Riding the Globalization Wave

Presented by
Lori Sisk, CPM
Hewlett Packard
Sponsored by Women In Leadership Group
Agenda
Introduction
Overview
Economic Factors
Internal Impacts
Risk vs. Reward
Total Cost Analysis
Enablers
Conclusions

Introduction
Lori Sisk, C.P.M.
Over 20 years of Consulting/Industry global supply chain
experience in automotive, aerospace, and home building
industries
Focus on saving companies money and increase efficiencies in
business processes
Career has been built from several different companies: Mazda,
TRW, Ernst & Young Consulting (Lucas Aerospace, Fleming
Foods, Covisint), Delphi, HP (GM, American Express)
MBA and BSBA from Bowling Green State University
ISM former Metro Detroit President, Women In Leadership
Chairperson
Speaker for ISM, APICS, PanHellenic Logistics and Supply Chain
Institute, SAPICS

North America: Primary - Mexico/South America
Secondary - Eastern Europe or Asia
Western Europe: Primary - Eastern Europe
Secondary - Asia or Mexico/South America
Pacific Rim: Primary - Asia
Secondary - Eastern Europe or Mexico/South America
Where Should We Source?
Regionalization
Reverse Globalization?
Changes that have occurred over the past few years
Less dominant labor costs
As technology progresses and productivity improvements drive
down labor hours required in many processes
Increased infrastructure development
Developing countries investing more in education and
infrastructure, companies can now source confidently in any
hemisphere
Focus on supply chain risks
Natural disasters, volatility of fuel prices, performance of supply
chain partners, and financial stability of organizations seem to be
the biggest risks
Need for more flexibility
There needs to be a very quick response to the changing economic
conditions and demand by the supply chain
Have created many companies to move towards regional or
hemispheric sourcing
Economic Factors
Financial
Volatility of commodities such as fuel
Labor costs increasing globally
Logistics costs increasingly important
Language complexities
Capacity in shipping industry
Taxes
Geopolitics
Focus on energy
Internal Impacts
Collaborative cross-functional effort to:
Maximize supply assurance
Reduce overall costs
Identify hidden costs
Review of previous sourcing decisions
Material sourcing strategy considerations
Source in LCC at lower cost or source regionally?
Can LCC supplier utilize regional logistics hub to minimize risk?
LCC may have 5 weeks in transit or airfreight
LCC may be lower cost but to source regionally may be less risk and
lower logistics costs
Total Cost Analysis
Total Cost of Ownership
Typical costs included in a manufacturing TCO model:
Design Costs
Raw Material
Purchased Parts
Direct and Indirect Labor
Fringe Benefits
Machines Costs such as depreciation, interest, insurance, utilities
Selling, General, and Administrative Costs
Profit
Acquisition Costs
Duties, fees, taxes
Usage Costs
End of Life Costs
Ensure that your TCO model includes the following risks:
International freight
Lack of logistics infrastructure which drives cost
Increased inventory carrying costs
Lost sales/costs due to unreliable source of supply
Cost of quality
Hidden costs generated by poor communication and management misunderstandings
Additional costs due to off-shoring

Total Cost Analysis
Take another look:
Logistics Costs-
Expedited Shipments
Repacking at warehouses
Evaluate for types of shipment (container, truck, rail, LTL, parcel)
Evaluate customs fees- fixed fee for all shipments whether a
container is a load or a parcel.
Additional Inventory Driven Costs to Evaluate:
Price Protection and returns for channel inventory
Can too much channel inventory delay New Product Introductions?
Material devaluation and Obsolescence Costs
Engineering Change costs with 5 weeks of incoming material
Understand the cost drivers



June 19, 2009

1
(1)Total Cost of Ownership Models: An
Exploratory Study, The Journal of Supply
Chain Management Copyright August 2002,
by the Institute of Supply Management, Inc.,
Bruce G. Ferrin, Richard E. Plank

Risk vs. Reward
Supply Chain Risk Categories
Relationship
Performance
Human
Resources
Supply Chain
Disruption
Financial
Health
Environmental
Indicators
Supplier Risk
Score
Influence, Alignment, Information Sharing
Quality, Delivery, Capacity, Cost
Turnover, Union Issues
Market Power, Information Visibility Concentration,
Disruption Potential
Size, Asset Utilization, Capitalization, Profitability
Social Responsibility
Honda of America
Supplier Management Evaluation
Source: Honda
Honda of America
Supplier Management Process
Source: Honda
Honda of America
Supplier Management Message
Source: Honda
Demand Forecast
0
Q1 Q2 Q3 Q4
D
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High Demand Base Demand Low Demand
page 15
Risk Management Approach:
Uncertainty is measured using
forecast scenarios for demand, price, & availability
Availability Forecast
0%
20%
40%
60%
80%
100%
120%
Q1 Q2 Q3 Q4
p
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a
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High Availability Base Availability Low Availability
HPHorizon build demand
scenarios from historical
data
Component Price Forecast
Q1 Q2 Q3 Q4
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P
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High Price Base Price Low Price
Results of Supply Chain Risk
Management implementation at HP
Direct materials quantity commitments



HP total materials
spend in PRM
contracts

Realized Savings




Program
life

>$1B+



>$75M



Indirect materials quantity commitments
Commodity
Cost
Savings
Commit-
ment
Custom ASIC 12% 12 mo
Scanner assy. 8% 12 mo
Flash memory 5% 6 mo
Parts for repair &
refurbishment
4%

3 mo

Hard disk drives 2.3% 3 mo
DRAM 0 10% 3-6 mo
Average 6%
Commodity
Cost
Savings
Commit-
ment
Energy 25% 12 mo
Refining a Spend-Oriented Framework to
Supply Chain Risk vs. Business Impact


Leverage


Strategic


Tactical


Bottleneck

Supply market complexity
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Reduce structural
risk factors
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Extended supply chain complexity
(i.e., probability of adverse risk event)
From spend segmentation To understanding risk vs. reward
Source: 2008 The Hackett Group 17
Discuss how your organization is riding the globalization wave:
Has changed its direction on globalization
Manage risk vs. reward
Review Total Cost of Ownership
Collaborates across the organization on sourcing decisions
Has managed the economic factors and which ones have had the
largest impact to your organization and how have you mitigated
the risk
Discuss what you can take back to your organization
Institutionalize a risk management program/process
Re-analyze past sourcing decisions with new information
Review cost drivers have they changed?
Other ideas?

Networking
Automate Supply Chain
Define the end-to-end transaction / process
Consolidate, standardize and automate the defined transaction / process
whenever possible
Identify, optimize and /or transform the transactions / processes that
cannot be automated (e.g., move processing off-shore)
Centers of Excellence
Create a winning best-shore location strategy
Determine what strategies should be global vs. regional and which
activities need to be centralized vs. decentralized
Spend Analytics
Perform spend analytics on a global basis using tools that can provide
multiple dimensions to support the identification of new sourcing and
savings opportunities
Transaction Management
Actively manage compliance and demand management policies and
procedures across the end-to-end supply chain through SLAs and KPIs

Enablers
Enablers
Supply Chain Analytics
Total Landed Costs- including all transportation costs, customs
Supply Chain Network Design and Modeling and Optimization Tools-
What-If Modeling to look for the most efficient cost and service levels
Supply Chain Visibility
Look both upstream and downstream and giving critical suppliers
downstream view
Automated Alerts and Notifications to Supply Chain Events- more efficient
Buyers/Planners
Cross Functional Supply Chain Dashboard
Minimize the effect of Silos
Sales and Operations Planning Process- Metrics back to executing the
plan
Supply Chain Visibility
Operational Improvements
21
Aberdeen Group 2009
Benefits to SC Visibility
Inventory Reductions:
Companies that are Best in Class in Inventory Management are
2.4 times as likely to have implemented SC Visibility. Customer
Service Levels are at 96% and Inventory Levels have been
reduce by up to 30% since 2004.
Cycle Times:
Companies with SC Visibility are 3 times as likely to have a faster
order to fulfillment as companies with plans for an SC Visibility
implementation.
On-Time Deliveries:
Companies that track more than 80% of domestic shipments are 2
times as likely to have an on-time delivery rate of 95% or higher.
22
Aberdeen Group 2006
The Supply Chain Dashboard-
The key to an Integrated Supply Chain Organization
23
-30%
-20%
-10%
0%
10%
20%
30%
40%
Integrated Supply Chain
Structure and Metrics
Functional Organization
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Having End-to-End Supply Chain Visibility and Span of
Control Enables the Business to Make Quick Resource Trade-
Offs to Respond to Changing Market Need
Supply Chain Executive Board 2006
What does tomorrow bring?
Future Trends of Organizations
Joint ventures will increase
View suppliers as external resources of innovation
Linkage of sales to purchasing
Demand driven supply chains
Integration across supply chain
Improvement of supplier relationships
Rethinking of out-source vs. in-source and near-shoring vs. off-
shoring
Risk management formal programs to secure continuity of supply
Collaboration with suppliers in the Product Lifecycle Management
process
Increased reliance on outsourced logistics
Visibility and traceability of products has become increasingly
important


Conclusions

Economic factors will drive many companies direction for
globalization
As companies restudy total cost, there may be
opportunity to source regionally and reduce cost
Ensure that one has a supply management risk program
that proactively alerts the organization when risk becomes
too high and how to act upon it
Understand the cost drivers in order to make effective and
optimal sourcing decisions
Trends will continue that will encourage companies to
continually review reverse globalization