Supply Chain Strategy.

EMEA SCM Fundamentals Training

1 – 3 February 2006, Zurich, Switzerland
 Agenda

1. Supply Chain Strategy

2. Supply Chain Benchmark

3. Strategic Supply Chain Topics

4. Supply Chain Network Design

5. Inventory Management Optimization

6. Supply Chain KPIs

2 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Strategy
Content

• A definition of a Supply Chain

• SC Strategy is driven by supply chain wide economics
• Major Business Issues Impacting your SC Strategy
• Defining Supply Chain Strategy
• Major Business Issues Impacting your SC Strategy
• SC Strategy provides the link between Corporate Objectives and the Tactical
Processes needed to run the Business
• Setting the right Supply Chain Strategy Priorities
• The Supply Chain policies resolve many of the typical conflicting functional objectives
• The absence of Objectives & Policies will limit the Operating Performance of the
Business
• So what exactly do Objectives & Policies look like?
• The correct combination of Policies & Supporting Capabilities will culminate in an
Integrated, Aligned and Customer focused Supply Chain
• The Supply Chain Strategy must remain in line with the Tactical Planning processes of
the Business

3 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Strategy
Objective

• To learn what is Supply chain Management

• To understand what influences a company Supply Chain Strategy
• To learn what is a Supply Chain Strategy and what the Strategy should consist
• How is a Supply Chain Strategy developed
• To understand the linked between the Supply chain Strategy and the tactical planning
processes of the business

4 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 A definition of a Supply Chain

• A supply chain is part of a network consisting of suppliers, manufacturers,

distributors, retailers and customers
• The supply chain consists out of 3 types of flows that require careful
planning and close co-ordination:
– Material flows: physical product flows from suppliers to customers and v.v.
– Information flows: order transmission, order tracking, information collaboration to
support physical flows
– Financial flows: credit terms, payment schedules, consignment assignments
• The network, in turn, is supported by three pillars:
– Processes: value-adding activities as logistics, new product development
– Organizational structures: from vertical integration to networked companies
– Enabling technologies: both process and information technologies
• Supply chains perform two principal functions:
– Physical function: transformation, storage, transportation, etc.
– Market mediation: matching demand and supply, add value through production
availability, information about goods flows and light manufacturing activities

5 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 SC Strategy is driven by supply chain wide economics

Mass
Mergers & individualization Outsourcing
acquisitions in
European logistics
market

E-commerce Globalization

Core business
focus

6 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Major Business Issues Impacting your SC Strategy

Increasing e-Business impact

Shareholder Value
Consumer
Metrics
Leverage

New Stakeholder
management
Markets Supply Chain
Strategy
Move from
Industry-wide
“Product Centric” to
Process improvement
“Customer Centric”

Supply (SCM) and e-Marketplace

Demand (CRM) Participation in
Integration Product and SC Strategy
Customer Portfolio
Alignment

7 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Defining Supply Chain Strategy

• Supply Chain Strategy (SCS) is a deliberate, systematic plan for

evaluating and improving an enterprise's approach to supply chain
management in line with corporate vision and goals
• Supply Chain Strategy includes:
1. Clear mission statements with initiatives and timelines closely linked to
corporate goals and objectives
2. Short-term and long-term plans and goals
3. A well-researched business case that provides motivation and accountability for
a supply chain improvement program
4. Integrated change leadership and disciplined program managers.

8 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 SC Strategy provides the link between Corporate Objectives and the
Tactical Processes needed to run the Business

• Business beliefs
• Growth and profitability
Corporate Mission
goals Supply Chain
Objectives & Policies
• Which products, which markets
Corporate Strategy
• Business positioning*
Planning

Manufacturing
• Supply Chain Obj. & Policies

& distribution
Warehousing
Purchasing

marketing

Customer
• Supply Chain Asset & Process SC Strategy

Service
Sales &
Architecture

• Tacticalprocesses to support
Tactical Objectives
Supply Chain Strategy

• Sales order processing

Operational Processes
• Purchase order mgt.

• Production Scheduling
• Supplier Call Off
Executional Processes

* = E.g. operational excellence, product leadership or customer intimacy

9 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Setting the right Supply Chain Strategy Priorities

1 2 3 4 5

Product Innovation
Time-to-market
Sourcing effectiveness
Product quality
Manufacturing flexibility/
Responsiveness
Manufacturing lead time
Logistics effectiveness
Customer service
Supply Chain cost Structure

1 Very Weak 4 strong

2 Weak 5 Very strong
3 competitive

10 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Supply Chain policies resolve many of the typical conflicting
functional objectives
Corporate Mission

Corporate Strategy

Supply Chain Strategy

Warehousing Sales and Customer

Purchasing Manufacturing & Distribution Marketing Service

 Low purchase  Seasonal  Forward  Tailored  High

prices planning inventory promotion predictability
 Stable volume  Long run deployment programs  High service
requirements lengths  Quick  High levels (high
Flexible replacement inventories stock)
  Just-in-time
delivery time VS deliveries VS capability VS VS
 High “surge”  Just-in-time
Little variation
 Low, capacity for deliveries
  High quality
in mix centralized selling deals  short delivery
 High inventories
Large
 Many special times
 productivity
quantities
 Long lead packs, special  low prices!
 Low production times deals
costs
11 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 So what exactly do Objectives & Policies look like?

• Forecasting rules and procedures choose the key set

• Customer partnership candidates for your business
• Supplier relationships
• Category management (also revenue growth)
Operating • Production lead-times
margin • Economic production quantity
Plan
• Make to stock/to order/to order designation • Inventory levels

• Replenishment procedures Buy • Category management

• Economic replenishment quantities Make • MTS/ATO/MTO designation
• Make to stock customer lead times • Rules for breaking schedules

Move • MTS/ATO/MTO designation

• Safety stock levels Sell • Customer segmentation

• Stocking policies
• Inventory levels
Revenue • Category management (also operating margin)
growth • New product introduction procedure
• Customer segmentation
• Order fill rates
• Customer lead time

Asset • Call off procedures

efficiency • Rules for breaking schedules

Customer service Working capital

29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The absence of Objectives & Policies will limit the Operating
Performance of the Business

TIVE
A
S TR
U
I LL SYMPTOMS POLICY ISSUES

• Inconsistent customer service • Lack of differentiated customer service -

• Resources not focused on the right every customer is given the same
customers preference
• No targets to guide supply chain operations
to fulfil customer orders
• Lack of clear definition of what should be
• High inventory levels Make To Order, Make To Stock or Available
• A significant amount of slow moving and To Order
obsolete items • No replenishment policy that differentiates
between stock types
• Lack of service level targets
• Poor service levels caused by inadequate
• Inventory levels set without regard to
inventory levels for some items.
service level needs or lead time
requirements
• Capacity levels within manufacturing and at
vendors set without an accurate level of
forecasting

29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The correct combination of Policies & Supporting Capabilities will culminate in an
Integrated, Aligned and Customer focused Supply Chain

Supplier Plant Business Unit Customer

POLICIES:
• Make Vs Buy • Capacity Utilisation • Supply • Forecast Policy • Network Asset • Customer
• Supplier Policy Service Level • Demand Configuration Service Level
Relationship • Volume plans Agreements Management • Inventory policy Policy
Strategy • Transportation Rules • Differentiated
Modes Supply Policies
KEY SUPPLY CHAIN CAPABILITIES:
• Vendor Managed • Cycle Scheduled • Defined • Analytically • Shared Distribution • Efficient
Raw Material Production Line process Targeted Platforms Consumer
Inventory • Just In Time Finished • Out-sourced Response
working Goods Logistics • Collaborative
Planning,
Forecasting,
KPI’s:
Replenishment
• Key Performance Indicators linked to objectives and policies of the Supply Chain

14 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Supply Chain Strategy must remain in line with the Tactical
Planning processes of the Business

Sets Policy: service level, inventory policy, capacity utilisation

Objectives & Policies

Forum
Feedback on Policy

External Factors
• Customer Central Sales, Internal Capabilities
Requirements Consensus Demand • Capacity
Operations &
• Competitors Forecast Meeting • Supply Performance
Inventory Planning
• Business • Working Capital
Environment
Geographically Driven • Monitor SC Performance
• USA Agree Demand • Balance Demand & Supply
Internal Factors
• Japan • Agree Capacity Plan
• Promotions
• UK • Agree Inventory Levels
• New Product
• Europe • Agree Sales Plan
Introductions
• Australia

Market Sales,
Operations &
Inventory Planning

• Feedback on sales plan

• Communicate constraints
• Offer alternatives
• Monitor performance to
customer

15 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Strategy
What have you learned

• What is Supply chain Management

• What influences a company Supply Chain Strategy
• What is a Supply Chain Strategy and what the Strategy should consist
• How is a Supply Chain Strategy developed
• The linked between the Supply chain Strategy and the tactical planning processes of
the business

16 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Agenda

1. Supply Chain Strategy

2. Supply Chain Benchmark

3. Strategic Supply Chain Topics

4. Supply Chain Network Design

5. Inventory Management Optimization

6. Supply Chain KPIs

17 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Benchmark
Content

• Objective of this chapter

• What is Benchmarking

• The Deloitte Global Manufacturing Benchmark

• The Deloitte Global Manufacturing Benchmark Findings

• Benefits of the Deloitte Benchmark

• Critical Success factors

• What have you learned

18 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Benchmark
Objective

• What is Benchmarking

• The Deloitte Global Manufacturing Benchmark

• The Deloitte Global Manufacturing Benchmark Findings

• Benefits of the Deloitte Benchmark

• Our Approach

19 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 What is Benchmarking?

Companies commonly seek information to help them understand their performance

relative to similar companies for a variety of business issues and process.

20 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 What is Benchmarking?
Different ways of Benchmark for different results

Internal Competitor Multi Industry

Benchmark Benchmark Benchmark

Learning

Control

21 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark

800 companies across the globe were interviewed with the goal of helping to
understand:

• How are companies globalizing their value chains?

• What are the major challenges and opportunities globalisation creates?
• How are companies effectively managing complexity and leveraging global opportunities?
• What are the key capabilities behind the success of leading companies?

Regional Profile Asia Industry Profile

Pacific Aerospace &
10% Defense
Process / Chemicals 1%
Other 18%
North America 2% Automotive
34% Life Sciences 13%
7%
Western
Europe High Tech/ Telecomm
44% Consumer
8% Products
29%
Central and Eastern General Manufacturing
Europe 10% 25%

Key finding: The most profitable companies leverage superior supply chain capability
and a complex global network to achieve significantly higher financial performance than
their peers.

22 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark
Benchmark - Process

Manufacturing Your Identified SPEED

Benchmark Benchmark Benchmark Report Business Issue
Report Issues Operational Issue

23 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark
Benchmark Report

24 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings

“Overall, we estimate that more than 80 percent of the most globalised

businesses in our study have not captured the full returns on their global
investments.”
“In many of the global organizations we studied, the value loss
from sub-optimization was 50 percent or more of bottom-line
profits.”
Deloitte Research, Unlocking the value of
globalization: profiting from continuous
optimization (New York: Deloitte, 2005);
estimates.

25 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Complexity masters unlock the value of globalisation…
More than 80 percent of the companies with the most global, complex value chains
struggle to get the value out of their globalisation effort. Their profitability gap to
complexity masters is nearly 50 percent on average.

With better capabilities

Complexity masters for managing their
Quadrant 3
High

73% more global value chains,

profitable complexity masters
outperform their
Global value chain complexity

competitors in
17% more profitability, asset
(37%) profitable returns, growth, and
(7%) shareholder value

Quadrant 1 Quadrant 2

(49 % of 19% more

respondents) profitable
100 =
base (7%)
Low

Low Value chain capabilities High

26 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings
Yet, many companies struggle to get the value out of their
investments

Return to shareholders
Return to shareholders
Return on Capital / Assets
Return on Capital / Assets
Profitability
Profitability
Revenue Growth
Revenue Growth
0% 10% 20% 30% 40%

Percentage of Companies Not Meeting Business Performance Goals

Source: Deloitte Research

• 33% fail to achieve their ROA / ROC targets

• 35% fail to achieve their profitability targets and
• 36% fail to achieve their targets for Returns to Shareholders
• 40% fail to meet revenue growth targets

More than half of the 1,000 largest global industrial companies (51%) generate returns
that do not meet their cost of capital!
27 Source: Deloitte
29 Jul 2024 Research,
EMEA Supply Global Manufacturing
Chain Management 100 (New
Fundamentals Training York: Deloitte, 2002). ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings
Companies are globalizing everything, resulting in increasing value
chain complexity and challenges everywhere...

Transfer
Pricing Environmental
Regulation Intellectual
Trade Taxes
Physical Assets Property
Barriers Sourcing
Long lead times
Regulation Data Security Production

Inventory Infrastructure

Legend
Financial Flows
Physical Flows
Information Flows

28 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings Many
improvement initiatives launched, but supply chain network structure
is last everywhere...
Ranking of Ranking of performance
Current capabilities Improvement initiatives
vs. Primary competitors Undertaken in last 3 years
Rank All Industries Rank All Industries
1. Product quality 1. Operations / manufacturing
2. Customer service 2. Forecasting / planning
3. Manufacturing flexibility /
responsiveness 3. Order management / customer service

4. Product innovation 4. Sourcing / procurement

5. Manufacturing productivity and cost 5. Distribution / logistics
effectiveness
6. Sales & Marketing
6. Sourcing effectiveness
7. Logistics effectiveness 7. Engineering
8. Manufacturing lead time 8. Research & development
Source: Deloitte Research

9. Time-to-market
9. Supply chain network structure
10. Supply chain cost structure

Over the last three years, only one in ten companies launched extensive
29 initiatives
29 Jul 2024 to Management
EMEA Supply Chain optimize theTraining
Fundamentals supply chain network structure ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings
… resulting in missed opportunities for global optimization

Network investment phases

New initiatives in product development,
$ supply chain, or marketing/sales operations

o st
C
Focus of improvement
efforts today...

Op p Too late and too little

o rt u opportunity...
n i ty

Time
Design Implement Operate
Source: Deloitte Research

Most companies are missing the major opportunities of optimization early in

30
the design
29 Jul 2024
phase when costs are low
EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings
… Putting together the complex puzzle is a daunting challenge

How do I get
value out of
this?

Competitive issues Compliance issues

What new What regulatory and risk

$
markets/products? factors?
Where to Source? What tax & legal issues
How to get value out of How to protect IP?
investments?

Infrastructure issues
How to align my organization
and people?
How to design business
processes?
What technologies to
implement ?

31 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings
The prize for doing it right

+98%
120

100
+45%
Profits after taxes

80 +21%
($US)

Supply chain only

60

Supply chain/tax
optimization
40
Baseline

20 Tax only

Full optimization maximizes benefits and provides the best

visibility to the global impacts of compliance constraints
Source: Deloitte
Note: Illustrative based on US$1 billion in revenue

32 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte Global Manufacturing Benchmark findings
Conclusion: continuous optimization of the global network

Tax/SC/Regulatory
1. Optimize holistically: ensure a global view into both €

optimization
competitive and compliance drivers

Supply chain
optimization
– Most companies lack visibility into key profit drivers in global

Baseline
networks, including manufacturing and logistics cost, product and
customer profitability, and often “forget” compliance drivers

Multi-dimension optimization
2. Optimize early: every major new investment or
restructuring’ €
st
– Most of the value of optimization is in the design phase of Co
investments, yet most companies focus on the improvement later
in the investment cycle when the opportunity is too small Op
p ort
un
ity
3. Optimize continuously: episodic optimization is no longer
Time
enough
• Build competitive and compliance drivers holistically into the
73%
optimization process
• Build an optimization infrastructure - people, process and
technologies

7%
33 29Source: EMEA
Jul 2024 Deloitte Supply Chain Management Fundamentals Training
Research ©2006 Deloitte. All rights reserved
 Benefits of the Deloitte Benchmark Program

For the Client

• Free of charge for the client
• Over 900 Companies that took part
• Compares the company with the top performers
• 3 hours to fill out
• Can be conducted every year with the client
• Positioning and Argumentation paper for the Management

For you and for Deloitte

• Marketing instrument for you and Deloitte
• Showing to the client Supply Chain expertise
• Benchmark data available for other discussions with clients
• Based on identified issues, further engagement with the client

34 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Critical Success Factors

• If possible have a meeting with the client together to fill out the Survey Sheet
• The Process until you get the GBR takes 3-4 weeks, set the right expectation with the
client
• After receiving the report from the central benchmark team, cross check it with the
survey sheet
• Analyze the Report together with peers and identify potential issues to discuss with
the client. Also tell them what they are doing good!!
• Based on the identified issues do some research in SPEED with possible approach

35 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Benchmark
What you have learned

• Objective of this chapter

• What is Benchmarking

• The Deloitte Global Manufacturing Benchmark

• The Deloitte Global Manufacturing Benchmark Findings

• Benefits of the Deloitte Benchmark

• Critical Success factors

• What have you learned

36 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Agenda

1. Supply Chain Strategy

2. Supply Chain Benchmark

3. Strategic Supply Chain Topics

4. Supply Chain Network Design

5. Inventory Management Optimization

6. Supply Chain KPIs

37 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Strategic Supply Chain Topics
Content

• Site Selection
• Inventory and Risk Pooling
• Centralized vs. Decentralized Systems
• Push- and Pull-Based Supply Chain
• Distribution Strategies
• The Bullwhip Effect
• Partnership Strategies

38 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Strategic Supply Chain Topics (from e-learning)
Objective

• To provide a overview about certain Supply Chain topics in

– Site selection
– Inventory Management and Risk Pooling
– Centralized versus decentralized Inventory Systems
– Distribution Strategies
– Bullwhip Effect
– Strategic Alliances in Supply chain management

39 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Site Selection

What is driving the Site Selection Factors?

CASE

40 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Site Selection

What is driving the Site Selection?

Global
Global Factors:
Factors:
••…
…
CAPITAL
CAPITAL ••…
…
INVESTMENT
INVESTMENT
DECISION
DECISION
Customer
Customerneeds
needs
•…
•…
•…
•… Country
Country Factors:
Factors:
••…
…
••…
…
•Warehouse
•Production
•Distribution Center

Implementation
ImplementationFactors:
Factors:
•• Local
••… Local Factors:
Factors:
… ••…
…
••…
…

41 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Centralized vs. Decentralized Inventory System

Decentralized
Decentralized Inventory
Inventory System
System Centralized
Centralized Inventory
Inventory System
System

•Customer lead time decreases •Less safety stock; safety stock costs decrease

•Possibility to add value locally •Overhead costs and obsolescence decrease

•Distribution costs can decrease (especially in case •Can benefit from risk pooling
of JIT/small volumes) •Less overall handling costs
•More possibilities for automation

•Safety stock at each warehouse rises •Customer lead time increases (some

•Overhead costs increase customers are further away than

•Can not take advantage of risk pooling others)

•More difficult to control overall network •Distribution costs increase (especially in case of
voluminous goods)

42 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Inventory and Risk Pooling

Definition of Risk Pooling:

„when an organization combines product demand from one customer location

with product demand from all additional customer locations“

Requirements for Risk pooling:

Risk pooling requires a Centralized Supply chain Strategy

Benefits of Risk pooling:

Lower Stock levels -> Lower inventory cost

Higher flexibility to react to unpredicted demand of certain customer
Higher customer satisfaction

Downsides of Risk pooling:

Customer lead time increases (some customers are farther away than
others)

43 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Push- and Pull-Based Supply Chain (I)

Push-based Supply Chain

Product
Manufacturer Retailer Customer
External

Orders Demand

Pull-based Supply Chain Information

Product flow monitoring, resource capacity planning, flow planning & scheduling

Any-to-any configurations to share data

Product
Manufacturer Retailer Customer

44 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Push- and Pull-Based Supply Chain (II)

Push-based Supply Chain Pull-based Supply Chain

•Implementation is relatively simple •Customer demand variability decreases

•Decreased variability means decreased
inventory costs and obsolescence
•Orders are better anticipated, so delivery
lead times fall

•Forecasts mean an inability to meet •Costly to implement

changes in demand •Difficult to implement in supply networks
•Forecasts are more unpredictable than with only few fixed relationships (e.g. fashion)
actual demand
•Increased manufacturing /transportation
costs

45 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Categories of Planning Strategies

Make to Stock production

Make to order

Assemble to order

46 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Planning Strategies

1. Forecast 3. Sales Order 1. Sales Order

FG FG

2. Production
2. Production

SFG SFG SFG SFG

RM RM
Make to Stock Make to Order

1. Forecast 3. Sales Order 1. Forecast 3. Sales Order

2. Production 4. Production
FG FG
2. Production

SFG SFG SFG SFG

Planning with Final Planning without

RM RM
Assembly Final Assembly

47 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Distribution Strategies (I)

Direct Shipping

Warehousing

Customer

Cross-Docking

Combination

48 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Distribution Strategies (II)

Direct Shipment
Products are shipped directly to Customer

Manufacturer Customer

Warehouse

Warehousing Storage for days, weeks or months in

Warehouse before Shipped to the customer

Manufacturer Customer

Warehouse

Cross Docking Maximum storage: 12-24 hours

X-docks create scale in transport
Manufacturer Customer

Warehouse

49 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Bullwhip Effect (I)
Customer demand

forecast Production
plant

forecast
Distributor

forecast Whole-
saler

Retailer

time

50 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Bullwhip Effect (II)

Factors that contribute to the bullwhip effect…

Batch
Batch
ordering
ordering
Lead
Lead Price
Price
time
time fluctuation
fluctuation

Demand
Demand Inflated
Inflated
forecast
forecast orders
orders

Bullwhip
Bullwhip
Effect
Effect

51 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Bullwhip Effect (III)

…manage / avoid the bullwhip effect

Collaborative
Reducing planning
uncertainty and forecasting
replenishment

BULLWHIP
Strategic Lead time
EFFECT
partnerships reduction

Reducing
variability

52 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Partnership Strategies

The three fundamental supply chain partnership strategies…

3PL: Third-
DI: Distributor
party logistics
integration
partnerships
partnerships

RSP: Retailer-
supplier
partnerships

53 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Strategic Supply Chain Topics (from e-learning)
What have you learned

• Site Selection
• Inventory and Risk Pooling
• Centralized vs. Decentralized Systems
• Push- and Pull-Based Supply Chain
• Distribution Strategies
• The Bullwhip Effect
• Partnership Strategies

54 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Agenda

1. Supply Chain Strategy

2. Supply Chain Benchmark

3. Strategic Supply Chain Topics

4. Supply Chain Network Design

5. Inventory Management Optimization

6. Supply Chain KPIs

55 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Network Design
Content of this training session

• Scope and objectives of Supply Chain Network Design

• Reasons for Network Design
• Network optimisation opportunities
• Challenges for a Network Design project
• Typical potential savings of Network optimization
• Our approach and USPs for the design of an optimal Supply Chain network
• Overview of current Deloitte experience in Network Design (incl. case study)
• The case of Network Design for Deloitte and for you as a consultant
• Quick check: what have you learned?
• Appendix:
– Selection of modeling tools
– High level vendor analysis (functionality and cost)

56 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Network Design
Objective of this training session

• Give a brief overview of Supply Chain Network Design scope and objectives
• Explain typical benefits of Network Design and how they link to the Deloitte value map
• Describe specific challenges and critical success factors
• Understand how a typical Network Design project is set up and run and the roles of
consultants in these projects
• Know about Deloitte´s USPs and client experience in Supply Chain Network Design

57 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 What is Supply Chain Network Design: Scope

• Supply Chain Network Design is a proposition based on modelling material flows

from supplier through production and warehousing to the end customers

Supplier Sourcing & Transportation & Customer Sales in

Manufacturing
Purchasing Distribution Markets

58 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 What is Supply Chain Network Design: Objectives

• This enables clients to

– identify opportunities for rationalisation of the production and logistics infrastructure
– understand trade-offs across the supply chain
– review inbound and outbound transportation flows and channels to market

Before After

59 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The reason for Network Design: Supply chain decisions need to be
remade as the network “evolves” (1)

• As companies react to business changes, the network evolves based on tactical

rather than strategic decisions

• Shifts in customer base

Erosion
• Competition / delivery standards
• Changes in customer expectations
• Shift in costs
• Centralization / decentralization of operations planning

• New products and new markets Expansion & Increased

• New geographies Complexity
• Supplier changes
• Labor market dynamics
• Changes in laws / regulations / taxes
• Competitive dynamics change

60 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The reason for Network Design: Supply chain decisions need to be
remade as the network “evolves” (2)

• As companies react to business changes, the network evolves based on tactical

rather than strategic decisions

Acquisitions
• Mergers and acquisitions
• Partly rationalization of supply chain networks
• New plants, new warehouses, new customers

• Introduction of 3PL / outsourcing opportunities Business Model

• Changes in technology or organization (shift system) Changes
• Direct supplier / customer deliveries
• Retailer / distributor changes

61 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The combined effect of those changes may significantly impact the
efficiency of the Supply Chain network

• Is the existing network optimally supporting the client´s business model and
objectives?

Challenges
Erosion
• Capacity constraints
• Increased inventory cost
Expansion
• Increased transportation cost
• Slower customer response time
Acquisition • Increased stock outs
• Decreased plant efficiency
Business Model • Network bottlenecks
Changes

62 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Network optimization opportunities occur at every stage along the
Supply Chain

Supplier Sourcing & Transportation & Customer Sales in

Manufacturing
Purchasing Distribution Markets

Which suppliers Which distribution Which customers

should we use ? centers do we still need? to supply from
Single or dual sourcing ? What should we Should we centralize? which locations ?
manufacture
at each plant ?
Make vs. Buy ? How should we
Which categories should expand our distribution Is it profitable
we purchase from network to best serve to service this
each supplier ? new geographies?
Do we need all our plants? customer segment ?
How do we manage
the closures and
Which suppliers should product transfers ? Where do we locate What lead times should
supply to which the new regional DC ? we offer customers given
manufacturing sites ? our constraints ?
Capacity expansion at
an old location versus Which DC’s should serve
Should we do the building up new site ? which markets & products ?
Direct shipments ? When should we enter
in-bound transportation
this new geography ?
from our suppliers ?

63 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 These opportunities often cause conflicts in the client´s objectives

• Organizations often deal with several conflicting objectives: A single decision often
sub-optimizes another objective

Maximize Customer
Minimize Inventory Service

Minimize Suppliers Minimize Cost of Raw

Materials

Maximize Asset Co-Locate Capacity to

Utilization at Sites Increase Responsiveness

Minimize
Decrease Lead Times
Transportation Costs

100% Customer Serve More Profitable

Satisfaction Customers Better

64 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 These trade-offs translate into companies´ cost functions

Total Supply Chain Costs

• Trade-offs exist between costs to
achieve minimum total SC costs

• Trade-offs exist between cost and

Number of Facilities
service levels

Infrastructure + Inventory Costs Inventory Costs

Transportation Costs Order Fill Rate

65 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 To determine the future network, besides the physical aspects of the
network, other aspects have to be considered
• Considerations that influence the design of the network

• VMI with clients

• Centralization of planning
Sales & Operation • Floating stock
Planning • Technology: APS systems
• Organisation: centralization of planning

• Quality of Labour
• Educational levels
Location Aspects • Value of Real Estate
Physical network • Political stability
• Global or regional
• Social aspects
brands and sales Corporate & •Product flows
• Growth expectations
• Partnerships with Marketing Strategy •Capacity & Location
clients or suppliers •Costs • Use of network of
Outsourcing LSP
• Location of contract
manufacturers

• Changing the Supply Chain structure will have an

TAX impact on the P/L, tax cost, cash flows and VAT
• Integrating a strategic tax planning approach into
the Supply Chain design ensures the best of both
worlds (Deloitte GEMS methodology)

66 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Network Design scope drives potential improvement opportunities

• Not every network or project will contain every element of the Supply Chain …

Savings potential Distribution focus Production focus

Constrained (existing
network rationalized)
low high
Blue Sky (new network
to be designed)
medium very high
Inventory, Transport,
Labour cost, Plants,
Focus Wharehouse-
Machines, Transport
infrastructure

• … in every case positive effects will be generated in the companíes´value drivers

Increase Shareholder Value

Revenue Growth Operating Margin Asset Efficiency

Provide Differentiated Reduce Enterprise- Improve Working Increase Fixed Asset

Customer Service wide Costs Capital Utilization Utilization

67 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 In general, re-designing a network has a significant impact on the
cost structure of the company
Some typical savings of Network Design

Operating Improvement
Costs Focus of Improvement Potential (%)

15-25%
• Restructure production network
• Eliminate excess capacity
• Maximize asset utilization
• Relocate to low cost areas
Conversion
• Optimize cross-border sourcing
• Minimize investment in WIP

10-15%
• Re-restructure distribution network
• Streamline product flow and product range
Finished Good • Reduce distance-to-market
Distribution • Reduce inventory investment
• Optimize 3rd party partnerships
• Reduce import duties
3-10%
Procurement • Contract cheaper supply sources
of • Optimize product bundling
Direct • Obtain volume discounts
Materials • Minimize investment in Raw Material

68 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Our approach includes the right combination of strategic insight and a
fact-based approach enabled by graphical modeling techniques

Data definition &

collection, data
management and
A quality assurance D E

Industry/ market Baseline graphical Design option(s)

analysis, Supply modeling of the evaluation,
Chain Strategy supply and documentation
Review and B demand network, and action &
project scoping constraints and transition
costs/margins planning
Definition, design
and prioritization
of design options
and external
business scenarios

approval milestone

69 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Minimum project timeline is 60 working days

Approval of input data and baseline are very critical points in the project

Month 1 Month 2 Month 3

Assess
Assess business
business
A strategy
strategy +
+ define
define scope
scope

Define
Define design
design options
options
B and constraints
and constraints

Define,
Define, gather
gather and
and
C check input data
check input data

Set
Set up
up and
and refine
refine
D baseline
baseline model
model

Run scenarios and

E make recommendation

70 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The simultaneous consideration of all facts, dependencies and constraints
is a crucial part of our Network Design approach

True Optimization =
simultaneous consideration of ...

Proj • ... all dependencies:

ec t sa
mpl − Cost to cost (e.g. production vs.
e
transportation)
Supply
~17 core suppliers
− Cost in comparison to performance (e.g.
shift systems)
• ... all real facts and constraints:
• Cost
Production 11 sites
~230 machines − fixed / stepwise fixed cost
~ 57 product groups − variable cost
− one-off cost (e.g. machine transfer,
restructuring cost, severances)
Logistics • Economies of scale
• Constraints e.g.
OEMs/ − capacities (min./max.)
customers ~ 570 delivery points − established supplier links
− max. level of investment
• Transports
− max. delivery time
− customs duties
• Demand specifications per product and
market

71 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Every site (plant / warehouse) is modeled as a sequence of various
production steps and linked into the total network

Suppliers

Production step 1

Production step 2

Production step 3

Production step 4

In-plant warehousing

Customers

72 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Costs and capacities need to be allocated realistically to the sites

Costs
Fixed costs
Site Production Product
step Air duct e.g. facility costs

Plastic injection Quantity

moulding
Site A Costs
Variable costs
Engine cover
Costs

e.g. energy costs

Quantity
Intake manifold
Costs
Fixed-step costs
Volume
Assembly
Fuel supply rail e.g. costs of a added shift

Quantity
Costs
Fluid reservoirs Closure costs

e.g. severance
Quantity

73 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Scenario modelling and evaluation is based on a successfully
proven method

Optimisation and
Modelling the actual Analysis, evaluation
simulation of future
network of the client and recommendations
client network(s)
Method / Sequence of modelling:

Costs Costs
Costs

Risk

Tools:

NPV

Excel
Word
Optimization Structure
Optimization
tool Risk
tool

74 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Deloitte approach shows significant advantages in comparison to
traditional simulation approaches

Winning factors of Deloitte´s Relevance for

optimization approach client´s results

• Simultaneous consideration of all • Strategically save solution

inputs and restrictions − Stable solution even when changing the
assumptions
• Sensitivity analysis regarding
assumptions and as-is data • Realistic and economically correct
solution
• Easy to change assumptions and
− Incorrect solutions are impossible
model data
• Optimal solution
• Automatic identification of infeasible − Considering all possible alternatives, even
solutions unexpected solutions
• Working with model inputs and not • Fact-based change management
with a predefined solution − Target solutions are defendable against
all other solutions (from a quantitative as
• Full comparability of cost optimized well as a qualitative perspective)
solutions against other solutions − Calculation of cost advantages vs. the
need of a physical restructuring (in total
or in incremental steps)

75 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Fact-based change management is the secret of success for a solution
that is fully accepted by all stakeholders

Division Management:
„We must be prepared for the
future, therefore we need room to
Change management during the
Site managers: Network Design project
move.“
„In the past our capacities
were always fully loaded. • Regular information of the Steering
Since we bought the new sites Committee
we face an over-capacity.“
• Identification and achievement of
buy-in of key people at the sites
• Permanent assistance to client´s
Workers council: project members
„Our company stands • Proposal of adequate communication
for secure jobs.“ lines to the board
• Evaluation of change readiness within
the organization
Board: • Integration of “soft factors” into the
„After the acquisition it’s scenario evaluation
now required to realize
synergies.“ • Fact-based change management:
Site managers of
modeling of “desired scenarios”
acquired sites:
„With the acquired sites only the
company has the right coverage
regarding products and regions.
The product range now is complete.“

76 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Critical success factors for a Network Design project

Critical success factors … … and how to handle them

Proven tool based optimization methodology and fact based
Realistic and defendable solutions
change management

Timely availability of data in sufficient Detailed specification of data requests, clear understanding of
project objectives, strong integration of team members, buy-in
quality for all relevant locations from country managers and access to all relevant data sources

Full commitment of executive management Clearly defined expectations, timely communication, approval
(centrally and in the regions affected) milestones, close involvement of country management

Clearly defined project communication using a structured

Clear and consistent project communication
communication plan

Quick and efficient problem solving Escalation procedure in case of issues and problems encountered

Knowledgeable, experienced and

Best people from both sides: technical and social skills
cooperative project team

77 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Why consulting plays an important role in Network Design

• Networks are becoming too large and complex for traditional design
approaches - e.g., rules of thumb and "guesstimates" ... Given these
trends, we know of no other effective approach to designing networks
than by using computer-aided tools.

• To reduce start-up costs and time, enterprises should ... select an

outside resource to assist with computer-aided network design for
specific network projects.

Gartner Group

78 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Overview of current Deloitte experience in Network Design

Deloitte consultants have conducted a large number of Network Design

modelling projects across many industries

Industry range Clients

– Consumer Business
– Consumer durables manufacturers
– Electronics manufacturers
– Food and beverage manufacturers
– Retailers
– Automotive suppliers
– TMT
– Pharmaceutical / Life Sciences
– Travel, Tourism and Leisure
– Energy, Infrastructure and Utilities

79 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 How does it work in practice?

Case study of an Automotive Supplier

80 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 What´s in for Deloitte consulting … besides the fees

• Broad overview of and good insight into client´s business situation

– Business strategy, strengths and weaknesses
– Direct/indirect costs for production/warehousing/transport
– Capacities and production techniques
– Product costs and sometimes product prices
– Customers and expected demand
– Suppliers
– Competitors
– …
increases industry know how dramatically and offers opportunity for follow-on
consulting jobs
• Direct access to decision makers (CXO) as well as to influencers at the
client

81 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 How about you?

• Functions in a Network Design project … and skills required

Skills

•• Broad
Broadunderstanding
understandingofofSupply
SupplyChain
ChainManagement
Management
•• Advanced
Advancedanalytical
analyticalskills
skillsand
andsome
someinterest
interestin
inOR
OR
•• Industry
Industryexperience
experience
Project
•• Financial/controlling Scenario
Manager Financial/controllingbackground
background Evaluator
•• Willingness
Willingnessto tointeract
interactwith
withthe
theclient
client
•• Flexibility
Flexibilityto
tocope
copewith
withnew
newchallenges
challengesand
andopinions
opinions
•• Passion
Passionto
tofight
fightfor
foryour
yoursolution
solution

Translator/ Data Scenario

Compiler Collector and Modeller
Analyzer

82 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Network Design
What have you learned about Network Design at Deloitte?

YES?

• Scope and objectives of Supply Chain Network Design

• Reasons for Network Design

• Network optimisation opportunities

• Challenges for a Network Design project

• Typical potential savings of Network optimization

• Our approach and USPs for the design of an optimal Supply Chain network

• Overview of current Deloitte experience in Network Design (incl. case study)

• The case of Network Design for Deloitte and for you as a consultant

Thank you for your attention !

83 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Selected Modelling Tools in the Marketplace

Used by Deloitte Non Deloitte Tools

N
ETW
ORK T
M

f
orW
i
n d
ows

84 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Modelling Coverage
Germany
Viewlocity
Logic Tools
MS Excel

Netherlands
CAST
MS Excel

Canada
CAPS Italy
UK CAST
CAST MS Excel
MS Excel

USA
Network
CAPS
Logic Tools

85 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 High Level Vendor Analysis

Software Package Cost Countries Pros Cons

Used

$50,000 plus • UK • Allows various scenarios to be modelled • Difficulty encountered when modelling at
$5,000 support • Netherlands excellent comparison of distribution SKU level
strategies • Strategic, not operational
• Italy
• Performs ‘centre of gravitry’ and • Restricted reporting capability, but new
‘greenfield’ analyses package being developed
• Mixed integer programming optimisation • Relatively short solve times, up to 3
• Global modelling capability hours
• Has good additional features; cost • Weak in modelling production
estimating of combined trucking,
analysis of different lead times
• Capability to assign attributes
• Superior presentation / demonstration
capability
• Specific software for Supply Chain
• Interfaces with transportation software
• Uses road network
• User friendly and requires relatively low
technical expertise
• D&T is the only consulting house that
uses CAST
• Transferable to the client
$250000 plus • United States • Complete supply chain modeling • Very high cost
$6000 monthly • Canada solution, including: strategic sourcing, • Recommended 1 gigabyte of RAM
production planning, inventory
positioning, distribution planning, mode • Extended solve times, 15 minutes
selection, and profit optimization typical, but up to 6-48 hours
• Unlimited levels and numbers of nodes • Costs do not include international geo-
coding or transportation rates
• Models international lanes, seasonality,
production lines, and recipes • Mapping is read-only and not
translatable to GIS
• Superior output and reporting
• Extremely data intensive
• Performs “centroid” and “greenfield”
analysis • Deep database and supply chain
knowledge required
• Good manipulation – can be exported to
other tools
• Integration with operational route
optimisation tools in the CAPS suite
• SAP R/3 interface for planning and
transportation

86 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 High Level Vendor Analysis

Software Package Cost Countries Pros Cons

Used

LogicNet Plus • United States • Network evaluation to assess alternatives • No centre-of-market or “Site Suggestor”
$75000 plus of cost and inventory holding options tool
$11250 pa • Inventory and manufacturing modelling • Maps are MapInfo, but not exportable to
capability MapInfo
• Good support
• Unlimited tiers
• Good international modeler
• Can handle rail and barge rates
• Good tool for manufacturing and product
line optimization
• Excel input platform
• Excellent academic “thought” quality of
developers

~£300 • Holland • Easy to use and understand - likely to • Complex model changes required if
• UK be spreadsheet-based model scope is changed mid-project
• Easily visible data audit trail • Model cannot usually be left with client -
• Suited to diagnostic, high level the model remains Deloitte knowledge
modelling capital and so cannot be accessed or
altered without Deloitte help
• D&T resources already familiar with tool
• Deloitte may need to be engaged to
• No need to buy licence nor train model and provide results and analysis
employees to use. for each version change
• Extra fees can be incurred for each
model iteration

87 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 High Level Vendor Analysis

Software Package Cost Countries Pros Cons

Used

$14000 • US • Least expensive, extremely short • No multi-period functionality

learning curve, Development tailored to • Not well suited for multi period or
D&T needs manufacturing problems
• Modifications bring it to near competitive • Interface issues still being resolved
functionality by 2002
• Limited support capacity from Dr. Ballou
N
ETW
ORK T
M
• Can perform center-of-market and “Site
Suggestor” runs • Lacks long term development plan aside
f
orW
i
n d
ows from D&T interest
• Useful tools for additional data analysis
and prep • Flexibility of model data structure is
limited
• Unmatched deployability – invaluable as
a consulting internal tool
• Excel input platform being expanded
and integrated
• Excellent academic “thought” quality of
developer

• NA • Good ability to interface with other tools • User interface and mapping facilities are
for linear programming limited
• Possibilities for modelling are wider than • Difficult to model networks with
with CAST distribution costs

$20000 • NA • Good at modelling inventory • Cannot cope with multiple time periods
• Good geocoding functionality • Data cannot be manipulated within the
• Good step cost analysis model – must always be exported to
Access

88 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Software Specifics

CAST is a strategic and tactical supply chain modelling tool. Designed to create a computer model of
a complex distribution operation (dedicated or network), it allows strategies to be run against that
model to find a least cost solution. It optimises the cost of a proposed strategy by evaluation of the full
range of costs including warehousing/transhipment, MHE, stockholding, handling and transport.
Modelling can be within a single country, across a group of countries, or extend world-wide.
The latest release of the product includes GIS technology for enhanced map displays, inventory
modelling, BOM functionality, mixed integer programming optimisation, data evaluation pre-
processing and multiple language options.

Supply Chain DesignerTM TM is used to model and optimize the design and planning of global logistics

supply chains including infrastructure design, facility location and sizing, resource allocation,
transportation and inventory strategies, service level analysis, and profitability studies. This tool is
best used with projects defined by complex scenarios, projects that require flexible solutions and
projects that allow sufficient time to develop the model where analytical resources are available.

LogicNetTM
TM can help identify opportunities in your supply chain by analyzing the tradeoffs between

production, transportation and inventory costs as well as service levels. The LogicNet TMTM interface

combines the power of mapping with the familiarity of Excel and Access. The LogicNet TM TM solver uses

optimization technology to solve network design models quickly and efficiently and the scenario
manager helps perform "what-if" analysis.

89 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Functionality and Cost

90 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Agenda

1. Supply Chain Strategy

2. Supply Chain Benchmark

3. Strategic Supply Chain Topics

4. Supply Chain Network Design

5. Inventory Management Optimization

6. Supply Chain KPIs

91 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Inventory Management Optimization
Objective of this presentation

To give a brief overview about Inventory Management optimization and to cover the
following topics:
• Goal of Warehousing
• Types of Inventory
• Cycle of Stakeholders Interest
• External Factors
• Determining a Inventory Strategy
• Planning a Warehouse Strategy
• Major Warehouse Activities
• Inventory Control Systems
• Buffer Inventory
• Material Standard Classification „ABC“
• Financial Control Basics

92 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Goal of Warehousing

WM must be integrated with other logistics functions to achieve…

Production
Customer Cost

Satisfaction Reduction Efficiency

93 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Types of Inventory

…generally classified into the following categories…

Raw Materials Work in Process

Operating
Finished Goods
Materials

94 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Cycle of stakeholders interest

Executive Accounting &

Management Finance
„Inventory advantages vs. „A & F prefer low inventory quantities to
Costs“ minimize the amount of capital tied up“

Inventory
Management

„prefers to have high inventory quantities „prefer high inventory levels to

of all products to sell without delay“ promote efficient production“

Manufacturing &
Sales
operations

95 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 External Factors

Potential for natural

Political instability
disasters

„how much inventory ?“

Predict price increases

Pending labor actions
for materials

96 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Determining a Inventory Strategy

…you must decide…

How much
inventory to Where to
maintain store ?
on hand ?

Forecast
accuracy

Service level

Transportation Carrying
lead time costs

97 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 The Different Components of Inventory

Total Stock Purpose of Stock Drivers of Stock holding

Results from
Aged product identification and business change
shelf life, failed promos disposition
or process errors
Obsolete
Forecasted Demand, including
promotions and seasonality
Cover Lead time between Based upon
placing demand on Manufacturing cycle times
observed pipeline
production and receipt of
goods requirements
Replenishment Lead Times
Cycle Stock
Supply Capacity
Severity of Demand Peaks

Cover Variability in Anticipated Forecast Accuracy

Forecast/Demand based on history
Safety Anticipated Supply Reliability
Stock Cover Variability in Supply based on history Derived from
Replenishment Lead Times inventory
management
Number of Inventory Stocking model
Locations
Service level by ABC
categorisation

98 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Planning a Warehouse Management Strategy

Should warehouses be owned, leased,

rented, or a combination ?

Should warehousing functions be contracted out ?

Should the company install new equipment

or continue to hire more labor ?

99 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Major Warehouse Activities

Basic Functions Distinct Activities

Movement of inventory Receiving

Putting items away
Storage of inventory Order picking
Shipping
Information transfer Physical inventory
Quality control
Repacking
Postponed manufacturing

WAREHOUSING

100 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Inventory Control Systems

Re-order • Fixed Interval: Inventory is ordered at certain increments of

Point time
System (ROP) • Fixed Point: When inventory levels reach a certain point, an
order for more is automatically placed

Material
• MRP Systems are used in association with the dependent
Requirements
demand model
System (MRP)

Just In • Basic philosophy: Exactly the right amount of the right item,
Time supplied to production at the exact time for a particular
(JIT) production run

101 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Buffer Inventory

…helps to maintain a smooth flow from…

Supplier 1
Procurement

Procurement 2 Production

Production 3 Marketing

Marketing 4 Distribution

Distribution 5 Wholesaler/ Retailer

Wholesaler/ Retailer Customer

6

102 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Material Standard Classification „ABC“

A B C
The „A“ classification refers to the
20% highest value (top 80% of
annual inventory value)

The „B“ classification refers to the

40% medium value (10% of the
total annual inventory value)

The „C“ classification refers to the

40% low value (10% of the total
annual inventory value)

103 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Financial Control Basics

Equity = Return on assets =

net income / assets

assets – liabilities

Return of equity = Inventory turnover =

net income / assets cost of sales / inventory (costs)

LIFO FIFO

„last in first out“ „first in first out“

104 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Inventory Management Optimization
What have you learned

• Goal of Warehousing
• Cycle of Stakeholders Interest
• External Factors
• Types of Inventory
• Determining a Inventory Strategy
• Planning a Warehouse Strategy
• Major Warehouse Activities
• Inventory Control Systems
• Buffer Inventory
• Material Standard Classification „ABC“
• Financial Control Basics

105 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Agenda

1. Supply Chain Strategy

2. Strategic Supply Chain Topics

3. Supply Chain Network Design

4. Inventory Management Optimization

5. Supply Chain Benchmark

6. Supply Chain KPIs

106 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Key Performance Indicators (KPI’s)
Contend

• Different Performance measurement methods

• Examples of Supply Chain management KPI’s

107 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Key Performance Indicators (KPI’s)
Objective

• To learn about different Performance measurement methods

• See some examples of Supply Chain management KPI’s

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 Strategic Management with the General Management Navigator
(Lechner/Müller Stevens University of St. Gallen)

How do we want to Positioning of the

initialize our strategic firm, Business unit
projects and who against its
needs to be part of it Stakeholder

Initializing
Initializing Positioning
Positioning

Performance
Measurement

Change
Change Valuecreation
Value creation

How do we make the How do we want to

Design of the value
changes happen and control and measure
chain within the
how do we manage our Strategic
company
the change initiatives

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 General Electrics Performance Tree

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 Balanced Score Card (BSC)
vgl. Kaplan/Norton 1996

Vision & Strategy

Financial Perspective
“What do we have to achieve to be successful from financial point of view ?”

Customer Perspective
“What do we perform for our customers ?”
“What does the customer expect from us ?”

Process Perspective
“How do we have to design our processes to satisfy our customers ?”

Learn and Growth

“How can we continuously boost our capability for changes,
innovations and improvements ?”

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 Balanced Score Card (BSC)
vgl. Kaplan/Norton 1996

Vision and Strategy

Strategic goals
& initiatives

Financial Client Process Learning &

Feedback

perspective Perspective Perspective growth

Perspective

•..... •..... •..... •.....

Performance •..... •..... •..... •.....
drivers

•..... •..... •..... •.....

KPI’s •..... •..... •..... •.....

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 KPI Linkage to the process

Order Account Demand

Procurement Suppliers Production Distribution Customers
Processing Management Management

- order throughput - on time,1st time,complete - on shelf

-error free orders - quality availability
-- credit notes/order - lead time
-- # of claims
- time to resolve -availability of requirements plan
- # plan changes within 1 week horizon
-schedule compliance
- weekly forecast accuracy
- % run at quality
- promotional performance
- case failures/line and plant
- cycle time achieved
- consistency of production requirements - changeover times and # changeovers
within agreed constraints(lead times etc) - - plant availability
level of safety stock held - unplanned downtime
-availability raw/packing materials - on time,1st time,complete by order
-- stock cover raw/packing materials - dispatch accuracy

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 SPEED KPI’s

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 KPI’s with Value link

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 KPI’s from the Global Supply Chain Benchmark per Industry

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 Supply-Chain Operations Reference-model (SCOR) 6.0 - Processes

Plan P1 Plan Supply Chain

P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns

Suppliers

Source Make Deliver

Customers
S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products

S2 Source MTO Products M2 Make-to-Order D2 Deliver MTO Products

S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products

D4 Deliver Retail Products

Return Level 1 KPI’s Return

Source Deliver

Enable

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 Supply-Chain Operations Reference-model (SCOR) 6.0 - Processes

Plan
P2 Plan Source

Suppliers
S1 Source Stocked Products
Source
S2 Source MTO Products
S3 Source ETO Products

118 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Metrics
(examples)

Performance
Performance Attribute Definition Metrics
Attribute

The performance of the supply chain in delivering: the Delivery Performance

Supply Chain correct product, to the correct place, at the correct
Delivery time, in the correct condition and packaging, in the Fill Rates
Reliability correct quantity with the correct documentation, to
the correct customer. Perfect Order Fulfillment

The effectiveness of an organization in managing Cash-to-Cash Cycle Time

Supply Chain Asset assets to support demand satisfaction. This includes Inventory Days of Supply
Management Efficiency the management of all assets: fixed and working
capital. Asset Turns

The agility of a supply chain in responding to SC Response Time

Supply Chain
marketplace changes to gain or maintain competitive
Flexibility
advantage. Production Flexibility

Supply Chain The velocity at which a at which a supply

Order Fulfillment LeadTime
Responsiveness chain provides products to the customer.

Cost of Goods Sold

The costs associated with operating the supply chain. Total SCM Costs
Supply Chain Costs
Warranty / Returns
Processing Costs

119 29 Jul 2024 EMEA Supply Chain Management Fundamentals Training ©2006 Deloitte. All rights reserved
 Supply Chain Key Performance Indicators (KPI’s)
What have you learned

• Different Performance measurement methods

• Examples of Supply Chain management KPI’s

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 KPI Case

1. The Purchasing Manager of a client for which you are working currently, is
asking you, which KPI’s that exist for the business process Source. Within
SPEED, note down, which KPI’s that are available for the Process Source
and its Sup-processes. Also propose him the KPI’s, you would recommend
to use and why.
– For the Business Process Source define the KPI’s taken from SPEED for
– Managing sourcing strategy
– Manage suppliers
– Order materials and services
– Receive materials and services
– Manage materials

2. Value Link (Optional)

Go to value link and explore the structure and KPI’s in Value link

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