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Supply Chain Collaboration Solving the Supplier Integration Problem

Patni Computer Systems SAPPHIRE 2009

Agenda
Economic Recession Impact on Supply Chain SAP Supply Network Collaboration (SAP SNC) application & Patni Addon Capability Patnis Inventory Risk Liability Solution for High Tech Supplier On-boarding Methodology Deployment Roadmap

Impact of Economic Recession on Supply Chain

What is the committed inventory with my suppliers? Can I reduce the committed inventory with my suppliers? What is the dollar value of the committed inventory?

Demand is reducing
Which location, Which supplier has the highest inventory?

Demand is cancelled

How much inventory I am liable for?

What is the total cumulative lead-time?

How total cumulative lead-time is affecting my inventory liability?

Can I reduce the total cumulative lead-time?

Typical Scenario in CPG Industry

Performance Dimension Metric Inventory Days of Supply Total Inventory Inventory Carrying Costs (% of Revenue) Inventory Analysis Inventory Obsolescence (% revenue) Safety Stock (% revenue) Transportation costs (% revenue) Supply Chain Planning Cost (% of Revenue) Internal Costs/ Staffing Levels Supply Chain Planning FTE (per $ Billion in Revenue) Client1 65 1.3% 0.6% 60% 5.86% 0.90% CP Ind. ( n=) Avg 75 3.2% Q1 28 0.6%

Potential Benefits: Value of Closing the Gap

Effectiveness: Reduce Inventory Carrying Cost ($M)

$15.5 $0.0
Effectiveness: Increase free cash flow One-time ($M)
$136.1

0.95% 0.15% 64% 2.6% 30% 0.01%

$0.0
Effectiveness: Reduce Obsolescence (One-Time $M)

0.37% 0.03%

$10.0 $0.0
61.4 51.3 5.6
Gap to Q1 Gap to Avg
Below Average Between Average and 1st Quartile First Quartile

Key Observations

Source - SAP

Client has higher inventory carrying cost which could be due to high costs of capital, high inventory obsolescence, high DC operating costs Client significantly higher transportation costs which could be due to increased expediting of shipments. Client has significantly high safety stock and days of supply as compared to Q1 peer group.

Worse than Average

Between Average and First Quartile

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First Quartile

SAP SNC Solution to Supplier Integration Problem

SAP SNC 7.0 Supply Network Inventory
User Interaction Web-Based User Interface Business Processes
Supplier Managed Inventory Purchase Order Process Dynamic Replenishment Supply Network Inventory Responsive Replenishment Kanban Process

Enable end-to-end and real time net work inventory visibility Real time collaboration with suppliers Reduced FTE for PO follow-ups Complete visibility and control on contract manufacturing purchasing Share forecast of FG seamlessly Let Supplier manage component inventory levels at your locations Reduce inventory burden and stock out risks

Purchase Order process

Contract Manufacturing Purchasing

Release Process Delivery Control Monitor

Contract Mfg. Purchasing

Supplier Managed Inventory

Work Order Collaboration

Demand Collaboration

Basic Services
Master Data Exception Management Data Validation

SAP SNC: Benefit Derivation

Benefits
Streamlined Supplier Communication Productivity Improvement

20% to 30% improvement (annual benefit) 10% to 15% improvement (annual benefit)

Reduction in Buyer Manual Effort

Value from SAP SNC: supplier collaboration

Lead Time Improvement Inventory Reduction

7% to 10% improvement (one-time benefit) 15% to 20% improvement (onetime benefit)

Lead Time Variability Reduction

Leverage Capabilities of SAP SNC with Patni Add-on Features

SAP SNC: Standard Functionalities Patni Add-on Features
Simplified Navigation & Screens for users of outsourced manufacturing locations Templates for uploads of Component Demand / production schedules / planned receipts / on-hand inventory data Custom functionality for creation of Purchase Requests from SAP SNC / customized alert framework What if Analysis using dashboards in Xcelsius software Information Broadcasting over different mediums

Improve Visibility & Collaboration using the SAP SNC application

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Simplification Example all key functions on 1 screen for users at the outsourced manufacturer location
This helps Vendor User to Search Work Order based on only the required search criteria. In most cases the Vendor Knows the PO Number that he is working with than the WO Number

The related WO is pulled up and displayed in the PO Information Area

This section allows the Vendor to modify the Planned Production Schedule and also Split Production Runs. This section displays the completed Production Status. Similar to the Production Progress in standard SAP SNC

The Actual Production is reported here. This creates a line for the corresponding Phase. The updated data is displayed in the Production Status above.
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Work Order Processing - Batch Update for QC Phase

This screen allows updating the QC Phase in a Work Order. Since hundreds of records are created each day, there is a requirement to be able to update multiple Orders simultaneously. On Save the program creates lines for the QC Phase for all the Orders selected based on the Lot status (Custom field).

SC Visibility & Risk Projections Business Challenges

How much Inventory am I holding?
Contract manufacturer
Component Inventory Component Inventory Finish Product Inventory

Finish Product Inventory

Component Inventory

Supplier
Component Inventory Component Inventory WIP

My Plant Distribution Centre

Suppliers Supplier

What if the demand reduce/ cancel?

Suppliers Supplier

Demand

Inventory held by supplier is not reflected in my books

How can I reduce my Inventory Liability?

Customer

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Patni Solution for High Tech - Inventory Risk Liability Analytics using SAP SNC
Traditional inventory metrics fall short to address these issues and guide supply chain managers Traditional inventory metrics are lagging indicators i.e. it takes weeks or months for the problem to register in metrics In todays environment, companies should measure and evaluate Inventory Risk instead of just Inventory Look at the whole supply chain and not just the portion within their own organization

Inventory Risk Liability Analytics addresses this gap by developing N-tier inventory metrics which helps in informed decision making in supply chain

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Decision Making w/o Risk Liability Analytics

Check finish product Inventory, WIP and component inventory owned by me Use Inventory Reports provided by ERP Check component inventory liability across supply chain Contact Suppliers to get the inventory data at their end Reconcile data from various suppliers Check contract agreement with each supplier. Calculate liability of component inventory at each suppliers Compare the actual inventory data with actual requirements Calculate liability of unused component inventory at each suppliers Complexity and volume of data increases with number of components and suppliers

Contract manufacturer

Supplier

Laborious manual consolidation and data comparison

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Suppliers Supplier

Suppliers Supplier

Decision Making with Risk Liability Analytics

Business Question - Demand for a product is reducing by 20%. What will be my inventory liability for unused components?
Easy intuitive dashboard to pin point Inventory Risk across network Simulate changing business situations and understand impact on Inventory Risk

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Inventory Exposure - Definition

It is the amount of money at risk in the supply chain at any given point of time due to unsold inventory It depends upon Price (Cost) of finished product Cumulative Lead-time to build finished product Average Demand for the finished product

Risk Liability KPIs Explained

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Inventory Exposure Solution Overview

Check component exposure details in next tab

Inventory Exposure Turns

Inventory Exposure

Inventory Exposure Percentage

Trend values from historic data

Provides projection of inventory liability in dollar terms, percentage as of Cost of goods sold and exposure turns. Indicates high vulnerability SKUs requiring attention
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Component Inventory Exposure Solution Overview

Product Details Graphical representation of KPI Trend

Lead time

Standard Cost

On Hand Inventory

Cumulative Lead time

Inventory Exposure of component

Value of On Hand Inventory

Provides projection of inventory exposure of applicable components

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Supplier On-boarding Key Challenges

Comes in all size & shape
C

Supplier Geography Supplier Language Supplier Size Supplier Time Zone Supplier Technology/IT Infrastructure On boarding /Integration Time and

Cost

How do we integrate all our suppliers in an SNC solution?

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Supplier On Boarding Process

Term Acclimatization

Process Acclimatization

Scenario Introduction

Sample WBT

Database Congruence

Process Congruence

Personalization & UI Settings

2-3 days Web based training to super users Supplier User Manuals
Navigation Comfort Process checks

Demo

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SAP SNC: Deployment Road Map Risk-Free Approach

Visit us at Booth No. 949 to see demo of the Inventory Risk Liability Solution Currently part of Best-Run Now Industry Solutions for High Tech
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Thank You

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Hyperlinks

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Inventory Exposure KPI - Calculation

Inventory Exposure

The amount of committed inventory within total supply chain based on expected demand and cumulative lead time associated with the current supply chain. In short it is the amount of money at risk in the supply chain at any given point of time.

Inventory Exposure = Price (Cost) * Cumulative Lead-Time * Average Demand This is calculated for each component of the product. The sum of the individual pieces then coalesces to show the exposure for a product, a product line, or a whole company.

For example, if a product has an average weekly usage of 100 units and one part in the product has a cumulative lead time of 16 weeks, you know that you will have the equivalent of approximately 1600 units in the pipeline somewhere.

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Inventory Exposure Percentage KPI - Calculation

Inventory Exposure Percentage Inventory Exposure Percentage for Product = Inventory Exposure for Product / Cost of Goods Sold for Product Here the COGS is computed at the product level. COGS is calculated by multiplying expected product volume with cost of the product. A higher Inventory Exposure Percentage indicates higher risk.

Inventory Exposure Turns Inventory Exposure Turns = Cost of Goods Sold / Inventory Exposure This is just the inverse of Exposure Percentage. It has the same characteristics and is simply another way to view the data. One interesting note is that a companys inventory turns should always be higher than its Inventory Exposure Turns.

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