SupplyChainManagementAStrategicLeverforBusinessSuccessMcKinsey'sSupplyChainManagementPractice1Distributionmanagement•Distributionnetwork•Warehousing•TransportationProductionmanagement•Productionplanning•CapacityallocationOrderanddemandmanagement•Orderingpolicies•Salesvolumeplanning•OrdergenerationandfulfillmentServicelevelmanagement•Customerandservicelevelsegmentation•ServicelevelperformancemeasurementSupplymanagement•Suppliermanagement•InboundflowmanagementFiveprocessesjointlydeterminesupplychainexcellenceProductionSalesSource:McKinsey2SupplychainmanagementpresentshugechallengesProductionmanagement•Lateandconstantchangesinschedule(externally/internallytriggered)•LowdeliveryaccuracyfromfactoriesOrderanddemandmanagement•Nocleardeliverydategiventocustomers•Norealordertracking•VerylowforecastingaccuracySupplymanagement•SuboptimalsupplierinteractionduetoinstableproductionDistributionmanagement•Highinventorylevels,butneverthelesslowservicelevels•CostlydistributionnetworkServicelevelmanagement•Verylowservicelevel•Noideaoffuturebreakpoints/expecta-tionsofcustomersProductionSalesSource:McKinsey3OptimizedsupplychainmanagementpresentshugeopportunitiesProductionmanagementOrderanddemandmanagementSupplymanagementServicelevelmanagement5%additionalsales65%reductioninthroughputtime4%lowerproductioncostsNostock-outs40%lowerinventoryDistributionmanagementProductionSalesSource:McKinsey4Inventory-carryingcostsWare-housing,handling,andtrans-portationTraditionallymeasuredcostsStorehandlingKnown,butnotproperlymeasuredKnown,butnotseenaslogisticscostsObsoles-cence/mark-downsLostmarginonmissedsalesTotalsupplychaincosts10-30NeitherknownnormeasuredProduction/purchasingcostsAlsodrivenbysupplychainPercentageofsalesSource:McKinseyTheimpactofSCMoncostisgreaterthannormallyperceivedEXAMPLE3-71-22-81-63-1040-605FourimperativesforsuccessfulSCMDoitrightordon'tdoitatallAlltogethernowDoITsmartTheskyisthelimitContinuousstrivingforhighperformanceClearroleandownershipstructureSeamlessintegrationofallprocessesTargeteduseofmoderntechnology•UseSCMstrengthsasagrowthleverifyouaresuperior•Outsourceprocessesifyouareonlymediocre•However,neverlosecontroloveryourkeyproces-seswithinyourindustry•Integrationofoperationalprocesseswithinyourcompany•Virtualmanage-mentofend-to-endSCMincludingoutsidepartners•Fulltransparencyandintegration•Lowtransactioncostsalongallprocesses•Focusonimmediatebusinessneed•Steadyincreaseinperformance,aspirationlevel•Newbreakpointsevolving•NewbusinessmodelsdemanddramaticchangeSource:McKinsey6ThefocusoftheSCMarchitecturedependsonyourcompany'srolealongthevaluechainProcessspecialistIndustryintegratorBrandplayerContractmanufacturer•Manufacturingsubcontractors•MaintenanceserviceprovidersExamplesProductdevelopmentManufacturingProcurement,Sales•PCassemblers•Sportsequipment•Fashion•AutomotiveSource:McKinsey7Understandthevaluechain'scriticalsuccessfactorsend-to-endandyourrolewithinthechainSource:McKinsey•Whichplayerisdrivingtheoverallchain?•Whatisyourroleandadvantage?•WhatdoesitmeanforyourSCM?Supplier(s)CompanyCustomer(s)Customersofyourcustomers8DatacenterCallcenterOn-lineERPconnectionOriginatingchannelWarehouse/processingcenterOutsourcingofcompleteprocessestoexpertsDistributionTransportLocaldelivery•Orderreceipt•Customermanagement•Callcentermanagement•Trackandtrace•Warehouseoperations•Inventorymanagement•Pickingandpacking•Fleetmanagement•Returns/collection•Reverselogistics•Sorting•Orderprocessing•Customeranalysis•InventoryanalysisEXAMPLESource:McKinsey9FourimperativesforsuccessfulSCMSource:McKinseyAlltogethernowContinuousstrivingforhighperformanceClearroleandownershipstructureSeamlessintegrationofallprocessesTargeteduseofmoderntechnology•Integrationofoperationalprocesseswithinyourcompany•Virtualmanage-mentofend-to-endSCMincludingoutsidepartnersDoitrightordon'tdoitatallDoITsmartTheskyisthelimit•UseSCMstrengthsasagrowthleverifyouaresuperior•Outsourceprocessesifyouareonlymediocre•However,neverlosecontroloveryourkeyprocesseswithinyourindustry•Fulltransparencyandintegration•Lowtransactioncostsalongallprocesses•Focusonimmediatebusinessneed•Steadyincreaseinperformance,aspirationlevel•Newbreakpointsevolving•Newbusinessmodelsdemanddramaticchange10Source:Dellpressreleases,analystreports•Superiorcustomerrelationships–Customersegmentationbysize/region/need(keybuyingfactors)–Extensivecustomerknowledgebuilding•Make-to-orderproduction–Lead-time-basedmanufacturingmodelconfiguredfororder-specificproduction–Flexiblemanufacturingunits–NoobsolescencecostsThankstoSCMinnovations,companiessuchasDellhavemanagedtoreinventtheirindustry•Virtualintegrationofsuppliers–Fewselectedpartnersforlong-termrelationships–Real-timeinformationsharing(forecasts,productionplanning)–On-lineinventorymanagement11OrderpenetrationpointOrderpenetrationpointValueofferingpointSCMandcustomerinteraction–considerthepossibilitiesfordifferentvalueofferingstocustomersDistri-butionManu-facturingSourcingDemandplanningInventorymgmtPur-chasingProductdeliveryfromstockVendor-managedinventoryValueoffering