The Eight Keys to Supply Chain Success

November 8, 2002
C. John Langley Jr., Ph.D. Professor of Supply Chain Management Director, Supply Chain Executive Programs Georgia Institute of Technology, USA
C. John Langley Jr., Ph.D., 2002. The materials contained herein are not to be used or reproduced without permission. Unauthorized sale or use of these materials is prohibited. The Eight Keys to Supply Chain Success 1

Agenda for This Mornings Agenda for This Mornings Presentation Presentation
Supply Chain Management: Supply Chain Management: Where Are We Now? Where Are We Now?

Propositions For Success

Supply Chain Management: Supply Chain Management: Where Would We Like To Be? Where Would We Like To Be? Closing Thoughts

What are the Eight What are the Eight Keys to Success? Keys to Success?

The Eight Keys to Supply Chain Success 2

The Last Decade Has Been a Busy One for Supply Chain Management
Lean Manufacturing/JIT 3rd Party Logistics Quality Circles 1992 MRPII 1994 ERP MFG Outsourcing CRM Exchanges Integrated Supply Chain Management Supply Chain Visibility 2000 4PL 2002

Product Data Management 1996 1998

Supplier Integration

Service Parts Logistics

Transportation Management (TMS) Warehouse Management (WMS) TQM Six Sigma

eProcurement eFulfillment

Advanced Planning & Scheduling (APS) Collaborative Planning

Manufacturing Execution Systems (MES)

Source: Adapted from Accenture, 2002.

The Eight Keys to Supply Chain Success 3

But the Business Environment Still Poses Many Challenges

Trends in High-Tech/Electronics Industries
E&HT Market Impacts Globalization War (Where/When?) Convergence/Consolidation Technology Integration The Internet Potential for Disintermediation Post-Sale Expectations Supply Chain Requirements Speed, Flexibility, Scalability Collaboration Configure to Order Seamless Integration Security Parts & Service Offerings Extended Supply Chain Financial Performance Solutions Value

Source: Adapted from Accenture, 2002. The Eight Keys to Supply Chain Success 4

Worldwide Supply Chain Expenditures Worldwide Supply Chain Expenditures Continue to Grow Continue to Grow
2100 Billions (1980 $US) 1680 1260 840 420 0 1980 1985 1990 1995 2000
5 The Eight Keys to Supply Chain Success

16 Percent 16 Percent World GDP World GDP

Supply Chain Management: Where Would We Like To Be?

Value Performance
Effective Most Current Progress

Integration Integration Excellence Excellence Process Process Excellence Excellence Functional Functional Excellence Excellence

Channel Channel Excellence Excellence

Network Excellence

Desired Future Progress

Efficient

Deliver Product

Deliver Value
The Eight Keys to Supply Chain Success

Time

Eight Keys to Supply Chain Success

Customer & Customer & Demand Mgt Demand Mgt Performance Performance Measurement/ Measurement/ Value Value Collaborative Collaborative Relationships Relationships Logistics Logistics Outsourcing Outsourcing Information Information Technology Technology

Velocity Velocity

Visibility Visibility Value Value

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Globalization Globalization

Core Core Competencies Competencies

Effective Effective Strategies Strategies

The Eight Keys to Supply Chain Success

Importance of the Customer and Demand Management

The Ability to Anticipate, Respond to, and Sometimes Create Customer Demand Will Be a Key Determinant of Supply Chain Success

The Eight Keys to Supply Chain Success 8

Obstacles to Enhancing Customer Satisfaction

Insufficient knowledge of customers needs

Technically cant create a need, but can create demand

Functional silos cause little or no coordinated response to demand information Too much emphasis on forecasts of demand, with less attention on

Collaborative efforts Strategic as well as tactical use of demand information

Supply-demand misalignment, and a need exists for better demand management
The Eight Keys to Supply Chain Success 9

Performance Measurement and Value

If You Cant Measure It You Cant Manage It And If You Cant Quantify It You Cant Sell It
Not everything that can be counted counts, and not everything that counts can be counted. (Albert Einstein)
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Performance Measurement and Value Determination: Top Priorities

Relentless Pursuit of Value Must be customer-driven Must include comprehensive, objective measurement of value New Scorecards for Everyone Throughout Supply Chain Very Few are Customer-Driven Need to Develop New Tools for Value Measurement and Quantification Encompass elements of value that are hard as well as easy to quantify Focus on service as well as cost/top-line and bottom-line
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Information Technology
The Use of Appropriate Information Technologies Is Essential to the Achievement of Supply Chain Objectives

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Information Technology: Theres Still A Lot to Be Done!

In the flush of internet mania, most businesses overspent wildly on all sorts of disparate software and systems. A lot of it still doesnt work properly. At almost every big company, applications that any idiot knows should be linked for instance the sales system and the one that tracks inventory remain unconnected and autonomous islands of data. Employees were told this stuff would change their lives. Instead theyre screaming in frustration. (Fortune, March 18, 2002)

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Supply Chain Functional Scope:

Planning and Execution
Operational Planning SC Event Management Order Management Warehouse Management Tactical Planning Transportation Management
Supply Chain Planning

International Trade Logistics Mgmt. Inventory Management

Supply Chain Execution

Decision Scope

Production Scheduling Manufacturing Planning Distribution Planning Supply Planning

Strategic Planning

Supply Chain Collaboration Demand Forecasting and Planning Supply Chain Network Design Seconds/ Minutes Hours/ Days Weeks/ Months Quarters Years

Source: Adapted from AMR Research, Inc. 2000

Time Horizon

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Strategies for Effective Use of Supply Chain Information Technologies

Achieve enhanced visibility and event management

Real-time window on status of orders and inventory, across processes, modes, and carriers while in-transit Emphasis not so much on wheres my stuff? but when is it going to get there? Achieve improved visibility through collaborative logistics and integrity among supply chain participants

Need to control total cost of technology, including implementation and integration

Real-time window on status of orders and inventory, across processes

Customers must be ready for capable software Need to rely on suppliers of supply chain services for needed technology expertise
The Eight Keys to Supply Chain Success 15

Collaborative Relationships Logistics/Supply Chain Management is the Sweet Spot for Collaboration
Collaborative Marketplace

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The Desired Objective Should Be Full Collaboration

Shippers Customers

Full Collaboration
Suppliers Partners

Carriers

Shippers & Carriers Contract & Shipment Management Shippers and Suppliers Inbound Management Shippers and Customers Customer Service Shippers and Partners Continuous Moves and Shared Routes

Collaborative Business Processes Reduce Costs, Improve Service and Streamline Operations
The Eight Keys to Supply Chain Success 17

Logistics Outsourcing
The Strategic Use of Outsourcing The Strategic Use of Outsourcing Is A Vastly Under-Utilized Is A Vastly Under-Utilized Logistics/Supply Chain Strategy Logistics/Supply Chain Strategy

The Eight Keys to Supply Chain Success 18

Breakthrough Trends in Outsourced Logistics Services

Annual U.S. Industry Revenues > $60 Billion; CAGR = 7-8% Major Consolidations Continue to Occur Very Large Logistics Outsourcing Initiatives New Competitors Arriving on the Scene Realization That Using a 3PL is Not an All or Nothing Decision

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Expected Percentage of Total Logistics Expenditures to be Directed to Outsourcing

100% 74.1% 80% 59.6% 60% 40% 20% 0% 42.7% 51.0% 2002 2005-2007

North America

Western Europe

Source: Georgia Tech, 2002 Third Party Logistics Study. The Eight Keys to Supply Chain Success 20

Next Generation of Logistics Outsourcing Approaches?

Information
ati on
Advanced Services Lead Logistics
(4PL)

Ev olu

Emphasis on Management of ...

tio n

ar yM

Knowledge

igr

Value-Added
(Third Party Logistics)

Relationships

Basic Services
(Logistics Service Providers)

Integration

Insourcing

The Eight Keys to Supply Chain Success 21

Globalization

Customers are Desperately Searching for Capable Suppliers of Global Supply Chain and Global IT-Based Services

The Eight Keys to Supply Chain Success 22

Global SCM: Key Areas of Greatest Need

Managing the Evolution of Global Priorities from Mexico to Eastern Europe, Now to Asia-Pacific/China Transformation or Redesign of Best or Proven Practices to Global Supply Chain Setting Recognize challenges unique to global objectives

Achieve end-to-end process integration and shipment visibility Involvement of capable facilitators to achieve desired success

Global Supply Chain Strategies to Significantly Impact Overall Business Strategies Interaction of Global Supply Chain Executives to: Identify Common Issues and Problems Determine Responsive Strategies for Improvement
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Core Competencies
Knowing Your Core Competencies Will Allow You to Follow the

To Effective Supply Chain Management

The Eight Keys to Supply Chain Success 24

Three Essential Tests for Core Competencies

Do We Have The Needed Skills? Consistent With Organizational Mission?

Strategic Fit Expertise Ability to Invest

Is the ROI Attractive?

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Effective Supply Chain Strategies Supply Chain Winners Will Be Those Who Identify and Successfully Implement the Best Strategies

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Key Imperatives for Supply Chain Success

Drive Logistics and Supply Chain Issues Higher Into Customer Organizations Make SCM a Strategic Organizational Priority Align Supply Chain Strategies With Overall Business Strategies Have High Expectations for Logistics and SCM

Capitalize on the Skills of People Throughout Supply Chain Fully Utilize All Available Resources to Effectively Manage
Information Knowledge Relationships Integration

Service and Responsiveness Financial Performance

Create Outstanding Value Through Logistics and Supply Chain Management

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The Eight Keys to Supply Chain Success

The Future of SCM: Two Closing Thoughts of Wisdom

The best way to predict the future is to create it. (Dr. Peter F. Drucker) Consider how hard it is to change yourself, and youll understand what little chance you have of changing others. (Albert Einstein)

The Eight Keys to Supply Chain Success 28

Golden Gate Bridge Golden Gate Bridge The Two Towers Cant Stand By Themselves The Two Towers Cant Stand By Themselves

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The Eight Keys to Supply Chain Success 30