Chemical Supply Chain

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Successfully Transforming Your Business Successfully Transforming Your Business

…….The End to End Demand.The End to End Demand--driven Value Networkdriven Value Network

““The Business Operating StrategyThe Business Operating Strategy””

IsIs Your Business Planning and Supply Chain StrategyYour Business Planning and Supply Chain Strategy

An Emerging Market View An Emerging Market View

Roddy MartinVice President

& Research Fellow

AMR Research



Agenda – Scope

• A View Of Supply Chain Strategies In Emerging Markets

• The Same Fundamentals & Core Capabilities As Developed Markets

• But, With …………Added Complexity Of Logistics, Culture, Change Leadership, & Governance.

• Understanding Segmentation Is The Key!



Functional Fragmentation - Disjointed End to End Collaboration

Demand

customer

Product

designpartner

SupplyTraditional Definition of Supply Chain Management

& Manufacturing supplier

Collaboration& InnovationCapabilities

?



Reality …Traditional “Supply Chains” Lack Alignment Process & Visibility

Manufacturer

Materials

MgmtManufacturing

(Make-Pack)

Distribution

&

Distributors

Suppliers

New Product or ServiceNew Product or Service

Merges to the Base Merges to the Base

Supply ProcessSupply Process

Customers

Patients

Consumers

SuppliersPartners

ManufacturersAssemblers

DistributorsWholesalers

Customers ConsumersUsers; Buyers

Risk Risk

Risk Risk Risk Risk

Risk

Programs

“Integration”

P & G “Starting” Point

“Inside-Out”



Actual

Demand

DemandProduct Supply

Product

React CRM

ERP..+

PLM…

“Forecast”

Focus on supply

Manufacturing

NPDL Inputs

Disconnected Supply Chain CapabilitiesProcesses & IT Deployed in Silos Across the Value Chain



Transformation of the Supply Chain

Suppliers

Contract Manufactures

China Supplier

European

Supplier

Logistics Providers

InboundLogistics

Logistics Providers

You Corp Customer

Wholesale Distributors

Store

Sales

Information Flows

Goods Flow

Suppliers ManufacturersWholesale

DistributorsRetailers Customer



Source: Kraft Foods, AMR Research Conference June 2009

What has Given Rise to this Issue?

Sales Point

Trivial

Instant

Plant

Almost Impossible

20-50 Days

Demand Signal

Accurate Weekly

Forecasting is ...

Delay from Purchase to

Signal

Manufacturer DC

Difficult

10-20 Days

DC

Easy

3-10 Days

Bullwhip Effect

4/29/2010

‹#›



Traditional Supply Chain is Giving Way…

Top 25 n=9, All n=198

Top 25 versus all other companies

+1+1

-1-1

+4+4

4/29/2010

‹#›



…to Value Chain

Top 25 n=9, All n=198

Top 25 versus all other companies

+13+13

+8+8

+15+15

+36+36

4/29/2010

‹#›



Leveraging Operations AND Innovation Maturity…O

pera

tio

nal

Excell

en

ce

(Pe

rfe

ct

Ord

er,

Cyc

le T

ime

s

To

tal

Su

pp

ly C

ha

in C

os

t)

Leader

Laggard

Losers

P

D

S

Highercash flow, profits, p/e

•Outside –in focus on buyer

•Continuous Business Strategy translation

•Portfolio of Strategic Priorities

•Demand-driven Product Supply Strategy

•Building usage insights into innovation

•Operations Strategy

•Reduced Complexity

•Leadership and Portfolio Governance

•Integrated CI Teams & Processes

•Develop For ….

…………Total User Experience & Value

•Learning Organization

•Enabling Technology

•Network Based Joint Value Creation

Winners:

P&G, Apple,

Supply Driven

Innovation Excellence(Time to Value, Return on R&D)

LeaderLaggard

Product Innovation Driven

Disconnected

4/29/2010

‹#›



Reality …Traditional Supply Chains Lack Process & Visibility

Manufacturer

Materials

MgmtManufacturing

(Make-Pack)

Distribution

&

Distributors

Suppliers




Customers

Patients

Consumers

SuppliersPartners


DistributorsWholesalers

Customers ConsumersUsers; Buyers

Risk Risk

Risk Risk Risk Risk

Risk

Programs

“ IT Driven Data Integration”

End to End Business Process Architecture



Functional Fragmentation- Disjointed End to End Planning….”Not Unique”

Collaboration& InnovationCapabilities…

Asynchronized Business Planning

& Execution

Global Business & Operations

Corporate IT

CustomersCore “BPM”

Org Design –Change Leadership Roles

NOT – a traditional supply chain improvement project

DemandCustomers IT

Segments

SupplyTraditional Definition of Supply Chain Management

& Manufacturing

Suppliers

Sites

IT

Product

Partners

Portfolio

IT



Transformation of the Supply Chain…………Collapsing Roles

Suppliers

Contract Manufactures

China Supplier

European

Supplier

Logistics Providers

InboundLogistics

Logistics Providers

You Corp Customer

Wholesale Distributors

Store

Sales

Information Flows

Goods Flow

Suppliers ManufacturersWholesale

DistributorsRetailers Customer



Holistic End to End Scope ………………..A Leadership Journey !

DemandSupply

Product

External collaboration partnerships





New Capabilities………………Core Risks - Capabilities

DemandCustomer

sense

and shape demand

Supply

produce to demand

ProductDesignpartner

Innovation that

drives growth

make conscious

trade offs

Supplier

User/Consumer

Patient

manage intellectual property

Contractor

ContractManufacturer

Service Provider

manage external partners

#1-Demand Forecast Accuracy

#2-Relia

ble , Predictable Supply

#3-Operationalized In

novation

# 4 -Value-Based Trade Offs



Reliable Product Supply is Core to Demand-driven Transformation

Operationalized

innovation

Supply

Risk

Management

Demand

Insights

Demand Supply

Profitable

& Reliable

Demand

Response

Demand

Sensing

Product

Inside –Out Supply and Network Reliability

Transformation From “Inside – Out” To “Outside – In” !

Demand

Shaping

Outside –In Demand Translation



Value Chain Transformation/Change Maturity…………Journey

I

Inte

rna

lly

Fo

cu

se

dE

xte

rna

lly

Fo

cu

se

d

Cost Focused

II

III IV

Revenue Focused

Growth and Profitability Cost to Serve

Responsive to Demand Cost to Deliver

Demand – DrivenNetwork

SC Process Hubs

Segmented Value Driven

Networks

Shared Service Hubs

Local Sites

& Functional

Silos

• Profitable Business Trade Offs

• Profitability ( sku / shelf / account / segment / launch)• Perfect SC Orders

ITProcurement EngineeringSupply

Business Growth Supply Chain

Bu

ye

r Va

lue

Tra

ns

latio

n

Fo

cu

se

d

As

se

t Ric

h

M &

A

Fo

cu

se

d

4/29/2010

‹#›



13 The Coca Cola Company14 Nike15 Tesco 16 Walt Disney17 Hewlett-Packard18 Texas Instruments19 Lockheed Martin20 Colgate - Palmolive21 Best Buy 22 Unilever 23 Publix Super Markets 24 Sony Ericsson

1 Apple2 Dell3 Procter & Gamble4 IBM5 Cisco6 Nokia7 Wal-Mart8 Samsung9 PepsiCo10 Toyota11 Schlumberger12 Johnson & Johnson

2009



The Ultimate Goal ……….Sustainable, Anchored Capabilities

Ex

ce

lle

nce

in

Re

su

lts

E

xc

elle

nce

in

Re

su

lts

Excellence in Work Practices Excellence in Work Practices

Sustainable Business Sustainable Business

Performance ImprovementPerformance Improvement

Unsustainable Unsustainable

resultsresults

Incorrect Incorrect

focusfocus“silo’d lean and efficiency improvements”

“sil

o’d

co

st

focu

s ”

•Balanced Trade Offs•Capabilities•Change Leadership•Outside –In Value

The transformation requires strategic levels of change management

to build achieve sustainable performance improvements and capabilities



Leaders Mesh Bus. Process, Best Practice, & IT to Build Sustainable Practices

Dow Chemicals, , Apple, P & G , CATJohnson Controls

+8% +20%

0 +2%

– Intensity of IT Deployment +

–Management Practice +75th percentile

and above

25th percentileand below

25th percentileand below

75th percentileand above

Source: London School of Economics–McKinsey survey and analysis of top 100 companies in France, Germany, United

Kingdom and United States.

“ERP +…”

“Lean +…”

“IT enabled

End to End Business

Transformation”

4/29/2010

‹#›



Themes That Distinguish Leaders:

• Outside-in focus

• Embedded innovation

• Extended supply chains

• Balanced excellence

• Attitude

• Metrics

• Supply chain talent

• Outside-in focus

• Embedded innovation

• Extended supply chains

• Balanced excellence

• Attitude

• Metrics

• Supply chain talent

Supply chains that are…

• Predictable and reliable

• Flexible

…and have:

• Profitable demand response

• Sustainable growth

• Satisfied customers

Supply chains that are…

• Predictable and reliable

• Flexible

…and have:

• Profitable demand response

• Sustainable growth

• Satisfied customers

Outcome



Anchored Change

“North-South”

Functional

Regional Goal

Alignment

Measurement

& Information

Aptitude

Change

Leadership•Talent

•Org Design Continuous

Improvement

Culture

Power

Through Process (e.g. S&OP,

Business Planning )S

TIC

KY

GL

UE

“East-West”

Value - Process

Performance

What Makes End to End Transformation “Sticky”?



A Framework for The Demand-driven Value Network

Product & Service Innovation

Cu

sto

mers

, B

uye

rs,

Use

rs,

& C

on

su

mers

Channel Demand

&Demand

Management

Segmented Demand Visibility

User/ Consumer/Demand Insights

Su

pp

liers

& P

artn

ers

Push – Make – Supply Segments

Reliable, Profitable

Response from Supply Based on

Demand

Segmented Supply Visibility

decoupling

Demand Translation

& Trade Offs

Integrated Strategy, Business &

Value Network Planning

Pull Segments



Leaders Crystallize “Pillars” of the Business Operating Strategy…………..

Innovation &

Products

Portfolio&

Platforms

Profitable & Reliable

Response from Product Supply & Manufacturing

Network Response

S & OP

Organization Structure, Systems

Talent

Collaborative Joint Value

Creation

Supply & Supplier

Relationships

Customers and Demand

Joint ValueRelationships

Integrated Business Planning , Continuous Improvement , enabling IT , Collaboration Processes& Change Management

Complexity Management

Galvanizing Business Strategy



Demand Driven Transformation …Maturity Dictates Priorities ?

Level 1 Level 2 Level 3 Level 4

Reacting Anticipating Collaborating Orchestrating

Business Process

Organization

Measurement

Continuous

Improvement

Technology

Culture & Change

Management

Inside – Out

Supply Chain

Excellence

Manufacturing & Supply Excellence

Outside –In

Demand-Driven

Value Network

Excellence

Value Network

(joint value creation

managed complexity)

(efficient flexibility )



Demand-driven Value Network Integration Framework


Demand Translation

& Trade Offs

Customers , Buyers, Users,

& Consumers

Channel Demand

&Demand

Management

Supplie

rs & Pa

rtners

Integrated Strategy, Business & Value Network

Planning

Segmented Partn

ers and Supplie

r Netw

orks

Reliable, Profitable Supply

Response

Basedon

Demand

Profitability

Costs to Serve

Segmented Planning

and Trade offs

Demand –driven Joint Value

Relationships

Integrated Planning &

Scheduling

Segmented Product Supply Network

Market and

CustomerSegmentation

S & OP

Segmented

Supply

Buying

Segments

4/29/2010

‹#›



Case Study: Segmentation

High

Low

HighLowDemand Predictability

Volum

e

Lifecycle

Short Long

Technology

Commoditized

Specialized

6 5

8 7

Lifecycle

Short Long

Technology

Commoditized

Specialized

2 1

4 3

Lifecycle

Short Long

Technology

Commoditized

Specialized

Lifecycle

Short Long

Technology

Commoditized

Specialized

13

16 15

10 9

12 11

14

Responsiveness Efficiency

Agility Responsiveness

4/29/2010

‹#›



Predictable demand, easily managed through tight collaboration with customers. Focus on retention of customer relationships.

Demand predicable, (e.g. from historic off-take), but the loose relationship does not necessitate an extreme service level. Focus on efficiency.

Respond opportunistically & manage yield. Focus on providing creative solutions for premium price.

Unplanned or unforeseen demand, and a sometimes loose relationship with customers - almost always demands an agile response at higher cost-to-serve. Focus on the service-cost equation

Relationship

with custom

er

Predictability of demand

“Continuous Replenishment”

“Lean”

Loose

TightHigh Low

“Fully Flexible”

“Agile”

Figure 2.3: Four (4) Generic supply chain types

John Gattorna “Segmentation” Perspective

4/29/2010

‹#›



Evolving Framework for The Demand-driven Value Network………


Cu

sto

mers

, B

uye

rs,

Use

rs,

& C

on

su

mers

Channel Demand

&Demand

Management

Segmented Demand Visibility

User/ Consumer/Demand Insights

Su

pp

liers

& P

artn

ers

Push – Make – Supply Segments

Reliable, Profitable

Response from Supply Based on

Demand

Segmented Supply Visibility

decoupling

Demand Translation

& Trade Offs

Integrated Strategy, Business &

Value Network Planning

Pull Segments

Buying Segment 1

Buying Segment 2

Buying Segment 3

Making Segment 1

Making Segment 2

Making Segment 3

Global Hub 1

Global Hub 4 Global Hub 3

Global Hub 2



Design for Supply Chain……..HP

30

Part and platform re-use

Variety control

Postponement

Logistics enhancement Commonality

Environment &

Take-Back

Copyright © 2008 HP corporate presentation. All rights reserved.



The Hierarchy of Supply Chain Metrics

Supplier Quality

Supplier On-Time

Purchase Costs

Dir Mtl Costs

RM Inv

Cost Detail

Prod Sched

Variance

Plant Util.

WIP + FG Inv

ProdQlty

(RFT)

Perfect Order Detail

Correct

DiagnoseAP AR

Inventory Total

Cash-to-Cash

Assess

Demand

Forecast

SCM Cost

Perfect Order

Reg.Recalls



Supply ChainProducts

Industry Standard Servers

Commercial Printing

Digital Imaging

Shared Printing

Personal Printing

Supplies

Portables and Handhelds

Business PC & Workstation

Consumer PC

Monitors & Options

Network Storage Solutions

Business Critical Servers

Managed Services Solutions

Customer Support Solutions

Consulting & Integration Sol.

Enterprise Solutions

Services

High value & solutions

Configure-to-order (CTO)

Low touch

No touch

Demand Chain

Enterprise

SMB

Consumer

Dir

ect/

Ind

irect/

Part

ner

Dir

ect

Public

Put The “Customer” First - High Tech Example as a Proxy for IP

4/29/2010

‹#›



Process Control

Contro

l Spec

ificati

onsManufacturing Specifications

Product Supply Network

Operationalized Demand

Demand Driven Supply

Process + Manufacturing + Business Performance ManagementLinking Three critical domains

ProductionManagement

Process Automation & Control

ProductManagement

Demand

• Visibility • Collection• Analysis • Actions



Demand Driven Transformation …Maturity Dictates Priorities ?

Level 1 Level 2 Level 3 Level 4

Reacting Anticipating Collaborating Orchestrating

Business Process

Organization

Measurement

Continuous

Improvement

Technology

Culture & Change

Management

Consum

er

Good

s

Consum

er

Electronics

Industrial

Specialty Chemicals

& Materials

Logistics

Front Office

Back Office



Leaders Drive Outside – In Priorities

Manufacturer

Materials

MgmtManufacturing

(Make-Pack)

Distribution

&

Distributors

Suppliers




Customers

Patients

Consumers

SuppliersPartners


DistributorsWholesalers Customers

ConsumersUsers; Buyers

Risk Risk

Risk Risk Risk Risk

Risk

Programs

Outside – In



Roddy MartinVP & Research Fellow

125 Summer Street

Boston MA 02110617.542.6600

Cell 617 306 0029

www.amrresearch.com

Chemical Supply Chain

Education

end planning

value chain forecastfocus

business process architecture

product designpartner

value chaintop

added complexity of

amr research conference

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