Inventory Risk Liability - Sapphire Presentation
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7/28/2019 Inventory Risk Liability - Sapphire Presentation
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Supply Chain Collaboration – Solving the
Supplier Integration ProblemPatni Computer Systems – SAPPHIRE 2009
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Agenda
• Economic Recession Impact on Supply Chain
• SAP Supply Network Collaboration (SAP SNC) application & Patni Add-
on Capability
• Patni’s Inventory Risk Liability Solution for High Tech
• Supplier On-boarding Methodology
• Deployment Roadmap
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Impact of Economic Recession on Supply Chain
Demand is reducing
What is the committed
inventory with my
suppliers?
Can I reduce the
committed inventory
with my suppliers?
Which location, Which
supplier has the highest
inventory?
What is the dollar value
of the committed
inventory?
How much inventory I
am liable for?
What is the total
cumulative lead-time?
Can I reduce the total
cumulative lead-time?
How total cumulative
lead-time is affecting my
inventory liability?
Demand is cancelled
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First QuartileBetween Average and First QuartileWorse than Average
Typical Scenario in CPG Industry
CP Ind. ( n=)PerformanceDimension
Metric Client1
Avg Q1
Inventory Days of Supply – TotalInventory
65 75 28
Inventory Carrying Costs (% of Revenue)
1.3% 3.2% 0.6%
Inventory Obsolescence (%revenue)
0.6% 0.95% 0.15%
Safety Stock (% revenue) 60% 64% 30%
Inventory
Analysis
Transportation costs (% revenue) 5.86% 2.6% 0.01%
Supply Chain Planning Cost (% of Revenue)
0.90% 0.37% 0.03%
Internal Costs/
Staffing LevelsSupply Chain Planning FTE (per $Billion in Revenue)
61.4 51.3 5.6
$15.5
0.0
Gap to Q1
Effectiveness: Reduce Inventory Carrying Cost ($M)
First QuartileBetween Average and 1st QuartileBelow Average
Effectiveness: Reduce Obsolescence (One-Time $M)
Potential Benefits: Value of Closing the Gap
$10.0
$0.0
$136.1
$0.0
Effectiveness: Increase free cash flow – One-time ($M)
Key Observations Client has higher inventory carrying cost which could be due to high costs of capital, high inventory obsolescence, high DC
operating costs
Client’ significantly higher transportation costs which could be due to increased expediting of shipments.
Client has significantly high safety stock and days of supply as compared to Q1 peer group.
Gap to Avg
Source - SAP
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SAP SNC – Solution to Supplier Integration Problem
SAP SNC 7.0
Supplier
Managed
Inventory
Master DataData
Validation
Release
Process
Exception
Management
Supply
Network
Inventory
Purchase
Order Process
Dynamic
Replenish-
ment
Web-Based User Interface
Business Processes
Basic Services
User Interaction
Kanban
Process
Delivery
Control
Monitor
Responsive
Replenish-
ment
Contract Mfg.
Purchasing
Demand
Collaboration
Work Order
Collaboration
Supply Network Inventory• Enable end-to-end and real time net work
inventory visibility
Purchase Order process• Real time collaboration with suppliers• Reduced FTE for PO follow-ups
Contract Manufacturing Purchasing• Complete visibility and control oncontract manufacturing purchasing
• Share forecast of FG seamlessly
Supplier Managed Inventory• Let Supplier manage component inventory
levels at your locations• Reduce inventory burden and stock out
risks
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SAP SNC: Benefit Derivation
Productivity
Improvement
Productivity
Improvement
Value from SAP
SNC: supplier
collaboration
Streamlined Supplier
Communication
Streamlined Supplier
Communication
Reduction in Buyer
Manual Effort
Reduction in Buyer
Manual Effort
Inventory
Reduction
Inventory
Reduction
Benefits 20% to 30% improvement
(annual benefit)
10% to 15% improvement(annual benefit)
7% to 10% improvement(one-time benefit)
15% to 20% improvement (one-time benefit)
Lead Time
Improvement
Lead Time
Improvement
Lead Time Variability
Reduction
Lead Time Variability
Reduction
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Improve Visibility & Collaboration using the SAP SNC application
Simplified Navigation & Screens for users of outsourced
manufacturing locations
Templates for uploads of Component Demand /
production schedules / planned receipts / on-hand
inventory data
Custom functionality for creation of Purchase Requests
from SAP SNC / customized alert framework
“What if ” Analysis using dashboards in
Xcelsius software
Information Broadcasting over different mediums
Leverage Capabilities of SAP SNC with Patni Add-on Features
Patni Add-on FeaturesSAP SNC: Standard Functionalities
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This helps Vendor User to Search Work Order
based on only the required search criteria.
In most cases the Vendor Knows the PO
Number that he is working with than the WO
Number
The related WO is pulled up and displayed in
the PO Information Area
This section allows the Vendor to modify the
Planned Production Schedule and also Split
Production Runs.
This section displays the completedProduction Status. Similar to the Production
Progress in standard SAP SNC
The Actual Production is reported here. This
creates a line for the corresponding Phase.
The updated data is displayed in theProduction Status above.
Simplification Example – all key functions on 1 screen for
users at the outsourced manufacturer location
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•This screen allows updating the QC Phase in a Work Order.
•Since hundreds of records are created each day, there is a requirement to be able to update multiple Orders simultaneously.
•On Save the program creates lines for the QC Phase for all the Orders selected based on the Lot status (Custom field).
Work Order Processing - Batch Update for QC Phase
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SC Visibility & Risk Projections – Business Challenges
Supplier
Distribution Centre
Customer
ComponentInventory
Finish ProductInventory
Demand
My Plant
ComponentInventory
Finish ProductInventory
WIP
Contract manufacturer
ComponentInventory
Supplier’s Supplier
ComponentInventory
Supplier’s Supplier
ComponentInventory
What if the demand reduce/cancel?
How can I reduce my
Inventory Liability?
How much Inventory am I holding?
Inventory held by supplier is not
reflected in my books
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Patni Solution for High Tech - Inventory Risk Liability
Analytics using SAP SNC
• Traditional inventory metrics fall short to address these issues and guide supply chain
managers
• Traditional inventory metrics are lagging indicators i.e. it takes weeks or months for
the problem to register in metrics
• In today’s environment, companies should measure and evaluate ‘ Invent or y Risk’
instead of just ‘ Inventory ’
• Look at the whole supply chain and not just the portion within their own organization
•• Invent ory Risk Liab i l i t y Analy t ics Invent ory Risk Liab i l i t y Analy t ics addresses this gap by developing N-tier inventory
metrics which helps in informed decision making in supply chain
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Decision Making w/o Risk Liability Analytics
¾ Laborious manual consolidation and data comparison
• Check finish product Inventory, WIP and component
inventory owned by me
• Use Inventory Reports provided by ERP
• Check component inventory liability across supply
chain
• Contact Suppliers to get the inventory data at their
end
• Reconcile data from various suppliers
• Check contract agreement with each supplier.
• Calculate liability of component inventory at each
suppliers
• Compare the actual inventory data with actual
requirements• Calculate liability of unused component inventory at
each suppliers
Supplier
Supplier’sSupplierSupplier’sSupplier
Contract
manufacturer
Complexity and
volume of data
increases with
number of
components andsuppliers
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Decision Making with Risk Liability Analytics
Business Question - Demand for a product is reducing by 20%.
What will be my inventory liability for unused components?
• Easy intuitive dashboard to pin point Inventory Risk across network
• Simulate changing business situations and understand impact on
Inventory Risk
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• It is the amount of money at risk in the supply chain at any given point of time
due to unsold inventory
• It depends upon
• Price (Cost) of finished product
• Cumulative Lead-time to build finished product
• Average Demand for the finished product
• Risk Liability KPIs Explained
Inventory Exposure - Definition
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Inventory Exposure – Solution Overview
Inventory
Exposure
InventoryExposure
Percentage
Inventory
Exposure
Turns
Trend valuesfrom historic
data
Check component
exposure details in next
tab
Provides projection of inventory liability in dollar terms, percentage as of Cost of goods
sold and exposure turns. Indicates high vulnerability SKUs requiring attention
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Component Inventory Exposure – Solution Overview
ProductDetails
Graphical
representation of KPI
Trend
Lead time
Cumulative
Lead time
Standard
Cost
Inventory
Exposure of
component
On Hand
Inventory
Value of On
Hand Inventory
Provides projection of inventory exposure of applicable components
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Supplier On-boarding – Key Challenges
How do we integrate all our suppliers in an SNC solution?
A
B
C
Comes in all size & shape
• Supplier Geography
• Supplier Language
• Supplier Size
• Supplier Time Zone
• Supplier Technology/IT
Infrastructure
• On boarding
/Integration Time and
Cost
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2-3 days Web based training
to super users
Supplier User Manuals
Supplier On Boarding Process
Term Acclimatization Process Acclimatization Scenario Introduction
Database Congruence Process Congruence Personalization& UI Settings
Navigation Comfort Process checks
Sample WBTSample WBT
Demo
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SAP SNC: Deployment Road Map – Risk-Free Approach
Visit us at Booth No. 949 to see demo of the Inventory Risk Liability
Solution –
Currently part of “Best-Run Now” Industry Solutions for High Tech
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Thank You
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Hyperlinks
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Inventory Exposure KPI - Calculation
• Inventory Exposure
“ The amount of committed inventory within total supply chain based on expected demand
and cumulative lead time associated with the current supply chain.”
In short it is the amount of money at risk in the supply chain at any given point of time.
Inventory Exposure = Price (Cost) * Cumulative Lead-Time * Average Demand
This is calculated for each component of the product. The sum of the individual pieces then coalesces
to show the exposure for a product, a product line, or a whole company.
For example, if a product has an average weekly usage of 100 units and one part in the product has a
cumulative lead time of 16 weeks, you know that you will have the equivalent of approximately 1600
units in the pipeline somewhere.
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Inventory Exposure Percentage KPI - Calculation
• Inventory Exposure Percentage
Inventory Exposure Percentage for Product
= Inventory Exposure for Product / Cost of Goods Sold for Product
Here the COGS is computed at the product level. COGS is calculated by multiplying expected productvolume with cost of the product. A higher Inventory Exposure Percentage indicates higher risk.
• Inventory Exposure Turns
Inventory Exposure Turns = Cost of Goods Sold / Inventory Exposure
This is just the inverse of Exposure Percentage. It has the same characteristics and is simply another wayto view the data. One interesting note is that a company’s inventory turns should always be higher than
its Inventory Exposure Turns.
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