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•  Supply Chain Risks and Constraints •  Supply Chain Optimization versus Alignment •  Undertaking Complex Change

Thoughts of the Day

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…….And Real-World Risks and Constraints

Product

Demand Supply

Sense Shape Profitable Response

Orchestration

Leverage Scale for Competitive Cost

Maintain Efficiency and Service

Mitigate Impact From Disruption

Bridge Timing and Location Gaps

Increase Capital Utilization

Supply Chain Involves Complex Interdependencies

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Understand and Manage Your Constraints They are Different from Risks & Threats

Economic: •  Contract

commitments (delivery terms and service levels)

•  Asset economics and margin drivers

•  Duties and taxes •  Product transition

costs (cleaning, capacity and yield losses)

•  Complex pricing formulas and boundaries (modal freight differences)

Physical: •  Storage and

thru-put capacity •  Material properties •  Physical

performance erosion •  Physical distances,

speed limits, lead times

•  Shared assets (ports, canals, rails, roads, loading racks)

Virtual: •  Government policies

and regulations •  Company safety,

environmental and ethics policies

•  Inventory and cost reduction goals

•  IT technology strategies

•  Organizational structures

•  Financial performance metrics

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Constrained Supply Requires Demand Management

Levers of Supply Agility:

• Platform design for supply

• Postponement

• Flexible manufacturing capability

• Dynamic, integrated scheduling

• Logistics agility

• Inventory strategies • Collaboration with suppliers (SMI)

Demand-Shaping Levers: Marketing programs

• New product introductions

• Promotions and trade deals

• Package design

• Sales incentives

• Price management

• Order management rules

• Customer collaboration (VMI)

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Analyze and Manage Supply Lead Time

Sourcing Lead Time

Production Lead Time

Delivery Lead Time

Order Lead Time

Supply Lead Time (L)

Testing and Packaging Lead Time

1.  Evaluate the cost of shorter physical lead times (source, make, packaging, delivery)

2.  Invest in processes and technology to shrink decision times and waiting

Order Mgmt.

Lead Time

Scheduling Lead Time

Dispatch Lead Time

Receiving & Staging

MTS Push-Pull

Boundary

MTO Push-Pull Boundary

CTO Push-Pull

Boundary

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Maximize Business Value from Alignment

Demand Supply

Product

What is your source of competitive advantage and joint value creation?

“Supply chain optimization” is most directly applicable to businesses with a focus on maximizing value from a

supply network advantage

KPI: Margin & ROCE

“Product and Solutions innovation” strategies emphasize profitable growth by maximizing return on

investments in R&D and successful launch, commercialization and portfolio management.

KPI: Revenue growth

“Customer intimacy”, “Brand loyalty” and “Market focus” strategies emphasize growth of revenue, share and profitability at target customer or market segments with tailored

offerings and a superior experience

KPI: Market share and customer satisfaction

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Supply Chain Optimization: What, When, Why & How?

"Optimization is the ability to minimize cost or maximize profit (“an objective function”) subject to existing constraints such as …"

— J.Paul Dittmann, Supply Chain Transformation: Building and Executing an Integrated Supply Chain Strategy

•  Conscious design tradeoffs:

•  Networks •  Processes •  Incentives

Alignment

•  Network decisions establish constraints

•  Constraints reduce options and contribute to decision complexity

Constraints

•  Flexibility adds to decision complexity

•  Modeling supports faster and more intelligent decisions

Decisions

Gartner Research: “Supply Chain Optimization in Process Manufacturing Requires More Than Analytics”

Supply chain optimization is optional and is reserved for complex, high value decisions

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Align Supply Networks, Decision Processes & Incentives

Sell Deliver Make Source Strategic/Long-term Planning (2 Years to 5 Years)

Strategic Planning and Forecasting Network Optimization, Strategic Risk Evaluation

Tactical/Mid-term Planning (3 Months to 24 Months)

Sales and Operations Planning

Demand Planning & Shaping

Supply Planning Inventory Configuration

Supplier Mgmt. Contract Mgmt.

Operational/ Short-term Planning (1 Week to 12 Weeks)

Demand sensing Customer Collaboration

Distribution Req. Planning ( DRP) Safety Stock Policy Transportation Mgmt.

Production Planning & Factory Scheduling

Material Req. Planning (MRP) Supplier Collaboration

Execution (Order Duration to Shipment)

Order to Cash (transactional) Commit to Deliver (physical)

Manufacturing Operations & Execution Systems (MES)

Procure to Pay

Note: Planning Horizons Differ by Industry Depending on Product Life Cycle and Asset Investments

9

Executive Sponsorship

Transformational Change is Complex and Constrained

Burning Platform

Vision

Business Case

Change Readiness

Roadmap(s)

Current Capabilities

Reference: Supply Chain Transformation Guide (Jan 2014)

Cost-based Proposals

Strategic Bias

Value vs Risk Pragmatism

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Success = Development and Alignment of Capabilities

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Performance Enablement

Supply Operations

Customer Fulfillment

Demand Management

Product Lifecycle

Management

Strategic Governance

Supply Network Design

React Anticipate Integrate Collaborate Orchestrate

•  Revenue focus •  Silo’ed execution

•  Standard, scalable functional processes

•  Competing goals & metrics

•  Cross-functional tradeoffs and singular value chain goals

•  Extended networks •  Outside-in mindset •  Tailored outcomes

•  Multi-enterprise ecosystem •  Custom solutions, shared joint

value

Gartner’s Demand-Driven Model for Supply Chain Maturity (G00278802)

Cost

Inventory

Service OE (S, Q, C)

Market Share & Asset

Utilization

Margin &

Growth

© 2013 Gartner, Inc. and/or its affiliates. All rights reserved.

Summary / Recommendations

•  Analyze and mitigate your supply chain risks and constraints •  Quantify and communicate supply network performance capability •  Align supply decisions and incentives with demand patterns and

product supply strategy •  Create a strategically aligned case for investment in supply chain

capabilities for profitable balance of supply & demand

11

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Paul.lord@gartner.com @paultlord

THANK YOU !