by operating illegally in their local markets For international shipping, the number of options continues to dwindle due to high acquisition activity

12 Copyright © 2009 Penske. All rights Reserved.Page 12 Requirements for Developing a “world class” Supply Chain Necessary talent must be in place to establish and maintain activity Complex technology needs to be installed to ensure optimized operations Constant evaluation of regulatory requirements must be conducted Every element of the international supply chain must be monitored International supply chain management MUST be a core competency The full requirements of establishing and maintaining a “world class supply chain” are complex:

13 Copyright © 2009 Penske. All rights Reserved.Page 13 The Task is Large – the Opportunity is Larger Best in Class organizations have clear competitive advantages over Industry Average & Laggards. Source: Aberdeen Group, March 2007 Competitive Framework for Process Industries Laggards Industry Average Best in Class Organization Knowledge Technology Performance Metrics

14 Copyright © 2009 Penske. All rights Reserved.Page 14 Your Supply Chain Can be a Competitive Differentiator Source: Supply Chain Cost Cutting Strategies – How Top Process Industry Performers Take Radically Different Actions Aberdeen Group, March 2007 Market strategy competitive differentiator 27% Cost center necessary to conduct business 25% Cost savings opportunity area to help fund R&D or business expansion 18% Customer service competitive differentiator 30% How do you view your supply chain? Lower performing companies are 3 times more likely to view their supply chains as cost centers.

15 Copyright © 2009 Penske. All rights Reserved.Page 15 Agenda The Current Environment The Necessity for Change An Approach for Achieving Transformation The Value Proposition Continuous Improvement – The Journey Never Ends

16 Copyright © 2009 Penske. All rights Reserved.Page 16 The Lead Logistics Provider Evolution An LLP is a business partner who assists in the development and implementation of strategies that drive improvement throughout a customer’s supply chain. It is not just about obtaining the lowest rate, it is about developing solutions & operating more efficiently.

17 Copyright © 2009 Penske. All rights Reserved.Page 17 Technology Third Party Logistics providers have developed technology that enables optimization, supports consistent process management, and provides transparency for all modes of shipping. The use of the appropriate technology is critical to the LLP model & the ability to deliver value!

18 Copyright © 2009 Penske. All rights Reserved.Page 18 The Global LLP Service Global visibility Single point of contact Direct the activity Transportation servicesWarehouse services Transportation services Warehouse services Transportation services Manage the network Re-engineer the network Develop “baseline” Measure the performance Optimize outcomes Provide the technology Drive out cost Support future growth Streamline activities Manage complexity Standardize activities Reduce inventory requirements Improve flexibility Ensure compliance (All parties digitally connected to the chosen management technology ) LLP People, processes, technology & continuous improvement make the difference.

19 Copyright © 2009 Penske. All rights Reserved.Page 19 How to Make Transformation Happen There is no improvement without sustained change. Change Management through Change Acceleration Process (CAP) A key component of any LLP activity should be focused on assisting the organizations ability to change. Leadership Plan Define behaviors of the Leadership that will be critical to the success of the change initiative Leadership Plan Define behaviors of the leadership that will be critical to the success of the change initiative Communication Plan Comprehensive Communication Plan to effectively communicate the necessary messages to all Merck associates impacted by the changes Communication Plan Comprehensive communication plan to effectively communicate the necessary messages to all associates impacted by the changes Systems and Structures Action Plan Assessment of Organizational Systems & Structures to determine which could help or hurt the project, and actions needed for each of the Systems or Structures Systems and Structures Action Plan Assessment of organizational systems & structures to determine which could help or hurt the project, and actions needed for each of the systems or structures Stakeholder Analysis Understand the influence Key Stakeholders have in decision making and determine their level of support or resistance Stakeholder Analysis Understand the influence key stakeholders have in decision making and determine their level of support or resistance

20 Copyright © 2009 Penske. All rights Reserved.Page 20 Agenda The Current Environment The Necessity for Change An Approach for Achieving Transformation The Value Proposition Continuous Improvement – The Journey Never Ends

21 Copyright © 2009 Penske. All rights Reserved.Page 21 Pharma Industry Benchmarking % Total Logistics Spend 18% 26% 25% 23% 5% 3% Inbound Transportation Outbound Transportation Warehousing Inventory Carrying Cost Administration Customer Service Source: Herbert W. Davis, “Logistics Cost & Service ” % of Revenue Pharmaceuticals Best in ClassAverage Source: PRTG, “Integrated Supply Chain Benchmarking Study” 3.87% 8.63% Opportunity It is critical to know & manage these costs because savings here will contribute directly to the bottom line! The best pharmaceutical companies spend approximately 4% of revenue on supply chain – the average company spends over 8%!

22 Copyright © 2009 Penske. All rights Reserved.Page 22 Source: Accenture Revenue Lift Customer service enhancements Product quality improvements Increased quality availability Reduced Supply Chain Costs by 10 to 15% Operational efficiencies Process enhancements Procurement savings Reduced Working Capital Requirements by 20 to 30% Inventory reductions Reduced cycle times Reduced Supply Chain-Related Capital Capital asset transfer Enhanced asset utilization Capital procurement savings Revenue Enhancement Operating Cost Reduction Working Capital Reduction Fixed Capital Reduction Invested Capital Reduction Profit Enhancement Shareholder Value Enhancement The Benefit Equation for LLP Services

23 Copyright © 2009 Penske. All rights Reserved.Page 23 Year % Savings Year % Savings Year 2 4-6% Savings Year 2 4-6% Savings Year 3 4-6% Savings Year 3 4-6% Savings Mode ShiftMode Shift Shipment ConsolidationShipment Consolidation Shipping Window FlexibilityShipping Window Flexibility SourcingSourcing Mode ShiftMode Shift Shipment ConsolidationShipment Consolidation Shipping Window FlexibilityShipping Window Flexibility SourcingSourcing Network Re-engineeringNetwork Re-engineering Continuous MovementContinuous Movement Route DevelopmentRoute Development Envirotainer ManagementEnvirotainer Management Network Re-engineeringNetwork Re-engineering Continuous MovementContinuous Movement Route DevelopmentRoute Development Envirotainer ManagementEnvirotainer Management Freight PaymentFreight Payment Expedite ManagementExpedite Management Returns Process ManagementReturns Process Management Inventory/Demand PlanningInventory/Demand Planning Freight PaymentFreight Payment Expedite ManagementExpedite Management Returns Process ManagementReturns Process Management Inventory/Demand PlanningInventory/Demand Planning Historical Opportunity – Third Party Transportation Management

24 Copyright © 2009 Penske. All rights Reserved.Page 24 The Unseen Value Proposition VisibilityVisibility AccountabilityAccountability TransparencyTransparency FlexibilityFlexibility ConfidenceConfidence Web-based, real-time information provided on an as needed basis with an open book policy to ensure value is being delivered. Utilize a non-asset approach to support customer agility and adaptability in a rapidly changing world. The concept of global supply chain management enables you to rely on this single point of contact for all international shipping requirements. Providing seamless shipment availability information and supply chain metrics-globally, utilizing proven technical solution. Having a trusted partner who will stay abreast of changing regulations, supply chain trends, and your requirements – at all times.

25 Copyright © 2009 Penske. All rights Reserved.Page 25 Agenda The Current Environment The Necessity for Change An Approach for Achieving Transformation The Value Proposition Continuous Improvement – The Journey Never Ends

26 Copyright © 2009 Penske. All rights Reserved.Page 26 Continuous Improvement – The Journey Never Ends Supply Chains change daily How quickly they are adjusted to this change can impact the overall cost Comprehensive measurement is a necessity Current technology is necessary in order to monitor the various nodes within a given supply chain Continuous measurement & adjustment will lead to cost improvement.

27 Copyright © 2009 Penske. All rights Reserved.Page 27 Comprehensive Measurement Leads to Improvement Measure early and often - what you do not measure will likely not improve!

28 Copyright © 2009 Penske. All rights Reserved.Page 28 Dynamic and Adaptive Network Design The continuous assessment, analysis and improvement of supply chain and logistics networks to adapt to an increasingly dynamic and global business environment Advanced optimization approaches can also have significant impact on today’s complex & global supply chains. Supply Chain Design & Re-Design Supply Chain Design & Re-Design Implement & Deploy the Design Implement & Deploy the Design Execute & Measure Execute & Measure Statistical Analysis & Trends Customer Value Sourcing Alternatives - Global Sourcing (Low Cost Countries) - e-Auctions Measuring the Performance of Current Design Identify Opportunities for Re-Design Identify Opportunities for Re-Design Manufacturing Alternatives - Contract Manufacturing - Plant Re-utilization Demand Variability - New product introductions - Seasonality - New Markets/Changing Demand Patterns

29 Copyright © 2009 Penske. All rights Reserved.Page 29 Relentless focus on value adding activities & eliminating activities that do not add value. Cost Defects Lead time Inventory Space Waste! Productivity Customer satisfaction Profit Customer responsiveness Capacity Quality Cash flow On time delivery Work Time (value add) Cycle Time Before After Wait Time (non-value add) Same work completed in less time LEAN Benefits What is Lean?

30 Copyright © 2009 Penske. All rights Reserved.Page 30 Focus Efforts on the Seven Wastes 7 Wastes Knowledge Flow Office Environment Product Flow Manufacturing Environment Overproduction Processing before next operation is ready Making decisions too early Sub assemblies and components between feeder and main lines Inventory Multiple applications awaiting approval Unnecessary document/data storage Material between operations and process steps Inventory stored in warehouses Buffer & safety stock inventory Extra Processing Navigating multiple screens to input data Multiple ways to do the same task Duplicate entries Planned/Un-planned Rework Handwork—polishing, deburring Motion Navigating multiple screens to input data Looking for data/information Operators bending, turning, twisting, reaching, walking Robotic motion—”getting back to home” Defects Rework Missed customer due dates Data entry errors Poor Quality Equipment failures Missing customer due dates Waiting System downtime/response time Manual decisions Documents awaiting signoff/approval Operators, machines, or customers waiting Transportation Delivering reports/hardcopies Shipping hardcopies requiring signature Conveyance of materials, tooling

31 Copyright © 2009 Penske. All rights Reserved.Page 31 Utilize Lean & Six Sigma to Identify & Quantify Opportunities Different tools applied in different circumstances or combined for greater effect! Six Sigma Eliminate waste in/around Process LEAN Eliminate defects in Process Business Improvement X X LEAN Improve steps that add value Six Sigma Improves the capability of steps that add value LEAN Helps identify steps that don’t add value and provides tools to eliminate them Six Sigma/LEAN Improving the capability can eliminate additional steps LEAN vs. Six Sigma

32 Copyright © 2009 Penske. All rights Reserved.Page 32 Outputs from Measurement, Dynamic Network Design, LEAN & Six Sigma Thinking Business Case = Project Plans Approved Projects Approved Projects Savings Delivered Savings Delivered ContinuousImprovementMindset

33 Thank you


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