Assessing the value of the supply chain
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Leading companies are exploiting their supply chains to outperform competitors. Collinson Grant assesses the value they create and makes recommendations for improvement. This presentation gives an outline of our approach to redefining processes and structures to eliminate costs, harmonising systems and technologies to exploit synergies, and generating transformational change.
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Assessing the value of the supply chain
- 1. Assessing the value of the supply chain Overview of the methodology
- 3. Contents The goals of Supply Chain Management (SCM) 1 The scope of SCM 2 Why now? 3 Key questions 4 Value for shareholders 4 Summary 5 Functional scope 5 Activity scope 6 Methodology 6 Performance bridge 7 Components 8 Outcomes 8 Collinson Grant 9
- 5. 1Assesing the value of the supply chain The goals of Supply Chain Management (SCM) Leading companies are exploiting their supply chains to outperform competitors: to achieve performance that creates more value for shareholders to re-deïŹne processes and structures to eliminate costs to harmonise systems and technologies to exploit synergies and reduce costs to generate transformational and iterative change to establish collaborative relationships to support e-commerce to maintain the prices and margins of products, despite severe pressure to promote high performance, end-to-end visibility, customisation and lower costs to manage complexity in a network of businesses and achieve international consistency to foster a world-class image and uniqueness to protect lagging market capitalisation.
- 6. 2 The scope of SCM Effective SCM should align and control interactions between the buying and selling sides.
- 7. 3Assesing the value of the supply chain Business environmentCurrent market development Static Stable Dynamic Unstable Traditional Business Environment The Future What flexibility do you have to respond to frequent changes in the supply chain Can you exploit that freedom? Can you react to customersâ short-term demands? Better responsiveness and use of assets Are metrics and processes aligned to maximise overall profitability? Are tools to support decision- making used to improve profitability? Market / operating conditions Cost efficiency Market / operating conditions Businessenvironment Business environmentCurrent market development Static Stable Dynamic Unstable Traditional Business Environment The Future What flexibility do you have to respond to frequent changes in the supply chain Can you exploit that freedom? Can you react to customersâ short-term demands? Better responsiveness and use of assets Are metrics and processes aligned to maximise overall profitability? Are tools to support decision- making used to improve profitability? Market / operating conditions Cost efficiency Market / operating conditions Businessenvironment Why now? The unstable business environment and dynamic operating conditions require that clients improve responsiveness and reduce costs. Current market development Businessenvironment Market/operating conditions
- 8. 4 Key questions The main aim of the assessment is to work out the ïŹnancial value to your organisation of the performance of SCM. This will require answers to the following questions: What are the current capabilities for managing and planning SCM? What are the current baseline costs, and the measures of and benchmarks for performance? What are the current problems and opportunities in SCM? What improvements could be made and how would these affect the measures of performance and benchmarks? What is the ïŹnancial value of improving performance? What is the high-level implementation plan, showing the tasks necessary to achieve the improvements and realize the beneïŹts? Value for shareholders The supply chain has a big effect on value for shareholders. Revenue Costs Working capital Fixed capital Value for shareholders Profitability Invested capital The shareholder value tree Cost of goods sold (COGS) Productivity of assets Cost of business operations Costs of manufacturing, conversion and sourcing 10 - 15% costs Inventories of raw, part-finished and finished products Order-to-cash cycle time 10 - 20% inventory Physical assets - Plants, warehouses, trucks, office and support locations 10 - 20% assets Market share Gross margins Service to customers Fewer lost sales 1 - 2% margin Typical targeted benefits Impact on supply chain Revenue Costs Working capital Fixed capital Value for shareholders Profitability Invested capital The shareholder value tree Cost of goods sold (COGS) Productivity of assets Cost of business operations Costs of manufacturing, conversion and sourcing 10 - 15% costs Inventories of raw, part-finished and finished products Order-to-cash cycle time 10 - 20% inventory Physical assets - Plants, warehouses, trucks, office and support locations 10 - 20% assets Market share Gross margins Service to customers Fewer lost sales 1 - 2% margin Typical targeted benefits Impact on supply chain
- 9. 5Assesing the value of the supply chain Summary The Supply Chain Value Assessment (SCVA) sets out the capabilities required of the supply chain for organisations to be successful. The SCVA focuses on ïŹnding opportunities to increase value in operations. SCVA connects the organisationâs objectives, supply chain capabilities and key performance indicators together to produce fact-based, value propositions. Analysis of leading practices is used to help ïŹnd opportunities. SCVA does not aim to produce standard benchmarks. SCVA is not generic. It is customised to each businessâs situation and objectives. Functional scope Value assessment can cover: Procurement Manufacturing and assembly The management of inventory and materials Warehousing Transportation Order fulïŹlment Logistics operations that add value Service and support Projects. What affects me? How will the trends affect my business operations? What capabilities must I have? What are the leaders doing? How much is changing worth? Sector trends Supply chain capabilities Business impacts Leading practices Value propositions What affects me? How will the trends affect my business operations? What capabilities must I have? What are the leaders doing? How much is changing worth? Sector trends Supply chain capabilities Business impacts Leading practices Value propositions
- 10. 6 Activity scope SCVA assesses business practices in the supply chain in several different dimensions. Methodology SCVA will ïŹnd the major opportunities to draw up a business case for change. Sourcing and procurement Logistics and service operations Demand/supply planning Customer Segmentation Service Services/ products Planning, optimization and detailed scheduling of SC functions: Managing demand Managing inventory Managing logistics Managing labour Managing procurement Managing production Improving operational performance Selecting vendors Managing vendors of logistics Managing freight Managing the Rail/Air/Marine fleet Strategic procurement eProcurement Managing suppliers Procurement process Categories of business process Information technology Performance measurement Collaboration/ extend. enter. Use of performance measures Overall IT enablement Supply chain technology Supply chain visibility and event management mCommerce Collaborating with partners Collaborating with suppliers and customers Supply chain spanning categories Supply chain network Physical network - configuration and optimisation Plants Warehouses Service locations Offices Sourcing and procurement Logistics and service operations Demand/supply planning Customer Segmentation Service Services/ products Planning, optimization and detailed scheduling of SC functions: Managing demand Managing inventory Managing logistics Managing labour Managing procurement Managing production Improving operational performance Selecting vendors Managing vendors of logistics Managing freight Managing the Rail/Air/Marine fleet Strategic procurement eProcurement Managing suppliers Procurement process Categories of business process Information technology Performance measurement Collaboration/ extend. enter. Use of performance measures Overall IT enablement Supply chain technology Supply chain visibility and event management mCommerce Collaborating with partners Collaborating with suppliers and customers Supply chain spanning categories Supply chain network Physical network - configuration and optimisation Plants Warehouses Service locations Offices The process of SCVA Assess RecommendPrepare Identify Mobilize team Quantitative data Performance gaps Presentation and review Current performance Levers and recommen- dations Qualitative data Value proposition Targets and expectations Capabilities Opportunities Scope and approach Executive Review 0 21 3 Steering Review NB: The timeframe for the value process will vary with the scope (at geographic, functional and activity levels) The process of SCVA Assess RecommendPrepare Identify Mobilize team Quantitative data Performance gaps Presentation and review Current performance Levers and recommen- dations Qualitative data Value proposition Targets and expectations Capabilities Opportunities Scope and approach Executive Review 0 21 3 Steering Review NB: The timeframe for the value process will vary with the scope (at geographic, functional and activity levels)
- 11. 7Assesing the value of the supply chain Performance bridge We use a performance bridge to clarify the ïŹndings about the value chain. This: is adaptable and straightforward can be used for static data or time series can mix negative and positive ïŹnancials can be used qualitatively to show positive and negative factors, or where value is created and where it is destroyed. The starting point is the top (or bottom) of each bar, moving left to right. 400 -450 Net revenue Cost of goods sold Capital sale Loss before interest and tax Overheads -60 -110 40 Interest Income 100 -10 20 Taxes Net profit 400 -450 Net revenue Cost of goods sold Capital sale Loss before interest and tax Overheads -60 -110 40 Interest Income 100 -10 20 Taxes Net profit 400 -450 Net revenue Cost of goods sold 400 -450 Net revenue Cost of goods sold Capital sale Loss before interest and tax Overheads -60 -110 40 Interest Income 100 -10 20 Taxes Net profit Capital sale Loss before interest and tax Overheads -60 -110 40 Interest Income 100 -10 20 Taxes Net profit
- 12. 8 Components Components of the value assessment are: Qualitative surveys â to deïŹne the relevant problems and opportunities Diagnostic tools â to help understand the problems and deïŹne the opportunity Quantitative assessment â to deïŹne the ïŹnancial value Sector benchmarks â to evaluate the impact of improvements in performance High-level roadmap for implementation - option. Outcomes A qualitative assessment questionnaire can be employed to provide a top-down analysis to create a view of current capabilities. Capability Radar 0 10 20 30 40 50 60 70 80 90 100 Supply Chain Alignment Customer Connectivity Efficient Distribution Demand Driven Planning Lean Manufacturing Supplier Management Integrated SystemsAdvanced Information Technologies Integrated Product Development Outcome-Focused Performance Measurement Teamwork Aligned Organisation Structure Execution of Change Plans 0 10 20 30 40 50 60 70 80 90 100 Supply Chain Alignment Customer Connectivity Efficient Distribution Demand Driven Planning Lean Manufacturing Supplier Management Integrated SystemsAdvanced Information Technologies Integrated Product Development Outcome-Focused Performance Measurement Teamwork Aligned Organisation Structure Execution of Change Plans Management Operations Opportunity matrix Expected BenefitLow High Easy Complex Easeofimplementation âą Consignment stock âą Monitor X% reserve requirement âą Capture stock out information âą Manage service level âą Forecast lifting for terminal âą Optimize boned stock âą Monitor Product Profitability âą Joint venture (purchase inventory from the joint venture partner âą Rationalize terminal âą Schedule discharging at terminal âą B/L and swap arrangement âą Disposition strategy âą Monitor product profitability âą Increase supply sale âą Capture in-transit volume Illustrative
- 13. 9Assesing the value of the supply chain The aggregated beneïŹts will form the basis of an integrated plan for implementation and a business case. For example: Legislated reserve x.x x.x In-transit volume x.x x.x Optimize bonded stock at refinery x.x x.x Optimize Replenishment Cycle x.x x.x Reduce demand variability by customer segmentation x.x x.x Improve customer service level x.x x.x Monitor Product Profitability x.x x.x B/L & Swap Arrangement x.x x.x List of Opportunities Potential Value Note : 1) Estimate benefit are based on average inventroy level in 1998 assuming that refinery has avaliable capacity to keep as a bonded stock 2) Assume that the contraint on vessel avalibility can be managed and forecast accuracy are improved by 50 % 3) Safety stock reduction is limited to the 3% reserve level if inventory is at 3% reserve level benefit of the opportunity may be be realised 4) Opportunity identified during the course of analyses First year Annual Opportunity Area Inventory Shipping costs Trucking costs Contribution Margin How to realise the benefits Managing to safety stock targets, which are statistically set to reflect actual, uncontrollable variability in demand and supply; releasing tank heels of excess tanks Changing drop routes and vessel sizes to optimise per unit costs (accounting for impacts on average inventory); eliminating spot vessel costs incurred as supplementary to replenishment by time- chartered vessel Using larger trucks and enabling ease of operations through efficient scheduling to achieve better haulage rates (may require some renegotiation of contracts) Reallocating resources within customer segments to match customer value; margin management imperatives in stock allocation and times of critical supply; retaining/ acquiring more customers through supply chain efficiency, guaranteeing service levels and managing customer relationships; better price-related trading vs marketing decisions Value (% of baseline) 17 - 21% 8 - 12% 2 - 5% 0.6 - 2% Q3â99 Q4â99 Q1â00 Q2â00 Benefit Capture Q3â00 Q4â00 Roll out Initiative Benefit Capture Q2â99 - - 0.23 0.88 0.88 0.45 0.24 Supply Planning Performance 1) 2) 3) . . . . . >> Program management Total Savings by Quarter ( Million US$) Internal Man-day External Man-day Benefits Aggregate benefits Implementation and delivery IllustrativeLegislated reserve x.x x.x In-transit volume x.x x.x Optimize bonded stock at refinery x.x x.x Optimize Replenishment Cycle x.x x.x Reduce demand variability by customer segmentation x.x x.x Improve customer service level x.x x.x Monitor Product Profitability x.x x.x B/L & Swap Arrangement x.x x.x List of Opportunities Potential Value Note : 1) Estimate benefit are based on average inventroy level in 1998 assuming that refinery has avaliable capacity to keep as a bonded stock 2) Assume that the contraint on vessel avalibility can be managed and forecast accuracy are improved by 50 % 3) Safety stock reduction is limited to the 3% reserve level if inventory is at 3% reserve level benefit of the opportunity may be be realised 4) Opportunity identified during the course of analyses First year Annual Opportunity Area Inventory Shipping costs Trucking costs Contribution Margin How to realise the benefits Managing to safety stock targets, which are statistically set to reflect actual, uncontrollable variability in demand and supply; releasing tank heels of excess tanks Changing drop routes and vessel sizes to optimise per unit costs (accounting for impacts on average inventory); eliminating spot vessel costs incurred as supplementary to replenishment by time- chartered vessel Using larger trucks and enabling ease of operations through efficient scheduling to achieve better haulage rates (may require some renegotiation of contracts) Reallocating resources within customer segments to match customer value; margin management imperatives in stock allocation and times of critical supply; retaining/ acquiring more customers through supply chain efficiency, guaranteeing service levels and managing customer relationships; better price-related trading vs marketing decisions Value (% of baseline) 17 - 21% 8 - 12% 2 - 5% 0.6 - 2% Q3â99 Q4â99 Q1â00 Q2â00 Benefit Capture Q3â00 Q4â00 Roll out Initiative Benefit Capture Q2â99 - - 0.23 0.88 0.88 0.45 0.24 Supply Planning Performance 1) 2) 3) . . . . . >> Program management Total Savings by Quarter ( Million US$) Internal Man-day External Man-day Benefits Aggregate benefits Implementation and delivery Illustrative
- 14. 10 Collinson Grant Collinson Grant is a management consultancy with a history of proïŹtable growth. We help large organisations all over Europe and in the United States to restructure, merge acquisitions, cut costs, increase performance and proïŹt, and manage people. By building long-term relationships, we have kept some clients for thirty years. Our emphasis is on implementation, results and value-for-money. We expect to give a substantial return on the investment in us. So we do not recommend action unless we are sure that the outcome will be worth it. We are not afraid to give bad news, or to champion ideas that may not be welcome. Most of our work is on three themes â organisation, costs and people. We use this simple framework to manage complex assignments - often with an international dimension - and to support managers on smaller, more focused projects. We help them: to restructure and integrate - following acquisitions or to improve proïŹts to improve the supply chain. We examine every process and interface to improve efïŹciency and service to set up ïŹnancial and managerial controls. We create robust systems to improve decision-making and reduce risks to reïŹne business processes and introduce lean manufacturing. We analyse and improve how work is done, and use new ways to create change and make it stick to cut costs. We make systematic analyses of overheads, direct costs, and the proïŹtability of customers and products. This helps managers to understand complexity, and to take ïŹrm steps to reduce it to manage people. We draw up pay schemes and put them into effect, guide managers on employee relations and employment law,get better performance from people, and manage redundancy.
- 15. Collinson Grant Limited Ryecroft, Aviary Road,Worsley, Manchester, M28 2WF United Kingdom Telephone (0) 161 703 5600 Facsimile (0) 161 790 9177 33 St Jamesâs Square London SW1Y 4JS Telephone (0)20 7661 9382 Facsimile (0)20 7661 9400 En France 03 20 65 18 81 Innerhalb Deutschlands 0211 4054 800 In the United States 1 508 358 3400 Web www.collinsongrant.com Part of Collinson Grant Group Limited