Inventory Risk Liability - Sapphire Presentation

7/28/2019 Inventory Risk Liability - Sapphire Presentation

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Supply Chain Collaboration – Solving the

Supplier Integration ProblemPatni Computer Systems – SAPPHIRE 2009



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Agenda

• Economic Recession Impact on Supply Chain

• SAP Supply Network Collaboration (SAP SNC) application & Patni Add-

on Capability

• Patni’s Inventory Risk Liability Solution for High Tech

• Supplier On-boarding Methodology

• Deployment Roadmap



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Impact of Economic Recession on Supply Chain

Demand is reducing

What is the committed

inventory with my

suppliers?

Can I reduce the

committed inventory

with my suppliers?

Which location, Which

supplier has the highest

inventory?

What is the dollar value

of the committed

inventory?

How much inventory I

am liable for?

What is the total

cumulative lead-time?

Can I reduce the total

cumulative lead-time?

How total cumulative

lead-time is affecting my

inventory liability?

Demand is cancelled



4

First QuartileBetween Average and First QuartileWorse than Average

Typical Scenario in CPG Industry

CP Ind. ( n=)PerformanceDimension

Metric Client1

Avg Q1

Inventory Days of Supply – TotalInventory

65 75 28

Inventory Carrying Costs (% of Revenue)

1.3% 3.2% 0.6%

Inventory Obsolescence (%revenue)

0.6% 0.95% 0.15%

Safety Stock (% revenue) 60% 64% 30%

Inventory

Analysis

Transportation costs (% revenue) 5.86% 2.6% 0.01%

Supply Chain Planning Cost (% of Revenue)

0.90% 0.37% 0.03%

Internal Costs/

Staffing LevelsSupply Chain Planning FTE (per $Billion in Revenue)

61.4 51.3 5.6

$15.5

0.0

Gap to Q1

Effectiveness: Reduce Inventory Carrying Cost ($M)

First QuartileBetween Average and 1st QuartileBelow Average

Effectiveness: Reduce Obsolescence (One-Time $M)

Potential Benefits: Value of Closing the Gap

$10.0

$0.0

$136.1

$0.0

Effectiveness: Increase free cash flow – One-time ($M)

Key Observations Client has higher inventory carrying cost which could be due to high costs of capital, high inventory obsolescence, high DC

operating costs

Client’ significantly higher transportation costs which could be due to increased expediting of shipments.

Client has significantly high safety stock and days of supply as compared to Q1 peer group.

Gap to Avg

Source - SAP



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SAP SNC – Solution to Supplier Integration Problem

SAP SNC 7.0

Supplier

Managed

Inventory

Master DataData

Validation

Release

Process

Exception

Management

Supply

Network

Inventory

Purchase

Order Process

Dynamic

Replenish-

ment

Web-Based User Interface

Business Processes

Basic Services

User Interaction

Kanban

Process

Delivery

Control

Monitor

Responsive

Replenish-

ment

Contract Mfg.

Purchasing

Demand

Collaboration

Work Order

Collaboration

Supply Network Inventory• Enable end-to-end and real time net work

inventory visibility

Purchase Order process• Real time collaboration with suppliers• Reduced FTE for PO follow-ups

Contract Manufacturing Purchasing• Complete visibility and control oncontract manufacturing purchasing

• Share forecast of FG seamlessly

Supplier Managed Inventory• Let Supplier manage component inventory

levels at your locations• Reduce inventory burden and stock out

risks



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SAP SNC: Benefit Derivation

Productivity

Improvement

Productivity

Improvement

Value from SAP

SNC: supplier

collaboration

Streamlined Supplier

Communication

Streamlined Supplier

Communication

Reduction in Buyer

Manual Effort

Reduction in Buyer

Manual Effort

Inventory

Reduction

Inventory

Reduction

Benefits 20% to 30% improvement

(annual benefit)

10% to 15% improvement(annual benefit)

7% to 10% improvement(one-time benefit)

15% to 20% improvement (one-time benefit)

Lead Time

Improvement

Lead Time

Improvement

Lead Time Variability

Reduction

Lead Time Variability

Reduction



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Improve Visibility & Collaboration using the SAP SNC application

Simplified Navigation & Screens for users of outsourced

manufacturing locations

Templates for uploads of Component Demand /

production schedules / planned receipts / on-hand

inventory data

Custom functionality for creation of Purchase Requests

from SAP SNC / customized alert framework

“What if ” Analysis using dashboards in

Xcelsius software

Information Broadcasting over different mediums

Leverage Capabilities of SAP SNC with Patni Add-on Features

Patni Add-on FeaturesSAP SNC: Standard Functionalities



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This helps Vendor User to Search Work Order

based on only the required search criteria.

In most cases the Vendor Knows the PO

Number that he is working with than the WO

Number

The related WO is pulled up and displayed in

the PO Information Area

This section allows the Vendor to modify the

Planned Production Schedule and also Split

Production Runs.

This section displays the completedProduction Status. Similar to the Production

Progress in standard SAP SNC

The Actual Production is reported here. This

creates a line for the corresponding Phase.

The updated data is displayed in theProduction Status above.

Simplification Example – all key functions on 1 screen for

users at the outsourced manufacturer location



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•This screen allows updating the QC Phase in a Work Order.

•Since hundreds of records are created each day, there is a requirement to be able to update multiple Orders simultaneously.

•On Save the program creates lines for the QC Phase for all the Orders selected based on the Lot status (Custom field).

Work Order Processing - Batch Update for QC Phase



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SC Visibility & Risk Projections – Business Challenges

Supplier

Distribution Centre

Customer

ComponentInventory

Finish ProductInventory

Demand

My Plant

ComponentInventory

Finish ProductInventory

WIP

Contract manufacturer

ComponentInventory

Supplier’s Supplier

ComponentInventory

Supplier’s Supplier

ComponentInventory

What if the demand reduce/cancel?

How can I reduce my

Inventory Liability?

How much Inventory am I holding?

Inventory held by supplier is not

reflected in my books



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Patni Solution for High Tech - Inventory Risk Liability

Analytics using SAP SNC

• Traditional inventory metrics fall short to address these issues and guide supply chain

managers

• Traditional inventory metrics are lagging indicators i.e. it takes weeks or months for

the problem to register in metrics

• In today’s environment, companies should measure and evaluate ‘ Invent or y Risk’

instead of just ‘ Inventory ’

• Look at the whole supply chain and not just the portion within their own organization

•• Invent ory Risk Liab i l i t y Analy t ics Invent ory Risk Liab i l i t y Analy t ics addresses this gap by developing N-tier inventory

metrics which helps in informed decision making in supply chain



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Decision Making w/o Risk Liability Analytics

¾ Laborious manual consolidation and data comparison

• Check finish product Inventory, WIP and component

inventory owned by me

• Use Inventory Reports provided by ERP

• Check component inventory liability across supply

chain

• Contact Suppliers to get the inventory data at their

end

• Reconcile data from various suppliers

• Check contract agreement with each supplier.

• Calculate liability of component inventory at each

suppliers

• Compare the actual inventory data with actual

requirements• Calculate liability of unused component inventory at

each suppliers

Supplier

Supplier’sSupplierSupplier’sSupplier

Contract

manufacturer

Complexity and

volume of data

increases with

number of

components andsuppliers



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Decision Making with Risk Liability Analytics

Business Question - Demand for a product is reducing by 20%.

What will be my inventory liability for unused components?

• Easy intuitive dashboard to pin point Inventory Risk across network

• Simulate changing business situations and understand impact on

Inventory Risk



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• It is the amount of money at risk in the supply chain at any given point of time

due to unsold inventory

• It depends upon

• Price (Cost) of finished product

• Cumulative Lead-time to build finished product

• Average Demand for the finished product

• Risk Liability KPIs Explained

Inventory Exposure - Definition



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Inventory Exposure – Solution Overview

Inventory

Exposure

InventoryExposure

Percentage

Inventory

Exposure

Turns

Trend valuesfrom historic

data

Check component

exposure details in next

tab

Provides projection of inventory liability in dollar terms, percentage as of Cost of goods

sold and exposure turns. Indicates high vulnerability SKUs requiring attention



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Component Inventory Exposure – Solution Overview

ProductDetails

Graphical

representation of KPI

Trend

Lead time

Cumulative

Lead time

Standard

Cost

Inventory

Exposure of

component

On Hand

Inventory

Value of On

Hand Inventory

Provides projection of inventory exposure of applicable components



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Supplier On-boarding – Key Challenges

How do we integrate all our suppliers in an SNC solution?

A

B

C

Comes in all size & shape

• Supplier Geography

• Supplier Language

• Supplier Size

• Supplier Time Zone

• Supplier Technology/IT

Infrastructure

• On boarding

/Integration Time and

Cost



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2-3 days Web based training

to super users

Supplier User Manuals

Supplier On Boarding Process

Term Acclimatization Process Acclimatization Scenario Introduction

Database Congruence Process Congruence Personalization& UI Settings

Navigation Comfort Process checks

Sample WBTSample WBT

Demo



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SAP SNC: Deployment Road Map – Risk-Free Approach

Visit us at Booth No. 949 to see demo of the Inventory Risk Liability

Solution –

Currently part of “Best-Run Now” Industry Solutions for High Tech



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Thank You



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Hyperlinks



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Inventory Exposure KPI - Calculation

• Inventory Exposure

“ The amount of committed inventory within total supply chain based on expected demand

and cumulative lead time associated with the current supply chain.”

In short it is the amount of money at risk in the supply chain at any given point of time.

Inventory Exposure = Price (Cost) * Cumulative Lead-Time * Average Demand

This is calculated for each component of the product. The sum of the individual pieces then coalesces

to show the exposure for a product, a product line, or a whole company.

For example, if a product has an average weekly usage of 100 units and one part in the product has a

cumulative lead time of 16 weeks, you know that you will have the equivalent of approximately 1600

units in the pipeline somewhere.



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Inventory Exposure Percentage KPI - Calculation

• Inventory Exposure Percentage

Inventory Exposure Percentage for Product

= Inventory Exposure for Product / Cost of Goods Sold for Product

Here the COGS is computed at the product level. COGS is calculated by multiplying expected productvolume with cost of the product. A higher Inventory Exposure Percentage indicates higher risk.

• Inventory Exposure Turns

Inventory Exposure Turns = Cost of Goods Sold / Inventory Exposure

This is just the inverse of Exposure Percentage. It has the same characteristics and is simply another wayto view the data. One interesting note is that a company’s inventory turns should always be higher than

its Inventory Exposure Turns.

Inventory Risk Liability - Sapphire Presentation

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