Supply chain management Pascale Vande Velde

Supply chain management Pascale Vande Velde
UNIVERSITE LIBRE DE BRUXELLES Solvay Business School SEMINAIRE DE TECHNOLOGIES DE L’INFORMATION ET DE LA COMMUNICATION GEST 116 Notes : Supply chain management Pascale Vande Velde

Content of eBusiness course
Introduction – Part I Introduction – Part II Payments & security Bonjour Nous allons passer 10 heures ensemble à parcourir certains aspects de l’ebusiness. Ce cours ne sera pas un cours de stratégie sur l’ebusiness, ni un cours de programmation. L’objectif de ce cours sera de mettre l’accent sur les technologies qui supportent l’ebusiness (ebusiness enabling technologies). Nous commencerons par une introductrion en deux parties sur l’ebusiness. La 1ere partie traitera de la taille du marché, les facteurs influançant l’utilisation de l’internet, les value drivers, les business models rencontrés. La 2e partie traitera plus spécifiquement des architectures applicatives, de l’infrastructure ebusiness et des technologies visant à intégrer des plate-formes ebusiness avec des systèmes propriétaires. Le 3e cours portera sur les technologies de paiement et de sécurité en matière de paiements. Les 2 derniers cours seront des illustrations de modèles ebusiness sur trois plans : supply chain management (efullfilment) et eMarketplaces. Supply chain management

Case study : eprocurement
Agenda Introduction SCM Case study : eprocurement Case study : esynchronization Aujourd’hui, nous allons parler des marchés financiers et plus particulièrement de l’impact de l’ebusiness sur ces marchés. Nous allons d’abord voir pourquoi ces marchés ont vécu des “révolutions technologiques” importantes Ensuite, nous allons voir plus particulièrement quelles types d’évolution on observe côté back end (FO/BO bancaires, interactions avec sociétés de clearing et banques dépositaires), front end et sur les marchés financiers eux-mêmes (émergence de electronic trading networks) Case study : eplanning

Supply Chain functionality by segment
Supply Chain Planning Procurement and sourcing Manufacturing Strategy & Operations Inventory Management Distribution & transportation Mgmt Consumers Sell Design Suppliers and Vendors Buy Make Hold Move Customers Synchronization and Execution – Fulfillment process

eprocurement Supply Chain Planning
Procurement and sourcing Manufacturing Strategy & Operations Inventory Management Distribution & transportation Mgmt Consumers Sell Design Suppliers and Vendors Buy Make Hold Move Customers Synchronization and Execution – Fulfillment process

—Impact of Indirect Procurement Cost Savings on Profit —
Procurement Value Drivers Purchasing determines an important part of the competitive position of most firms. Purchasing is an area where large cost reduction can be made An organisations spend makes up on average of 60% of revenue Procurement cost savings go straight to the bottom line Purchasing and Supplier collaboration can reduce the need for large inventories and quickly introduce goods and services to accommodate new product designs and changes in existing designs Streamlining of processes allows organisations to acquire good more quickly. It is well recognized by most organizations that procurement cost savings are particularly attractive because they go straight to the bottom line —Impact of Indirect Procurement Cost Savings on Profit — — Before — — After — ILLUSTRATIVE Revenue $1,000M - COGS 400M Gross Margin 600M - Labor 200M - Indirect Purchases 300M Net Income (before taxes) $100M Revenue $1,000M - COGS 400M Gross Margin 600M - Labor 200M - Indirect Purchases 270M Net Income (before taxes) $130M (10% reduction) (30% increase)

The Re-Emergence of Strategic Sourcing
The need for Strategic Sourcing, both online and off, has become increasingly evident….everything is refocusing on the relationships between buyers and suppliers. eSynchronised Supply Chain eCollaboration eSettlement eFulfillment eIntelligence eAuctioning Outsourced eProcurement Services Slide demonstrates the pace of change and ongoing developments in this space…. Jan 1998, most companies were embroiled in ERP implementations. Few, however, had obtained the true value from these implementations, with little monitoring of KPIs and with little time to realise the benefits at this stage. Post Jan 1998: Some moves towards achieving this, e.g. introduction of Procurement cards Sept 1999: By September 1999, a number of companies have implemented internal eProcurement (buy site) systems linking to external suppliers. In the meantime, suppliers are individually developing their own ‘front-store’ applications. End-1999: Temporary slowdown as companies focus on Y2K (problems largely fail to materialise) March 2000: Companies move focus back to eProcurement. As buyers and sellers work on individual activities, there is recognition that combining efforts is logical. At this time, the concept of Marketplaces develops. June 2000: as Marketplaces and exchanges develop, there is a further move towards outsourcing eProcurement Services. Some prefer to outsource activities rather than spend 18 months on own development.Some (e.g. Sara Lee) take a dual approach, working both on own eProcurement activities, but also liasing with outsourced deals (e.g. EPValue.com) December 2000: Companies now looking for next wave of eProcurement services, including eIntelligence, eFulfillment, eSettlement and integrated supply chain services Marketplaces Integrated ERP Procurement Card eRequisitioning Strategic Sourcing

The Re-Emergence of Strategic Sourcing
Strategic Sourcing is not a new concept but companies are increasingly realising the importance of doing it and, just as important, doing it well….. New focus on revenue and competitive advantage rather than cost and efficiency Companies have not involved Procurement early enough in discussions about demand and specifications and significant sourcing opportunities have been lost Traditional Strategic Sourcing has been a time-consuming, paper-based and manual process. Older methods have: Limited the number of potential suppliers with which a buyer can negotiate Forced many organisations to make decisions with sub-optimal information Extended the overall length and cost of the sourcing cycle New tools are enabling a sophisticated and rounded eSourcing Strategy Recognition that whilst eProcurement is a key to sustain savings, the true value is achieved through Strategic Sourcing Need to make the point that we are getting a number of clients coming through and looking again at Procurement diagnostics and strategic sourcing projects Sustainability is key – it is tools and new ways of working that make the process sustainable – not the project and can wan over time. “When the goal is boosting profits by dramatically lowering costs, a business should look first to what it buys.” - Fortune

Delivering and Maintaining Savings
Neither eProcurement nor Strategic Sourcing on their own is enough to realise and maintain all potential benefits Performance Organisation Performance and process focus supported by eSourcing tools Right People in the Right place Cross-Skilled, motivated teams Strategic Sourcing: Consolidated Suppliers Total Cost of Ownership Strong Supplier Relations eProcurement Increased compliance Some process savings Better Information Savings eProcurement allows the divorce of transactional and strategic roles It enforces, where app., negotiated deals Sourcing becomes a true line role and ideally a department, not just a succession of projects Structural change, organisational and human behaviours key Procurement initiatives fade Supplier base expands Time

eSourcing Tools: The Future?
A new breed of eSourcing solutions is focused on enabling, embedding and speeding up the Strategic Sourcing process Strategic Higher eSourcing Direct / Indirect products / services Deliver lowest total cost Buyer / Supplier partnership eMarkets / Auctions Direct / Indirect products / services Reduce price Does not leverage existing contracts Type of Process Buyer Power eProcurement Applications Indirect products / services Automate processes Leverage existing contracts The Difference Between Strategic Buying and Transactional Buying Strategic Buying Moves beyond the transactional nature of indirect product eRequistions. From transactional to strategic buying. Leverages the value of taking a strategic approach. Buyer / Supplier power altered Tactical Lower Low High Value of Goods Traded

eSourcing Tools: The Future?
Web enabled tools drive consistency, efficiency and best practice into the strategic sourcing process New Priorities Strategic sourcing value opportunities have sometimes been missed due to lengthy and complex analytical processes Non-value added work needs to be reduced to allow procurement professionals to concentrate on more strategic and higher value tasks New Opportunities Tools are emerging to enable global & enterprise-wide sourcing strategies – paving the way for true eCommerce and new ways of working New leading edge web application solutions can improve business processes and empower procurement professionals Deeper functionality is coming available as technology matures eAuctions are already producing proven results. They do though need to be integrated within overall Strategic Sourcing process for maximum efficiencies and benefits New way to gain competitive advantage Linde Gas example – locked in a supply chain race – products (helium .4) are the same cross market > need to differentiate on availability, price, supply reliability and reliability > effective sourcing can make the difference “When the goal is boosting profits by dramatically lowering costs, a business should look first to what it buys.” Fortune

eSourcing Tools: Solution Landscape
Applying new technological solutions to the purchasing cycle Online auction multiple formats, languages & currencies 3rd party services: event setup, training & facilitation Online sealed bid Online negotiation eIntelligence from multiple buying tools Online analysis 3rd party service capability: spend analysis supported by strategic sourcing services Industry-specific marketplaces Buyer-led online ‘communities’ Research Develop Sourcing Strategy RFP/Tender Negotiate Implement Manage & Develop Suppliers Manage demand Analyse spend, identify opportunities Analyse market Source & qualify suppliers Create & issue RFQ/ITT Negotiate contract Award & finalise contract Direction Develop commodity specific strategies Manage supplier relationship Online process tools based on best practices Analysis templates Industry-specific supplier directories & marketplaces Newsfeeds, online market intelligence, online corporate information eRFI creation eRFP/Q creation: multi-line, multi-parameter automatic weighting of responses to speed up the assessment & elimination of suppliers Collaborative tool / template creation allows group-wide re-use Weighting of bids to reflect total cost of commodity ownership & supplier track record Online confirmation of contracts

eIntelligence Tools to Support the Strategic Sourcing Process
Buyer Portal Benchmarks Total Cost Focus Spend Analysis Capability Analysis Procurement Knowledge Base Project Direction 1 Research 2 Develop Sourcing Strategy 3 RFP/ Tender 4 Negotiate 5 Implement 6 Manage & Suppliers 7 Strategy Analysis (e.g. eProcurement) SS On-line X-fn. teams eRFP eTender Seven Step Process This slide introduces the tools available in the eIntelligence solution landscape. In this map of the eEnabling tools available to support the 7 step strategic sourcing process, the eIntelligence tools are highlighted in red. It can clearly be seen that in step 2, eIntelligence is the major input to this stage of the process. It is also clear that there is some eIntelligence input in several other steps but the management and development of suppliers of step 7 is an ongoing process and so eIntelligence will be required to constantly feed the monitoring, control and feedback systems put in place. Strategic Sourcing Online is a tool developed by Accenture that offers an overview of the whole process for a procurement professional to reference at each stage in the strategic sourcing process. Partnership Scorecard Procurement Knowledge Base Team Negotiation eAuction Tenders eMarketplaces eCommunication eContracting Process Standards

eIntelligence & Portal Overview
‘eIntelligence’ is internet-based information which can add value to the Strategic Sourcing process. It helps procurement professionals to analyse the marketplace, select suppliers and award contracts. Key Tools: Proactive delivery mechanisms, pushing tailored internal and external information to the desktop Newsfeeds & free s to subscription-based news services Knowledge Management & internal search capabilities Community features & discussion databases Industry Vertical providers inc. B2B eMarkets Applicable within the research and strategy steps of the 7 step strategic sourcing process Project Direction 1 Research 2 Develop Sourcing Strategy 3 RFP/ Tender 4 Negotiate 5 Implement 6 Manage & Suppliers 7 eIntelligence is the efficient and effective use of the Internet, to identify valuable sources of information, which are applicable to key stages in the sourcing process. Strategic sourcing will be covered more fully in the next 3 slides. External and internal information should be gathered and used to support your Purchasing function on an ongoing basis This new area empowers and web enables the daily job of purchasing and strategic sourcing. eIntellignece removes the ‘data hunt’ from the procurement person and enables them to focus solely on the ‘value add’ of the product/service. Arms procurement with detailed information to support ‘Total Cost of Ownership (TCO) based negotiation’ with suppliers.

From searching the internet to personalised portals and beyond…….
VISION: Internal and external sources combine to deliver powerful information solution Value eSynchronised Integrated Solutions ERP Information Integration Personalised Portal Enterprise Portal B2B eMarkets This slide attempts to show the links between the main elements of eIntelligence in an evolutionary path. This curve is illustrative only, there is no hard and fast rule to say that complexity is analogous to time. It is just one view that, if you were to start from scratch, newsfeeds and eRequisitioning would be simpler to implement than a integrated, synchronised portal and that implementations would flow in an order similar to this. The Vision of eIntelligence is where internal and external data sources combine to deliver powerful integrated information solutions, personalised to the user, on his/her desktop. In particular, all the information required to support decision making in strategic sourcing will come from many sources. Combining information about suppliers, commodity pricing, market conditions and trends, capacity, inventory, bill of materials and forecast can enable better decision making and shorten the time taken to review each category. Many organisations already enable their employees to use internet searches and newsfeeds on an ad-hoc basis. A lot fewer organisations have implemented leading edge enterprise portals and personalised portals. This is the limit of current implementations. However, the vision of eSynchronised solutions integrated with ERP systems to combine internal and external information is within the sights of thought leadership. It is envisaged that this is a natural evolutionary path. eRequisitioning Communities Knowledge Management Category Newsfeeds Industry Newsfeeds Internet Searches Complexity

A procurement portal draws on many information sources
internet www pages Business Partners B2B 2Market intranet Newsfeeds B2B Central Vendor Database View & access ERP Legacy eProcurement Application Project Market Shared Applications Collaboration e.g. Discussion Forum Corporate Portal Personal Folders Outlook 2000 Mail Calendar Personal Applications This slide offers a picture of all the information sources that may interact with a procurement portal and an enterprise interface. The anatomy of a corporate portal includes application windows, information windows, a virtual directory (I.e. taxonomy), folders, and publications

eRFx Overview eRFx is the process of:
Posting an RFI/P online utilising a secure web site Collecting supplier responses Bringing qualifying suppliers through to RFQ Negotiating the contract either via sealed bid or Reverse Auction Project Direction Secure web site – hosted database of information containing all RFI/P/Q information > is this something that the service provider should look handle? As we can see, eRFx is part of the whole of strategic sourcing. Accenture have defined an esourcing process of which we are concentrating on the RFP/Tender section. Research: You need to analyse your company spend, market and demand, which can highlight opportunities to levearge spend. research can be aided by use of industry specific supplier directories and market places and newsfeeds. Then need to develop your sourcing strategy, Ie your commodity specific strategy. Under RFP/Tendering, you need to source and qualify suppliers., ie finalise list of suppliers for the goods you want. Process: Identify and analyse bidders. Invite and register bidders. Prepare RFQ/ Item description Hold auction or private offer Analysis and implementation of results. Integration of best practice Strategic Sourcing Methodology ‘7 Step Methodology’

eSourcing Value Proposition
Tools & Knowledge = Efficiency & Leverage = Savings Lowered Total Cost of Ownership Strategic Sourcing Online tool enables effective strategic focus Spend Analysis tools (OLAP) to aggregate and optimise spend Reduce part proliferation More Effective Negotiation Through eIntelligence Full use of new internet information sources Provides facts fast for fact based negotiation Leverages internal knowledge and contacts Identifies significant industry trends Reduced Cost of Purchase Reverse auctions deliver value (12–17%) eTendering supports: Focus on attributes beyond price Identifies wider spectrum of suppliers to take part Cost Effective Solutions Overall integration with online auction/sealed bid capability can bring as much as a 25% cost reduction Fast ROI Hosted solutions reduce risks and integration costs Online Process Reduces average sourcing cycles Online tendering on its own can reduce this time by as much as 30% Drives reusability by bringing the process online Compliance and Consistency eRequisition and eRFQ reduce maverick buying Online methodology drives and guides process Online RFI/P/Q ensure standard documentation and easier comparison Vendor claims are unproven but… Another key to value proposition is that whilst you could question whether it is the tool that is creating the value or the start sourcing process going on behind. What the tools can provide, however, is a way to speed up the strat sourcing process and therefore schieve the savings quicker – OLAP tools, Biz Objects and Cognos. VALUE PROPOSITION: Strategic sourcing applications enable better purchasing decisions, which generate economic benefit to companies. These economic benefits may occur though the following actions: •Leverage volume by awarding more business to certain suppliers •Increase the number of items purchased under contracts •Rationalize supplier base •Forge supply partnerships to reduce inventory levels •Improve purchasing processes •Design and source for manufacturing and supply chain •Improve and optimize inbound supply chain configuration STRATEGIC SOURCING: WHAT LIES AHEAD? The market for strategic sourcing applications will grow from approximately $7 million in 2000 to $250 million in three years based on our projections. Hot new area.

Case study : MRO in the steel industry (“MRO Steel”)
Consortium based marketplace On June 22, 2000 the four consortium partners, who are leading steel producers, signed a Memorandum Of Understanding to study Trading Exchange The four founding companies agreed to work towards forming a leading-edge eProcurement marketplace for metals. The marketplace is focused on MRO (Maintenance, Repair and Operations), and vertically oriented. Speaker Notes Natural proximity, geographical and cultural, common interests. Without knowing exactly what e-procurement could bring us, we decided to join our efforts. Being four of the largest steel producers gave a visibility for the market and for the suppliers. The commitment given by the 4 groups could be summarised around following points: - Corporate involvement at CEO level - Dedicated resources - Shared expertise.

What is a Marketplace/ Exchange ?
Marketplaces are trading platforms that bring together multiple buyers and sellers on an Internet site to do individually business with each other Vertical Marketplaces Many Many Provide specialized products and services which are tailored to specific industries Speaker Notes BuyForMetals is a vertical Exchange or eMarketplace. The concept of an eMarketplace is simple: buyers and suppliers are brought together on an Internet site together to do business. Vertical eMarketplaces, like BFM, are sites which offer specialised products and services tailored to specific industries. A horizontal eMarketplace offers non-strategic products and services for companies from different industries. Exchange Many-to-Many relationship Individual Buyers Individual Sellers

Power of an Exchange - traditional model
Supplier EDI, custom, ... Evolution towards an Exchange Buyers wanted to connect electronically to their suppliers Every buyer established a customized link to their suppliers Eventually, a patchwork of customized links existed Supplier Buyer Supplier Buyer Supplier EDI, custom, ... Supplier Speaker Notes: The following two slides are linked. The slides explain the rationale and evolution towards an exchange. The first slide shows that exchanges started when buyers wanted to connect electronically to their suppliers. Every buyer had to develop a customised link to each supplier. Eventually, a patchwork of customised links existed, each of the links built on a one-to-one basis. Buyer Supplier EDI, custom, ... Supplier

Power of an Exchange – MRO Steel
SUPPLIER SUPPLIER Partner steel producer SUPPLIER A standard and uniform platform SUPPLIER Partner steel producer SUPPLIER MRO Steel SUPPLIER Partner steel producer SUPPLIER Speaker Notes: With the BuyForMetals initiative the buyers and suppliers will only have to integrate once. SUPPLIER Partner steel producer SUPPLIER SUPPLIER SUPPLIER

Initiatives in the Metal Spectrum
Metalmaker MaterialNet Independent Metalspectrum E-Steel Metalsite Ferrousexchange Kouzai.com Steelscreen iSteelAsia Steel24-7 Steel-N.com Metalexplorer GSX Sell-side Procurement Industry Consortia Operational Quadrem MRO Steel Announced Covisint Alliance/ acquisition Speaker Notes A variety of e-commerce ventures have been initiated in the Metals industry. Players at all stages of the supply chain have established initiatives – metals producers, suppliers (e.g. mining companies), customers and traders. In addition many start-ups have attracted venture capital to establish marketplaces, both for e-sales and e-procurement. Furthermore, there have been early moves towards consolidation within the space to capture scale benefits. Examples: MetalSpectrum and MetalSite announced a strategic alliance; Europe based Steelscreen purchased Danish competitor Metalexplorer (while previously Steelscreen declared a co-operative agreement with Asian e-sales site iSteelAsia). There appears to be a real opportunity for early movers to occupy an e-procurement space in Metals B2B. To date, the majority of B2B initiatives in the metals industry have been e-sales focused. While many metals companies have announced horizontal e-procurement ventures, relatively few have moved forward with vertical e-procurement. Individual initiatives Bethlehem Steel Suppliers Metals producers Customers Position in value chain

What differentiates MRO Steel ?
Liquidity Low transaction fee Speed-to-market and partnership Value added services Liquidity provided directly by shareholders is MRO Steel’s true differentiating factor Process efficiency provides incentive to commit spend volume Ensure that MRO Steel has a competitive pricing level and compelling value proposition Economies of scale reached quickly due to shareholders’ liquidity Launch in short timeframe with fast ramp-up Signing up the right buyers, suppliers and other marketplaces Strive for global reach MRO Steel will constantly innovate by introducing value added services Effectively translate internal needs into tangible services Deeper integration of the supply chain between participants Speaker Notes Point out that BuyForMetals is different from other eMarketplace because of four reasons: 1. Liquidity: Quick Liquidity is key to attract suppliers for example. The impact on the key suppliers has been evaluated. They are waiting and are ready to invest since they believe in it. 2. The low transaction fee: BFM is a profit center. However, its objective is clearly to be the most competitive support for the metals industry. 3. The speed of going to the market and the right partnership of buyers and suppliers. Speed is very important, not because we lack visibility for IPO options, but because we want to ensure quick ROI. 4. The Value Added Services that BFM is going to offer to its participants. The BFM business case is realistic, it relies on existing and achievable functionalities and services. Still, our mission is to develop metals industry specific services that will really add value to current procurement processes.

Pilot: Scope overview MRO Steel The pilot will support the following eRequisitioning process EBP Buying Tool 2 3 Catalogue 1 4 5 9 Business Connector 7 10 SAP ERP Order Mgt System 12 11 8 6 User logs into EBP From EBP, the user will “Punch-in” to MRO Steel to browse the hosted catalogue Catalogue view will be restricted based on the user’s company/profile Once items have been selected they are brought back to EBP (“Punch-out”), and added to the shopping basket The shopping basket is sent from EBP to R/3 using standard interface and converted into a Purchase Requisition Approval processes and the creation of the Purchase Order is done in R/3 Once the PO is created, it is sent under in Idoc format to the Business Connector The BC translates the iDoc into an XML format The PO is then sent to MRO Steel where it will be displayed in the Order Management System A purchase order acknowledgment is sent from BFM and processed by R/3, (steps 10 to 12)  Alternative scenario: shopping basket creation with selection of material, or based on free text

Pilot: Three phased approach
Catalogue browsing Selected items Phase III EBP – MRO Steel Integration MRO Steel Requisition information Status Phase I EBP – SAP integration Catalogue EBP Buying Tool Purchase order SAP format BFM format XML Receipt Confirmation BFM XML format Phase II SAP – MRO Steel integration SAP ERP Business Connector Order Mgt System

Target situation MRO Steel EBP Buying Tool SAP Steel producer 1
Catalogue SAP Steel producer 1 SAP Steel producer 2 Business Connector Order Mgt System SAP Steel producer 3 Common platform hosted at one of the steel producers SAP Steel producer 4

E-requisitioning technical architecture
Browser Browser Steel producer 2 64kbit/s Steel producer 3 2 x 256 kbit/s Browser Steel producer 2 Corporate Telefonica Internet ITS Production ITS Test/development BC Production BC Test/development 1 Mbit/s W-gate W-gate W-gate Infonet 64kbit/s 1 Mbit/s (Frame Relay Network) SAP BC SAP BC SAP BC ITS server ITS server ITS server 1 Mbit/s DMZ TA-segment at Steel producer 1 FW 256 kbit/s Route r Browser SwB browser 10 Mbit/s Steel producer 1 Steel producer 1 Lan ITS Production ITS Test/development W-gate W-gate W-gate SAP R/3 production SAP R/3 acceptation SAP R/3 SAP EBP production SAP EBP test/ Aristos PSI Aristos ASI development Aristos DSI (PED) development (DEB) ITS 1 ITS 2 ITS test/development svism001 A-gate(s) A-gate(s) A-gate(s)

Demo: Creation of Shopping baskets
EBP – MRO Steel Integration MRO Steel Requisition information Status EBP – SAP integration Catalogue browsing Catalogue EBP Buying Tool Selected items SAP ERP Business Connector Order Mgt System Alternatives for catalogue browsing: Selection of material in shopping basket Free text entry Usage of templates

Demo: Back-end system activities
MRO Steel Requisition information Status EBP – SAP integration EBP Buying Tool Catalogue SAP ERP Business Connector Order Mgt System Release Procedure Purchase requisition Creation of purchase order Send purchase order

Demo: Reformatting of purchase order
MRO Steel Requisition information Status EBP – SAP integration EBP Buying Tool Catalogue Purchase order BFM format XML Purchase order SAP format SAP ERP Business Connector Order Mgt System SAP – MRO Steel integration

Demo: Treatment by BFM MRO Steel EBP Buying Tool Order Mgt
Requisition information Status EBP – SAP integration EBP Buying Tool Catalogue Purchase order BFM format XML Purchase order SAP format SAP ERP Business Connector Order Mgt System Receipt Confirmation BFM XML format SAP format SAP – MRO Steel integration

Demo: Status update process
History update after Purchase order creation Goods receipt Invoice verification … MRO Steel Requisition information Status EBP – SAP integration EBP Buying Tool Catalogue Purchase order BFM format XML Purchase order SAP format SAP ERP Business Connector Order Mgt System Receipt Confirmation SAP format Receipt Confirmation BFM XML format SAP – MRO Steel integration

efulfillment Supply Chain Planning

Current business architecture of the value chain
Barriers Inventory Long freeze periods Infrequent communication Inaccurate information transfer Inventory levels Push Variability causes most silos to be working on the wrong stuff

Current business systems architecture for the division
SCM E-procurement Storefront CRM Design

Current business systems architecture for the enterprise

How Do You Solve This Problem?

What do you need to do to improve?
Reduce complexity Rationalize suppliers Rationalize items Generate better contracts Increase visibility. Break down walls Between divisions Throughout processes Between value chain partners Between systems Increase velocity Key weapon against variability

Introducing dynamic value chain management
Dynamic value chain management (DVCM) is a business approach to continuously increase efficiency in the value chain by concurrently reducing complexity, increasing visibility and increasing velocity.

DVCM methodology: First key principle
How well you continuously improve the value chain efficiency depends on the speed and quality of the following cycle How well you fight variability depends on the speed and quality of the following cycle Speed and quality depend on your internal capability and the cooperation of your customers and suppliers It is unrealistic to expect all silos to participate. Nevertheless, all cooperating members can benefit Some of the partners my be part of the same corporation, e.g. a sales office, or an internal materials supplier. In such cases cooperation is easier to mandate

DVCM: Second key principle
Value chain configuration Value chain planning Value chain execution Reduce complexity Increase visibility Increase velocity

DVCM methodology Step 1: Configure your value chain
Rationalize your Bill Of Material’s and components Rationalize your suppliers Rationalize carrier contracts Optimize supply network Create contracts and business processes Create collaborative response buffers Continuously monitor, decide and act

DVCM methodology Step 2: Plan collaboratively
Collaboratively forecast demand and plan supply Influence demand and supply Match supply with demand across multiple enterprises Plan allocations Create Available Through Promise across the value chain Continuously monitor, decide and act

DVCM methodology Step 3: Execute collaboratively, implement a pull-based process
Promise and create the “perfect order” Schedule the order at the factory Immediately broker orders across value chain Schedule fulfillment across multiple fulfillment organizations and systems Replenishment signals generated automatically for collaborative response buffers Settlement done automatically on receipt of goods Continuously monitor, decide and act

An ideal rapid response value chain: Planning happens in days, execution happens in hours
Lower inventory levels Huge benefits for those who practice DVCM, despite limited participation from others Retailer Pull Component suppliers It is unrealistic to expect all silos to participate. Nevertheless, all cooperating members can benefit Some of the partners my be part of the same corporation, e.g. a sales office, or an internal materials supplier. In such cases cooperation is easier to mandate Applied DVCM methodology Contract manufacturer OEM

Consumer electronics industry potential value improvements with DVCM
Inventory levels Suppliers EMS Manufacturer Sales/Distribution Retailers/ Channels Consumers 100 days 4-6 wks 4-6 wks 2-3 wks 2-3 wks 2-3 wks 2-3 wks Inventory Info flow 7 days 7 days 7 days 7 days 7 days 7 days 50 days Physical lead time 40 days 14 days 3 days 14 days 2 days 3 days 70 days Response buffers Potential $50B one-time – $10B continuing annual cash flow/profit benefit. $10B in revenue improvements.

Collaborative Planning, Forecasting & Replenishment
Shared plans developed jointly for Manufacturer and Retailer POS + Promotions + Marketing Activities Proactive Planning focus Adds Sales and Marketing view Goal is revenue growth Category management Efficient promotions, product introductions and replenishment

Internal and External Collaboration
Demand Plan Supply Plan Production Plan Market Activities See Exchange Maintain Compare Internal Collaboration External Collaboration

Open Application Integration
Architecture Example Open Application Integration Third Party Data NET Intranet Extranet Internet Manugistics Database NetWORKS

Local Supply - Illustration of Collaborate
The Materials Manager identifies (by exception lists) the planning Items on which he needs additional information

The Materials Manager marks these planning Items...

… and attach an explicative note

The supply Planner is informed via about the planning items to be reviewed...

Agenda Introduction SCM Case study : eprocurement Case study : efulfillment Aujourd’hui, nous allons parler des marchés financiers et plus particulièrement de l’impact de l’ebusiness sur ces marchés. Nous allons d’abord voir pourquoi ces marchés ont vécu des “révolutions technologiques” importantes Ensuite, nous allons voir plus particulièrement quelles types d’évolution on observe côté back end (FO/BO bancaires, interactions avec sociétés de clearing et banques dépositaires), front end et sur les marchés financiers eux-mêmes (émergence de electronic trading networks) Case study : eplanning

eplanning Supply Chain Planning

Case study : supply chain planning implementation at a chemical company
To develop synergies between Chemical company XX and acquired company YY, and to reduce operational cost, several initiatives were implemented, impacting XX Supply Chain Operations Asset consolidation Warehouses (Europe: from 40 to 10) Closure of local manufacturing plants (capacity reduction from to tons) Need to increase production capacity utilization Change in product offerings, Brand rationalization Constraints on working capital Context changes as a consequence of the acquisition Non integrated operations Multiples, non integrated ERP systems … Significant changes in the Supply Chain Model were required to operate in this new environment to achieve the business objectives of the YY company integration …

Project Overview Objectives: Move from country-based to European-wide Supply Chain Planning Processes and Organization Build an integrated supply chain planning platform using Manugistics In order to achieve: 10% inventory reduction Increased customer service Implementation overview: Project covers Europe and Asia operations 12 month implementation project

Solution Overview Implement new integrated supply chain planning processes Move from Country to European-wide supply planning organization Implement an integrated supply chain planning platform using Manugistics Previous SCP Model New SCP Model Tight integration across planning process balancing demand and supply to meet inventory target and service level Central replenishment of local warehouses optimizing the complete supply network Integrated supply chain planning tools allowing information visibility Disconnect between demand plan and supply plan (inventory / production plan) Local warehouse ordering leading to sub-inventory optimization Multiple, non integrated ERP system with no complete inventory visibility

(1) Implement new integrated planning processes
Integrated planning processes linking Demand and Supply side Implement common processes across Europe and Asia Develop Key Performance Metrics and Balance Scorecards to support new processes YEARS S U P L I E R Sales & Operations Planning C U S T O M E R QUARTERS Materials Planning Inventory Target Setting Demand Planning MONTHS Materials Planning Production Planning Distribution Requirement Planning Order Allocation WEEKS Procurement Detailed Production Scheduling Deployment Available to Promise DAYS Load Planning MAKE MOVE SELL BUY HOURS In Scope Process

(2) Move from Country to European wide Supply Planning organization
Implement a new central planning organization: Manage Inventory centrally for the whole region Setting inventory planning targets and parameters Generate inventory replenishment plan to each Distribution Center and Warehouse (daily / weekly) Generate production plan at each Manufacturing Plant (weekly / monthly) Supply Chain Planning process ownership Demand and supply alignment through Sales & Operations Planning process Redefine roles & responsiblities of sales and marketing in the planning process: Forecast ownership per Market Unit Network of Demand Planning Coordinators Exceptional demand input based on statistical forecast

(3) Implement an integrated Supply Chain Planning platform using Manugistics
Supply Chain Planning Manugistics Selected Transactional Data required for Planning Purpose Project Scope Transactions to be executed based on Planning decision Supply Chain Data Warehouse Detailed Transactional Data required for business information analysis Messaging Systems Various, non integrated ERP systems SAP R3 MOS CDS2 SAP R3 SAP R3 SAP R3 SAP R3 SAP R3 U.S. 2 Plants 2 Main DCs 15 Warehouses Asia 5 Warehouses Europe 1 Plants 1 Main DC 12 Warehouses Germany 1 Plant 1 Main DC Spain 1 Warehouse Portugal 1 Warehouse UK 1 Warehouse Italy 1 Warehouse

Various, non integrated ERP systems
(3) Implement an integrated Supply Chain Planning platform using Manugistics Demand Planning Distribution Requirements Planning Inventory Planning Inventory Deployment Transportation Planning Forecast Demand Define Inventory Targets Generate Requirements Plan Apply Constraints to Requirements Plan Generate Transportation Plan Net Forecast Restock Order Net Requirements Manufacturing Planning Messaging Systems Various, non integrated ERP systems SAP R3 MOS CDS2 SAP R3 SAP R3 SAP R3 SAP R3 SAP R3 U.S. 2 Plants 2 Main DCs 15 Warehouses Asia 5 Warehouses Europe 1 Plants 1 Main DC 12 Warehouses Germany 1 Plant 1 Main DC Spain 1 Warehouse Portugal 1 Warehouse UK 1 Warehouse Italy 1 Warehouse

Supply Chain Planning Manugistics Supply Chain Data Warehouse
(3) Implement an integrated Supply Chain Planning platform using Manugistics (con’t) Supply Chain Planning Optimization - Integrated Planning across Plant, Main DC, Warehouses Central and common Planning system linking the various ERPs Visibility across complete supply chain Decision support system: Sales forecasting - Replenishment Planning: what, when to replenish Production Requirements Planning: what, when to produce Supply Chain Planning Manugistics Supply Chain Information Warehouse - Centralized data across non integrated ERP systems Detailed operational and business analysis - Key Performance indicators Sales & Operations reporting Supply Chain Data Warehouse ERP systems Transactional Execution Systems - Order Management - Shipping / Invoicing Inventory replenishment plan to warehouse execution Manufacturing plan execution …

Value to the client 10% reduction in finished goods inventory
Business case: 10% reduction in finished goods inventory Increased in customer service/shipping performance Project payback of 1 Year Results to date New central planning organization in place Common planning process implemented across Europe and Asia operations. Integrated planning solution balancing demand and supply plan across the supply chain network Business Case realization to be monitored as of February ’02

Lessons Learned Focus on process and organization design prior to software implementation Use of iterative and prototype approach to clarify requirements and gain solution buy-in Strong and visible Top Management support was key in project success Involve key business planners at start of the project. Planners will require extensive training, coaching, and expertise prior to be able to operate a Supply Chain Planning solution (e.g. Manugistics) Master Data and transactional Data quality and availability is the critical success factor in any Supply Chain Planning implementation Integration with multiple and non integrated ERP systems will increase Supply Chain Planning project complexity and risk.

Supply chain management Pascale Vande Velde

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Supply chain management Pascale Vande Velde

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