At this point, we have introduced several ideas:
_ A supply chain maturity model can be used to calibrate a firm�s position
with regard to advancing to the highest appropriate level and to determine
the order-of-magnitude benefits for making such a progression.
_ The SCOR� model can be applied to match the best practices across an
advanced progression with the elements of that model.
_ A series of matrices can be used to determine that the best practices have
been achieved at the desired level of maturity.
_ Customer satisfaction, delivered through an intelligent value network,
will be a major factor distinguishing the businesses linked in a wellplanned
and -executed extended enterprise.
We have also indicated that business process management and business process
management systems should be used to make the communication breakthrough
between important constituents of the supply chain network and to gain access
into disparate technology systems, so that business allies can access the necessary
knowledge across the enterprise, of which they are one link, to make
important end-to-end process changes. With those concepts as our background,
Our basic premise is that once the appropriate connections are made between
business processes within the network, so a view of potential optimized conditions
and highest possible customer satisfaction can be attained, attention
should turn to pursuing the necessary improvement effort while verifying the
enhanced financial performance. This means that the real opportunities for
increasing value move from nebulous concepts to identified additions to revenues
and profits. This thesis is encapsulated in the transition values for each
process in the maturity model introduced in the first chapter. By identifying a
firm�s and its enterprise�s current and desired status on the maturity model and
the SCOR� matrices, and relating the examples, improvement percentages, and
actual numbers to be documented through case studies to one�s own financial
statements, the reader will be able to create a first-cut value-based transformation
plan.
That means the processes being improved are cared for not simply because
they are elements of the supply chain, but because the improvements can be
tracked to financial performance. This idea is no longer part of an elusive quest.
Recent reports by major companies are beginning to verify exactly what can
be accomplished. In one specific example, IBM Corporation determined that its
2000 financial statement showed an inventory of roughly $4.8 billion, while
sales were $88.4 billion. Using a formula for days of inventory, which divided
the amount of inventory by the sales and multiplied the result by 365 days, the
company reckoned its days of inventory at 19.7 days. A one-day reduction to
that figure ($4.8 billion divided by 19.7 days) would generate a one-time positive
cash flow of $241 million.
For further substantiation of the potential for ASCM, a few examples verify
what can be brought to the balance sheet and profit and loss (P&L) statements:
_ Gillette Company, the Boston-based manufacturer of shaving and oral
care products and Duracell batteries, has reduced its inventory by 30%,
or $400 million, since the January 2000 formation of its supply chain
organization.
_ Quaker Oats, a division of Pepsico, Inc., through its supply chain initiative
dubbed North American Manufacturing Study, expects to achieve
savings between $60 and $70 million.
_ KYB Manufacturing, a Franklin, New Jersey supplier of automotive
struts and shock absorbers, experienced a volume explosion from 80,000
units per month to over 500,000. Applying supply chain techniques and
enabling technology to track inventory, order parts, and forecast demand,
the company reduced raw material inventory from $7.8 million
to $6.3 million. Scrap has been reduced by 50%, while errors have been
eliminated and on-time rates have skyrocketed.
_ Unilever, the global consumer goods firm, through its Path to Growth
supply chain effort, expects an annual sales growth of 5 to 6%, coupled
with a 16% increase in operating margins.
_ IBM�s Integrated Supply Chain Group is expecting to cut up to $2
billion from its $40 billion raw material and supplies spend.
_ Johnson & Johnson Medical, Inc. saw an increase in forecast accuracy
from 12% to 53%, a reduction in inventory turnaround from 154 days
to 110 days, and an increase in customer service from 95% to 99.38%.
These types of documentation serve to verify that the search for real financial
gains is not a spurious effort, but is bringing the long-sought improvements to
the P&L statement and balance sheet.
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