Driving Smarter, More Efficient Supply Chains Through Analytics

Driving Smarter, More Efficient Supply

Chains Through Analytics

Business Leadership Track Paul A. Hoy, CPIM

WW Business Analytics Industrial and Distribution Sector Executive

Presentation topics



Competitive pressure and market

demand change the way organizations

view their supply chains



Sales and Operations Planning (S&OP)

drives supply chain planning



Best practices for monitoring supply

chain performance and driving

responsiveness



How to get started

Today, in the 21st century, companies are doing much more than just shipping. By embedding product and process innovation in supply chain operations and consciously managing and shaping demand from a customer, production and fulfillment standpoint, supply chain management has advanced a great deal.

20 years ago, a typical product company had the supply chain

organization reporting to manufacturing, with responsibility mainly for inbound materials management and outbound shipping.

It’s clear supply chain has grown, with the business taking notice.

Now

61%

*

of Supply Chain heads report

into the CEO office

Key Performance Management Drivers

 Visibility – Flooded with more information than ever, supply chain executives

still struggle to “see” and act on the right information.

 Cost Containment – Rapid, constant change is rocking this traditional area of

strength and outstripping supply chain executives’ ability to adapt.

 Risk – CFOs are not the only senior executives urgently concerned about risk;

risk management ranks remarkably high on the supply chain agenda as well.

 Customer Intimacy – Despite demand-driven mantras, companies are better

connected to their suppliers than their customers.

 Globalization – Contrary to initial rationale, globalization has proven to be

more about revenue growth than cost savings.

Supply Chain Imperatives

9/20/2011

Sales and operations planning (S&OP) is the key integrated

process that the supply chain organization can leverage to achieve visibility and transformation across the entire organization and

throughout the value chain. Aberdeen’s S&OP study highlights the results of over 196 companies involved in S&OP-related initiatives.

Key Pressures

All of these pressures are competing against each other amidst an increased complexity of supply chain processes and the

global nature of these supply chains.

Aberdeen’s S&OP Study Results

59%

Improving Top

Line Revenue

53%

49%

Even small improvements in the

S&OP process yield significant gains

Source: Ventana Research

“Overwhelming”

gains in gross

margin performance

Integration of financial,

forecast, and operational

data is key to improved

customer service

Focus on a financially driven integrated

supply and demand planning process

What are the capacity, labor, supplier material and financial obstacles to

meeting the demand plan?

How can my planning and review processes be customer responsive yet

thorough?

How do I model the Financial impact of Demand or Supply

changes?

How can I model capacity, cost and throughput of multiple

products across multiple plants?

Do I know which sales volume and promotions I need to drive

my revenue and demand volume plans? Can we deliver a consistent

plan across all functional units with performance

visibility?

?

7

Can I evaluate my suppliers’ capabilities when creating my

Analytics Driving Supply Chain Performance

Supply Chain Metrics

Operations Data • ERP • Inventory • Supply Chain • Logistics / 3PL • MES • Customer CRM • Syndicated Data • POS Data • Trade Promotion Results Demand Finance Supply

Optimized S&OP Executive Review Integrated Financial Plan

Analytic Applications

Sales, Procurement, Finance, Workforce, etc

Operational Planning & Execution Predictive Models • Demand • Quantities • Inventory • Maintenance • Customer Behavior • After markets Dashboards Reports & Analysis Scorecards

Sales & Operations Planning



Supply chains becoming more sophisticated & decentralized



Changing market conditions require near real-time visibility, and

constant plan review



An effective S&OP process:

– Links day-to-day operations with business goals, operational planning, and financial planning

– Unites disparate sales, marketing, operations, and finance functions

– Helps management model the effect of meeting demand on the company’s supply capabilities and financial goals

– Provides visibility into the P&L impact of plans

1 1 Demand Supply Source Systems Demand Planners Sales Marketing Product Management Forecast Demand Fulfillment & Distribution Planning Forecast Supply Supply Chain Operations Engineering Logistics Consensus EXECUTIVE REVIEW Resolve Issues Set Direction Determine Strategic Impact

Go for an optimized S&OP process!

Predictive Models • Demand • Quantities • Inventory • Maintenance • Customer Behavior • After markets

Sales and Operations Planning

 Overview

– organizations can establish and manage planning and decision making processes that attempt to balance demand and product supply, and link production / supply chain operations with business goals, operational planning, and financial planning.

 Improve organizational alignment, collaboration, and performance.

 Improve supply chain performance for better competitiveness and

responsiveness.

 Leverage investment in transaction systems.

 SKU level demand planning - visualize the possible impact of product

decisions at both customer and product levels. Key metrics Dashboards Alignment of supply and demand

Integrated supply and demand planning, balancing with financial

targets

Sales and Operations Planning (S&OP) Process

 Reconcile sales and demand forecasts with supply plans

 Identifies capacity, labor, supplier, material and financial obstacles to meeting the demand plan

 Allows capacity, cost, and throughput modeling of multiple products across multiple plants, to determine the right combinations

 Helps plan product mix among various plant and contract suppliers

 Evaluates supplier capabilities when creating the supply plan

 Provide the views and detail appropriate to each role

– Units, revenue dollars, labor hours, machine hours, etc.

 Monitor the plan on an ongoing basis using scorecarding and analytics, making ‘right-time’ adjustments as needed

 Model and assess the financial impact of supply/demand scenarios to create a multi-plant S&OP view

S&OP Process

Integrated Demand and Supply Planning



Considers sales volume and promotions to drive revenue and

demand volume plans



Helps plan product mix among various plant and contract

suppliers



Allows capacity, cost, and throughput modeling of multiple

products across multiple plants, to determine the right

combinations



Evaluates supplier capabilities when creating the supply plan



Identifies capacity, labor, supplier, material and financial

obstacles to meeting the demand plan

S&OP Process

Executive Review



Conduct “what-if” analysis to simulate the effect of S&OP

scenarios on Balance Sheet and P&L performance



Measure plan versus actual performance for sales, revenue,

cost of goods sold (COGS), inventory, customer delivery

metrics, and gross margin



Easily analyze and drive performance by category, division,

geography, channel or for the entire enterprise



Deliver consistent plan performance visibility across all

functional units, improving collaboration and consensus

planning across the organization

Supply Chain Visibility

SUPPLIER MANUFACTURER DISTRIBUTION _CENTER RETAILER

Supply Capability

Demand Signals

•Daily, Weekly, and Real Time dashboards

•Metrics to drive performance and provide consistent measurement

•Analytics to identify root cause identification and drive improvement

Demand Signals Demand

Signals

Supply

Supply Chain Analytics is Critical Component of SCM

Traditional Supply Chain Visibility Approach Does Not Provide The

Required Strategic View

 Users of supply chain technology are, and will continue to be, voracious consumers of analytics in their pursuit of understanding supply chain performance, and how to

change/improve it.

 Supply chain analytics solutions fall into two key classes: those that support

functional/operational processes (supply chain analytics), and those that support enterprise-level strategic and tactical decision making (product performance management [PPM]).

 Although supply chain organizations have been predominately

operationally/functionally focused, they will increasingly require a more-strategic, end-to-end supply chain analytical focus if they are to continue to perform in increasingly global and complex operating environments. This will drive the need for more of a PPM focus for analytical solutions.

“Although supply chains should live and breathe analytics, because they are

fundamental to understanding supply chain behavior, most supply chain groups struggle with an ad-hoc, "mishmash" of fragmented analytical approaches.”

18

What is SCOR?



Supply Chain Operations Reference model



Developed by the Supply Chain Council, a non-profit designed for

furthering supply-chain best practices



Common language to describe supply-chain processes



Common metrics to measure performance



Goals:

Reduce inventory Improve cash flow

Improve agility and flexibility Improve customer service Improve deliveries

Supply Chain “SCOR” Metrics

Overview

 Links processes, metrics, best practices and

technology to improve supply chain management with 550+ pre-defined metrics that link to the performance attributes of the Supply Chain Operations Reference (SCOR) model, developed by the Supply Chain Council.

 Identify and make improvements in supply chain processes to drive down costs and improve service.  Extend beyond ERP systems by analyzing supply chain performance at any level of detail

Benefits

 Obtain metrics linked to SCOR functional areas: Plan, Source, Make, Deliver, Return.

 Monitor performance based on the five SCOR attributes: reliability, responsiveness, agility, cost and assets.

 Get calculated metrics and exception alerts to measure supplier, production and delivery

performance based on industry standards.

 Perform throughput modeling of multiple products across multiple plans to optimize capacity, reduce materials, labor and services costs

Impact analysis Dashboard Management processes Visibility of key metrics throughout

the supply chain

Tangible Business Benefits

Supply Chain visibility solutions; 356% ROI with payback in 4 months S&OP to simulate demand and supply in an SAP/i2 environment

Integrated planning process, starting at the strategic level down to demand planning by account, providing the ability to predefine market growth assumptions, and identify and reduce risks through improved alignment of marketing and sales

Integrated sales, operations and financial planning, including activity and material cost planning

Integrated financial and operational planning process. “We now have a far better insight into the financial effects of changes to our sales plans. It allows us to adjust our course in plenty of time if market conditions change”

“Within the two week testing period, it was discovered that there was a multi-million dollar backorder issue created by the delays and

inaccuracy of ordering”

Large B2C and B2B supplier

Sales, Depletion and Inventory Planning as well as Forecasting and Pricing management handled across the US

Dashboards for all aspects of operations; 92% increase in Gross Margin

Use S&OP Blueprint for forecast and production allocation across 15 plants; balance cost and delivery

Supplier performance & shortage focus; Shortages cut 50%; Rejects cut 30%. Balanced Scorecard now utilized across entire organization

BMW of North America – “we make hundreds of millions of dollars of decisions each month based on Cognos demand and supply analysis” – From a September 23, 2010 S&OP Webinar

Follow proven approach for operationalizing analytics

1

Focus on the

biggest and highest value opportunities

2

Within each

opportunity, start with questions, not data 5

Use an information agenda to plan for the future

3

Embed insights to drive actions and deliver value

4

Keep existing capabilities while adding new ones

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute of Business Value study. Copyright © Massachusetts Institute of Technology 2010.

• Item-level Demand Planning • Introduce Supply & Financial

planning

• Predictive capabilities

• Detect patterns • Predict demand

9/20/2011

Develop smarter supply chains. SCOR Metrics Blueprint (Cognos 8 BI) Leverage best practices and KPIs from Supply Chain Operations Reference model

Assortment Planning Blueprint (TM1) Model category / item-level sales and margins,

complete and reconcile top-down / bottom-up plans Product Profitability Blueprint (TM1) Determine profitability by associating all direct and indirect costs for products and/or attributes Build smarter operations.

S&OP Blueprint Suite

Model, plan and measure a consensus driven Sales & Operations Planning process

Headcount and Cost Center Planning Blueprints

Model, plan and measure headcount and cost center plans. Financial Workbench & Scorecard Blueprint

Coordinate planning and measurement across the chain Manage enterprise processes.

SKU Level Demand Planning Blueprint Understand purchase patterns, customer preferences and buying trends

Promotion Planning Blueprint Model, plan and measure marketing performance: spend, campaign budgets, vendor trade fund compliance

IBM Cognos Consumer Insights

Monitor, analyze and act upon what is said on blogs and social networks about your

brands, company and competitors

25

IBM Cognos SCOR Metrics Blueprint

Chain Council

 Comprehensive Metrics Approach:

– Over 550 metrics

– Predefined Metrics database

– Metrics relationship and hierarchy

– Impact Diagrams

• Upstream & downstream

• Drill to root cause analysis

 Standard performance reports and analytics

 Alerts

 Dashboards to drive Insight into Underperforming Metrics

 Defined metrics ownership and responsibility

– Drives accountability & Collaboration

– Assign and track corrective projects

 Automates the strategy management and scorecarding process

26

IBM Delivers Flexible, Configurable Approach To

Supply Chain Management

 Functional View Based Upon Execution Criteria:

– Plan, Source, Make, Deliver, Return

– Provides integrated end-to-end process visibility

 “Attribute” View That Aligns With Key Supply Chain Initiatives:

– Focus on both customer facing and internal performance factors

– Reliability, Responsiveness, Agility, Cost Reduction, Asset Management

– Provides focus and actionable insight into most pressing executive supply chain needs

 Provides a Metrics Driven Approach that links to the IBM Cognos Procurement Analytic Application

– Deeper analysis and drill down to Procurement Analytics for Spend Analysis, Vendor Analysis, and Contract Analysis.

– Provides a pre-defined datamart and analysis for drill down for the Source Metrics

Driving Smarter, More Efficient Supply

Chains Through Analytics

Business Leadership Track Paul A. Hoy, CPIM

WW Business Analytics Industrial and Distribution Sector Executive

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