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Supply Chain Excellence: Rebuilding Global Supply Chain Infrastructure for Sustainable Growth

Michael Burkett VP Research, AMR Supply Chain Leaders michael.burkett@gartner.com May 2010

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This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, 2009 Gartner, Inc. and/or its affiliates. All rights reserved. and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. GartnerGartner, Inc. and/or its affiliates. All rights or its affiliates. 2009 is a registered trademark of Gartner, Inc. reserved. 3

Mike Burkett
Managing VP Supply Chain Process and Technology Research focus on Global Product Innovation and Lifecycle
Management. Published the first industry report defining the PLM market

Experience: 15 years in manufacturing supporting new product introduction, supply readiness, program management, industrial / applications engineering.
Six Sigma Master Blackbelt & Lean process improvement Employment: Invensys, EG&G, and BBN Communications MBA from Babson College and BS in manufacturing engineering technology from Wentworth Institute of Technology.
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Agenda
Why rebuild global supply chain infrastructure Principles of becoming demand driven Best-practice leaders in the journey

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5/25/2010

Ford: serving global markets profitably


2008 We cant make money with capacity utilization numbers in the 70swe study our global operations to make sure were doing the right thinga global platform strategy allows for better utilization across product segments.
Joe Hinrichs, Ford group vice president for global manufacturing, 2008 Autoline Detroit interview

2009 Ford reported its second consecutive quarterly profit and more impressively, a swing from a $7.7 billion cash burn a year earlier to positive cash flow of $1.3 billion in the just-ended third quarter.
Wall Street Journal, How Ford Is Making Its Comeback, November 4, 2009
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Global development strategy drivers


Current drivers Primary today Primary in 2 years Move into new or emerging markets Take advantage of low cost strategy labor Global requirements from M&A's Gain access to localized knowledge/ skill of specific mkts Access talent not available centrally Utilize global resources to conduct 24-hr development 79% 38% 30% 70% 26% 13% 54% 11% 17% 59% 9% 17% 49% 6% 9% 37% 6% 10%

N = 185 US-based manufacturers


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Forces contributing the most to your organization's supply chain complexity?


End customers' expectations and needs Product proliferation (stock-keeping units/SKUs) Supporting increasing numbers of locations (customers, supplier, internal operations) Globalization of supply chains Pace of new product introduction and innovation New competitors in your organization's market Compliance with government and trading partner mandates Increasing supply chain risk New emerging markets Advances in technology Other
2% 21% 19% 17% 16% 15% 31% 31% 39% 50% 56%

0%

20%

40%

60%

80%

100%
n=340

Up to three responses allowed


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Product supply / manufacturing planning gaps in global product development


Importance Performance
Evaluating manufacturing cost impact of design options during development 64%

Performance Gap
8%
56%

Evaluating impact of design complexity and the level of reuse from previous products

59%

11%
48%

Evaluating manufacturing and supply chain costs during a make versus buy analysis

58%

8%
50%

Developing products that can be manufactured with reduced environmental impact

57%

1%
56%

N = 142 High-Tech manufacturing companies


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Source: AMR Research, 2009

Global product development & product supply / manufacturing strategies


Develop Plants Single Plant Regional Variants Geo. Develop Pilot Facility Plant 1 Region Geo. Region

Plant 2 Develop Plants Plant 2b Design Networks


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Mfg. Networks
Source: AMR Research, 2009

GHG emission data supplied to supply chain partners 2008 vs. 2009

GHG = Green House Gas


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Source: AMR Research, 2009


2010

New world strains supply chain infrastructure


Global opportunity with constrained resources Demand for variety explodes supply complexity Pressure to reduce carbon footprint of products Physical supply chains pushed to deliver more New infrastructure needs for profitable response.

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Leaders evaluating global supply chain infrastructure


Coca-Cola and PepsiCo buy bottling plants
- cut costs allowing more flexible pricing to retailers

Ford platforms improving factory utilization


- increase factory utilization & serve global markets

Boeing 787 moves to global design partners


- scale des. / manf. capacity and improve ROA

Wal-Mart sustainability index for suppliers


- drives increased focus on supply chain carbon footprint

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Poll questionParticipate in live research


How ready is your supply chain infrastructure to meet new world demands? 1. We have the supply chain infrastructure to win today 2. Needs are defined and in process of implementing 3. Needs are defined and we are exploring next steps 4. We are beginning to evaluate our needs now 5. We have no idea if we are prepared to compete

Please select the option that best fits your situation. Responses are confidential.
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Rebuild infrastructure for Demand-driven Value Networks


Orchestrate the Demand-driven Response Demand
Insights

Supply Build Value in supply Networks


Risk

Become Market Driven

Sustainability

Drive innovation in products and services Product

Opportunities
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Source: AMR Research, 2010

#1 Supply chains must be market driven


Segmentation
- for supply chain & market alignment.

Sense demand
- At point of consumption and share signal with partners.

Shape demand
- Influence with common parts or reduced cost / pricing.

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Caterpillar Lane Strategy -Shape Demand to Reduce Volatility & Risk


Tier-N Suppliers Tier-1 Suppliers OEM / Systems Integrator Channel / Distribution Customer

Sales

Sales

Time

Sales

Time

Time

Sales Time

Supply volatility Supplier capability Supplier yield Material shortages Production downtime

Bull Whip Effect

Demand volatility Customer priorities Engineering change Production yield Service demands

If Caterpillar increases production 15% many suppliers would more than double their shipments to us Caterpillar CEO Jim Owens, WSJ 01/27/10
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#2 Orchestrate the demand driven response


Network design Sales & Operations Planning Product Portfolio Management.

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Orchestrate the demand driven response


SanDisk
- Orchestrate response for global flash memory demand - Shift from U.S. single to global multi-channel

Used third-party logistics partner Installed a governance team and analytics Profitably allocate scarce flash memory supply. Use postponement assy. in distribution network Eliminate 60%+ supply chain infrastructure costs Improve service levels to global customers
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#3 Build value in supply networks


Agility for unpredictable demand response Collaborative supply networks Predictive supplier management Operationalized innovation Capabilities maximize infrastructure utilization
- eliminating wasteful non-value added activities

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Build value in supply networks


Intel
- Predicting supplier risk

Missing days production can cost $100M. Ensure a reliable and profitable response Supplier credit coming due flagged & assessed Metrics improve supplier sensing Better decision making with a 12- to 24-month forward-looking view on potential risk.
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#4 Drive innovation in products and services


Observing how customers experience products Impact by deploying supply chains in new ways Requires supply chain to understand needs Define customer need beyond product attributes

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Innovation-operations excellence maturity


I Active Governance Integrated Teams Develop for Total Customer Experience Learning Organization Technology
Development isolated from the business Serial product development stages with handoff to operations Product innovation is internal with limited customer insight

II
Phase reviews integrate hand-off to the business Early input from operations on product innovation Customer input captured on needs and sought for product concepts

III
Cross-functional steering committee monitors progress Concurrent development of product & process Customer behavior observed driving product innovation to meet total needs

IV
Decisive leaders actively own innovation results Early customer insights drive both operation & product innovation Product, supply, and service combine to meet customer needs

Product & process requirements & specifications rigidly defined early No alignment to business needs

Singe specification for prototype product or method refined Business adapts to commercial applications

Multiple alternative specifications and prototypes tested & tradeoffs studied Value stream map to eliminate wasted information flow

Iterative improvement with knowledge capture & sharing Enhance business differentiation while eliminating waste

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Drive innovation in products and services


Lockheed Martin
- combines product & service innovation F-35 JSF

Guaranteeing aircraft availability Coordinating all service. Incorporated this need into the aircraft design Modular platform, autonomic logistics sensors
- to monitor aircraft health.

Partner with defense depots ensuring support


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#5 Sustainability maximizes planet resources


Sustainability Maturity Model three keys:
- strategic transformation - structural normalization - operational implementation.

Reactive or tactical sustainability insufficient


- Drives down costs & qualifies for green markets - wont allow an organization to emerge as leaders.

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Sustainability maximizes planet resources


Subaru of Indiana boasts a zero-waste, car assembly plant Dell the first carbon-emission-neutralized operation in PC manufacturing. Nike is pursuing off-grid energy distribution centers in Belgium MillerCoors is recycling hop waste into animal food and compost.

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Summary
Rebuild your global supply chain infrastructure Being demand driven paves the way Leaders are winning with demand-driven today

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