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1 Synergy 2008 Supply Market Intelligence: the Foundation for Category Management and Supplier Relationship Management Robert Handfield, PhD Bank of America.

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Presentation on theme: "1 Synergy 2008 Supply Market Intelligence: the Foundation for Category Management and Supplier Relationship Management Robert Handfield, PhD Bank of America."— Presentation transcript:

1 1 Synergy 2008 Supply Market Intelligence: the Foundation for Category Management and Supplier Relationship Management Robert Handfield, PhD Bank of America University Distinguished Professor of Supply Chain Management North Carolina State University Raleigh, NC 27695 Director, Supply Chain Resource Cooperative Principal, Supply Chain Redesign, LLC

2 2 Partner Companies http://scrc.ncsu.edu

3 Introductions… Rob Handfield, PhD Bank of America University Distinguished Professor of Supply Chain Management, NC State University Director, Supply Chain Resource Cooperative – top 3 MBA SCM programs in the US Adjunct Professor, Manchester Business School Research and consulting supply risk projects with different industries including: Baxter BioScience Bechtel Boston Scientific BP Chevron ConocoPhillips Freightliner General Motors Guidant Home Depot Halliburton Lyondell Hess Shell Lubricants

4 4 Agenda The State of Supply Management Today Supply Market Intelligence - the Key to Category Management Managing Supply Chain Risk The Imminent Talent Shortage

5 5 What Keeps Supply Management Executives “Up at Night”? Pain Map Probability / Frequency of Occurrence Low (1) Severity Very High (5) Immediate Action Required To be watched: High frequency can turn into severe impact To be watched: Increase in probability can lead into red zone! Safe Area

6 6 Probability / Frequency of Occurrence Low (1)Very High (5) Low (1) Severity Management Opinion 1. Commodity Price Increase (10%) 1. IT Integration (5%) 1. IP (2%) 1. Collaboration & BI (10%) 1. Power Shift (8%) 1. Global Competition (10%) 1. Supply Chain Fragmentation (31%) 1. Lack of Global Project Resources (12%) 1. Regulatory Compliance (7%) 1. Developing SCM Talent (7%) Very High (5)

7 7 Basic Process/ Practices 12 -24 Months Primary Returns 5-7% Advance Practices 24-48 Months Secondary Returns 7-10% Optimization On Going System Wide Returns 7-10% Glass Ceiling Stabilize 6-12 Months Implementation Waves v. Savings Organizational Maturity Base Camp Caution – Stabilization Danger Zone From Vertical to Horizontal Go live Maturity Level 1 2 3 4 5 050607 Cumulative Savings (% spend) 0 0 5 12 20 Primary Returns: Transaction Savings Material Cost Reduction Process capabilities Direct cause / effect Basic Process Improvements Secondary Returns Operational Efficiency Project Efficiency Activity Elimination Redeploy Resources Complex process Improvements

8 8 Ad Hoc Defined Managed (Linked) Leveraged (Integrated) 1.Source: “Procurement: Current Benchmark Findings.” The Hacket Group, 2004 Optimized Benefits of Organizational Maturity 7700 No. of Suppliers Per $B Spend 1.0 2.0 3.0 4.0 1700 No. of Suppliers Per $B Spend 1% of Spend Procurement Costs 0.7% of Spend Procurement Costs 104 No. of FTEs Per $B Spend 54 No. of FTEs Per $B Spend RM Processes LT=1 SS=1 PO=1 RM Processes LT<40% SS<40% PO>40% 2. “The Quit Revolution in Supplier Management.” Aberdeen Group, 2004 111 2 Anticipated Performance at the Top Maturity Levels ROI = 20% ROCE = 19.5% Performance at Current Maturity Levels ROI = 16.5% ROCE = 16% 3. A Presentation to SCC Members “Supply Chain Practice Maturity Model and Performance Assessment”, The Performance Measurement Group, November 6th, 2001. 3 LT = Lead-time SS = Safety Stock PO = Perfect Order

9 9 Corporate Strategy Corporate Business Plan Business Unit Plans & Goals Category Mgmt Functional Goals & Plans Manufacturing Functional Goals & Plans Finance Functional Goals & Plans Business Unit Results Corporate Results Business & Market Intelligence Category Mgmt Contributions to Business Program Development Supply Mgmt Results Benefits Realization Supply Mgmt Strategy P2P Buying Channels Integrated Category Strategies Deployed Company-Wide Supply Chain Stewardship Supply Mgmt Vision Deploying Category Management

10 10 Agenda The State of Supply Management Today Supply Market Intelligence - the Key to Category Management Managing Supply Chain Risk Dynamics of Breakthrough Supply Management

11 11 Fact: Vertical & Horizontal Disconnection of SC Organizations Customer Supplier SC Organization Marketing & Sales Manufacturing Disconnection of Internal Business Intelligence Disconnection of External Market Intelligence Loss of Innovation and Efficiency Improvement Possibilities -> Connection of Market Intelligence has to be a Supply Chain Management Driven Approach: CUSTOMER AND SUPPLY MARKET FACING

12 12 Customers Suppliers Suppliers’ Environment Customers’ Environment Company Company’s Environment Customer and Market Intelligence Supplier and Market Intelligence Business Intelligence Supply Chain Intelligence is the convergence of four activities (information gathering, analysis, dissemination and response) both upstream and downstream in the supply chain. TRADITIONAL FOCUS IS HERE A GUESSING GAME Supply Chain Intelligence

13 13 The new Procurement Metric: Shareholder value preservation! Stock price performance around announcement Source: Hendricks and Singhal, Journal of Operations Management, 2004.

14 14 SCM Enablers – Data, Information, Knowledge SCM Processes Supply Chain Design, Supplier Rel. Mgmt, Perf. Mgmt, Supplier Quality Mgmt, Risk Mgmt, Cont. Improvement Business Intelligence/Market Intelligence Enabling SCM Processes Gather, Analyze, & Synthesize Data & Information Business Intelligence Spend Demand Performance Finance Quality Market Intelligence Markets Industries Goods & Commodities Finance Suppliers Competitors Technologies DATA INFORMATION KNOWLEDGE

15 15 Business Intelligence Impact

16 16 Agenda The State of Supply Management Today Supply Market Intelligence - the Key to Category Management Managing Supply Chain Risk Dynamics of Breakthrough Supply Management

17 17 Three key elements of supply chain disruption management Disruption Discovery Disruption Recovery Supply Chain Redesign Supply Market Intelligence Enables Supply Chain Risk Mitigation Disruption Discovery –What type of detection and intelligence does a firm need to detect disruptions? Disruption Recovery –Once the disruption is discovered, how does a firm effectively recover from a disruption? Supply Chain Redesign –How can a company strategically re-design its supply chain over time to become more resilient and avoid or easily mitigate future disruptions?

18 18 Time Impact of Disruption ($, Customer Account, Market share) DISRUPTION Discovery(A) Recovery (A) Impact(A) Discovery(B) Recovery (B) Impact (B) Disruption Discovery and Recovery time (B) Disruption Discovery and Recovery time (A) Disruption Amplifiers (Globalization and Complexity) Visibility Systems Excess Resources The key is prediction. This reduces possible disruptions or allows planning that minimizes discovery and recovery time. Disruption Discovery and Recovery

19 19 Performance CAUSES (Categories of Predictive Measures) Disruption EVENTS CONSEQUENCES (Impacts) Human Resources Supply Chain Disruption Supply Chain Disruption Financial Health Environmental Relationship Quality, Delivery, Service Problems Quality, Delivery, Service Problems Supplier Union Strike, Ownership Change, Workforce Disruption Supplier Union Strike, Ownership Change, Workforce Disruption Supplier Locked Tier II Stoppage Supplier Locked Tier II Stoppage Supplier Bankruptcy (or financial distress) Supplier Bankruptcy (or financial distress) Disasters (Weather, Earthquake, Terrorists) Disasters (Weather, Earthquake, Terrorists) Misalignment of Interests Misalignment of Interests Finished Goods Shipments Stopped Finished Goods Shipments Stopped Locate and Ramp Up Back up Supplier Locate and Ramp Up Back up Supplier Emergency Buy and Shipments Emergency Buy and Shipments Reputation Market Share Loss EFFECTS Revenue Losses and Recovery Expenses OTHER IMPACTS Forgone Income Emergency Rework and Rushed FG Shipments Emergency Rework and Rushed FG Shipments Recall for Quality Issues Recall for Quality Issues Sudden Loss of Supplier Sudden Loss of Supplier Driving Relationships to Mitigate Risk Copyright© 2006 Supply Chain Redesign, LLC Supplier Attributes Situational Factors

20 20 Relationship Supply Chain Disruption Human Resources Performance Financial Health Environmental Indicators Supplier Risk Score (RI) Quality, Delivery, Capability, Service Influence, Alignment, Information, Sharing Turnover, Union issues, Pay Position Market Power, Information Visibility Concentration, Disruption Potential Size, Asset Utilization, Capitalization, Profitability 1 2 3 4 5 6 Market Dynamics, Mergers, Regulatory, Disasters, Transportation Supply Chain Risk Categories

21 21 Supplier Risk Index $3M $2M $1M 0

22 22 Supplier Development Abilities Supplier Development: Measuring the Impact of the Development Investment Working with a supplier to improve Audits, or reduce SCAR and MRR occurances. BeforeAfter

23 23 Risk Escalation Process LOW REV IMPACT, LOW P(RISK) CONTINGENCY PLAN REQUIRED Buyer-Planner team visits supplier, validates risk level, and discusses contingency plan with Supplier and Manager, and escalates to next level if investment justified. HIGH REV IMPACT, LOW P(RISK) Annual or quarterly Update using Risk Survey Tool LOW REV IMPACT, HIGH P(RISK) CODE BLUE Engage senior management in bi-weekly review meeting or ASAP if required, establish strategic action plans to lower risk score if possible. HIGH REV IMPACT, HIGH P(RISK)

24 24 Aligning Interests with Suppliers Today1 2 3 4 5 6 7 8 9 10 11 12 > 1 year SRIM No Impact - Uncontrollable Factors (without major product redesign) Immediate Impact – “Quick Fix” (deploy resources immediately) Long-term Solution – Significant Investment Required (if enough of these occur, worth looking at the investment)

25 25 Agenda The State of Supply Management Today Supply Market Intelligence - the Key to Category Management Managing Supply Chain Risk The Imminent Talent Shortage

26 26 Ad Hoc Optimized/Extended Traditional Competencies  Integrity and ethical behavior  Cost reduction focus  Sense of urgency and results orientation  Business process analysis More people have problems succeeding due to lacking social competence than technical competence.” – Giunipero and Handfield “ Supply Chain Maturity Competency Continuum DefinedManaged/Linked Leveraged/Integrated Transforming the Organization

27 27 Traditional Competencies  Integrity and ethical behavior  Cost reduction focus  Sense of urgency and results orientation  Business process analysis Breakthrough Competencies  Enterprise-wide perspective and customer-focused decision making  Business acumen and innovative thinking  Operational improvement through collaboration and team leadership  Communications, influencing and facilitating change More people have problems succeeding due to lacking social competence than technical competence.” – Giunipero and Handfield “ Ad Hoc Optimized/Extended Supply Chain Maturity Competency Continuum Defined Leveraged/Integrated Managed/Linked

28 28 The Single Point of Contact Fallacy The dysfunctional relationship model  Sr. Management  Staff Business Leaders  Line Business Leaders  End Users  Sr. Management  Line of Business Specialists  R&D  Account Services  Geographic Sales AccountOwner SCM/ Procurement The Customer Organization The Supplier Organization

29 29 Deep Listening and Multi-Level Dialogue The healthy relationship model  Sr. Management  Line of Business Specialists  R&D  Account Services  Geographic Sales Account Owner SCM/ Procurement The Customer Organization The Supplier Organization  Sr. Management  Staff Business Leaders  Line Business Leaders  End Users

30 30 IACCM Survey on Succession Planning What percentage of your staff will retire in the next 5 years?

31 31 Do you have a program in place for succession planning in SCM?

32 32 Is succession planning a topic of discussion in your company?

33 33 Approaches to Developing Talent

34 34 Approaches to Developing Talent LOWHIGH Industry-Specific Knowledge and Competencies LOWHIGH Supply Chain Competencies and Knowledge SCM-Focused Universities (25%) BU Subject Experts (25%) General Business Universities (10%) High Potentials Within SCM Organization (40%)

35 35 Observations There is an imminent dearth of talent that will occur both in SC management and skilled/unskilled labor in the next ten years that companies are unprepared to deal with. Most companies have NOT spent the time thinking through their succession planning and talent pipelines, and in many cases, have not even had the discussion! A targeted approach needs to be developed that explores multiple avenues for talent development.

36 Questions to Consider Today How is supply market intelligence created today? –Formal versus informal mechanisms –Methodology to keep current How are we managing supply risk? –Greatest sources of risk –How to measure and monitor? –Contingency planning mechanisms Do we have formal succession planning and talent development plans? –What are projected retirements? –How to deal with the imminent talent shortage? 36

37 37 Final Thought If you insist on beginning only with certainties you shall end in doubts; but if you will be content to begin with doubts you shall end in certainties. (Francis Bacon) Email: robert_handfield@ncsu.edurobert_handfield@ncsu.edu Phone: 919 515 4674


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