The Value Proposition of Supply Chain Management, 1999 Andersen Consulting,1,Manu- facturer,Tier 2 Suppliers,Tier 1 Suppliers,Wholesaler or Distributor,Retailer or Dealer,Consumers,“The Power of Business to Business Integration” Benchmarking Partners, December 1998,Cost is one of the major drivers to extend the traditional enterprise.,60% of variable costs of an organization are driven by decisions that are external to the organization., 1999 Andersen Consulting,2,Logistics expense includes: Finished Goods Transportation Warehousing Order Entry/ Customer Service Administration Inventory Carrying Cost 18%, North American Annual Total Logistics Cost Change in Percentage ,Source: Council of Logistics Management 1997 Annual Conference Proceedings, Logistics Costs and Customer Service Levels (Herbert W. Davis & William H. Drumm),The past efforts have not been without considerable rewards.,-50%,-30%,-10%,10%,30%,50%,83,84,85,86,87,88,89,90,91,92,93,94,95,96,97,%of Sales,$/CWT,$/CWT = Dollars per hundred weight., 1999 Andersen Consulting,3,Best in Class Average,1,2,Source: Logistics Management, April 1997,Yet, supply chain cost reduction still represents a significant business opportunity .,Supply Chain Spend as a Percentage of Revenues,$ 34 $ 37 $ 34 $ 20 $ 15 $ 8 $ 4 $ 10 $ 162,Size of Gap in Billions, 1999 Andersen Consulting,4,VALUE THEORY holds that to increase the value of a company, you must increase cash earnings in excess of its full cost of capital in a sustainable fashion,The supply chain must continue to drive shareholder value., 1999 Andersen Consulting,5,Revenue,Costs,Working Capital,Fixed Capital, Impact of SCM ,Greater customer service (i.e., higher market share, greater gross margins),Lower raw materials and finished goods inventory Shorter “order-to-cash” cycles,Shareholder Value,Profitability,Invested Capital,SCM has contributed to increased shareholder value by impacting traditional value levers.,Fewer physical assets (i.e., trucks, warehouses, material handling equipment, etc.),Lower cost of goods sold, transportation, warehousing, material handling and distribution management costs, 1999 Andersen Consulting,6,Costs,Assets,Customer Service,Strategic and Financial Impact,The improvement of SCM has significant strategic and financial impacts on bottom line activities.,Shareholder Value Creation Customer Service Level Increase Supply Chain Variability Reduction Inventory Reduction Cycle-time Compression,Financials / Metrics.,ROA,In-stock availability Lead time Ability to tailor to specific customer needsFixed Purchase Cost Variable Manufacturing Trans/Distribution Obsolescence/Markdown Administrative/TransactionManufacturing Distribution Centers Inventory, 1999 Andersen Consulting,7,Best in Class companies enjoy significant advantage over their competitors.,Total Supply-Chain Mgmt. Cost,“For a company with annual sales of $2 billion and a 60% cost of sales, the difference between being at the median in terms of performance and being in the top 20% is $176 million in working capital.”,7.0,6.3,0%,2%,4%,6%,8%,10%,12%,14%,1996,1997,Revenue,Best,Median,37,31,87,0,20,40,60,80,100,120,1996,1997,Calendar Days,Cash-to-Cash Cycle Time,13.1,11.6,105,1997 PRTM Study, 1999 Andersen Consulting,8,Total Days of Supply,On-Time Delivery Performance,U.S. Dept. of Commerce estimates that manufacturers have cut inventories by 9% in the 1990s saving about $82 Billion Fortune 3/3/97.,Best in Class companies enjoy significant advantage over their competitors.,1997 PRTM Study, 1999 Andersen Consulting,9,For period 1988-1996; Source Strategic Supply Chain Alignment, 1998,500% Above Average,3000% Above Average,250% Above Average,Industry leaders have demonstrated the significant value that successful supply chains can create.,Point of Sale Data and Flow Through Distribution,“Retail Direct” Strategy,Investment in Distribution Network, 1999 Andersen Consulting,10,Inventory Turns 50 times per year,The 1997 Andersen Consulting Global Electronics Study (GES) showed that total inventory in the U.S. technology industry supply chain was around $0.5-1.5 trillion and turned less than 10 times per year.,Supply Chain Opportunities for EHT Industry,Still, there are potential Inventory Reduction Opportunities 10-30% Inter-enterprise Postponement 10-30% Intra-enterprise Postponement 40-65% Direct-to-Customer Sales 10-25% Joint (Collaborative) Planning,Source: AC-Stanford-Northwesterns CDDN Study, also 1996 U.S. Census data, 1999 Andersen Consulting,11,- Inter-Company Supply Chain Practices -,Higher performing global electronics companies integrate more extensively across the supply chain., 1999 Andersen Consulting,12,Substantial value creation has been identified for computer supply chain., 1999 Andersen Consulting,13,Supply chain breakthrough has realized in significant benefits.,