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The RoleClick
oftoFinance

BRICKS
Matter

Book
Publishe
s in
August
2012

The Role of Supply Chains
in Building Market-Driven
Differentiation

LORA M. CECERE
CHARLES W. CHASE
JR.

What’s in
a name?

A rose by any other
name would smell as
sweet.
William Shakespeare
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Agenda • • • • • • 5 Current State Alignment and Measurement Process Maturity Agility Governance Wrap-up .

S&OP Challenge .

Impact of Supply Chain Challenges (among those without S&OP Experience) .

Agenda • • • • • • 8 Current State Alignment and Measurement Process Maturity Agility Governance Wrap-up .

Typical Organization .

A Supply Chain is a Complex System with Complex Processes with Increasing Complexity .

Looking at Supply Chain as a Complex System Profitable Growth Revenue Corporate Trade-offs Cost of Goods Working Capital Corporate Social Responsibility Investment Trade-offs Supply Chain Trade-offs Supply Chain Waste R&D Strategy and Investment Asset Strategy and Investment Forecast Accuracy Customer Service Inventory Channel Strategy Product and Service Portfolio Supplier Strategy Sales Policies Distribution Policies Manufacturing Policies Logistics Policies Procurement Policies Returns Backorders First Pass Yield Empty Miles Material Yield .

Useful Ratios Growth Profitability R&D Margin Cash on Hand Free Cash Flow R&D to COGS Ratio Ratio SGA Margin Gross Margin SGA/COGS Net Profit COGS as Percent of Operating Margin Net Sales Pretax Margin (EBIT) YoY Sales Growth Operating Margin Cycle C2C Cycle Days of Finished Goods Days of Inventory Days of Payables Outstanding Days of Raw Materials Days of Sales Outstanding Days of Work in Progress Complexity Altman Z Capital Turnover Current Ratio Quick Ratio Return on Assets Return on Equity Inventory Turns Return on Invested Capital Return on Net Assets Revenue/Employee Receivables Turns Cost of Sales DPO/DSO .

Evolution of Supply Chain Process Excellence Align Building Building Horizontal Horizontal Process Connectors Process Connectors Adapt Sense Sense Demand Demand and and Supply Supply Shape Shape Demand Demand and and Supply based Supply based on on Market Market Resilient Continuous Continuous Testing Testing Learning Learning Improving Improving In In Market Market Reliable Right Right Product Product Demand Demand Volatility Volatility Right Right Place Place Right Right Time Time Supply Supply Volatility Volatility Orchestrate Orchestrate Demand Demand and and Supply Supply Right Right Cost Cost Efficient Cost Cost Procure Procure to to pay/order pay/order to to cash cash .

Supply Chain Excellence Definition Most Mature .

Agenda • • • • • 15 Current State Alignment and Measurement Process Maturity Agility Wrap-up .

Developing the Supply Chain Strategy Business Process How do I do the right things right? .

Rethinking Planning Strategic Planning Network Design Product Planning Product Platforms New Product Launch Tactical Planning: Horizontal Processes Tactical Planning: Vertical Processes Revenue Management Sales Forecasting Sales and Operations Planning Global Demand Planning Supplier Development Tactical Supply Planning Distribution Requiremen ts Operational Planning Region Regiona al l Sales Deman Executi d Transportati on Plannin on g Requiremen ts Manufacturi ng Planning Procurement Planning Material Requiremen ts Contract Manufacturi ng Planning .

Scenario Planning .

What-if Analysis .

balance cycles. minimize risk.Getting to Letter Perfect Common Practice Market-driven Focus Ask sales Focus on market drivers: How do we best shape demand? & Direct integration to supply Design of the value chain to optimize trade-offs. and orchestrate demand OP Manufacturing plan Trade-offs between make. source and deliver S 20 .

Orchestrate Orchestrate Demand Demand Market Market to to Market Market .S&OP Evolution Sales Sales Driven Driven Match Match Demand Demand with with Supply Supply ManufacturingManufacturingDriven Driven Deliver Deliver aa Feasible Feasible Plan Plan for for Operations Operations Match Match Demand Demand with with Supply Supply Greater Greater Benefit Benefit •• Growth Growth •• Resilience Resilience •• Efficiency Efficiency BusinessBusinessplanning planning Driven Driven Maximize Maximize Profitability Profitability Demand Demand Driven Driven Maximize Maximize Opportunity Opportunity Sense Sense and and Shape Shape Demand Demand Market Market Driven Driven Maximize Maximize Opportunity Opportunity and and Mitigate Mitigate Risk. Risk.

Technology .

Modeling Challenges • • • • Volume to mix to revenue/profitability Equivalent units Reward systems Alignment on “What good looks like” .

S&OP Process Plan Execution .

Agenda • • • • • • 25 Current State Alignment and Measurement Process Maturity Agility Governance Wrap-up .

An Athlete Needs: .

What is Agility? .

S&OP Balance .

The Need for Balance .

Agility Importance vs. Performance .

Agenda • • • • • • 31 Current State Alignment and Measurement Process Maturity Agility Governance Wrap-up .

S&OP Process Existence. Goals & Processes .

Supply Chain Organization .

Multiple S&OP Processes Regional S&OP Processes S&OP Processes With Key Customers Executi ve S&OP Supply Chain Planning Processes with Key Suppliers .

Supply Chain Center of Excellence (among those with S&OP Experience) .

Performance .Center of Excellence Importance vs.

S&OP Process Operations (among those with S&OP Experience) .

Integration of S&OP with Financial Planning (among those with S&OP Experience) .

Historically. • Focused inside-out. not outside-in. but not effective networks. 39 . not the important. • Believed that the most efficient supply chain is the most effective supply chain. • Rewarded the urgent. • Built efficient chains. we have… • Tried to get precise on inaccurate data.

Wrap-up • Start with strategy and a clear definition of supply chain excellence • Build metrics to drive balance in a complex system • Improve agility through “what-if” capability • Focus on a multi-year road map • Fuel the energy through a guiding coalition and continuous improvement initiatives .