White Paper Supply Chain Optimization - Genpact

PROCUREMENT & SUPPLY CHAIN

White Paper

Supply Chain Optimization Hidden Opportunities to Increase Cash Flows and Working Capital

In the current economic scenario, companies are focusing on how to sustain their business today while positioning themselves for future growth. A company’s supply chain represents an untapped opportunity to realize increased short and long-term cash flows and cost savings. Enterprises that take advantage of the present environment to implement more efficient end-to-end supply chain processes, enabled by best-inclass technologies, stand to free up working capital and cash and prosper as the business cycle turns toward growth. REFOCUSING ON CASH The current economic environment has forced enterprises to focus on increasing cash flows. With credit markets tight, even blue-chip enterprises are struggling to meet working capital requirements. At the same time, senior executives have realized the significant impact that a company’s supply chain can have on its cash position. The drastic falloff in demand in the last quarter of 2008 left many companies struggling to manage ballooning inventories. This put the spotlight on the ability to forecast, plan and dynamically manage fulfillment, which has an impact on both costs and cash. The single biggest reason for inventory buildup is the lack of end-toend visibility in the supply chain. Clearly, optimizing the entire supply chain offers huge potential for both short and long-term improvements in a company’s working capital position.

TAKING AN END-TO-END APPROACH Inefficient supply chain processes clearly have a significant effect on a company’s cash position. For example: • The lack of a dynamic inventory planning capability can result in 10 - 15 per cent excess inventory buildup.

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• Ineffective expediting techniques can degrade supplier on-time delivery by 5 per cent or more. • The failure to benchmark freight rates and monitor the use of lowest-cost carriers can increase freight costs by 6 - 7 per cent. Each of these broken processes represents cash ‘leaking’ out of a company’s operations. The cumulative impact of this lost cash can drain the company’s competitiveness and profitability. Improving any segment of the supply chain process can yield incremental gains in efficiency and have a significant impact on the other segments as well. However, companies striving for best-in-class performance should take an end-to-end view to transforming their supply chain processes. This requires addressing: • Forecasting and Inventory Planning • Sourcing and Procurement • Fulfillment and Logistics • After-Market Services


This approach requires effective application of Six Sigma and Lean methodologies and best-in-class technologies to bring about significant process improvements. These improvements are focused on looking at root causes and to ensure a ‘one-time fix’ rather a succession of

‘quick-fixes.’ This eliminates small incremental gains and helps realize the maximum possible improvements in a company’s working capital and cash position.

OPTIMIZING END-TO-END SUPPLY CHAIN LEADS TO SYSTEMIC EFFICIENCIES, INCLUDING: • Improved forecasting and inventory management • More effective sourcing and supplier management • Streamlined order fulfillment • More efficient logistics management • Enhanced after-market services

Forecasting and Planning

Sourcing and Procurement

Fulfillment and Logistics

After Market Services

Improved forecasting and inventory management.

More effective sourcing and tighter supplier relationship management

Streamlined order fulfillment and logistics management

Enhanced after-market services and improved customer satisfaction

Increased Cash Flows, Optimized Working Capital, Improved Customer Service, Faster Time to Market

REAL OPPORTUNITIES FOR INCREASING CASH Within the context of an end-to-end supply chain process, each of the areas given above offers opportunities for improving an enterprise’s cash position. The following are examples of where companies can realize the benefits of transformation within their own supply chains to become best-in-class. • Demand Forecasting The global recession introduced new risks in forecasting future demand based on historical data. When demand goes into a tailspin, more accurate forecasting process allows for faster responses and forecast corrections in tune with demand fluctuations. Did You Know? Benefits of more accurate forecasting include: - Improved service levels and a 10 per cent reduction in inventory costs - A 10 per cent sourcing cost reduction by synchronized demand planning and adjusting sales estimates - Forecast accuracy improvements of 15 per cent using market intelligence and a closed loop approach to statistical output • Inventory Optimization Best-in-class enterprises are adopting a customized approach to inventory planning that factors in variability within the planning cycle. This allows them to make informed decisions and better manage the interplay of risk and inventory. 2 Supply Chain Optimization

Did You Know? Better inventory management techniques can result in: - Inventory reduction of 20 per cent by using a multi-level approach towards material and distribution requirement planning - A 10 per cent inventory reduction by improving visibility of inventory across the supply chain - Reducing inventory build up by 6 - 8 per cent through improved visibility on material scheduling - Reduction in Total Cost of Ownership (TCO) by accurate demand and spec management • Sourcing and Procurement The sourcing and procurement process has a direct impact on a company’s bottom line by lowering the total cost of ownership for the goods and services that an organization purchases. Best-in-class organizations have adopted strategic sourcing as standard practice. However, leading enterprises are moving beyond strategic sourcing to drive savings and deliver cash to the bottom line. Did You Know? Implementing strategic sourcing and improved procurement practices can result in: - Compliance driven savings of 30 - 40 per cent by analyzing contracted savings using spend analysis


- A 5-10 per cent deflation on sourced components through Should- Cost analysis - Eliminating defective sourcing by 60 per cent through process standardization and improved supplier communications • Fulfillment and Logistics Companies need to maintain an efficient transportation network to support their supply chains. Best-in-class companies are moving to periodic network redesign and benchmarking their carriers cost and performance. They are also implementing processes and technologies to enable greater visibility into their in-transit inventory. Did You Know? Optimizing fulfillment and logistics operations can result in: - Improved savings of 2 - 4x in freight costs through periodic network analysis and monitoring key metrics in a dynamic environment - A 30 per cent improvement in consolidation and efficient utilization of assets by monitoring metrics - A 7-10 per cent lower usage of Spots and Expedites by monitoring LLC usage and benchmarking - Minimizing contracted penalty payments by 40 - 50 per cent using initiatives to reduce payment leakages

CASHING IN ON SUPPLY CHAIN TRANSFORMATION To realize the benefits outlined above across their supply chains, companies must: Ensure that changes are comprehensive rather than incremental • Plan and implement the transformation using an end-to-end approach that addresses the full range of supply chain processes • Drive the changes into their own supply chains and also to external stakeholders – suppliers, trading partners and customers, as necessary Ensure broad acceptance of the changes • Secure senior-level executive support to drive these initiatives • Involve cross-functional teams to provide support Use best-in-class processes and technologies to enable these improvements • Apply Six Sigma Lean rigor into the processes so that improvements are ongoing and repeatable and not limited to individual projects • Leverage appropriate technologies that enable the new processes. Where possible, companies should look to leveraging the technology infrastructure and solutions that they already have. However, they should be open to deploying new solutions where necessary.

• After-Market Services After-market services (AMS) acts as a way to retain customers by driving higher customer satisfaction levels. Top performers in AMS are able to drive customer satisfaction levels by upto 10 percentage points and are finding ways to reduce costs and improve productivity within their AMS operations. Did You Know? Improving after-market service can result in: - Service cost reductions of 20 per cent and asset uptime increase of 25 per cent by using remote monitoring - A 15 per cent reduction in warranty costs by auditing 50 per cent of claims processed through an effective audit reasoning matrix - A 30 per cent improvement in customer response time and parts on time delivery through consolidation - A 10 per cent increase in supplier warranty recoveries through effective management of reverse logistics part

For more information To know how Genpact’s supply chain services can help you, please write to: [email protected] Visit us at www.genpact.com/procurementandsupplychain 3 Supply Chain Optimization


About Genpact’s Procurement and Supply Chain Solutions About Genpact Genpact is a global leader in business process and technology management, offering a broad portfolio of enterprise G&A and industry specific services, coupled with strong IT, analytics and reengineering capabilities. For more information, visit: www.genpact.com Copyright © Genpact 2011. All Rights Reserved. 4 Supply Chain Optimization

Genpact’s Procurement and Supply Chain practice delivers end-to-end supply chain solutions, enabled by its deep domain experience, best-in-class technology and strategic partnerships. With over 3000 procurement and supply chain experts, Genpact has over 10 years experience in working with global companies to provide services that include Forecasting and Planning, Sourcing and Procurement, Fulfillment and Logistics and After Market Services. Genpact has been continually recognized as a top rated service provider and was ranked for the third consecutive year as the Top Procurement Outsourcing Vendor by the 2009 Black Book of Outsourcing.