10 FUNDAMENTAL STRATEGIES AND BEST PRACTICES FOR SCM ORGANIZATIONS Presented By

1. 10 FUNDAMENTAL STRATEGIES AND BEST PRACTICES FOR SCM ORGANIZATIONS Presented By

2. WHAT IS THIS MAN FAMOUS FOR??? Theory of Relativity E=mc2

3. BUT HIS BEST WORK MAY BE HISDEFINITION OF INSANITY:“DOING THE SAME TASKS OVER AND OVER AGAIN AND EXPECTING DIFFERENT RESULTS.”ALBERT EINSTEIN.

4. So what does Albert Einstein have to do with Building a Best in Class Supply Chain Organization??

5. Maybe Albert Einstein has hit on something: Do it differently from the way you are use to doing things if you want different results. • Supply Chain Organizations today, want to be: • Effective • Relevant • Viewed as VALUED • Part of the Management Team • To accomplish this, we must have Strategies & Best Practices in place to “Execute” our plans.

6. WHAT DOES “BEST PRACTICE” MEAN?Best Practice is defined as:“A management idea which asserts that there is a :technique, method, process, activity, incentive or reward that is more effective at delivering a particular DESIRED OUTCOME than any other :technique, method, process, activity, incentive or reward”

7. Establish a governing council Align the supply chain organization Recruit supply chain professionals Set the Strategic Sourcing strategy Establish key supplier alliances 6. Manage TCO 7. Manage compliance and Risk 8. Optimize Company owned inventory 9. Gather information on a timely basis 10. Establish processes and controls So lets examine 10 Fundamental Strategies and Best Practices to consider embracing to “ Achieve Supply Chain Excellence”

8. 1. Establish a Govern Council • This is listed first for a reason. Absolutely mandatory • Make up of the Council: Influential Business Unit leaders, C level suite, and representation from supply chain management. • What does the council do? 1. Drives strategy. Gives direction to and helps align supply chain strategy to be consistent with company strategy 2. Helps in removing barriers within the organization • Influences internal decision makers. Fosters internal buy-in from the business units • Ensures that the supply chain organization is involved in the early stages of planning and forecasting.

9. 2. Align the Supply Chain Organization • SCM must be properly organized in order to execute the plan • Decide: centralized or de-centralized? Answer depends and varies by company. • No prescribed answer on how to organize • Common theme is Centralized Consensus with Decentralized execution. • In a perfect world, the supply chain organization will have the functions of • Sourcing • Materials Management • Logistics • Contract Management

10. TYPICAL SCM ORGANIZATIONAL DESIGN Supply Chain Council Supply Chain Leader SCM ADMIN PROCUREMENT LOGISTICS • Strategies • Efficiencies • Process Review • Demand & Forecasting • Warehousing • Inventory • Transportation • Environmental • Disposal Strategic Sourcing Tactical • KAP-Vendors • $ Volume Driven • Q A • Spend Areas-Future • CORE Commodities • Release orders-KAP’s • Spot Orders • Non-Repetitive Orders • NON-CORE Commodities Contract Management SCM=Supply Chain Management KAP=Key Alliance Partners

11. 3. Recruit Supply Chain Professionals • Recruit SCM professionals with the right mentality • More focus on strategic thinking • Less focus on measuring transactional activity • Different skill sets needed today vs. historical • Interpersonal communication • Strategic Thinking • Value Oriented • Relationship management skills • SCM Leaders are looking for two distinct skill sets • Technical Skills (analytical, subject matter expertise) • Project management Skills. Those who can: 1. Understand the customers changing needs 2. Continually address the changing needs

12. HAVE THE “RIGHT MENTALITY” WIN-WIN RELATIONSHIPS HIGH LOSE / WIN WIN / WIN • I am a loser - step on me • I am a peacemaker • Win/Lose people love! • Believe in Mutual Benefit • Long term relationship • Cooperative - Not combative CONSIDERATION As Supply Chain Professionals, We are evolving to here LOSE / LOSE WIN / LOSE • Where bad relationships go • Where 2 Win/lose people go to • Adversarial conflict • War!! • MY WAY OR HIGHWAY • Sacrifices Long Term • relationships • Squelches Creativity LOW LOW HIGH COURAGE The 7 Habits of Highly Effective People-Steven Covey

13. 4. Set the Strategic Sourcing Strategy • What is Strategic Sourcing?? Collaborative and Organized approach to spend categories with objective of selecting suppliers best suited to provide maximum value. • Strategic Sourcing implements cross functional and geographic teams for unified decision making process with Supply Chain Organization guidance and leadership. This must become a standard practice • Strategic Sourcing is the Cornerstone of Supply Chain Management • Benefits are: • Improved buy-in from the internal business units • Increased internal business unit satisfaction • Assures availability of goods and services (particularly in tight markets) • Increased responsiveness to customers changing needs. • Promotes teamwork • Streamlined Processes • Quality will be improved • Lower overall total cost and increased value

14. 5. Establish Key Supplier Alliances • Key Supplier selection is product of Sourcing Team • This best practice that needs to have more focus. • Supplier Management: the forgotten or ignored step in Strategic Sourcing Process • Terminology: Alliance Management vs. Supplier Relationship Management • SRM suggest “one way” communication • Alliance Management more appropriate term: “Two Way Communication • 4 Objectives of an Alliance Management Team: • Provides a mechanism to ensure relationship stays healthy • Creates the needed platform for problem resolution • Forum for developing continuous improvement goals for future • Ensure that Performance Measurement objectives are achieved

15. Exercise: Name some commodities & services in each category. How Do You View Them????? Strategic, impacts core business ALLIANCE MGT Our focus is most likely here Routine SRM Non-strategic, easily replaceable Routine SRM Routine SRM High maintenance, emotional, complex Easy to manage, simplistic

16. 6. Manage Total Cost of Ownership THIS IS ABOUT: Instill Total Cost of Ownership / Total System Cost Mindset • Move away from looking at just lowest price • More focus on best value • Move towards process improvement as a measurable internal goal • Evaluation of all factors that make up the cost of goods and services

17. Total Cost of Ownership = A + (O+T+M+W+E) Less S A = Acquisition Cost (25-40%) O = Operating Costs T = Training Costs M = Maintenance Costs W = Warehousing Costs E = Environmental Costs S = Salvage Value 60-75% Source: The Executive Guide to Supply Chain Management, David Riggs/Sharon Robbins

18. Total Cost Approach Perceived Opportunity Purchase Cost Demand Drivers Actual Opportunity Quality Costs Environmental Issues Freight Maintenance Expense Standardization Specifications Procurement Practices Inventory Practices Warehousing Costs Warranty Terms Operational Practices Disposal/Salvage Practices

19. Total System Cost Total System Cost Savings Strategic Focus Traditional Focus (price only) Traditional Strategic

20. 7. Manage Compliance and Risk • Contract Management is a focal point for best of class companies • Sarbanes Oxley (SOX) demands controls and to mitigate risks • Aberdeen Survey to Leaders of SCM Organizations: • Question: “How do you manage your company’s contracts?” • Answer: “We can’t even find them much less manage them” • Effective Contract management: • Ensures contract compliance (using the agreements) • Mitigates risks by standardizing terms and conditions • Provides more spend visibility for future negotiations • Provides platform for viewing maverick spend

21. Top SIX Contract Management Strategies(Aberdeen Group Research) • Standardize Contract Procedures Companywide • Establish Central Repository that is Web Based • Integrate with Financial ERP System • Track Compliance more Frequently • Improve Ability to Analyze Contract Performance • Improve Automation (due dates, expiration dates, etc)

22. 8. Optimize Company Owned Inventory • Inventory is money. Ask any CFO or Controller!! • Inventory holding cost: 20-48% • Establish Vendor Managed Inventories (VMI’s) as one Solution • Current Market (mostly sellers vs. buyers market) will challenge VMI programs • Meet expected lead times • Logistics issues particularly if sourced offshore • Need exist to Implement improved and effective demand planning and forecasting methodology

23. 9. Gather Information on a Timely Basis Gather Timely Information from the ERP System a. One of the largest barriers is inability to retrieve precise spend data b. Consider deployment of “Data Cleansing Software” • Address multiple ERP system inadequacies and provide solution • Best of class companies Navigate these Challenges and Find a Way within their information system to retrieve meaningful data: 1. Goal = Information available to users 2. Information used to target opportunities of spend or process improvement 3. Information used to monitor compliance and controls

24. 10. Establish Processes and Controls • Simplify Processes and Controls-Then Select Correct Technologies to Complement 1. First order of business is to establish your processes 2. When this is completed, select the technology to compliment your processes • Struggling Organizations often implement technology then develop processes to meet the needs of technology. • Make Policies and Procedures simple and easy to understand • Controls should be adequate to deter fraud or ensure that improper decisions are not being made and doing so without adding unnecessary process steps

25. SUMMARY • To expect different results, we may need updated roadmap • No two companies operate the same way – But all have guiding principles for success • Best Practices are a benchmark and guide for SCM Effectiveness and Improvement • Company leadership expects SCM Organizations to be more Transformational vs. Tactically focused • Good News: Company leadership is expecting more from our Supply Chain Management profession

26. THANK YOU !!Bob Engel, C.P.M.Bob.Engel@Resources-us.com713-403-1979