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