10 FUNDAMENTAL STRATEGIES AND BEST PRACTICES

FOR SCM ORGANIZATIONS

Presented By

WHAT IS THIS MAN FAMOUS FOR???

Theory of Relativity
E=mc2

BUT HIS BEST WORK MAY BE HIS

DEFINITION OF INSANITY:
DOING THE SAME TASKS OVER AND
OVER AGAIN AND EXPECTING
DIFFERENT RESULTS.
ALBERT EINSTEIN.

So what does Albert Einstein have to do with

Building a Best in Class Supply Chain Organization??

 Maybe Albert Einstein has hit on something:

Do it differently from the way you are use to

doing things if you want different results.
Supply Chain Organizations today, want to be:

Effective
Relevant
Viewed as VALUED
Part of the Management Team

To accomplish this, we must have Strategies & Best

Practices in place to Execute our plans.

WHAT DOES BEST PRACTICE MEAN?

Best Practice is defined as:
A management idea which asserts that there is a :
technique, method, process, activity, incentive or reward
that is more effective at delivering a particular DESIRED OUTCOME
than any other :
technique, method, process, activity, incentive or reward

So lets examine 10 Fundamental Strategies and Best Practices to

consider embracing to Achieve Supply Chain Excellence
1. Establish a governing council

6. Manage TCO

2. Align the supply chain

organization

7. Manage compliance and Risk

3. Recruit supply chain

professionals

8. Optimize Company owned

inventory

4. Set the Strategic Sourcing

strategy

9. Gather information on a timely

basis

5. Establish key supplier alliances

10. Establish processes and

controls

1. Establish a Govern Council

This is listed first for a reason. Absolutely mandatory

Make up of the Council: Influential Business Unit leaders, C level suite,

and representation from supply chain management.

What does the council do?

1. Drives strategy. Gives direction to and helps align supply chain
strategy to be consistent with company strategy
2. Helps in removing barriers within the organization
3.

Influences internal decision makers. Fosters internal buy-in from the

business units

4.

Ensures that the supply chain organization is involved in the early

stages of planning and forecasting.

2. Align the Supply Chain Organization

SCM must be properly organized in order to execute the plan

Decide: centralized or de-centralized? Answer depends and varies by

company.
No prescribed answer on how to organize
Common theme is Centralized Consensus with Decentralized execution.

In a perfect world, the supply chain organization will have the functions of
Sourcing
Materials Management
Logistics
Contract Management

TYPICAL SCM ORGANIZATIONAL DESIGN

Supply Chain

PROCUREMENT

Strategic Sourcing
KAP-Vendors
$ Volume Driven
Q A
Spend Areas-Future
CORE Commodities

Supply Chain
Council

Leader

LOGISTICS

Tactical
Release orders-KAPs
Spot Orders
Non-Repetitive Orders
NON-CORE
Commodities

Warehousing
Inventory
Transportation
Environmental
Disposal

SCM ADMIN
Strategies
Efficiencies
Process Review
Demand &
Forecasting

Contract Management
SCM=Supply Chain Management

KAP=Key Alliance Partners

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3. Recruit Supply Chain Professionals

Recruit SCM professionals with the right mentality

More focus on strategic thinking

Less focus on measuring transactional activity

Different skill sets needed today vs. historical

Interpersonal communication
Strategic Thinking
Value Oriented
Relationship management skills

SCM Leaders are looking for two distinct skill sets

A. Technical Skills (analytical, subject matter expertise)
B. Project management Skills. Those who can:
1. Understand the customers changing needs
2. Continually address the changing needs
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WIN-WIN RELATIONSHIPS

HAVE THE RIGHT MENTALITY

HIGH

LOSE / WIN
CONSIDERATION

WIN / WIN

I am a loser - step on me

Believe in Mutual Benefit

I am a peacemaker

Long term relationship

Win/Lose people love!

Cooperative - Not combative

LOSE / LOSE

WIN / LOSE

Where bad relationships go

Where 2 Win/lose people go to

As Supply Chain
Professionals,
We are evolving
to here

MY WAY OR HIGHWAY

Adversarial conflict

Sacrifices Long Term

relationships

War!!

Squelches Creativity

LOW
LOW

HIGH

COURAGE
The 7 Habits of Highly Effective People-Steven Covey

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4. Set the Strategic Sourcing Strategy

What is Strategic Sourcing?? Collaborative and Organized approach to spend

categories with objective of selecting suppliers best suited to provide maximum value.

Strategic Sourcing implements cross functional and geographic teams for unified
decision making process with Supply Chain Organization guidance and leadership. This
must become a standard practice

Strategic Sourcing is the Cornerstone of Supply Chain Management

Benefits are:
Improved buy-in from the internal business units
Increased internal business unit satisfaction
Assures availability of goods and services (particularly in tight markets)
Increased responsiveness to customers changing needs.
Promotes teamwork
Streamlined Processes
Quality will be improved
Lower overall total cost and increased value

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5. Establish Key Supplier Alliances

Key Supplier selection is product of Sourcing Team

This best practice that needs to have more focus.

Supplier Management: the forgotten or ignored step in Strategic

Sourcing Process

Terminology: Alliance Management vs. Supplier Relationship

Management
SRM suggest one way communication
Alliance Management more appropriate term: Two Way
Communication

4 Objectives of an Alliance Management Team:

1.
2.
3.
4.

Provides a mechanism to ensure relationship stays healthy

Creates the needed platform for problem resolution
Forum for developing continuous improvement goals for future
Ensure that Performance Measurement objectives are achieved
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Exercise: Name some commodities & services in each category.

How Do You View Them?????

Strategic,
impacts
core
business

Non-strategic,
easily
replaceable

ALLIANCE MGT
Routine SRM

Routine SRM

Easy to manage,
simplistic

Our focus is
most likely here

Routine SRM

High maintenance,
emotional, complex
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6. Manage Total Cost of Ownership

THIS IS ABOUT:
Instill Total Cost of Ownership / Total System Cost Mindset

Move away from looking at just lowest price

More focus on best value

Move towards process improvement as a measurable

internal goal

Evaluation of all factors that make up the cost of goods

and services

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Total Cost of Ownership = A + (O+T+M+W+E) Less S

A = Acquisition Cost (25-40%)
O = Operating Costs
T = Training Costs
M = Maintenance Costs
W = Warehousing Costs

60-75%

E = Environmental Costs
S = Salvage Value

Source: The Executive Guide to Supply Chain Management, David Riggs/Sharon Robbins

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Total Cost Approach

Purchase
Cost

Perceived
Opportunity

Demand Drivers
Quality Costs

Environmental Issues
Freight
Maintenance Expense
Specifications
Inventory Practices
Warranty Terms
Disposal/Salvage Practices

Actual
Opportunity

Standardization
Procurement Practices
Warehousing Costs
Operational Practices

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Total System Cost

Buyer Cost

Total System Cost Savings

Buyer Cost

Interaction Cost

Interaction Cost
Profit
Profit
Supplier Cost

Traditional

Traditional
Focus
(price only)

Strategic
Focus

Supplier Cost

Strategic

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7. Manage Compliance and Risk

Contract Management is a focal point for best of class companies

Sarbanes Oxley (SOX) demands controls and to mitigate risks

Aberdeen Survey to Leaders of SCM Organizations:

Question: How do you manage your companys contracts?
Answer: We cant even find them much less manage them

Effective Contract management:

Ensures contract compliance (using the agreements)
Mitigates risks by standardizing terms and conditions
Provides more spend visibility for future negotiations
Provides platform for viewing maverick spend
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Top SIX Contract Management Strategies

(Aberdeen Group Research)

1. Standardize Contract Procedures Companywide

2. Establish Central Repository that is Web Based
3. Integrate with Financial ERP System
4. Track Compliance more Frequently
5. Improve Ability to Analyze Contract Performance
6. Improve Automation (due dates, expiration dates, etc)

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8. Optimize Company Owned Inventory

Inventory is money. Ask any CFO or Controller!!

Inventory holding cost: 20-48%
Establish Vendor Managed Inventories (VMIs) as
one Solution
Current Market (mostly sellers vs. buyers market) will
challenge VMI programs
Meet expected lead times
Logistics issues particularly if sourced offshore

Need exist to Implement improved and effective

demand planning and forecasting methodology
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9. Gather Information on a Timely Basis

Gather Timely Information from the ERP System
a. One of the largest barriers is inability to retrieve precise spend data
b. Consider deployment of Data Cleansing Software
c.

Address multiple ERP system inadequacies and provide solution

d.

Best of class companies Navigate these Challenges and Find a Way

within their information system to retrieve meaningful data:
1. Goal = Information available to users
2. Information used to target opportunities of spend or process
improvement
3. Information used to monitor compliance and controls

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10. Establish Processes and Controls

Simplify Processes and Controls-Then Select Correct

Technologies to Complement
1. First order of business is to establish your processes
2. When this is completed, select the technology to
compliment your processes

Struggling Organizations often implement technology then

develop processes to meet the needs of technology.

Make Policies and Procedures simple and easy to understand

Controls should be adequate to deter fraud or ensure that

improper decisions are not being made and doing so without
adding unnecessary process steps
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SUMMARY
To expect different results, we may need updated roadmap
No two companies operate the same way But all have
guiding principles for success
Best Practices are a benchmark and guide for SCM
Effectiveness and Improvement
Company leadership expects SCM Organizations to be
more Transformational vs. Tactically focused
Good News: Company leadership is expecting more from
our Supply Chain Management profession

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THANK YOU !!
M. Abidur Rahman
CEO, MECOL Engineering Co. Ltd.
MBA (Strategic Management)
a.rhmn@yahoo.com
01731501740

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