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The Supply Chain Challenge: Creating Value

The Supply Chain Challenge: Creating Value. Wayne McDonnell Director, Advisory PwC. Preparing for the “New Normal”. In an era of increased change and unanticipated events, volatility is becoming the “new normal”. Emerging from the “Save” Mentality.

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The Supply Chain Challenge: Creating Value

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  1. The Supply Chain Challenge:Creating Value Wayne McDonnell Director, Advisory PwC

  2. Preparing for the “New Normal” In an era of increased change and unanticipated events, volatility is becoming the “new normal”

  3. Emerging from the “Save” Mentality Companies are shifting from the ‘save’ mentality to seeing the effects a robust and flexible supply chain has on top line growth and bottom line value Companies can realize the strategic advantage of a robust supply chain by modifying the ‘old’ view of its capabilities

  4. How do we create value? Supply Chain Strategy and Capabilities

  5. Six key elements of an end to end supply chain planning process 1 2 Sales and Operations Planning Process 3 Step 1 Step 4 Demand Planning Implementation Demand Plan INTEGRATED Step 3 Demand / SupplyBalancing Step 2 Step 4 Supply Planning Implementation Supply Plan 4 5 6 .

  6. Understanding Segmentation Seven Step Process

  7. The Power of Supply Chain Segmentation Grouping Planning Benefits A I. High High B Volume A C FLEXIBLE II. A Volume B B Volume III. C C Event/ Promotions Low Low NPI/ EOL Low/Constant High/Erratic Consumption Variability Forecast Accuracy Safety Stock Supply chain leaders know how to created differentiated supply responses to various demands…and create / deliver value

  8. The Power of Supply Chain Segmentation Smallest Return on Investment SC PlanningPractices Forecast Accuracy and Process Improvement DifferentiatedEnd-to-endSupply ChainModel SC Planning Processesand Systems AGILE A demand driven, near real-time supply chain successfully optimizes inventory and manages other costs related forecasting error Reduce Dependency on the Forecast Highest Return on Investment Supply Chain/Performance Impact Strategic Options Deploy processes toincrease forecast accuracy -and- Optimize Safety Stock Co-planning NPI / EOL Event/ Promotion Process Reduce Forecast / SC Planning Dependency Deploy strategies to reduce forecast dependency whenever possible Seasonality Statistic Aggressive Lead Time Reduction Optimal Safety Stock Postpone Differentiation MTO Safety Stock Increasing forecast accuracy and reducing forecast dependency is equally managed by supply chain leaders

  9. Understanding Net Profitability Worst: • Ignores substantial costs to serve • Justifies unprofitable business • Leads to business complexity ILLUSTRATIVE Managing primarily by Gross Margin Customers that Gross Margin suggests are the “best” often become the “worst” when all cost are included Slightly Better: • Includes only direct variable costs • Excludes substantial costs that should be managed as variable but typically are not (overhead, SGA, etc.) Managing primarily by Contribution Margin • Includes all costs of business • Clarifies profit contributing and non-contributing customers, products, channels, etc. • Leads to better management and higher performance Best: Managing by primarily by Net Margin Profitability modeling enables fully loaded net margin visibility and provides new insight into the drivers of financial performance

  10. Enterprise Profit Realization (EPR) Product Life Cycle Mgmt Enterprise Profitability Realization Framework Customer Life Cycle Mgmt • Product line rationalization • Marketing and technology investment return/ affordability • Price Setting and Administration • Product line profitability by segment • Portfolio management • Marketing OpEx • PLC process improvement and tools • Customer portfolio rationalization • Sales force effectiveness • Pricing strategy • Customer profitability by segment and channel • Account management • Sales OpEx • CLC process improvement and tools Corporate/BU Vision, Mission, Values and Strategy Customer Lifecycle Management Product Lifecycle Management Profitability Modeling & Measurement Profitability Modeling Supply Chain Mgmt Profitability Modeling is the critical enabler to moving to best in class. Factoring in fully loaded costsandfully allocated discounts and revenue offsets at a transaction level is critical. It enables transparency into true customer and product profitability and enables fact-based decision making using new Performance Metrics • Sourcing improvement • Manufacturing process improvement • Distribution network optimization • Inventory management • Freight cost reduction • SLA s reflect cost to serve • Supply Chain OPEX Supply Chain Management Delivery Model EPR is based on achieving dramatic improvements in customer lifecycle, product lifecycle, and supply chain management

  11. Profitability Opportunities Price is the largest contributor to NOI improvement, but rarely used 1 Increase Revenue 2 Improve Gross Profit Large number of products have low sales and serve low or unprofitable customers Decrease COGS 3 Large customers do not always equate to profitable customers Reduce Selling/ Marketing Costs Economic Profit Decrease SG&A 4 Sales force is structured to sell products, not target profitable customers Reduce Distribution Costs 5 Reduce Admin. Costs Many Marketing/Media Initiatives result in low or negative ROI Increase Capital Efficiency Excess inventories due to customer/ product inefficiencies Improve Cost of Capital Five typical issues that are usually not addressed by traditional cost-cutting and restructuring initiatives; KEY is understanding Gross to Net

  12. Supply Chain Opportunities ILLUSTRATIVE Plan Source Make Deliver Return Profitability modeling enables supply chain opportunities assessment on five key supply chain areas; performed based on benchmarking

  13. Improving Profitability Develop Profitability Model Rationalize Customer Portfolio Rationalize Product Portfolio Optimize Operations Exit unprofitable customers Sunset products that no longer sell Rationalize Sales and Supply Chain for less complex portfolio Create end-to-end financial picture of the enterprise Shift low profitable customers to distributors Rationalize low performing products to tier 2 or 3 customers • Align sales to more profitable customers/products Customers Customers Customers Customers Products Products Products Products Sales Sales Sales Sales Supply Chain Supply Chain Supply Chain Supply Chain Start with 360 degree profitability view of the enterprise, then rationalize customers and products, and optimize operations and supply chain

  14. Thank You! We create client value by building the critical link between strategy and execution…what is your strategy?

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