Transcript Supply Chain Managment: Competitive Advantage

Supply Chain Management:
Competitive Advantage
Presented to:
Institute for Supply Management – Utah Chapter
January 12th , 2012
Presented by:
Scott Merrill
Institute for Supply Management
Mission Statement:
ISM-Utah serves as a center of excellence in the
development of supply chain management, through three
main points:
1.To provide education, certification, and leadership for
supply management
2.To expand networking opportunities of supply
management
3.To ensure the necessary resources to support this mission
Institute for Supply Management:
Objective:
• The objectives of this Association are to foster and
promote friendly relations between its members, that
they may benefit by the resulting interchange of ideas; to
study, develop and encourage more efficient purchasing
and supply chain methods; to circulate information that
may be of interest or benefit to members, that they may
become more familiar with fundamental marketing,
producing and manufacturing practices, various
products and their use, and dependable source of supply
Business Strategy:
Overview
• Business Strategy: Categories
– Strategic Analysis: An evaluation of how/where your business is
going
– Strategic Choice: How are you meeting the needs of customers,
shareholders, etc.
– Strategic Implementation: Action plans of business improvement and
execution
Source: the-business-plan.com/what-is-business-strategy.html
Business Strategy:
Definition
• Business strategy is essentially an ongoing process of
evaluating how successful an organization is and how it
can improve on that success.
Source: the-business-plan.com/what-is-business-strategy.html
• Supply Chains are Certainly not Exempt!
– The critical nature of Supply Chains demand buy-in from all
organizational departments in order to experience the most efficient
processes and lowest operational expenses
Supply Chain:
Critical Benchmarks
• Supply Chain trends are moving from larger and more
warehousing, etc. to more demand driving practices
– More fluid inventory (inventory and inventory holding costs)
– Increased communication throughout the chain
• Inclusion of outsource resources as part of the information chain
– Accurate and Effective Forecasting
– Increased Product Controls and Contingency Planning
• Transportation Flexibility
• Risk Management
Supply Chain:
Critical Change Agents
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Demand Planning
Globalization
Increased Competitive and Price Pressure
Outsourcing
Shortened and more Complex Product Life Cycles
Collaboration between Stakeholders
Gross Domestic Product
• Moderate GDP grow for the foreseeable future
Challenges:
– Erratic inventory de-stocking and re-stocking practices
• Rapid response to meet demand, Controlled resources to avoid
obsolescence
Growth Areas
– Non residential fixed investment, equipment and software, export of
goods and services
U.S. Gross Domestic Product:
Summary
Expected GDP growth rate below 2%
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Increased Consumer Spending
– Retail and travel
Increased demand for professional and
transportation services
Continued but slow pace of manufacturing
expansion
Strong expansion in agriculture and natural
resources
Sluggish residential and commercial real estate
GDP Notes
• Mixed manufacturing
results, with slowed paced
across much of the country
• Capital investment plans
remain in tact but with
potential delays of
implementation based on
uncertainty
% Change in Quarterly Prices
Personal Consumption
Goods
Durable Goods
Nondurable Goods
Services
Private Investment
Residential
Government Expense
Export and Imports
% Share of GDP Q3F10
71.0%
1.0%
24.2%
0.8%
7.6%
-2.5%
16.5%
2.4%
46.9%
1.1%
12.7%
0.9%
2.2%
0.6%
20.2%
0.9%
-3.9%
Q4F10
2.1%
3.4%
-2.4%
6.2%
1.2%
1.7%
2.5%
3.1%
Q1F11
4.0%
8.0%
-0.6%
12.4%
1.9%
2.1%
1.5%
5.4%
Q2F11
3.2%
5.1%
1.7%
6.7%
2.2%
2.3%
1.5%
4.1%
Global Industrial Production
• Trend and need for demand chains
GDP Forecast
Industrial Forecast
CY 11
1.8%
4.1%
CY12
2.5%
3.9%
GDP improvement largely based on improved consumer sentiment
Supply Chain:
Improvement Strategies
With Greater Commoditization, Companies are Looking
for Improvement in at Least Two Ways:
• #1 Reduce Cost, and Create Greater Efficiency
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Sales and Operational Costs
Transportation Cost Management
Improve Product Life Cycle
Improve Sourcing
Transportation
• Market Changes
% of GDP
Transportation of Goods
Service Sector
1950
40%
26%
2010
23%
47%
– Decreased demand and capacity balancing has left
many transporters more nimble and less vulnerable
to slow economic growth
– Look for Increasing Trucking Prices and Services
particularly for flatbed and LTL shipments
• High cost of new capacity
• Shortage of safe qualified drivers
Supply Chain:
Improvement Strategies
With Greater Commoditization, companies are looking
for improvement in at least two ways:
• #2 Provide Value-Added Services
– Vendor Management Inventory
– Labeling and Packaging Services i.e. Commodity Codes, Global
Requirements
– Drop Shipment
– Visibility
• Both Value Strategies can be Supported through a
Return on Asset Model
Supply Chain:
Improved Visibility
“Better visibility of retailer product availability can reduce
overall logistics costs as products move through the value chain
to fulfill stock levels and ultimately consumer demand.”
Hitachi Consulting
• Does your Chain create Customer Advantage?
– Increased Visibility:
• Increases customer loyalty while meeting expectations
• Decreases operational costs particularly staffing
• Reduces payment time cycle
• Increase channel strength
Create Customer
Advantage
Consumer Confidence
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“Worries over making ends meet and
the persistently high unemployment
rate have weighed on confidence in
recent months. . .”
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Copyright, “The Financial Times Limited 2011,
Susan Bond
Consumers are looking for a decent
decrease in unemployment
Unemployment:
Positives
• 200,000 new jobs in December
• Unemployment rate of 8.5%
Challenges
• 5.6mm individuals out of work at least 6 months
• 3.9mm individuals for a year or more
– Job loss with >8% unemployment = loss of 2.8 years pre-job
wages
– Skill deterioration, motivation denigration, negative stigma
– Productivity, public finance and social behavior concerns
• Long term decreases in manufacturing jobs, and
subsequent fall out of the housing market
Unemployment
Average hourly earnings:
$23.24, with a 33.7 hour
work week
Labor force of 154mm and
an effective unemployment
rate of 18.7%, or
30,172,000
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Transportation employment up 540,000 for December
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Retail employment up 228,000 in December
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Look for decreases from temporary working in January
Government employment down 280,000 for 2011
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Courier and warehousing
Local, State and USPS
2011 Industries of growth: Mining up 89,000 Health Care 315,000, Food
Service and Drink 230,000
Industries of slow to no growth: Professional and Business services,
Construction, Government
Forecasted unemployment rate: 9.7% January 2010, and 10.3% April 2012
Inflation
Current rate of 3.4%
Federal Reserve “desirable rate” is 2%
• 12 Month trends:
• Food Up, Energy Down, and all other indexes up
• Overall upward inflation trend
• Soft employment, low-to-no upward wage pressure, lost
housing equity and related consumer “poor complex” – not a
good time for price increases
Short-Term Interest Rates
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Near Zero rates continue through min 2013, or as long as the
economy remains weak
Cash flush banks, financial organizations and corporations press for
higher returns with greater risks
Consumers appear to “hold” on a general scale
– Americans overwhelmingly expect to delay by at least 2 months major
purchases and expenditures such as spending on new cars, home
repairs, and vacations:
Source, Alix Partners, June 3, 2011
Housing
Source: WSJ Wednesday 9/21/11
Actual :
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Prices have fallen 31.6% since the peak of 2005 equating to $7 Trillion
in lost home equity
Bank owner foreclosure has restricted new construction and as a byproduct, related employment and wages
I in 5 mortgagees owes more than their home is worth
Homeowner equity as a percent of home value has fallen to 38.6%
from 58.7% in 2005
Reverse wealth effect: homeowners feel poorer so they reduce
consumer spending, the largest GDP component
Housing
Source: WSJ Wednesday 9/21/11
Forecast:
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Home prices expected to drop 2.5% this year
Expected average annual increase of 1.1% through 2015
Reduced Home improvements
– Cash vs. home equity payments
– Lack of confidence that improvements will pay off
Result:
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Lost decade with a fraction of increase against large losses – erasing
most or all home equity for millions of homeowners
Depressed housing prices for years
More than 4 million loan in foreclosure or considered seriously
delinquent
Years to recovery, continued falling prices, eroding equity, the “poor
man complex”
Federal Reserve: Stimulus
• Perspective of the Fed
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Take further steps as necessary
“Don’t cut spending too quickly . . . to trim the deficit in the long-term.”
European financial strains posed “ongoing risks” to U.S. economic growth
Depressed housing and tight household budgets are factors preventing
robust expansion
– Continued sluggish job growth
– Little inflationary impact/risk
• Based on the Above
– December 13th meeting to leave credit policy unchanged, vote 9:1
– Continue monetary easing strategy: operation twist
• Twisting long and short term interest rates closer together
• To increase credit and liquidity
• Problem
– Lack of demand and confidence, not credit and liquidity
– Credit hurdles too high
Federal Reserve: Credit
Monetary Policy
• Stimulus:
– Quantitative Easing
– Operation Twist
– Remember Quantitative Easing - QE2.
• A monetary policy to increase the money supply when interest rates are near 0%.
• Intended to increase loans and spending because of increased liquidity
• The only measurement of success is that things are not as they could have
been???
• Actual result; increased cash, stagnant circulation, and future stimulus recoil
• It’s all about employment and wages
• Government debt
– Critical action items, No clear course, no one wants to pay the price
• Confidence???
National Debt
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National Debt: Money owed, approaching $14.3trillion cap
– U.S. Treasury Secretary Timothy Geithner has said the United States
borrows about $125 billion per month.
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In a 31-day month, that means the United States borrows about $4 billion per
day.
The U.S. government borrows more than $40,000 per second.
– "the American people want the deficits and debt dealt with but without
changes in Social Security, Medicare and defense spending?”
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Democrat Kent Conrad, chairman of the Senate Budget Committee
Proposal
– Debt Super Committee
– White House Proposal
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Consideration of entitlement changes with tax increases on Corporations and Wealthy
individuals
– Ryan Plan
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Bottom Line, programs like Medicare, Medicaid, Social
Security, Fannie Mae, Freddie Mac must be re-tooled with
associated spending cuts.
– The country cannot tax the current deficit away itself out of the c
– The country cannot spent its way to increased revenue
Market Efficiency Theory:
Your Supply Chain
• All relevant Information is Available, Considered and
“Built-in”
• Likewise, Efficient Supply Chain practices Must
Incorporate all Relevant Information in Process
• Efficient Processes Must be Build on:
– Information, Open Markets and To/From Market Connectivity
in order to Fundamentally Provide Value
– Value is Demonstrated by Quantification
• In Terms of Dollars, what Customer Value does Your
Supply Create?
Supply Chain Model:
Consideration
• What Are Your Supply Chain Threats?
– Accurate: Does your Supply Chain Reflect Your History or
Strategy?
• Case Study, Apple Ipod
– Does Your Supply Chain Create Added Custer Value?
– Process: Does your Supply Chain Provide Customer Value
by Accomplishing a Customer Based Task?
• Flexible: Demand Fluctuation
– Customer, Economics, or Competitive Based
• Simplify
– Use Innovation to Reduce Rather Than Complicate
Processes - Buried in Systems and Processes
Access - Defined
• Access is a process that enables interaction, contacts and
exchanges . . Access indicates Ability
• Access is a Measure of Openness, not Competitiveness
• A = F (T, S, I)
• A Supply Chain that Generates Access Collapses Time and
Space while Increasing Information, Thereby Conferring
Value to its Customers - Visibility
Access – Core Competency
• Value Benefits to the Access Generation:
– Provides Connection - Individual and Market
– Expands Reach, Innovation and Profitability
– Offers Increased Choice of What, Where, When and How
• Concluding Questions:
– What Markets do you Provide Access To?
– What Connections Should you Add?
– What Quantifiable Value does your Chain Provide?