Building these supply chain of the future.pptx

7/29/2019 Building these supply chain of the future.pptx

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Building the supply chain of

the futurePresented by:Komal TahirAhad BadarAbbiha WaqarMohtashim Naqeeb


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An overview

Introduction Challenges to global market Supply chains of global companies are ill-prepared for

the new environments growing uncertainty andcomplexity

Meeting the challenge Splintering the supply chain (A Case Study)

How many splinters are needed Seeing which products they see as leaders on cost,

service etc Analyze volatility of customer demand for a given

product line

Advantages of multiple supply chains Conclusion


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Supply chain in the new world

Many global supply chains are notequipped to cope with the world we areentering. engineered to manage stable, high-volume

production by capitalizing on labor-arbitrageopportunities available in China and otherlow-cost countries,

But

in future when: the relative attractiveness of manufacturinglocations changes quickly

ability to produce large volumes economically

such standard approaches can leave

companies dangerously exposed.


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Rising uncertainties that requirechanges in supply chain:

Fluctuating trade and capital flows

Rising wealth of developing countries

Emergence of credible suppliers fromthese markets

Greater risk for people who makedecisions related to manufacturingand supply chain strategies


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New supply chains

Supply chain organizations arepreparing themselves in two ways:

Splintering their traditional supply chains

into smaller and nimbler ones Better to manage higher levels of complexity

Treating supply chains as hedges againstuncertainty by reconfiguring theirmanufacturing footprints to weather arange of potential outcomes.


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Twin challenges

CEO of Caterpillar says: In our industry, the competitor thats best

at managing the supply chain is probably

going to be the most successfulcompetitor over time. Its a condition of

success.

Yet legacy supply chains of manyglobal companies are ill-prepared forthe new environment


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A more uncertain world

Sources that are leading to changes in the supply chain: 68% of global executives responding to a McKinsey survey said

that supply chain risk will increase in the coming five years

Financial crisis of 2008

Route of trade and capital flows

Currency values

Long-term shifts in the global economy

The increasing importance of emerging markets tops the listof these uncertainties: Economic growth will boost global energy consumption in the

coming decade by one-third

Voracious appetite of China and other developing countries forresources like iron ore and agricultural commodities is boostingglobal prices and thus difficult to configure supply chain assets

Environment issues are growing

Uncertainty over the scope and direction of environmentalregulations


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These long-term trends have knock-oneffects that reinforce other sources ofuncertainity like: Growth in developing countries leads to volatility

in global currency markets Growth in various markets means rising labour

cost, which changes relative attractiveness ofmanufacturing locations E.g. walk outs, labour strikes and worker suicides lead to

increase in 20% wage increase in China Similar trends in Bangladesh, Vietnam, Cambodia

As companies of developing countries becomeincredible suppliers, difficult to choose which low-cost market to source from.


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Rising complexity

Important to deal with complexity Working harder to meet customers

increasingly diverse requirements E.g. mobile phone makers introduced 900 more

varieties of handsets in 2009 than in 2000 E.g. number of SKUs at some large North American

grocers exceeded 100,000 in 2009

Efficient distribution in emerging markets

requires creativity E.g. in Brazil, Nestle is experimenting with

the use of supermarkets barges to selldirectly to low-income customers


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Meeting the challengeAhad Badar


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Meeting the Challenge

In the circumstances of today's worldoptimizing supply chains is an enormouschallenge.

Forward looking companies are trying toovercome this by:

Splintering Treating Supply Chains as dynamic hedges


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Splintering

Splitting SCs into smaller & more flexibleones

Although they have same assets andnetwork resources.

Helping companies to prevail overcomplexities and give better services


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Hedges

Treating SCs as dynamic hedges

Examining and reconfiguring their broader

supply networks with a future economicconditions

For this companies are building diverse &more resilient portfolios


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From One To Many

Splintering can help

Tame Complexity

Save Money Serve Customers Better


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Case

U.S based consumer durablesmanufacturer

Faced problems due to :

Volatile patterns of customer demand

Product proliferation resulting intohundred of new SKU (stock keeping units)


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Case

The company responded byexamining:

The volatility of demand in each SKU

Overall SKUs produced each week

Resulting matrix helped the companyrethink its strategy


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Case

Company split its SC in four distinctsplinters

For high volume stable demand SKUs:China

For low and high volume volatile demandSKUs: North America

For low demand SKUs: United States,

helping them achieve high quality &


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Case

Also the company changed its informationand planning process

Now, it did not try to make forecasts for most

volatile SKUs It rather just chose to produce on demand

This helped the forecasts for productionoverseas

As the noise because of volatile demandSKU's was just in U.S now


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Advantages to the company

Advantages to the Company of the stepstaken:

Reduced sourcing and manufacturing

complexity Lower COGS by 15%

Improved Services

Shortened lead times

Quality Improved


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How many Splinters?Abbiha Waqar


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What is a splinter?


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Stage1

Base line Understanding of material flow frompurchasing to distribution.

Stage

2

Functional

Integration

Understanding the functionality of

material management, manufacturingmanagement and distribution.

Stage3

InternalIntegration

Internal integration of materialmanagement, manufacturingmanagement and distribution.

Stage4

ExternalIntegration

Integration of suppliers, internal supplychain and customer

The multiple layer abstraction of a supply chain


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Amount of splinters needed

For this, organizations need to have a closer lookon how supply chain assets that company usesto manufacture and distribute its productsmatches up against the strategic aspirations ithas for those Products & Customers.

Most companies examine the second half of theequation, Readily identify which products they see as leaders

on: Cost;

Service; Innovation; or Combination of these.

Fewer companies seriously examine theoperational trade-offs implicit in such choices.


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A good place to start is to: Analyze the volatility of customer demand for a

given product line against historical productionvolumes

Compare the results against the total landed costfor different production locations

This information provides a rough sense of: Speed-versus-cost trade-offs

Location of supply chain splinters E.g. A Global consumer packaged-goods maker

saw: Two-thirds of the demand associated with a key product

line (About 40 % of the companys product portfolio)

could be moved from a high-cost country to a low-costcountry without hurting customer service.


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Consumer goods company

Packaging innovation was adifferentiator for some of its products thus configured a single production line in

the new, low cost location to makepackaging for several markets quickly.

By contrast, in Automotive and otherassembly based industries we see:

Customers responsiveness & Complexityof individual products are important inputsthat determine where supply chains mightbe splintered


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Second order benefits1. The act or process of equating or of being

equated.2. The state of being equal3. A complex of variable elements or factors


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Dividing supply chain intosplinters

Reduces complexity

Manage it better because operational assetsfocused on tasks they are best equipped tohandle

Helps Senior managers more effectivelyemploy traditional improvement tools that weredifficult to handle before

E.g Consumer durable maker after dividingsupply chain: Use formally impractical postponement

approaches: Producing closer in time to demand to keep holding cost

low

Companys US plants combined SKUs into semi finishedcomponents that could quickly be assembled into products


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Likewise, global consumer packagedgoods maker found that aftersplintering the supply chain:

Apply lean-management techniques inplants more successfully

Faster changeover times in higher-costproduction locations

Effectively handle product-relatedcomplexity


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ConclusionMohtashim Naqeeb


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Use your network as a hedgeThe advantages that multiple supply chains confer aremost valuable if companies view them dynamically, withan eye toward the resiliency

Resiliency - The power or ability to return to the originalposition after being bent compressed or stretchedelasticity.

Example

China's currency appreciates by 20%

Oil costs $90 a barrel

Shipping lanes have 25% excess capacity


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Some companies like NIKE arealready thinking this way

Leader in emerging market production

Manufactured more shoes in Vietnamthan in China for the first time in 2010.


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China - Most attractive option in short termfor manufacturing.

the risks associated are

wage inflation

currency-rate changes

Which makes Mexico a preferablealternative under several plausible

scenarios.


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Example

North American industrialmanufacturer stretched to Brazil &Mexico.

This helped to hedge against swingsin foreign exchange rates.

By this company increased capacity ofproduction by producing in other than

Europe & US.


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'Reshoring' firms head for

home

Almost three years ago, Peerless IndustriesInc, a US-based maker of audio-visualmounting solutions, made an unusual

decision.

It pulled its production out of China to builda new plant in the US.

The company predicted that its productioncosts in China would eventually outweigh

those in the US.


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Peerless did not have to wait long to discover if it

had made the right call.

According to a recent study conducted by Boston

Consulting Group (BCG) rising wages shipping costs land prices in China combined with a strengthening yuan and a weaker

dollar

are narrowing the cost gap between China andthe US for many goods produced for USconsumers.


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As a result, a trend of US companies movingproduction from China to the US has begun inrecent years.

Besides Peerless, the BCG study also cites FordMotor Co, The Coleman Co, NCR Corp andOutdoor Greatroom Co as having moved theirproduction bases.

These days, it may be more economical for USmanufacturers to stay at home, especially whentheir products serve the US consumer.


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China cannot be ignored

The rising level of incomes in China means thatChinese consumers will have more money tospend, which may translate into rising demandfor consumer products.

Caterpillar Inc recently built a new plant inVictoria, Texas, to produce hydraulic excavatorsin the US. It also plans to increase its excavatorcapacity at its existing facility in Xuzhou in EastChina to support the growing demand for itsproducts in China.

Jim Dugan said that the company is not movingwork back to the US from China, but rather, it is

growing in both countries.


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Conclusion

Not an easy task as it effects the entireorganization For starters, such changes require much

more cooperation and information sharing

across business units than many companiesare accustomed to.

For many companies, a hands-on-effort bythe CEO is needed for success.

However the rewards are worthwhile This can help companies gain significant

advantages in longer run.


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Thank you

Building these supply chain of the future.pptx

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