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White Paper

Supply
Chain
Supply chain transformation is becoming a
critical element for driving business results
Insights from the 2006 Supply Chain Executive Summit
Jointly Hosted by IBM and Stanford University
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Introduction
The Supply Chain Management Executive Summit, jointly hosted by IBM
and Stanford University, was held on October 23-24, 2006. The goal for the
event was to create an open dialogue among senior supply chain executives
who have successfully transformed their business, or are in the midst of such
a transformation. The event strove to provide a forum conducive to sharing
insights through client presentations, panel discussion and break-out sessions.
There were 36 senior SCM executives in attendance from organizations such
as, Ace Hardware, Affymetrix, AMR Research, Ascension Health, Boeing IDS,
CEMEX, Charter Steel, Cisco, Flextronics, Hitachi, Honeywell, IBM, Johnson
& Johnson, KLA-Tencor, Limited Brands, McKesson, Motorola, Nibco, Nike,
NiSource, Nissan, Nokia, Rio Tinto Iron Core, Safeway, Stanford Hospital, Sun
Microsystems, Teknor Apex, and Wolverine Worldwide.
This paper will share the highlights from this event in order to provide insights
for other executives as they deal with company-changing transformation efforts
and the growing, critical role that the supply chain is playing for organizations.
Supply Chain Transformation Perspectives
Three organizations shared their unique supply chain transformation experiences:
Nokia, Cisco and Nike.
Supply Chain Transformation: Scope Dimension
(The Strategy)
Jean- Francois Baril, Sr. Vice President, Sourcing & Procurement, Nokia
With an extremely complex supply chain that handles 100 billion components, 60
strategic suppliers, and 10 factories worldwide, Nokia had to be extremely focused
in their transformation efforts. New product introductions and variations are also
intense 1 phone can represent 170 handset variations and 250 sales package
variants. To support this complexity, the operations philosophy has been: think
globally, act locally, i.e. balancing localized decision-making with global planning.
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Nokia started their SCM transformation in 1995 with the strategy of replacing
inventory with information and creating a pull-driven supply chain with end-to-
end integration linking suppliers, factories, telecom operators, channel partners,
contract manufacturers, banks, sales, iHubs, and logistics service provider to
the consumer. Their approach was to create the most efficient supplier network
to offer the best solutions to meet customer expectations. Fundamentals for
success included creating a value-based partnership with suppliers, based upon
factual information, leadership, flexibility and trust - Making the impossible
possible through collaboration. Based on this approach, the supplier network is
now considered the central point for reaching their corporate objectives: Great
products, Operational excellence, and Customer satisfaction.
The results of their transformation have been impressive with increased sales
and reduced component inventories not only within Nokia, but also reduced
inventories throughout the pipeline, including supplier and customer inventories.
Sourcing excellence is a key ingredient for Nokias business model transformation.
Benefits include time-to-market, risk management, agility and financial model flexibility.
Nokia believes two critical factors were instrumental to their transformation
success: leadership and the communication of the vision. The leadership
philosophy relies on four equally important elements: head, heart, hands, and
guts. These leadership attributes are exemplified through energy and passion,
trust as the base for business, focus and drive, active communication and finally,
flawless execution.
Supply Chain Transformation: Focus Dimension
(The Initiatives)
Angel Mendez Sr. Vice President, Worldwide Manufacturing. Cisco Systems
Ciscos supply chain transformation story is about continuous innovation and
growth. The drivers for change at Cisco included the evolution of Ciscos core
markets, the growth of emerging and advanced technologies, the development
of emerging countries, the diverse customer segments the company serves, and
investor expectations. There are four major enablers of Ciscos transformation:
Focused Destination, Focused Execution, Focused Oversight and Focused Attitude.
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Cisco believes that a focused destination is required so that the team can
understand, rally behind and agree upon the overall call to action. This focuses
the organization on high-impact functions and capabilities. Roadmaps, with time
boundaries, provide unification and motivation to align diverse teams to achieve a
common objective. All of these efforts are expected to help Cisco achieve its goal
of becoming the undisputed leader in supply chain management.
Focused execution is being phased along three major dimensions. The first
dimension entails organizational re-tooling, inventory reduction and establishing
basic demand management capabilities. The second dimension includes
developing strategic supply chain alliances, transitioning production to low-cost
jurisdictions and launching optimization initiatives. The third dimension focuses
on developing a world-class operation with specific attributes, ranging from lean
manufacturing to differentiated supply chain strategies based upon product and
customer segmentation.
Governance and assigned roles are the thrust behind focused oversight.
The Manufacturing Excellence Board sets the strategic direction, reviews and
approves the portfolio roadmap and manages resources. The operating committee
maintains the consolidated roadmap, escalates funding recommendations and
develops scenarios. The program management offices maintain planned-versus-
actual results, govern projects and resolve issues.
Perhaps the most critical dimension to Ciscos transformation is its focused
attitude. This entails developing a mindset of change and defining a high-
performance operating system. Leadership sets the direction, inspires people
and rallies them around the strategic vision. Cisco understands that its supply
chain transformation efforts will be ongoing as the company strives to achieve
manufacturing excellence.
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Supply Chain Transformation: Orchestrate Dimension
(The Extended Network)
Nick Athanasakos, Vice President, US Supply Chain, Nike
Nike enjoys a strong brand, well-managed distribution processes and a
compelling product offering. However, with new competitive entrants with better
service and lead time, and even fashion brands moving into their market space,
supply chain excellence has been elevated in the past few years, and is viewed as
a competitive weapon.
Nikes Just Do It motto has affected the mentality of the company and the
transformation agenda is calling for change. Their new Process Excellence mantra
calls for: process innovation (do it different), continuous improvement (do it
better), and execution discipline (do it right). In support of this philosophy, their
transformation initiative is defined as the 5 pillars of the supply chain house:
achieve delivery precision through disciplined end-to-end execution
enable category consumer focus w/ multiple supply chains and speed to market
think and act like a retailer, because we are; focus on the customer
maintain pull-market through disciplined inventory
optimize cost & infrastructure to drive profitable growth
In meeting the major object of improving customer satisfaction, this supply
chain transformation is focused on the customer meeting customer product
requirements, improving customer relationships, improving requested delivery
performance, and reducing claims and cancellations to lower inventory holding
costs. Focused on actual point-of-sale demand, processes are being transformed
from the retail shelf backwards, to achieve a leveled flow of product throughout
the supply chain. Demand planning processes are also being redesigned from the
retail perspective, and retail reality is incorporated in product design.
Their delivery precision roadmap, includes a playbook of prioritized initiatives,
with executive sponsorship, including: demand/supply matching, improving sales
catalog accuracy, streamlining distribution center operations, and optimizing
processes globally. They have also created a governance board that sets the
strategies, prioritizes the initiatives and drives company-wide execution based
upon standardized processes and platforms
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Several overarching principles of Nikes supply chain transformation include:
focus on the vital few prioritize investments aligned with business strategy and
return
simplify end-to-end: drive out waste & complexity from the process first, then enable
avoid customization: standardize solutions to improve processes
copy-paste companywide: replicate best practices across business units, regions
and brands
lead the change: invest in project & transition management
accelerate the pace: respond quickly to new business needs
deliver business results: finish what we start through business benefits
achievement
Leadership Essentials
A panel discussion provided insights into the essential elements of supply chain
leadership. The panel members included: Tim Carroll VP Operations for IBMs
Integrated Operations; Jesus Lopez, VP Logistics, CEMEX; Nick Athanasakos,
Vice-President, US Supply Chain, Nike; and Jean- Francois Baril Senior Vice-
President, Sourcing & Procurement, Nokia.
What is your biggest challenge?
IBM: Determining what I dont know to set the vision and strategy with the right
operational direction and metrics.
NIKE: Driving change fast enough
NOKIA: Extending the lead.
CEMEX: How to transform and best serve every day.
What is the one change that you know you have to make, but culture is getting
in the way?
NIKE: Process discipline
NOKIA: Complexity better forecasts.
CEMEX: Integrating our 50 companies.
IBM: developing the thought process that supply chain is the fabric of the overall
company and not a set of processes.
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How do you balance initiatives, i.e. handle strategic alignment with prioritizing
initiatives?
NIKE: Cost/return equations along with readiness filters.
IBM: Value. Line executive owner had to make commitment and book to the
future financials.
NOKIA: The more you equate to the business drivers, the easier it is to prioritize
the improvement initiatives.
CEMEX: As we acquire companies, make sure that the SC tools and
measurements are in place.
What drives you to determine the next level of efficiency, if there is no burning
platform?
NOKIA: Look with your brand not with your eyes to examine the competitive
landscape.
CEMEX: Give people the freedom to initiate change and suggestions for change.
Continuous learning brings continuous change.
IBM: Burning platforms humble you. Dont allow complacency.
NIKE: Dont become a victim of your success.
Supply Chain Strategies
The group broke into breakout sessions to discuss a variety of questions that
touch on challenges facing organizations as they develop their supply chain
strategies. The following summarizes these lively discussions.
Which strategies have been most effective for supply chain transformation?
Align all constituents, both internal and external (planning, operations, sales,
and R&D), with common goals and metrics.
Forecast from customer to supplier; direct SKU forecast from the customer
with 98% reliability.
Link supply chain objectives to the corporate objectives.
Develop the strategic roadmap.
Establish corporate level commitment.
Develop a good communication plan ensuring that everyone is on the same
page.
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Attract and retain talented supply chain people with management practices
and supply chain principles.
Integrate supply chain with every business unit.
Develop the supply chain partners in collaboration, open book and trust.
Benchmark to key performance measures; common measures to support the
strategy.
What are the top 3 emerging trends to supply chain transformation?
Scarcity of logistics out of Asia.
Changing roles of partners in the network who is adding value, how is the
value spread, how is it changing over time.
Synergy of partners - use the same players in different ways and integrate what
they do, i.e. the combined power of integrating the network.
What are the top 3 supply chain challenges?
Change management.
End-to-end visibility and alignment of expectations of the transformation.
Trust across the supply chain, including stakeholders.
What are the greatest risks to supply chain transformation today?
Minimizing organizational and cultural change via a lack of leadership and
executive sponsorship.
Implementing poor technology or allowing technology to derail supply chain
initiatives.
Lacking the one truth that everyone can follow.
Impacting customer and service levels while making major process changes.
Having too narrow view of the supply chain may miss areas for improvement.
Not effectively communicating the value and benefits being realized.
Seeking short term gains that sacrifice longer term gains.
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An Academic Viewpoint
Dr. Hau Lee, Stanford University
Dr. Hau Lee summarized the summit by emphasizing that supply chain can be
the driver to business growth and market value creation. Specifically, structural
transformation can be attained by leveraging the supply network, new business
models, supplier integration, products to service migration, and technology
evolution.
Leverage the supply network for new solutions to assist in the design
and development of new product innovations. Utilize the network and the
knowledge to create new businesses.
Tailor supply chains and scale. Drive mass customization for volume and
unique configurations for specialized markets (scale effect)
Outsource for process excellence (substitution effect)
Achieve process innovation through intra and inter-organization integration.
Change the mindset
Continue to seek lower cost sources of product and labor
Leverage product flow and information flow to include the financial flow

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Conclusion
The reasons for supply chain transformation are multifaceted with companies
needing to increase value add to their end customers; to provide more timely
and cost effective products and services to market; to better synchronize the
flow of information, products and cash; and ultimately to increase productivity
and profitability. Effective integration and management of cross business unit
dependencies are essential, enabled by end to end, closed loop processes;
information technology; and defined policies and management systems. Our
discussions evidenced that it is critical to have a comprehensive strategy and clear
goals to drive tactical and operational decisions, and that strong leadership with
vision and conviction, may be the most important ingredient to success.
The following words and phrases succinctly summarize the major insights culled
from this executive summit:
Leadership
Visioning and Metrics
The supply chain has arrived
Process, People, Partnerships
Increase the goals and sense of urgency
Absence of technology as the focal point
There is no finish line its an ongoing journey
The supply chain profession transcends the industry
Emphasis on process before making the technology decisions
Change the mindset from cost reduction to supporting business objectives of
growth or market branding.
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