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Getting Value From Industry Best Practices
the High-Tech Supply Chain Challenge
Supply Chain Challenge is also known as :
supply chain challenge,
risk management ,
supply chain management,
capabilities supply chain,
human resources management,
supply chain solutions,
planning and execution solutions manufacturers,
supply chain best practices,
supply chain management best practice,
industry best practices,
supply chain high tech,
high tech supply chain management solutions,
supply chain solutions,
high tech supply chain management CRM,
electronics supply chain,
supply chain technology.
Supply chain operations play a vital role in the success of
any consumer or high-tech OEM. But some companies
consistently outperform the field with respect to supply
chain effectiveness and efficiency. These market leaders
seem to have greater insight into demand signals and mar-
ket forecasts. Their supply chain is responsive to changing
customer expectations. And these companies are better
able to align inventory and supply plans with their custom-
er service goals.
How do these leading companies achieve and maintain
this competitive advantage? Benchmarking studies can
help provide the answer. Studies examining supply chain
operations reveal a strong correlation between supply
chain performance and the adoption of industry best
practices. But questions remain. What are those best
practices? How can your company benefit from the
lessons learned by industry leaders?
This SAP Executive Insight examines how the adoption of
industry best practices can add value to your organization
by answering the following questions:
- Will the deployment of best practices raise your
company"s performance and profitability?
- Which best practices improve customer service and
reduce supply chain costs?
- How quickly can a best-practices supply chain road map
be developed that incorporates a projection of the
benefits?
EXECUTIVE AGENDA AT A GLANCE
Challenges in the High-Tech
Supply Chain
There is little doubt about it. Business
realities such as outsourcing, globalization, and accelerating product life
cycles are increasing the complexity of
supply chain operations. As a result,
OEMs in consumer electronics, network equipment, and other high-tech
market segments are often finding it
difficult to respond quickly to new
opportunities. In particular, supply chain
complexity is eroding performance in
three areas:
- Customer service. Inaccurate forecasting is commonplace among hightech OEMs, and a flexible supply
chain is necessary in order to
respond quickly to new customer
demands. Otherwise, customer
orders are lost and order upsides can
result. Customer returns are also
generally a problem where supply
chain and service issues persist.
- Supply chain responsiveness. Market demands change quickly, and a
company"s ability to respond can be
hampered by a number of factors '
for example, a lack of global visibility
into an extended supply ecosystem,
or manual or overly complex processes. This can result in excessive lead
times that put an OEM at a competitive disadvantage.
- Inventory. Companies struggle to
develop optimized inventory policies
that balance customer service and
operational objectives. OEMs often
carry excessive inventory levels. Further, OEMs are exposed to additional
inventory liability as supply chain
partners amass inventory on their
behalf.
Getting Value from Industry Best
Practices
Yet in spite of these challenges, certain
companies continue to set the bar in
supply chain performance. It stands to
reason that using the best practices
employed by these market leaders can
have a significant impact on the efficiency and profitability of your company
as well. But where do you start?
Evaluate the "performance gap."
Benchmarking studies reveal a significant performance gap between the
market-leading OEMs and the rest of
the pack. These studies illustrate the
critical key performance indicators
(KPIs) and value drivers of these topperforming companies.
Identify best practices relevant to
your company. You can examine the
best practices used by industry leaders and identify those practices that
will support your own organization"s
business goals.
Establish a best-practice road map.
An integrated approach to adopting
best practices is critical to realizing
your performance objectives. It is
important to align business processes and technology enablers with your
company"s supply chain strategy and
IT road map.
Benchmarking and Best Practices
Evaluating the true value of your business processes and technology investments can be a challenging task. But
understanding how these investments
impact bottom-line profitability can
bring huge benefits to companies running sophisticated IT solutions. Benchmarking can help reveal the association
between operational excellence and
best practices. The America"s SAP
Users" Group (ASUG) and SAP have
collaborated on a number of benchmarking initiatives and best-practice
surveys to identify current and emerging best practices. The findings of
these programs allow you to compare
your organization"s KPIs with best-in-
class KPIs.
MEASURING THE PERFORMANCE GAP
AN ASUG/SAP BENCHMARKING STUDY
A Look at the Market Leaders
ASUG and SAP conducted a benchmarking study analyzing the supply
chain operations of more than 30 high-tech OEMs. The study examined the
business practices of these companies
and their performance in some key
areas: customer service (on-time delivery), order fulfillment lead times, inventory levels, and carrying costs. The
data from this study provides some
rather enlightening answers to some
fundamental questions.
Where do the most profitable companies focus their attention? Profitable
high-tech OEMs maintain a sharp focus
on customer service. All seven of the
most profitable manufacturers participating in the study displayed better than-average performance in on-time
delivery and order fulfillment lead time
(see Figure 1).
Is it possible to balance customer service with inventory efficiencies? The
short answer is yes. A review of the
data did not indicate any clear tradeoffs between excellence in customer
service and supply chain efficiency, as
measured by inventory levels and
inventory carrying costs.
Consider the following:
- Roughly 33% of the companies in our
study achieved better-than-average
performance in both effectiveness
and efficiency measurements. As a
result, these companies fall into the
most desirable "market leaders"
quadrant.
- Companies can balance both customer service and inventory considerations without sacrificing margins. Of
the companies identified as most
profitable, four out of seven scored
as market leaders in both dimen sions. This indicates a strong
correlation to the bottom line for
those companies that excel in both.
What is the performance gap? Perhaps the most surprising finding in the
study was the breadth of the performance gap between the market leaders
and the average and lagging companies. The leading high-tech OEMs significantly outperformed the industry in
all performance areas and notably in
the following measurements, where
they averaged:
- Over 7% better performance in ontime delivery to customers
- Shorter lead times up to 8 days in
make-to-stock and 13 days in make-to-order fulfillment
- 30% less inventory with lower carrying costs
Clearly, the leading companies are
doing something right. But what are
the best practices that enable these
companies to achieve this level of
performance?
LEARNING FROM THE LEADERS
BEST PRACTICES THAT DRIVE
IMPROVEMENTS
A Comparison Using KPIs
By comparing company performance
data and business practices, the
benchmarking study can calculate a
statistical correlation to determine the
degree of influence that specific best
practices have on supply chain KPIs.
As a result, the study identifies several
best practices that drive improvements
in the following categories.
- Customer service. Leading high-tech
OEMs use supply chain exception
messaging with real-time alerts to
provide fast response to supply chain
events as they occur ' minimizing the
impact of such events on customer
service. Supply chain event management, particularly when coupled with
robust and regular demand forecasting, can improve performance across
the supply chain.
- On-time delivery. Companies also
improve on-time delivery (see Figure
2) by leveraging vendor-managed
inventory (VMI)
to tightly integrate their highly automated execution processes.
Further, they rely on realtime demand signals to enable effective
planning for rapid replenishment.
- Make-to-order (MTO) lead times.
Integrated transportation planning
can accelerate cycle time between
core planning, order, and warehouse
management processes. Such planning also provides a collaborative
framework for working with carriers,
freight forwarders, and third-party
logistics providers. Leading companies also use advanced optimization
techniques to balance business
objectives, customer priorities, financials, and resource constraints to
improve their supply chain
responsiveness.
- Make-to-stock (MTS) lead time. The
study indicates a positive impact on
MTS lead times (see Figure 3) where
companies use integrated distribution
planning and what-if scenarios to
evaluate solutions to supply chain
problems. Here too, VMI and integrated replenishment planning have
been effective in improving
performance.
- Inventory. Integrated distribution
planning and what-if scenarios also
help leading companies realize significantly lower inventory carrying costs
(see Figure 4) and overall inventory
levels compared to the average
companies.
BUILDING A SUPPLY CHAIN ROAD MAP
SOPHISTICATED BUSINESS PROCESSES
SUPPORTED BY TECHNOLOGY
Integration Is Key
An effective road map for implementing
best practices will address different
levels of adoption within an organization"s supply chain. As reflected in the
best-practice implementations of many
leading companies, these levels can be
viewed as a maturity model (see Figure
5). Each layer is supported by technology enabling sophisticated business processes capable of spanning functional
and corporate boundaries.
- Integrated enterprise. The initial level
enables your organization with fully
integrated order-to-cash and supply
chain processes. This provides visibility within the enterprise and replaces
manual processes that inhibit a company"s ability to respond quickly to
market demands.
- Technology enablers include: A
business process platform with
core enterprise resource planning
(ERP) functionality that supports
the complexity of global high-tech
supply chains.
- Extended supply chain planning and
execution. This level addresses process challenges associated with
global operations, multiple business
units, and the orchestration of comlex planning and execution
processes.
- Technology enablers include:
Advanced demand-and-supply
planning processes with sophisticated safety stock functionality,
integrated forecasting, and crossfunctional strategy and operations
processes. Supply chain event
monitoring, as well as integrated
warehouse and logistics execution,
help provide visibility to customer
fulfillment processes throughout
the extended enterprise.
- Customer collaboration. Leading
OEMs invest heavily in demand management collaboration to increase
visibility to demand signals and to
improve overall customer service.
- Technology enablers include:
Real-time available-to-promise
(ATP) functionality enables companies to respond to customer
requests and capture new demand.
Point-of-sale (POS) and forecast
collaboration help OEMs reduce
demand variability and improve
service. Additionally, consumer
OEMs use integrated promotion
planning with VMI programs to
improve the effectiveness of marketing efforts.
- Supplier collaboration. Finally,
investment in supply-side collabora-
tion helps high-tech OEMs accelerate
response to their customers and
improve overall efficiency and visibility into their supply chain.
- Technology enablers include:
Real-time ATP functionality extending to outsourced manufacturing
partners and suppliers. This supports rapid response to new
demand upsides by leveraging the
integrated value chain. Further,
leading OEMs use multitier visibility to inventory when collaborating
with contract manufacturers to
manage risk and improve responsiveness in their supply chain.
DEFINING A DOUBLE-DIGIT PERFORMANCE
IMPROVEMENT PLAN WITH SAP
HARNESS THE POWER OF SUPPLY CHAIN BEST
PRACTICES
SAP industry experts and the value
engineering (VE) team can help your
company rapidly harness the power of
supply chain best practices. Within
weeks, these experts can create a
value-based road map that details the
projected benefits and that provides
you an implementation strategy tailored
to your company. Their goal is to
enable you to quickly adopt the ideas
that are fueling excellence at worldclass organizations.
Participation in the ASUG/SAP benchmarking and best-practice program is
free to ASUG installation members.
Participating companies receive a free
summary report highlighting key findings and results. Benchmarking and
best-practice reports are available for
supply chain as well as a wide range of
business processes including order to
cash; finance; supplier relationship
management and procurement; governance, risk, and compliance; manufacturing; and new-product development
and introduction.
For more information on any of these
offerings, please e-mail Kevin Flynn at
kevin.flynn@sap.com.
About the Authors
Kevin Flynn is an industry principal
for SAP responsible for working with
customers and prospects to
accelerate value realized through
SAP high-tech industry solutions.
Flynn has over 15 years" experience
working with high-tech OEMs and
market leaders in consumer
electronics, semiconductor, software, and contract manufacturing.
Sudakshina Ghosh helped develop,
and now leads, the ASUG/SAP
supply chain management benchmarking program. Ghosh has
conducted benchmarking studies
across multiple process areas with
OEMs from both consumer products
and high-tech industries.
Further Reading
To learn more, please visit
www.sap.com/usa or contact your
SAP representative about the
following:
- ASUG/SAP Benchmarking
Reports (See aggregate reports
on key findings for supply chain
and order to cash.)
- ASUG/SAP Best Practice
Reports (See survey-based
reports on topics such as supply
chain, master data management,
and ERP upgrades.)
- SAP Executive Insight Series on
Growth (This series includes
articles on growth through
mergers and acquisitions and
organic growth.)
- Fulfilling the Promise of Outsource
Manufacturing ' White Paper