Supply Chain

Consumer Purchase Information

Suppliers Factory Factory Customer Store Consumer

Warehouse Warehouse is to link the market place, distribution
network, manufacturing and
procurement in a way that delivers
high customer service level at the
lowest cost.
Product Flow

Customer Service
Logistics Operations
Demand & Replenishment

• Importantly, it also includes coordination

Supply Management encompasses
the planning and management of
all activities involved in sourcing and
procurement, demand and
replenishment and all logistics
management activities including
customer service.
and collaboration with channel partners,
which can be suppliers, intermediaries,
third-party service providers, and
customers.
• The goal of Supply Management is to link
the elements of supply chain to include the
distribution network, the manufacturing
process and the procurement activity to
deliver high customer service at the most
cost efficient manner.
 Supply Chain Function Re-defined

Plant Procurement Customer Service &

• To manufacture quality
products at the lowest
• To leverage regional
imaginable controllable cost,
in order to deliver volume
targets
Logistics Operations
Supply Management
and global scale to • To link the market place, the
+
Plant Management (Conversion)
source, negotiate and distribution network, the
purchase materials and manufacturing process and
the procurement activity in
services needed to

• To ensure that the highest
levels of productivity are met,
whilst maintaining world-class
=
deliver products at the such a way that customers
are serviced at higher levels
most competitive price
and yet at a lower total cost

Internal Functions that Drive the

Environment, Safety and
Health standards

• Conversion
•
•
Bidding
Supplier Selection
• Demand Planning and
Replenishment Supply Chain
• Business Development • Negotiation • Logistics Operation (Physical
• Continuous Improvement Network)
• Supplier Development
• Quality Systems Management Optimization • Customer Service (order
• Plant Controllership entry and fulfillment)
• Supplier Relationship
• Production Logistics • Development of Sourcing
• Procurement Strategy Strategy
• IS/HR

• To manufacture quality products at the

Procurement
lowest imaginable controllable cost, in
order to deliver volume targets (Manage the vendors and sourcing
process)

• This includes the management of all the • Supplier Selection

activities in the plant to convert raw and • Supplier Negotiation/Bidding
packaging materials to finished goods • Supplier Development and Optimization
ensuring the highest levels of productivity • Supplier Relationship
are met, whilst maintaining world-class
• Supplier Performance
Environment, Safety and Health standards
• Contract Administration
• Co-Manufacturing

Demand and Replenishment Logistics Operations

(Manage the demand and replenishment (Manage physical network)
process)
• Inbound and outbound finished goods
• Demand Forecasting • Co-packing activities
• Inventory Management • Warehousing
• Replenishment planning • Transportation and Delivery
• Development of Sourcing Strategy
• Production Planning
 Customer Service
(Manage the order entry and fulfillment Demand &
Replenishment

complete and on time) Purchasing

Order taking, processing and invoicing

Logistics
• Operations
Customer

Co-managed inventory
Service
•
• Client master files management
• ECR supply initiatives
• Customer relationship and initiatives

Logistics
Warehousing Operations
Logistics
Operations

Order Taking
Handling Customer
& storage Service Customer
Service

Supply Supply
Management Management
Inventory Order Entry
Demand
management And
Dem and
and
Replenishment Replenishm ent

Transportation
& delivery
Procurement Procurement
Order Processing

Logistics
Operations Logistics
Demand forecasting Operations
Supplier Selection

Customer Customer
Service Service

Supply
Inventory management Supply
Negotiation and Bidding Management
Management Dem and
and
Demand Replenishm ent
And
Replenishment

Procurement
Replenishment Contract Administration
Procurement
 Logistics
Operations
Management
alignment
Customer
Service
Performance Supply
Measurement Management
Dem and
and
Replenishm ent

Systems
Capability
Procurement

The Big Picture Business Competitive

GLOBAL SUPPLY MANAGEMENT Mega Trends Strategy

Business Model

• Supply strategies that source and

operate anywhere in the world Customer Value
Business and Value
Chain Metrics

based on the right cost, the right

Proposition

skills, and the right business

Market Segments
environment. Customer Supply and Supply
Chain Strategies
Supply Network
Network
Profit Formula

• Supply Management is aligned with

global business objective Position in the Value
Network

Mega Trends that are impacting global supply / Mega-Trend Global Supply Networks
supply chain strategies Movement from international purchasing
to global supply Country B
Growing
global B
supply
networks
To S S
From
B
S
Increasing S
risk in
Increasing globally Country A
regulations extended Buying
MEGA- supply/value Country Company Country S
TRENDS chains A Operations B B Country C
S

B = Procurement/
OPS/Technology
Changing
population / Intensifying
global
work force
demographics competition
• Unit Price Driver • Complex relationship
• Technology • Driven by Business, Technology
• Chasing Lower Labor Cost • Correct In sourcing/Outsourcing
• One-To-One Relationship • Global Supply Strategy
 Mega-Trend Global Supply Networks Mega-Trend Global Supply Networks

• China Manufacturers captured nearly 45

percent of the global growth in The “old”stars”
manufacturing exports from low-cost • Brazil, Russia, India, China (BRIC)
countries between 2001 and 2010, whereas
India accounted only five percent.

The “breakout” countries

• Workers in India’s manufacturing sector
• Indonesia, Poland, Nigeria,
are almost four and five times less
productive, on average, than their Turkey, South Korea, Philippines,
counterparts in Thailand and China, Myanmar (?)
respectively.

Mega-Trend Global Supply Networks Mega-Trend Global Risk

Supply Management Trends

• Global sourcing and outsourcing will continue

to BRIC and breakout countries (and others) Shipping Accident Government seizure
of assets

• Little evidence currently of “resourcing to

USA”*

• Supply chains will become more “fractured” Piracy

(more tiers, more complexity) Natural Disaster

Commodity
Political Unrest Price Swings

Mega-Trend Global Risk Mega-Trend Global Risk

Changes in Commodity Prices 1973 to 2012*

Supply Chain Strategy Risk
Continuous • Swings in commodity prices
productivity
improvements
Energy + 163% M etals – 7% Lean, global, multi- • Unreliable supply lines
tiered value chains • reputational risk
• Hidden upstream risks
• Natural disaster
New geographic • Unfamiliar laws, customs, business practices,
Raw M aterials markets politics
Food – 58% • Unfamiliar, untested suppliers
– 59%
Global sources of • IP ownership and competitiveness issues
innovations
 Mega-Trend Global Risk Mega-Trend Global Competition

Supply Management Trends Total Annual Labor Costs (Int’l Dollar per Year) (Salary +
Mandatory Welfare)*
 Increased inventories
Bangladesh 798 Myanmar 401
 Dual/multiple sourcing Cambodia 672 Nepal 1889
 Geographical dispersion of suppliers China 2250 Pakistan 1052
India 943 Philippines 1619
 Increased visibility up the supply chain
Indonesia 1089 Sri Lanka 2451
 Sophisticated analytics Laos 1157 Thailand 1152
 Rapid response plans Malaysia 5824 Vietnam

 More sophisticated price risk strategies Mongolia 2004

 Dual pricing in contracts

 Corporate and SM organization changes

Mega-Trend Global Competition Mega-Trend Global Competition

How do you expect your sourcing share (value)

from China to develop the next five years? (Leading
apparel buyers in U.S and Europe)*

Mega-Trend Global Competition Mega-Trend Demographics

U.S population age distribution - 2011

Supply Management Trends

 Movement of sourcing from East Coast of

China to mid-China and SE Asia

 Expansion of sourcing in Southeast Asia

 Continual evaluation of in-shoring/off

shoring sourcing decisions
 Mega-Trend Demographics Mega-Trend Demographics
CHINA - 2010
MALE FEMALE
100+ Supply Management Trends
95 - 99
90 - 94
85 - 89  Hiring more talent from developing
economies
80 - 84
75 - 79
70 - 74
65 - 69
60 - 64
55 - 59  Fewer ex-pats assigned to developing
50 - 54
45 - 49
economies
40 - 44
35 - 39
30 - 34
25 - 29
 Shortage of knowledgeable mid-career
20 - 24 talent –creative recruiting approaches
15 - 19
10 - 14

 Changing “work rules” to accommodate

5-9
0-4

05 52 39 26 13 0 0 13 26 39 52 65 millennials
POPULATION (IN MILLIONS)

Mega-Trend Regulations Mega-Trend Green

Supply Management Trends Operational Challenges

Reduce costs and create “green” benefits
o Increasing amount of CSO and team time
spend on understanding rules and ensuring
 Reduce Energy
compliance
 Reduce water usage and effluents
o Supplier audits for compliance (tier 1 – tier n)  Reduce greenhouse gases
 Reduce other emissions
o Increased supply chain visibility.
 Reduce landfill

Mega-Trend Green Mega-Trend Green

Product Challenges Niche Willing to sacrifice value for sustainable products

Sustainable Want sustainable products, but unwilling to sacrifice price or

• Must be good for the consumer and the Mainstream performance for sustainability

world. Basic Not interested in sustainable products

• Must be neutral to good for the bottom line

• Unclear science

• Total life-cycle assessment must be

considered

• Consumer demand is varied

 Mega-Trend Green Mega-Trend Global Innovation

Supply Management Trends Based on BCG research, innovation leaders

• A comprehensive environmental policy
linked to company goals
• An environmental strategy that goes
beyond compliance
• Recognize the environment as a
source of competitive advantage
• Audits up the supply chain
are changing position worldwide*
In 2010:
• 15 of the Top 50 innovative companies were
Asian – up from just five in 2006.
• For the first time since these rankings began in
2005, the majority of corporations in the Top 25
are based outside the United States.
• Even in the U.S, barely half of respondents (53%)
said they think U.S. companies will be the most
innovative over the next five years.

Mega-Trend Global Innovation Mega-Trend Global Affluence

Supply Management Trends

 More innovation sourced from  Developing nations accounted for 56%
developing economies. of the world’s middle class in 2000

 More innovation from local suppliers for

local markets  By 2030, 90% of middle class will be in
the developing world, with China and
 Move toward open innovation strategy India accounting for the most
expansion
 Processes for managing supplier
innovation ideas.

Mega-Trend Global Affluence

Mega-Trend Global Affluence

Chinese Disposal Income – Urban Households*

40%
Share of Chinese Urban Households by Income Level*
35%

30%

25%

15%

10%

0%
 Mega-Trend Global Spend
Mega-Trend Global Affluence

Supply Management Trends Develop

Local
Talent

• Sourcing locally for local markets Aggregation

Standardization New Product/
Agility Service
Best Practices
• Segmented supply chains Global Sourcing
Development

Shared Services
o Sourcing for export market Develop
Headcount Local Technology
o Sourcing for domestic consumptions Pressure Talent

• Strong supplier audit and review programs

Center Led Center of Excellence

Mega-Trend Global Spend Ongoing challenges to global sourcing

 Change Management: meeting the day-to-day

Supply Management Trends challenges while also striving to make a
transformational change to operate “globally”? How
to transform an organization’s culture and process
 More responsibility for SM in developing from “multi-national” to truly “global”?
economies
 Collaboration: how can teams and units best
 More centers of excellence in collaborate and share across regions, time zones,
and international culture differences?
developing economies
 Communication: how to manage and facilitate
communication regarding inflation, indexes, trends,
and other vital information that commodity and
supply managers in various regions need?