1	Advanced Supply Chain Management and e-Business Monterrey Institute of Technology July 24, 2002 – Mexico City, Mexico Charles C. Poirier cpoirier@csc.com
2	General Premises The supply chain is end-to-end, resulting in the satisfaction of a targeted business customer (B2B) or consumer group with a specified market segment (B2C) Each business firm must define its own end-to-end processing The supply chain must be supported by a business network that has been technologically enhanced There is no future without e-Commerce, as all companies are becoming technology firms
3	Supply Chain Management and e-Business Introduction Some definitions will help Supply Chain – the core business processes in an organization that create and deliver a product or service, from concept through development and manufacturing or conversion, and into a market for consumption Supply Chain Management – the methods, systems and leadership that continuously improve an organization’s integrated processes for product and service design, purchasing, inventory management, logistics, distribution and customer satisfaction Supply Chain Optimization (SCO) – the ability to apply best practices with leading technology support across an end-to-end network with maximum effectiveness as measured by all constituents of the network, particularly the customer or final consumer
4	Supply Chain Management and e-Business Introduction (cont’d) More definitions Advanced Supply Chain Management (ASCM) – the creation and sustenance of a network or organizations dedicated to building and consistently improving a value chain constellation, focused on a particular industry, market segments, and consumer groups Upstream – the processes which occur before manufacturing or production into a deliverable product or service, typically processes dedicated to getting raw materials from suppliers Downstream – the processes which occur after manufacturing or production, typically those processes dedicated to getting goods and services to customers and consumers
5	In the Typical Supply Chain… Where are the hidden values? Purchased price of supplies? Buying/selling expense? Better total values? Forecasting? Inventory? R/M, WIP, F/G? Transportation/Warehousing/Shipping? Transaction costs? Order Management? Planning, Scheduling, Manufacturing?
6	Why This Emphasis on SCO? A fully functioning collaborative network will generate signif-icant savings and revenue enhance-ments, depending on the scope of deployment
7	The Journey to Supply Chain Optimization The traditional approach to supply chain management usually involves a collection of separate functional activities
8	Prologue Supply Chain Evolution Level 0 Pre-supply chain Continuous improvement Bring forward the good practices Level 1 Internal/functional Focus on sourcing and logistics; ignore potential organizational synergies; get started on business unit interaction Level 2 Internal/cross-functional Focus on internal excellence Break down the internal walls; build corporate integration
9	Prologue Supply Chain Evolution (cont’d) Level 3 External/network formation Focus on the customer with selected partners; start the elements of collaboration Level 4 External/value chain Focus on the consumer with partners; move forward extended enterprise synchronization Level 5 Full network connectivity Focus on cyber technology as the value chain enabler; move toward network optimization
10	Levels of Supply Chain Optimization
11	Level of Supply Chain Optimization
12	An Opportunity Illustrated 3M creates 100K+ purchase orders for office materials at an average of of $120 per order These orders account for 70% of the company’s total purchasing transactions Total was only 2% of purchasing dollars Each requisition took 1 to 3 days to process Nearly 1/3 of orders needed re-work 45% of purchases were made in violation of pre-arranged contracts with suppliers e-Procurement solution has reduced transaction costs, eliminated almost all rework and errors, and cut the internal order cycle time to less than an hour
13	Level 2 of Supply Chain Optimization
14	Level 2 Case Study Consumer Product Manufacturer
15	Level 3 of Supply Chain Optimization
16	Supply Chain Optimization Areas of Opportunity – Beyond Level 2
17	Specific Premises Companies with brand and buying scale (nucleus firms) will be at the center of the next wave of business transformation – they should work across business units to take advantage of total leverage and secure most favored conditions from key suppliers As opportunities to receive price reductions based on scale of buy reach the point of diminishing returns, advanced techniques must be employed Buyers and sellers need to turn their attention to process steps, systems and technologies used across their supply chain networks to find the next level of savings and improvements The nucleus firm can lead the search through a series of collaborative efforts, focusing on finding mutually benefits process improvements
18	Advanced Supply Chain Capability Achieving Collaborative Planning
19	Sales Example Office Depot Concept Extend your supply chain and use a new e-Commerce tool to generate new revenue Application Office Depot showed Bank of America how to plug into OD’s online store B of A now orders 85% of its office supplies through the Web site and saves millions per year Today, 40% of OD’s major customers use the online network Online unit booked $982MM in 2000 Company’s Internet sales grew 143%, versus 12%, overall and is expected to increase to $1.3B in 2001
20	Level 4 of Supply Chain Optimization
21	Supply Chains are Becoming Collaborative Networks
22	Advanced Supply Chain Management
23	Level 4 Case Study Appliance Manufacturer Restructure supply chain distribution infrastructure and delivery processes to improve customer service Single unit anywhere within 24 hours – service 99.4% Operating reduced more than 20% - $20 million savings Receivables reduced from 66 to 30 days New logistics concept integrated regional outsourcing Market share increased 15%
24	Private Exchange Example Ace Hardware Company Private, Internet-based network allows nucleus firm, Ace Hardware, to have a direct link with top suppliers Ace is able to view an accurate, real-time listing of all products in its inventory, while watching what its suppliers have in stock Ace, a retail cooperative, used SCM software from E3 Corporation to link Ace Distribution Centers from 9 suppliers 7- to 10-day order processing is done in less than 24 hours Supplier Manco, Inc., specialty adhesives maker, manages a 200-product system, from duct tape to shelf liners – Manco cut distribution costs by 28% and reduced freight costs by 18%
25	Five Levels Explain the Supply Chain Evolution
26	The Signs Continue to Point to an Evolution… …into industry networks and collaborative commerce
27	Path to Success
28	An Industry Overview
29	Collaborative Commerce Premises Supply chain, logistics, order visibility, and e-fulfillment must converge and focus on an end-to-end value chain, resulting in the satisfaction of a targeted consumer group within a specific market segment The value chain must be supported by a technically enhanced business network – the value chain constellation Firms can hold membership in multiple value chain constellations A nucleus firm will be found at the center of the successful value chain constellations
30	Helpful Definitions e-Commerce is the buying and selling of goods and services using the digitally connected marketplace e-Business is the continuous optimization of a firm’s value proposition using the Internet as the primary communication medium Collaborative commerce is about ways in which enterprises interact electronically to plan, design, build, sell, distribute and support goods and services across an end-to-end supply chain network
31	The New Electronic Model Find a market segment with a group willing to pay extra for a solution to a problem Define the problem and offer an electronic solution for that group Introduce elements of customization Charge accordingly
32	New Model An Example – Lands End Market segment – women looking or new beachwear Problem – they don’t want to try suits on in a store Electronic solution – Swim Suit Finder! Detail – site allows the shopper to use virtual reality to insert hair, face, body shape, skin tone, and then choose from hundreds of styles to select the suit(s) of choice Each custom-made suit is delivered to the home First-year sales – $60 million Returns – zilch
33	Collaboration A Successful B2B Example Ford Motor Company – Midsize Mondeo First car that will be 100% designed and delivered over the Internet – European model Normal 48-month cycle from concept to market introduction reduced to 16 months Collaboration between designers, suppliers and manufacturing Ford plans to duplicate with launch of 2001 Mountaineer and 2002 Thunderbird
34	A New Logistics Model Logistics consortium: Agilent Technologies, Coca-Cola, Con Agra, Envera, Fort James Paper, General Mills, Graphics Packaging, Hormel Foods, International Multifoods, Ivex Packaging, Kellogg, Land O’Lakes, McCormick, Monsanto, Nabisco, Niagara, Nestle USA, and Pillsbury Optimized transportation routing is online, carriage by Dart and others, software by Nistevo, from manual routing to e-tool Alliance is working on 15 routes in North America Goal is transportation optimization – deadhead mileage <5% Last company to use the truck picks up responsibility
35	Adding Detail to Collaborative Commerce
36	Collaboration Example – Boeing Model 777 designed in “virtual cyber space” Electronic sharing of design tools and processing techniques with engineers, customers, maintenance personnel, project managers, and key suppliers of components and sub-assemblies No paper blueprints Work done interactively over the Web – Boeing’s extranet 3-year delivery cut to 8 to 12 months Capacity increases to 2x airplanes each year
37	Collaboration Action Study – Moen, Inc. Plumbing fixtures firm set objectives Cut fat from systems Speed new products to market Reduce inventories Free up cash for new investments Key was to make more use of Internet Project Net – extranet with suppliers containing product design Collaborating with key suppliers on designs reduced cycle time from 24 to 16 months 17% increase in annual sales Supply Net became extranet extension
38	Summary of Implications New business models will be required Market and channel strategies will change, reflecting the importance of segmentation and customization Virtual integration will replace vertical integration Winners will have use of collaborative commerce to develop a value proposition that makes sense and is supported by an end-to-end network The game is B2B2C to satisfy the customer and consumer