Supply Chain Effectiveness Model (SCEM) Program Plan

1
eCommerce Overview Supply Chain
2
Stakeholders and Systems
3
B2B Value Chain Elements (Logical Process View)

• Supply Chain Management
• Forecasting and Planning
• Sourcing Procurement
• Manufacturing
• Warehousing Distribution
• Transportation

Consumers
Source
Make
Move
Suppliers Vendors
Design
Sell/Serve
Customers

• Manufacturing
• Planning
• Configuration
• Production Control
• Manufacturing
• Inventory Management

• Warehousing
• Planning
• Receipt Processing
• Value Added Services
• Shipment Processing
• Warehouse Management
• Transportation
• Planning
• Sourcing
• Operations
• Transportation Admin

• Forecasting/Planning
• Demand Planning
• Supply Planning
• Sourcing
• Supplier Development
• Proposal Management
• Negotiation/ Contracting
• Supplier Administration
• Procurement
• Planning
• Purchasing
• Purchasing Administration
• Settlement/Payment

4
What are the questions? Strategic vs Tactical
Strategic
Tactical

• What are we really best at?
• Is this where we want to play in the market?
• What content value could we put a box around
  and sell?
• What functions in our company create that value?
• Which parts of our supply chain deliver that
  value? How will that change?
• What are our competitors delivering? Should we
  be concerned?
• What new capabilities will we need remain
  competitive?
• What investments in new capabilities do we need
  to make now and in the future?

• How can we improve service levels to customers?
• How do we improve fill rates while cutting
  inventories?
• Where are our opportunities to cut costs?
• What benefits can we get from improving
  collaboration with suppliers and customers?
• How do we use e-commerce to improve our supply
  chain operating model?
• How do we economically scale our business?
• How do we move at e speed without incurring
  excessive risk?

5
The Value Chain Evolving Orientation
Buy-Build-Store-Sell operating model to
Sell-Buy-Process-Deliver
Increasing Sophistication - Segment-specific
buyer values - Changing market demographics - Grea
ter access to information - Growing Trade Partner
Power
Sell
Buy
Build
Buy
Performance - Value - Speed - Precision - Quality
- Service
Shifts in the Industry - New technology
- Disintermediation - Disaggregation - Convergenc
e - Global reach and leverage
Store
Process
Deliver
Sell
6
eCommerce Enablers
The internet and e-commerce are radically
changing how supply chains perform fulfillment
activities.
Change
Business Impact

• Universal technology layer across enterprises

• Applications and data no longer constrained by
  enterprise boundaries
• Enterprise can become a web of functional
  alliances

• Enables access to and assembly of previously
  unavailable data view

• One operational data view can be built across the
  supply chain
• Cross-supply chain data can be used for execution
  decisions at any point in the supply chain

• Real-time sharing of information for decision
  making

• Alliance partners can perform as integrated
  players in a virtual supply chain
• Improved supply chain performance, speed, and
  agility

• On tap enterprise applications sourced from
  third parties
• Business activities can be virtually co-located
  but physically separate

• De-coupling of business activities, applications,
  and hardware

• Easier access to a customer of one

• Existing fulfillment infrastructure needs to be
  re-tooled

7
Supply Chain Evolution
Technology is evolving to enable these
collaborative capabilities.
1980s
1990s
2000
Contract Logistics Outsourcing capabilities
(e.g. Transportation) to Third Party Logistics
(3PL) service providers
Internal Logistics Operations Insourcing to
achieve scale and build capabilities
Services
Strategic Alliances in Supply Chain Management
4PL arrangements

• Mail
• Phones

• EDI
• MRP

• ERP
• WMS and TMS
• Network Optimization
• Demand Planning/Forecasting

• Enterprise Application Integration (EAI)
• eProcurement
• Electronic catalogs

• eSupply Chain
• Supply Chain Collaboration (cross-enterprise)

Technology
8
eCommerce Enables Levels of Collaboration

Across Alliance Partners
With Customers Suppliers
eSynchronization
Scope of Impact
Step 3 Virtually Synchronize the supply chain
across players into one logical enterprise
Increasing Capabilities, Increasing Benefits
Between Business Functions
Collaborative
Step 2 Improve collaboration and control with
vendors, customers
Integrated
Within Business Activities
Step 1 Integrate functions of the existing
supply chain
Traditional
Optimization
Integration
Collaboration
Synchronization
Relationships along the Supply Chain
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Supply Chain Collaborative Processes
Potentially Collaborative Supply Chain Processes
Product Design
Product Lifecycle Mgmt
Demand Planning
Supply Planning
Co-Mfg Mgmt
Fulfillment
Transport- ation Planning
Service Support

• Innovation Management
• Portfolio Planning and Execution
• Product Strategy
• Product Technology Management

• New Product Introduction
• End-of-life Management

• BOM Maintenance
• ECO Management
• Approved Supplier List Management

• Order Entry Management
• Available to Promise
• Capable to Promise
• Vendor Managed Inventory
• Order Tracking Management
• DC Inventory Level Maintenance

• Forecasting
• Promotion Planning
• Demand Management/Shaping

• Quality Feedback Processes
• Reverse Logistics

• Materials Planning
• Inventory Planning
• Procurement
• Replenishment

• Transportation Planning
• Merge-in-Transit

Source This list originated from the SCVA
materials. Input and review has come from
Gloria B. Sheridan, Aaron M. Collie, John B.
Matchette.
10
Successful collaborative arrangements are
comprised of 6 primary components.
Components
Key Questions

• What is the nature of the collaboration?
• What is the joint operating model (i.e. Alliance?
  Cooperation? Profit-sharing?)
• What is the length of commitment?
• How are costs and benefits divided?

Business Objectives
Infrastructure

• What investments in infrastructure must each side
  make?
• Technology (i.e., EDI, point solution tools,
  supply chain software)
• Network (i.e., plants, DCs, inventory)

Process Integration

• What processes will be integrated?
• How are the joint processes defined?

Organization

• What are the organizational touchpoints?
• What are the responsibilities of each side?

Information Sharing

• What information will be shared?
• Forecasts? Actual consumption?
• Promotion/Marketing plans
• Cost/price data
• Product design/specifications
• Capacity, production plans, material visibility,
  in-transit information

Measurement

• How will the success of the collaboration be
  measured?
• What operational metrics will be used to monitor
  performance?
• What financial metrics will drive priorities and
  measure the benefits?
• What are the areas of improvement?

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The Technology Components
While EDI works well for high-volume batch
oriented transactions, it wasnt designed for
business process collaboration.
The InternetWeb Pages and XML (Internet EDI)
Web-EnabledSupply ChainCollaboration Software(s)
Electronic Data Interchange (EDI)

• Designed in 80s, EDI is excellent for
  high-volume batched oriented transactions
• Cross-enterprise business links
• Transaction protocols are rigid and
  well-documented(1) leading to better testing
  environment
• Proprietary and secured
• Costly and complex to implement

• Push business model (i.e., electronic catalogs)
• Cheap and easily implemented
• Excellent self served for data mining of
  information and inquiry
• Application can include triggers to alert
  customers via e-mail messages
• Real-time

• Collaborative business model built around
  business processes
• Provide workflow triggers of internal and
  external processes
• Automation of cross-enterprise processes
• Allow for autonomy of business applications and
  private processes
• Security via leading encryption technologies
• High-level of scalability

Note (1) many varying EDI formats available
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The approach for implementing an eSynchronized
Supply Chain is driven by business requirements
and the underlying business case.
Supply Chain Synchronization - Example
Integrated Collaboration
Application Architecture

• Processes
• Forecast and commit
• Material Visibility
• Order Status
• Performance Measurement
• Customer Order Fulfillment
• Continuous Replenishment

Forecast

• Key suppliers
• Operational complexity is high
• Market sophistication is high

Demand Planning
Scheduling and MRP

• INTERNET
• Accessible
• Extensible
• Real Time

Collaboration Interface Layer

• Processes
• Forecast and Commit
• Order Status
• Performance Measurement

Web Based Collaboration
Order
Order Management
EDI

• Majority of the supply base
• Operational complexity is moderate

• Processes
• Forecast and commit

Inventory Management
Traditional Collaboration
Max
Min

• Remaining suppliers who have made
• substantial EDI investment
• Operational complexity is low

13
Evolution of Collaboration Networks
This example is driving towards a leading
collaborative industry solution.
S Supplier/Seller B Buyer M Marketplace Hub

Collaborative HubsNetworks of linked Hubs
B2B eCommerceenabling commerce through
aggregation many-to-many commerce
Brochure-wareview on-line, sell off-line Basic
eCommerceone-to-one selling from website
EDI Networksexpensive, closed, non-scalable
Market Efficiency
TIME 1996 1997 1998 1999 2000 Next
Month?
14
EAI Collaboration Infrastructure
EAI will provide the glue that links the network
software set together with the members business
systems. It will be implemented to enable the
various member organisations to communicate
effectively, and securely, in an Internet
environment.
Customer
Supplier
Suppl ier System
C u s t o m e r System
Collaborative Network
EAI Component
EAI Component
EAI
EAI
EAI
EAI
SCM Software direct
Internet
Internet
XML
XML
XML
XML
Customer internal Document Standard
Exchange internal Document Standard
Supplier internal Document Standard
15
B2B Value Chain Elements (eCommerce Functional
View)
Supply Chain Collaboration
Consumers
Source
Make
Move
Suppliers Vendors
Design
Sell/Serve
Customers
Hot Topics
eProcurement
Supply Chain Planning
eFullfillment
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eProcurement The Elements

• eContracting
• an umbrella term loosely used to refer to both
  eBidding and eSourcing

• eIntelligence
• the capability to collect, filter and distribute
  industry and supplier intelligence from a wide
  variety of sources via web-based agents and
  linkages

• eBidding
• the buying of (contracts for) goods and services
  in markets where prices are free to move in
  real-time in response to supply and demand
  conditions

• eContent
• the transformation of typical paper based
  catalog information into an electronic format

• eRequisitioning
• the creation and processing of a requisition or
  purchase order on the web thus eliminating the
  need for paper-based transactioning

• eSourcing
• the method of using marketplaces on the web in
  order to identify suppliers

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B2B - eProcurement
B2B Marketplace
SUPPLIERS
Procurement Services
BUYERS
Requisitioners
Catalog
Procurement Services
Core Goods
Approvers
Electronic catalogues
Data Mining
eIntelligence
Auction
Supplier Database
IT support systems
Info feeds
Non-core goods
Procurement Professionals
Contracts Database
Supply planning
Exchange
Design Collaboration e.g. Interiors
Maintenance Personnel
Services
Supply Chain Synchronization e.g. Catering
Supply Chain Services

• Key features
• Creation of a marketplace through the provision
  of tailored procurement and supply chain services
• Efficient connection of multiple suppliers and
  buyers
• Spend aggregation savings generated across
  exchange customers

• Integration with strategic suppliers (design,
  forecasting and inventory management, capacity
  mgt and allocation)
• Revenue generation opportunities
  throughsubscription, advertising and usage
• Liquid market for spares and excess capacity

18
eProcurement enables Strategic Sourcing
Fact-Based Negotiating vs. the Traditional
Approach
Traditional Negotiating Process
Fact-Based Negotiation
Desired Outcomes

• Buyer and supplier representative have a
  one-to-one relationship
• Outcomes heavily impacted by personal dynamics
  and style
• Objectivity difficult to maintain
• Negotiations often focused on single issue -
  price
• Buyer often reactive and lacks analytical
  support

• Comprehensive methodology
• Buyer and supplier represented by commodity teams
  having an appropriate range of expertise
• Outcomes dependent on data and facts presented
• Objectivity promoted by multiple points of view
• Negotiations address multiple issues (e.g. Price)
  and take multiple interests and viewpoints into
  account

• Realize desired value from supplier
• Neutralize any power imbalance
• Eliminate hidden agendas from negotiations
• Stronger relationship with fewer suppliers
• Lower buyer price and higher gross profit

19
Benefits of eProcurement
eProcurement Benefits
Value Creation Mechanism
Benefits
eCommerce enablers
Purchase Price Improvement

• Information transparency
• On-line bidding
• Reduced supplier cost-to-serve
• Transaction pooling among buyers
• Larger order quantities through single sourcing

• Better price-value matching
• Long term price reduction
• Volume discounts
• Reduced maverick purchasing

Productivity Improvement

• On-line ordering automation
• Business user access to product availability and
  attribute information

• Transaction cost reduction
• Streamlined purchasing process
• Effective policing of company policies

20
B2B Value Chain Elements (eCommerce Functional
View)
Supply Chain Collaboration
Consumers
Source
Make
Move
Suppliers Vendors
Design
Sell/Serve
Customers
Hot Topics
eProcurement
Supply Chain Planning
eFullfillment
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Planning Types
Demand Planning
Supply Planning

• How much product does the customer need?

• How will I produce, fulfill, and deliver the
  product?

Sales Operations Planning (SOP)
How do I balance the customer need with my
ability to supply?
22
Demand Patterns
Demand Type
Typical Demand Pattern
Examples
Turn/Basic(Predictable)

• Staples (Sugar,Toothpaste)
• Coal

High Peak Items (Expected /
planned high peak)

• School Supplies
• Holiday Mail

Promotional(Time based promotions)

• Consumer Products
• Salty Snacks/Soft Drinks

Sporadic/Basic(Low volume items)

• Power Generators
• Machinery Spare Parts

Unplanned High Peak (Sudden/unplanned)

• Bottled Water After Hurricane
• Powerline Poles After Storm

• Fashion
• Christmas Toys
• Magazines

Fad/Event Driven (Short
product lifecycle)
New Products (Unknown)

• Electronics
• Health Beauty Care

23
Supply Characteristics
Manufacturing, Processing or Assembly Complexity
Criticality Continuity of Raw Materials
Lead Times
How long does it take to replenish product or
serve customers?
How rigid is the process to replenish product?
How difficult is it to obtain the components to a
product?
Customers
Product Dimensions
Channel Complexity
What are the value, density, shelf-life and other
product related characteristics that affect
supply?
How many supply requirements do your customers
have?
How many supply channels does the product move
through?
Emilys
24
Demand Planning - Bull-Whip Effect

Demand Fluctuation


Supply Chain
25
Enabling Technologies
Strategic Supply Chain Planning
Extended Sales Operations Planning
Joint Capacity Management
Joint Cycle Time Compression
Joint Facility Investment
Demand Signal
Suppliers Vendors
Consumers
Wholesaling Distributing
Selling/ Retailing
Supplying/ Sourcing
Processing/ Producing
Demand Influence
Operational Supply Chain Planning
Shared Pallets
Collaborative Forecasting
EDI/EFT
Shared POS Data
Joint Trailer Utilization
Vendor Management Inventory
Collaborative Replenishment
Postponement
26
B2B Value Chain Elements (eCommerce Functional
View)
Supply Chain Collaboration
Consumers
Source
Make
Move
Suppliers Vendors
Design
Sell/Serve
Customers
Hot Topics
eProcurement
Supply Chain Planning
eFullfillment
27
How it used to work
For a time, when business leaders thought about
eCommerce, they thought about
The right web address
A flashy display
An easy-to-use site
then came the unglamorous reality
None of that matters if you cant get the product
to the customer!
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What are the Elements
Order Management
eFulfillment is the physical backbone of a
companys overall eCommerce presence.
Distribution
Transportation
Customer Service
29
eFullfillment Process
Front End in Seconds or Minutes
Portal
Product/Service
Customer Order
Customer
Order Management
Generate Demand
Performance
Distribution
Transportation
Manufacture


Back End Fulfillment in Days or Weeks
30
What makes eFullfillment Successful
A compellingPortal
The right Product/Service
ReliablePerformance
Key Success Factors

• Inventory visibility
• Real time payment approval
• Customer Service accessability
• Track and Trace order status
• Affordable delivery
• Hassle-free return processing

• Easy to find
• Hard to leave (sticky)
• Designed to meet customers various needs
• Efficient navigating and ordering processes
• Access to extensive information
• Entertaining browsing

• Branded products/ services
• Unique bundles
• Continuously evolving offerings
• Personalized service choices
• Right price/value

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The Value of eFullfillment
Value of eFulfillment
eFulfillment Levers

• Greater customer service, i.e., higher market
  share
• Higher prices
• Lower cost of goods sold, transportation,
  warehousing, material handling and distribution
  costs
• Lower raw materials and finished goods inventory
• Shorter order-to-cash cycles
• Fewer physical assets, i.e., trucks, warehouses,
  material handling equipment, etc.

Working Capital
Revenue
On-Going Costs
Fixed Capital
Shareholder Value
Fixed Costs
32
eFullfillment Operating Models
eFulfillment Operating Models
A

Insource
Outsource
Front End Options
Physical Fulfillment Options
4
3
1
5
6
2
Drop-shipped
Outsourced
Integrated
Store
Flow-
Thru
Dedicated
Fulfillment
Fulfillment
Fulfillment
Fulfillment
Fulfillment
Fulfillment
Supplier/
Third-Party
Current Retail
Current Retail DC
Dedicated DC
Where Filled
Retail Store
Manufacturer
DC
Parcel Carrier or Private Fleet
Parcel Carrier or Pick-up
How Delivered
Retail Store
Consumer
Direct to Consumer
Store Leveraged