On June 2nd 2010 there was a high-profile event about supply chain management and sustainability. Worldwide this was the first presentation of the final results of the MIT/TruEconomy research into supply chain management and the executive agenda. Professor David Simchi-Levi released the final results of the MIT/TruEconomy research. The results indicate not only a link between the executive agenda and supply chain strategies but also that business and financial performance go hand in hand with supply chain performance. Interested in the research findings? Download a copy of the executive summary at www.trueconomy.com.
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Supply Chain Management and the E ti A dExecutive Agenda
• Global supply chain with long lead times• Rising and shifting customer expectations• Increase in labor costs in developing countriesIncrease in labor costs in developing countries• Increase in logistics costs• Increase in risks• Importance of sustainability• Unprecedented Volatility Senior management faces competition in an
Senior management faces competition in an environment that is uncertain, dynamic and chaotic.
Identify links between supply chain strategies and the executive agendaCh t i th i t f ll i l h i t Characterize the impact of excellence in supply chain management on business and financial performance
1. Review the existing supply chain literature
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g pp y2. Interview executives from 14 companies3. Online survey of CEO, CFO and CSCO
Case Study: Optimizing S&OP at Pepsi Bottling Group
Make Sell Deliver Service
Operates 57 Plants in the U.S. and 103 Plants Worldwide
7 Business units in the U.S. each responsible for local demand
240,000 Miles are Logged Every Day to Meet the Needs of Our Customers
Strong Customer Service Culture
The Challenge: • Shifting consumer preference
•From carbonated to non-carbonated drinks •From cans to bottles
• Produced these products in limited plants• Service problems during periods of peak demand
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Implementation: A Three-Step Process
• Step 1: Focus on Central Business Unit (3 plants, 22 warehouses in MI, MN, WI)
Start small to understand the intricacies of the processBuild confidence in model assumptions
• Step 2: Move on to more complicated regions (East Coast – 20 plants, 125 warehouses)
• Step 3: Implement across all business units
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The Impact of Sourcing Flexibility
• Creation of regular meetings bringing together Supply chain, Transport, Finance, Sales and Manufacturing functions to discuss sourcing and pre-build strategiesReduction in raw material and supplies inventory from $201 to $195 • Reduction in raw material and supplies inventory from $201 to $195 million
• A 2 percentage point decline in in growth of transport miles even as revenue grew
• An additional 12.3 million cases available to be sold due to reduction in warehouse out-of-stock levels
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To put the last result in perspective, the reduction in warehouse out-of-stock levelseffectively added one and a half production lines worth of capacity to the firm’ssupply chain without any capital expenditure.
Insight #4: Strong correlation between CSR and innovations in the supply chain
The Nestlé Story
• Nestlé entered India in 1961• It set up its first milk processing facility at Moga in the
State of Punjab jProvided technical assistance and education to improve milk productivity and qualityEstablished milk collection points and chilling centers, Installed farm cooling tanks, Provided the transportation to pick-up milk at the farms and d li th t th ilk i f ilit
deliver them to the milk processing facility. Delivered veterinary medicines and helped the village women learn good dairy practices.
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The Nestlé Story – The Impact
• This program grew from 180 farmers in 1961 to 95,000 in 2005 and from 4 milk collection centres to 1700 during the same time period.
• It provided employment, higher income, and a higher standard of living not only to the farmers but to the entire rural community.
• This business model was not a “charity” – it allowed Nestlé to establish a unique supply chain and generated Rule #3: Corporate Social Responsibility can
Links between SC Strategy, Business & Financial Performance
• Business Performance Indicator (BPI)Revenue, Market Share, Customer Satisfaction and Return on Equity
• Financial Performance Indicator (FPI)Return on Equity, Return on Assets, Total Assets Turnover, Inventory Turnover, Operating Cash Flow, Net Working Capital to Assets, Operating Margin, Debt to Equity Ratio, and Total Debt RatioDebt Ratio