COMPETING WITH SUPPLY CHAIN STRATEGY

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RightChain ™

Maximizing Financial, Service and Operations Performance with Supply Chain Strategy

Edward H. Frazelle, Ph.D. President & CEO, Logistics Resources International Founder, RightChain™ Institute

RightChain ™ : Maximizing Financial and Service Performance with Supply Chain Strategy

Logistics and Supply Chains LOGISTICS Logistics is the flow of material, information, and currency between consumers and suppliers.

SUPPLY CHAIN A supply chain is the infrastructure

of factories, warehouses, ports, information systems, highways, railways, and terminals connecting consumers and suppliers.

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RightChain ™ Framework

Outsourcing

Warehousing

Customer Service

Metrics

Technology

Transportation

Supply Chain Activities

Supply Chain Enablers

Sourcing & Procurement

Inventory Management

Planning

Organization

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RightChain ™ Framework

Outsourcing

Warehousing

MISSION

Customer Service

Metrics

Technology

Transportation

Supply Chain Activities

Supply Chain Enablers

Sourcing & Procurement

Inventory Management

SUPPLY

GOVERNANCE

Planning

Organization

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The RightChain ™ Bridge

Government Regulations

Economy

Customer Service Policy

Inventory Strategy

Customer Requirements

Metrics

Supply Strategy

Supply Chain Strategy

Transportation Strategy

Business Conditions

RightChain ™

Labor

Warehousing Strategy

Geography

Organization

Outsourcing Strategy

Security & Compliance

Supplier Capabilities

SCIS Strategy

Technology

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The Ten Decisions that Define Supply Chain Strategy

MISSION 1. What is our supply chain mission ; and what metrics and targets reflect it? 2. What should our customer service policy be? SUPPLY 3. How much inventory should we carry and where? 4. Who should we source from and in what quantity ? LOGISTICS 5. How should our transportation network be designed and operated? 6. How should our warehouses be designed and operated? SUPPORT 7. What supply chain activities should we outsource and to who ? 8. What supply chain information systems are required to support my supply chain and who should manage them? GOVERNANCE 9. What supply chain planning model and methodology optimizes our supply chain? 10.How should we structure and develop our supply chain organization ?

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From the Wrong Chain to the RightChain ™

Cost per Unit

Transport

Warehouse

Customer

Factory Vendor

Maximize Vehicle Utilization

Maximize Line Yield Minimize Unit Cost

Max Labor Utilization Max Space Utilization

Maximize Sales

Factory Vendor Wrong Chain RightChain ™

Transport

Warehouse

Meet forecast pickup & delivery schedule

Customer

Meet forecast pickup & delivery schedule

at lowest possible cost while meeting quality goals.

Meet forecasted schedule

Meet forecast throughput & storage requirements lowest possible cost while meeting quality goals.

at lowest possible cost while meeting quality goals.

Minimize total supply chain costs. Meet pre-determined customer service targets. Max imize forecast accuracy.

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Supply Chains in Perspective Complexity Number of Products Mix of Products Demand Variability Geography Number & Mix of Customers/Contracts Number & Mix of Suppliers Regulations Time Zones & Country Borders

Physicality Heavy Hazardous Hard Conditions Dimensions Rurality

Asset Intensity Infrastructure Requirements

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Supply Chains in Perspective

Physicality

Military

Chemicals/Plastics

Mining/NatRes

Food & Beverage

Aerospace

Heavy Industry

CPG

Automotive

Service Parts

Healthcare

Semi-Conductor

Bio/Pharma

Retail

Mail Order

Complexity

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Supply Chain Complexity & Supply Chain Costs

Novice

Supply Chain Costs • Transport Costs • Warehousing Costs • Management Costs • Inventory Costs • Lost Sales Costs

Basic

Intermediate Advanced

Supply Chain Costs

Supply Chain Complexity

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Returning to 2016 supply chain performance is worth $51,200,000 per year.

Supply Chain Cost per Case vs Number of SKUs

2016 2017 2018 2019 2020 2021

RightChain™ SKUs Optimization for a Major Food & Beverage Company

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Supply Chain Complexity & Capability Complexity

Complexity

Capability

Simplification

Capability

Complexity

Development

Capability

Complexity

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Supply Chain Complexity Index ™

https://www.surveymonkey.com/s/SupplyChainComplexityCapabilityAnalysis

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Supply Chain Capabilities Index ™

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Supply Chain Capability vs Complexity

Capability

Swimming

Sinking

Complexity

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The Ten Decisions that Define Supply Chain Strategy

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Supply Chain Servant Leadership Model

• Serve

customers with industry leading perfect order percentage.

employees with a great place to work.

GPTW POP

CDI

ROIC

• Serve the

community with a high community development index.

• Serve shareholders with industry leading return relative to risk.

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RightChain ™ Supply Chain Scoreboard

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RightChain ™ Scoreboard

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Supply Chain Quality Cost Analysis

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The Ten Decisions that Define Supply Chain Strategy

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RightChain ™ Service 360

ROIC Ranking by Customer

Gross Margin % by Customer

A small minority of customers yield the large majority of return and profit.

GMROI by Customer

Profit by Customer

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Most Valuable Customer Rankings

Based upon a mix of factors including sales value, sales volume, profit, profit %, loyalty and other strategic factors we create a Most Valuable Customer ranking. The Most Valuable Customer ranking feeds the ABCD segmentation of customers within business channels.

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RightChain SKUs ™ : SKU Valuation

A small minority of products yield the large majority of return and profit.

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RightChain ™ Pricing: Order Valuation

Not all orders are created equal. In this case the first 30% of orders yield the first 80% of profit. The order valuation computes the profit and profit % for each order and prioritizes order accordingly.

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Supply Chain Common Sense IF a small minority of the customers yield a large majority of the profit AND a small minority of the products yield a large majority of the profit AND a small minority of the orders yield a large majority of the profit…

SHOULD WE TREAT THEM ALL THE SAME?

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RightChain ™ Service Policy Example

Response Time (Hours)

Value Added Services

Minimum Order Quantity Consolidation

Service Segment

Customer Item Class Fill Rate

Returns Policy

100% Custom None 100% Custom None 100% Custom None 50% Limited 1000+ 50% Limited 500+ 0% None 100+ 50% None 5000+ 0% None 1000+ 0% None 500+

Custom Custom Custom

A - A 99.0% 24 A - B 95% 24 A - C 85% 48 B - A 97% 24 B - B 90% 48 B - C 80% 72 C - A 90% 48 C - B 75% 72 C - C 50% 96

III IV

Partial Partial Partial Partial Partial Partial

VII VIII

RightChain™ Service Policy for a Major Semiconductor Manufacturer

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RightChain ™ Service Policy

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RightChain ™ Pricing Optimization

Logistics Activity Cost

Logistical Margin (149.51) $

Pounds Shipped Sales

COGS

GM Inbound Whse Outbound Total

Pallets

per Lb % Sales

0.25

311.25 622.50

248 495 990

$ $

$ $ $

225.00 450.00 900.00

$ $ $

13.46 26.92 53.85

$ $ $ $

9.95

212.35 $ 212.35 $ 212.35 $ 322.12 $ 491.64 $ 629.59 $ 750.36 $ 859.78 $ 1,230.56 $ 1,400.00 $

235.76 $ $ 0.95 75.7% 259.17 $ $ 0.52 41.6% 305.99 $ $ 0.31 24.6% 509.41 $ $ 0.26 20.5% 866.22 $ $ 0.22 17.4% 1,191.47 $ $ 0.20 16.0% 1,499.53 $ $ 0.19 15.1% 1,796.24 $ $ 0.18 14.4% 2,916.19 $ $ 0.16 13.0% 3,834.80 $ $ 0.15 11.8%

86.25

$ $

(86.67)

0.5

172.50 $ 345.00 $ 690.00 $ 1,380.00 $ 2,070.00 $ 2,760.00 $ 3,450.00 $ 6,210.00 $ 8,970.00 $

19.90 39.80 79.60

39.01

1 2 4 6 8

1,245.00 $ 2,490.00 $ 4,980.00 $ 7,470.00 $ 9,960.00 $ 12,450.00 $ 22,410.00 $ 32,370.00 $

180.59 $ 513.78 $ 878.53 $ 1,260.47 $ 1,653.76 $ 3,293.81 $ 5,135.20 $

1,980 3,960 5,940 7,920 9,900

1,800.00 $ 3,600.00 $ 5,400.00 $ 7,200.00 $ 9,000.00 $ 16,200.00 $ 23,400.00 $

107.69 $ 215.38 $ 323.08 $ 430.77 $ 538.46 $ 969.23 $ 1,400.00 $

159.20 $ 238.80 $ 318.40 $ 398.00 $ 716.40 $ 1,034.80 $

18 17,820 26 25,740

RightChain™ Pricing Optimization for a Major Food Company

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RightChain ™ : Service Policy

**(EBIT Priority could be driven heavily by quarter)

Airlines / New Parts

Repair Shops/New Parts

(**Diff - is How much Revenue &Margin - EBIT)

Types of Orders

Aircraft Status Customer Part Types Order Profit

Types of Orders

Aircraft Status Customer Part Types Order Profit

A Orders

AOG (Airline on Ground) Deferred (on minimum equipment list (Airplane can still

EI (End Item) / LRU

High

A Orders

AOG (Airline on Ground)

LRU & Component LRU & Component s LRU & Component LRU & Component

High

B Orders

LRU Medium B Orders

Medium

Line Stop

C Orders

Pending Maintenance

LRU / Consumable

Low C Orders

Out of Stock - not an immediate

Low

D Orders

Replenishment Order

A,B,C

Low

OEM's

Military

(**Diff - is How much Revenue &Margin - EBIT)

Types of Orders

Aircraft Status Customer Part Types Order Profit

Types of Orders

Aircraft Status Customer Part Types Order Profit

A Orders

Line Stop

A End Items / Parts

High

A Orders

DPAS Rated Order

EI/Parts

High

B Orders

Contract Date

End Items / Parts

Medium B Orders

Ordered Inside of Lead Time Customer Date

EI/Parts

Medium

C Orders

EI/Parts

Low

Repair Parts Types of Orders

(**Diff - is How much Revenue &Margin - EBIT)

Aircraft Status Customer Part Types Order Profit

Priority Order Ranking 5 = AOG (4 hr service) 4 = Critical (24 hr service) 1,2,3 = 7 Day TAT

A Orders

AOG (Airline on Ground)

LRU & Component LRU & Component LRU & Component LRU & Component

High

B Orders

Line Stop

Medium

C Orders

Out of Stock - not an immediate

Low

D Orders

Replenishment Order

A,B,C

Low

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The Ten Decisions that Define Supply Chain Strategy

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RightChain ™ Inventory Paretos

6% of SKUs comprise 80% of inventory cube.

17% of SKUs comprise 80% of inventory investment.

14% of SKUs comprise 80% of inventory discrepancies.

29% of SKUs comprise 80% of inventory pieces.

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Supply Chain Common Sense

IF a small minority of the products comprise large majority of the inventory value AND a small minority of the products comprise a large majority of the inventory cube AND a small minority of the products comprise a large majority of the discrepancies … SHOULD WE TREAT THEM ALL THE SAME?

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RightChain ™ Inventory

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RightStock ™ Simulation - Galletas

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RightChain ™ Simulation – Jello

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RightChain ™ SKUs | P&G

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Build Curve Optimization Leadtime Synchronization

Current

$632MM

Overdue

Assembly

Inventory

$Inventory $Inventory $Inventory

Late Start

Inventory

Actual Start

MRP Completion

MRP Start

Actual Completion

Days

Synchronization I Pull I

$488MM

SKU Standardization I Leadtime Reduction I Assembly Floor Turnover I

Overdue

Assembly

Inventory

Late Start

Inventory

Phase I Savings Phase I Savings

MRP Completion

MRP Start

Actual Completion

Days

Actual Start

Synchronization II Pull II

Optimal Build Curve Inventory

$302MM

SKU Standardization II Leadtime Reduction II Assembly Floor Turnover II

Phase II Savings

MRP/Actual Start

Days

MRP/Actual Completion

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Forecast & Leadtime Optimization Synergies

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Wrong, Long, Variable, and Late

• Less than 1/3 of part numbers have system leadtimes within 50% of actual leadtimes.

• The average leadtime is 209 days. 75% of part numbers have leadtimes greater than 125 days. 25% of part numbers are burdened with leadtimes greater than 276 days.

Inaccurate System Leadtimes

Excessively Long Leadtimes

Highly Variable Leadtimes

Late Leadtimes

• 50% of part numbers have a worst case lateness of at least 25%. 25% of part numbers have a worst case lateness of at least 50%.

• The average range of a leadtime is 68% of the leadtime. 25% of part numbers have ranges greater than 88% of their leadtime.

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Inventory & Leadtime Simulation Results

By reducing the worst case leadtime by 5% for each part number, a $226,000,000 inventory investment is required for 100% on time starts. That’s 19% less inventory; or $54,000,000.

Assuming inventory to cover each part’s current worst case leadtime, a $280,000,000 inventory investment is required for 100% on-time starts.

By reducing the worst case leadtime by 10% for each part number, a $174,000,000 inventory investment is required for 100% on time starts.That’s 38% less inventory; or $106,000,000.

By reducing the worst case leadtime by 15% for each part number, a $135,000,000 inventory investment is required for 100% on time starts. That’s 52% less inventory; or $145,000,000.

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RightChain ™ Deployment Optimization

RightPloy™ Deployment Optimization for Major Beverage Company

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Average Inventory Value vs Probability of Shutdown

Avg Inventory Value, Days On Hand

Waste

Probability of Shutdown

Avg Inventory Value, Days On Hand

Fill Rate / Service Level

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RightChain ™ How to optimize the financial and service performance of inventory.

RightRate™ Optimize Inventory Carrying Rate

RightSight™ Optimize Supply Chain Visibility

Safety Stock Inventory

S E R V I C E P E R F O R M A N C E

RightPloy™ Optimize Inventory Deployment RightLots™

Optimize Purchase Order & Setup Costs

Just-in-Case Inventory

RightTimes™ Optimize Lead Times in All Supply Chain Links & Nodes

Lot Size Inventory

RightCast™ Optimize Forecast Accuracy

RightSKUs™ Optimize SKU Base

Pipeline or In Transit Inventory

FINANCIAL PERFORMANCE

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RightChain ™ Inventory Results

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RightChain ™ Development Plan

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RightChain ™ Forecasting Pilot Results

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Mining Value Stream Optimization

Wash Capacity

Rail Capacity/Schedule

Wash Costs

Operating

How many tons of each grade should we wash?

How many tons of each grade should we rail?

Rail Costs

Plant ICR

Port ICR Port

How much plant inventory should we carry?

How much port inventory should we carry?

Deployment

Plant Inventory Capacity

Inventory Capacity

Market Prices

Purchase Costs

How many tons of each grade should we sell/ship?

How many tons of each grade should we buy?

Trading

Ship Capacity/Schedule

Purchase Capacity

Decisions Capacities Costs/Prices

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MineChain ™ Optimization & Simulation

Baseline

Rail Constrained

Wash Constrained

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The Ten Decisions that Define Supply Chain Strategy

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Supplier Spend Pareto

12% of suppliers comprise 80% of spending.

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Supplier Paretos

Gross Margin

GMROI

ROIC

Profit

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Supply Chain Common Sense IF a small minority of the SUPPLIERs yield a large majority of the profit AND a small minority of the SUPPLIERs comprise a large majority of the spend AND a small minority of the SUPPLIERSs comprise a large majority of the problems … SHOULD WE TREAT THEM ALL THE SAME?

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Sourcing Optimization

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RightChain ™ Sourcing Sourcing Optimization System

GMROI

Total Cost of Ownership

Gross Margin %

Gross Margin

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Global Sourcing Optimization

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Example Make-Buy Global Operating Footprint

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RightChain ™ Supplier Scorecard

RightBuys™ Supplier Scoreboard for a Major Aerospace Company

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The Ten Decisions that Define Supply Chain Strategy

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Lane & Shipment Profile

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Supply Chain Common Sense IF a small minority of CARRIERS comprise a large majority of the spend AND a small minority of LANES yield a large majority of the profit AND a small minority of SHIPMENTS yield a large majority of the profit … SHOULD WE TREAT THEM ALL THE SAME?

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Global Supply Chain - Current

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Global Supply Chain - Optimized

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Value Chain Development Program

Current

2014

2015+

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RightChain ™ Sourcing Pratt & Whitney

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Disney Merchandise Sourcing Map

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RightChain ™ Global Supply Chain Strategy

Long Beach Consolidation – Haul 53s

Baseline

DLR/CA Consolidation – Rail 53s

DLR/CA Consolidation – Haul 53s RightChain™ Global Supply Chain Strategy a Major Toy Company

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RightChain ™ Global Supply Chain Strategy

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Global Supply Chain Nodes and Modes

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RightChain ™ Loads Optimization

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The Ten Decisions that Define Supply Chain Strategy

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SKU Pareto Should we have the SKU?

15% of the SKUs yield 80% of the picking activity.

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Warehouse Order Profiles Should we have the order?

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Order Profiles by Customer Should we accept/pick the order?

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SKU % Days Picked

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Supply Chain Common Sense IF a small minority of SKUs comprise a large majority of the picks AND a small minority of ORDERS comprise large majority of the picking AND a small minority of SKUs comprise a large majority of the cube … SHOULD WE TREAT THEM ALL THE SAME?

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Storage Mode and Slotting Optimization

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RightChain ™ Warehousing Optimization

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RightChain ™ Oxxo

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Layout and Flow Optimization

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Daily Dealer Delivery

Tue

Wed

Mon

DLRs place Urgent orders on other days

DLR order (Cut-off 5:00 pm)

Pick/Pack

Ship

DLR arrival

Weekly Order

Once a week, 2 nd /3 rd day delivery

DLR arrival

Daily Order

Pick/Pack Ship

DLR order

(2:00pm /4:00 pm)

Daily, Next Morning arrival

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Example Honda DC’s

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RightChain ™ Warehousing Honda

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Summary Scenario Evaluation

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WMS Requirements

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Caterpillar Logistics

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Caterpillar Logistics

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Caterpillar Logistics

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Caterpillar Metrics & Culture

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ERP vs WMS vs 3PL

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The Ten Decisions that Define Supply Chain Strategy

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Logistics Outsourcing Decision Tree

Is outsourcing culturally acceptable?

Can the culture be changed?

Yes

Should logistics be a core competency?

Outsource

Yes

Insource

Yes

Can logistics outsourcing be justified?

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3PL Evaluation Example

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Logistics Outsourcing Optimization Matrix

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Un-weighted and Weighted 3PL Evaluations

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SSB Logistics Development Plan

Short Term Fleet Opportunities

Short Term Logistics Opportunities

Short Term TMS/Tech Opportunities

Short Term Carrier Opportunities

2014Q2 2014Q3 2014Q3/4 2015

Fleet Optimization & Fleet Management Requirements

Carrier Optimization & Carrier Management Requirements

TMS & Technology Requirements

Logistics Assessment

Logistics Best-We-Can-Be (BWCB)

4PL Requirements

Insource/ Outsource?

4PL RFI/RFP

Logistics Implementation

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Logistics Management Models

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The Ten Decisions that Define Supply Chain Strategy

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Supply Chain Information Systems Strategy

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Industry Trends

Suppliers

CPFR

Plan

Forecast

Procurement Exchange

Forecasting DP

Bids

Production Planning

Supply Management System

P/Os, Acceptances

Orders

Plan

Schedule

Production Scheduling

C U S T O M E R S

Communication

Inquiry

Cell Assignment

Internet

K E Y

Customer Response System

Status

Inventory Availability

Cell Management

Trading Partner

Mods

Application

ETA

Warehouse Management System

Orders Delivery Notice

Load Plan

Carriers

Transportation Management System

CPFR

Cloud-Based Supply Chain Management

Bids

Transportation Exchange

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Project Evaluation Summary

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SCIS Vendor Selection

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The Ten Decisions that Define Supply Chain Strategy

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FLIOPS Finance, Logistics, Inventory & Operations Planning System

FLIOPS Calendar Synchronization

FLIOPS Command Center

FLIOPS Portal

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IBP/S&OP Simulator

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IBP Pratt & Whitney

1. IBP Pratt helps PW operate as the world’s most profitable aerospace BU. 2. IBP Pratt allows PW to offer their industry’s highest customer service.

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FlightChain ™ Development Plan

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Collaborative Planning

Production Capacity

Production Schedule

POS, Forecasts, Time Windows Delivery Schedule

Storage/Handling Capacity Operating Schedule

Lane Capacities

Transportation Schedule

Retailer

Manufacturer

Wholesaler

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IBP Disney

1. IBP helped Disney reduce inventory levels by 33%. 2. IBP helped Disney increase service levels from 82% to 94% 3. IBP helped Disney cut mark downs in half. 4. IBP helped Disney increase profit by 2% of sales. 5. IBP increased retail sales per square foot by 10%.

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The Business and the Supply Chain

Business Campaign

Store Service Policy

Assortment

Initiatives Enablers Requirements

Back Room

Distribution Center

Inbound Transportation

Shelf

Delivery

Merchandising

Supplier

Supply Chain Performance Metrics

Delivery Frequency Optimization

Shelf Optimization

Network Optimization

Time Window Optimization

Sourcing Optimization

Pick/Slot/Layout Optimization

Supply Chain Forecasting Inventory/Deployment Optimization Supply Chain Packaging Optimization

Lot Size Optimization

Collaboration

Supply Chain Analytics Supply Chain Education

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MineChain ™ Financial Opportunity Assessment

$13.0

$11.0

$8.0

$6.3

$5.8

| 112

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