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Networked value chain[SM]: Seizing the competitive edge in supply chain management. (Cap Gemini Ernst & Young).

Are your inventory levels mounting? Do your customers complain about late deliveries? Is your once state-of-the-art supply chain software outdated? If you answer "yes" to any of these questions, then you should be examining your entire supply chain. Addressing specific areas, like inventory, customer service, or software will provide only short-term operational performance. To gain true, long-term competitive advantage-and reduce overall costs and increase efficiency -- companies need to take a more holistic approach to optimizing their supply chains. It is the integrated, end-to-end solutions, not the quick-fix, point solutions, that drive value and even revenue.

To assist companies in evaluating their supply chains, Cap Gemini Ernst & Young U.S. LLC (CGE&Y) has developed a high-level framework called the Networked Value Chains[SM] (NVC[SM]). Challenging clients to analyze their current business models, NVC provides a blueprint for achieving the ultimate, fully integrated supply chain, and identifies steps that companies can take to implement solutions that meet their specific business goals and needs, whether it is balancing inventory, raising customer service, reducing costs, or increasing revenue. Previously, supply chain solutions focused on improving one process at a time, such as procurement, transportation, or inventory. But invariably, when inventory costs plummeted, transportation costs rose, undermining the gains. NVC, on the other hand, reviews and incorporates several departments to help optimize results across the entire supply chain.

"Integrated solutions help optimize returns across multiple departments and help to trigger process and technology changes," says Pravesh Mehra, Cap Gemini Ernst & Young's B2B Supply Chain Service Leader in the Americas. By transforming the supply chain process and incorporating technological changes, the integrated NVC can help reduce costs and increase revenue, a true win-win.

Historically, supply chain management has presented numerous challenges. As new orders arrive, inventory moves in and out of the warehouse, and data changes quickly. NVC helps companies gain control of their supply chain data and workflow. "At the core of supply chain management is balancing demand and supply and gaining a handle on the demand on a minute-by-minute, hourly and daily basis," says Phil Robers, Cap Gemini Ernst & Young's Global Supply Chain Service Line Leader. "NVC integrates all of the different technologies and approaches including buying, transporting, designing, and manufacturing."

Building an adaptive supply chain

A key tool in building the integrated NVC is the NVC index, which enables companies to assess their supply chain capabilities, comparing its current practices to best practices. By using value calculators, consultants can determine whether it pays to improve certain areas and which are the priority areas to address. A consultant, for example, may opt to employ new software and databases to track demand and facilitate supply for the client. Making the supply chain visible to more staff enables the organization to better track order fulfillment, regulate manufacturing, and balance it with demand. Through NVC, companies can build an agile, "adaptive" supply chain and, ultimately, reduce inventory, quicken production, and meet changing customer demands and volatile market forces.

The adaptive supply chain and the adaptive enterprise

Indeed, an adaptive supply chain approach is especially useful today, when companies are competing in a volatile economic environment and are finding it increasingly difficult to forecast the future performance of their business or marketplace. An adaptive supply chain operation dynamically matches demand and supply, helps maximize revenue, and targets customers to boost revenue. It also enables a company to link order management with planning and forecasting and develop separate operations for customer segmentation.

By creating adaptive supply chain operations, companies are better positioned to tackle changes in the supply chain environment. Beyond that, an adaptive supply chain enables a company to become an adaptive enterprise, in which a company's key processes - and its technology - are capable of gauging and responding quickly to changes in the business environment, consider the best options to use capital, and grow ahead of its competitors.

NVC improves one company's forecasting and supply chain

A major technology company recently engaged CGE&Y to help it address some supply chain improvements in a key area - supply chain forecasting. By using the NVC, CGE&Y reexamined the company's supply chain operation. "You can't solve the larger issue by just looking at demand forecasting," asserts John S. Gloekler, vice president in Cap Gemini Ernst & Young's Supply Chain Practice and head of the team that created the NVC. Going beyond forecasting, CGE&Y analyzed the company's process flow, suggested revisions to its demand planning process and tied performance measurement affecting compensation into the process. The result is that the company's supply chain management function is improved in some key areas. That adds to overall functional performance improvement; specifically, the company is able to manage an integrated process of demand and supply more closely than before.

Bottom-line, the company reduced costs and can manage production more efficiently. "Indeed, the company is able to manage supply based on its true customer demand," Gloekler says. Customer service is enhanced, and its production is tied to consumer demand. Now the company can better balance its supply based on consumer demand.

The broad impact of the NVC

NVC provides a seamless view of all key functions of a company; as a result, it can have a broad and powerful impact on a company's business model.

Improved Skills

* Lower employee turnover

* New skills & techniques

* Available supplemental skills

Reduced Costs

* Lower hiring/training costs

* Higher ROI

* Lower TCO

* Cost neutral

* Lower risk

Competitive

* Center focused on delivery

* Accelerated development

* High skills, lower costs

New Technologies

* Languages, Mobility

* EAI, B2B, Web Services

* Portals, ERP, etc.

* Embrace technology changes quickly

Support Changing Priorities

* Responsive (nimble)

* Embrace change

New Methods & Standards

* Rational Unified Process

* Repeatable processes

* Decrease defects

* Project portfolio management

* "Religious" on standards

Satisfied Customers

* Faster response

* Requirements met

* Buy-in at all phases

* Allows the business to focus on business development

Not just a cost reducer, a revenue-generator

NVC can do more than help reduce costs; it can also help raise revenue. NVC connects marketing to the supply chain, operating like an airline's yield management system that reaps the highest price for each seat. At a computer manufacturer, for example, NVC will let the company know that an overstock of the prior year's PCs can be offered at a discount while it can raise the prices of its more current, larger PCs. NYC offers real-time updates on inventory, enabling companies to alter prices as supply and demand changes.

NVC also helps boost profits by increasing customer service and customer loyalty. "Part of the planning process concerns maximizing customer requirements," notes CGE&Y's Mehra. If customers order products and expect to have them delivered in three to five days, NYC can help establish a system that can meet those consumer demands. "Our goal is to exceed customer expectations by establishing higher levels of service, the requisite inventory, and enhanced satisfaction," he says. Furthermore, companies can charge premium prices for customers who request speedier delivery. NVC can also help with customer segmentation, identifying customers who seek certain products or services, enabling effective targeting to be conducted. Surprisingly, a recent CGE&Y study revealed that only one-third of companies surveyed even attempted to identify key customers based on profitability. NVC helps identify and reach those customers by helping to target and segment customers.

More than a software approach

Some organizations use software as a magic wand to fix a company's supply chain roadblocks and snafus. But NVC is more than software. "NVC operates as the framework of how the supply chain should work in any given industry," says CGE&Y's Robers. "We can fine-tune NVC with any vendor's software. NVC operates a continuous process flow, creating metrics on how a company can best manage its supply chain, and leading to best practices in optimizing a company's supply chain."

"It gives companies a competitive edge," Mehra says. "Providing companies with a holistic approach such as this one leads to cutting-edge solutions," he says. "NVC provides a framework for revenue and price optimization by connecting marketing to the supply chain side."

Adaptive supply chains are necessary for any business cycle, but after September 11 they assumed an even greater role. After September 11, many companies that did not have a handle on supply chain production were caught with their production cycles overproducing, leading to overstocked warehouses. "What happened on September 11 showed us the importance of planning tools, warehouse planning, transportation planning, and balancing supply and demand," notes Mehra. NVC leads to several improvements in sourcing and e-procurement, inventory management, transportation and warehousing, lean manufacturing, and tax-effective strategies - all of which help supply chains adjust to market conditions.

A recent New York Times article discussed the critical role of inventory and supply chain management in business. The Times reported that during the holiday season "inventory, whether stores have too many goods, too few or just enough, has emerged as perhaps the defining issue for retailers and manufacturers." It noted that companies such as Lands' End had exhausted its supply of all-weather moccasins though demand for the product was high; that Amazon.com had sold out of Epson's Stylus Photo 870 printer; and that Spin Masters' Shrinky Dinks' toy was no long available despite strong consumer interest. A framework such as NVC would have kept their inventory more aligned with customer demand.

It's the real-time capability that matters

Because of increased connectivity, NVC allows companies to know their inventory anytime and anywhere in the world. Having that capability enables firms to track what inventory is being transported at any given time. How critical is this real-time capability? In the past, if a company didn't know the status of a supplier's order and that its inventory was in transit, it faced a difficult time establishing a fluid price structure. Information was delayed and so was pricing. By having NVC in place, companies know how much it costs to produce items, store goods, transport items, and meet customer demand. Hence, NVC encourages companies to change its pricing real-time based on its current inventory, supply and demand.

Having real-time adaptability also helps a company reduce its inventory levels. NVC employs demand and supply balancing tools, which allows companies to maintain the necessary level of inventory to meet customer demand, provide timely service delivery, and avoid carrying excessive inventories. The sophisticated NVC tools, covering planning, supplier factory and transportation, enable companies to be agile, flexible and responsive in connecting inventories to customer demand. For the first time, the manufacturing plans for production and the sales forecast for demand can connect to balance supply and demand. Traditionally, the goal of supply chain management has been to get the right products to the right place at the right time. Real-time adaptability enables companies to get their products to their customers faster than their competitors.

"In fact, NVC helps make a company nimble," says Robers. "It can respond to day-to-day changes and unexpected orders. It can also respond to economic changes. It can reduce or augment manufacturing, lowering a company's risks," he adds. "Customers are demanding more, and this new transformed supply chain helps a company respond to more consumer demands."

Improving and expediting the supply chain reduces costs. For instance, a fashion company can be sure that its trendiest fashions arrive at its stores exactly when consumer appetite demands it. Material costs can be controlled and inventories slashed, contributing to lower costs. By balancing supply and demand, companies can reduce inventories so that high-tech firms, for example, can avoid having obsolete PCs sitting in inventory that must be sold at discounted prices.

Keeping inventories at a minimum

Rising inventories damage companies in many ways: products easily become obsolete, they consume fixed capital, and they hurt a company's stock valuation. The New York Times noted, "Wall Street applauds the companies that keep inventory tight -- on the theory that markdowns, which eat away at profits, will not be necessary." What NVC allows companies to do is maintain low inventories and respond adroitly to consumer demand. A computer company that has too much inventory in stock may have to sell its outdated PCs at a discount, but the computer company that can track consumer demand, keep its inventory low, and sell its computers at the highest price will maximize its revenue.

Making a computer company's supply chain more agile

A major computer manufacturer, for example, was focused on increasing the speed and agility of its supply chain, and was especially interested in closely linking its suppliers with the manufacturing process to quicken the supply chain cycle. It utilized the NVC "specifically to bring its internal and external manufacturing into the supply chain," says John S. Gloekler of CGE&Y. "In addition, it linked its order management software directly to the factory, helping to speed up production. Further NVC helped drive decision-making down the corporation to empower people to make supply chain decisions." The result: the company's supply chain became more flexible and responsive to consumer demands.

Helping companies better collaborate

By enabling supply chain partnerships, NVC can help competing companies partner with one another and slash costs. For example, Elemica, an intercompany commerce enabler, utilized NVC to establish a public marketplace for supply chain trading among 22 global chemical companies, including DuPont, Dow Chemical, Shell Chemical and BASE. Through the Elemica Network, participating companies can get access to supply chain optimization tools that help improve planning and automate fulfillment. If, for instance, Dow Chemical had an empty truck sitting in Atlanta, and DuPont needed to ship chemical products from Atlanta to Wilmington, Elemica could help exchange information and reduce transportation costs. Elemica expects to cut $15 to $20 billion in costs attributable to supply chain inefficiencies. And because the cost of building the network was shared by the 22 participating companies, the development costs were significantly reduced for each participant.

Improving logistics

Having more than doubled its, revenue in four years, Best Buy Co. Inc., the nation's largest specialty retailer of consumer electronics, personal computers and appliances, wanted to improve its logistics processes. The retailer aimed to lower costs, improve supply chain visibility, and more effectively transport its rapidly growing freight volume. By introducing a transportation management system (TMS), improving the management of multiple orders, and increasing the number of its consolidated shipment, Best Buy achieved its goals. "We have better visibility of what's in transit, better systems within our distribution centers, and better reliability on the part of the carriers, all of which enable the entire supply chain to become more efficient," says Chas Scheiderer, Senior Vice President of Logistics for Best Buy. By gaining a greater control of its supply chain, Best Buy reduced the number of days inventory stayed in its pipeline from 11 days to four days.

One change triggers another

Supply chains are integral to how a company conducts its business. And invariably, when a company alters its supply chain, it triggers other changes that can transform its operations. "NVC provides a clear picture of how a company can change its operation involving marketing, promotions, and customer segmentation," Gloekler says.

As the Internet provides white-collar workers with more information at their fingertips, a supply chain transformation empowers staff to make decisions, helping a company respond to customer demands. If staff is empowered to make decisions along the supply chain path, it can lead to better results and increased revenue. "The supply chain can move quickly to respond to the customer's immediate demands if staff is empowered to make decisions along the way," Robers notes. Once that supply chain is operating on all cylinders and a greater number of empowered staff is involved in its operation, marketing works with production, promotions are interwoven into the supply chain, and everyone at the company is responding to customer demands.

The ultimate benefits of NVC

With real-time visibility into various functions, real-time decisions can be made that marry the various aspects of supply chain management, marketing, forecasting, production and logistics. Ultimately, this enables companies to better meet customer needs and anticipate customer demands.

Optimizing

Capability for all trading members within the value chain to have visibility to key value chain metrics, as well as the physical flow of goods, with zero latency eventually triggering proactive corrective actions.

Connecting

Capability to connect internally across departments/units, as well as externally to all trading partners, to achieve seamless flow of information across the whole network.

Planning

Capability to plan collaboratively with the customers, suppliers and other trading partners for superior value chain performance.

Executing

Capability to effectively execute tasks and activities along the key value chain dimensions i.e. Buy, Make, Move & Sell.

What are the ultimate benefits of CGE&Y's Networked Value Chain? As Pravesh Mehra notes, "Establishing NVC encourages companies to examine its business model. Prior to NVC, companies were vertically integrated," he says. Companies designed products and then manufactured them, but no system really promoted the merging of marketing and selling. NVC marries all of the different aspects of supply chain management, marketing, forecasting, production and logistics into a well-oiled machine aimed at meeting customer needs and anticipating customer demands.

"NVC helps challenge a company's business model. It helps connect what a company designs to how they market a product," Robers says. "It helps companies better manage their demand and prices, increase revenue and directly increase their margins on products. Supply chain transformations flow directly to the profit equation by reducing the cost of goods, leading to more efficient manufacturing, and improving working flow capital. Supply chain changes ultimately boost a company's bottom-line, not just its processes," he says.

Cap Gemini Ernst & Young supply chain services

CGE&Y is a recognized global leader in Supply Chain consulting. We help clients build networked value chains, enabling them to get closer to customers, collaborate more effectively with suppliers, leverage digital marketplaces, and optimize the use of information. In addition, CGE&Y provides bundled solutions across Customer Relationship Management, Information Technology, and Strategy Transformation to deliver true value across the enterprise.

Supply chain transformation

Companies are radically changing their business models to introduce innovation, flexibility, and advanced supply chain capabilities into the fabric of their business "ecosystem." CGE&Y's Supply Chain Transformation offering determines a company's customer target market, core competencies, manufacturing and purchasing opportunities, organizational structure, and connectivity options. Based on a sound technology framework, the Supply Chain Transformation approach focuses on matching supply and demand through fulfillment execution.

Demand & supply management

Effective demand and supply management is the centerpiece of an effective supply chain. Realizing this tremendous opportunity requires changes to business models and operating approaches. New management processes and technologies must be combined effectively. Often, strong collaboration with customers and trading partners is needed.

Sourcing & eprocurement

CGE&Y's Sourcing & eProcurement services provide a comprehensive approach to transforming purchasing power. Our solutions leverage Internet technologies to develop and deploy strategies and solutions that connect you to your suppliers, maximize your organization's purchasing power, and improve your bottom line. By consolidating buying volumes, negotiating improved pricing, managing suppliers, focusing on demand management, and enhancing catalog maintenance and control, business processes are significantly streamlined, company profits are enhanced, and customer expectations are exceeded.

Logistics & efulfillment

Fulfillment excellence is all about focusing on offer excellence, not product excellence. World-class companies realize that customers buy superior products, perfectly delivered. The CGE&Y approach focuses on the perfect order: an end-to-end Logistics & eFulfillment solution that encompasses supply chain processes from the time the customer places the order to the time it is delivered and paid for. The goal is to create companies that are Internet-ready inside and outside their firewalls. To fulfill a customer requirement perfectly, CGE&Y provides end-to-end fulfillment integration through total supply chain visibility, connectivity to join all partners and physical delivery.

Adaptive manufacturing & operations

Adaptive manufacturing is a major step in the evolution of lean and agile organizations. It provides a seamless connection between the manufacturing and shop floor operations and the critical enterprise applications. CGE&Y provides clients with solutions to help foster enterprise-wide communication, collaboration, responsiveness and rapid decision-making and execution. As a result, organizations can realize significant cost savings and productivity gains to maximize overall organizational yield.

Private markets

Compared with other marketplace models, private markets go beyond procurement to achieve higher levels of collaborative commerce faster and focus on value creation among members. CGE&Y helps companies build successful marketplaces by following a number of steps:

* Confirm and validate company strategy, direction, and basis for competitive advantage.

* Identify key communities of interest.

* Define appropriate marketplace scenarios or viable communities of interest.

* Validate each marketplace scenario by comparing it with potential alternatives and absolutes.

* Compare the marketplace options to select the highest priority opportunity.

B2B technology solutions

CGE&Y's comprehensive B2B services help companies exploit marketplace opportunities to increase efficiency and speed-to-market, broaden customer and supplier reach, improve competitive positioning, reduce costs, and automate business processes. With a combination of deep industry knowledge and strong B2B marketplace expertise, CGE&Y enables companies to make the right B2B exchange decisions to achieve bottom-line gains, while reducing the risks inherent in B2B marketplace participation.

Cost reduction services

Cost management should be a part of a company's overall business strategy. Organizations must extend their view of cost reduction beyond isolated transactional decisions such as reducing head count, slashing advertising, cutting R&D, and restricting travel to fully comprehend the broad, long-term impact that cost reduction has on an entire organization or risk losing competitive advantage. Demonstrating good, short-term results from cost reduction initiatives can ultimately strengthen a company's stock price and increase shareholder value.

Cap Gemini Ernst & Young is one of the largest management and IT consulting firms in the world. The company offers management and IT consulting services, systems integration, and technology development, design and outsourcing capabilities on a global scale to help businesses continue to implement growth strategies and leverage technology in the new economy. The organization employs about 60,000 people worldwide and reports global revenues of about 8.5 billion euros (2000 pro forma). More information about individual service lines, offices and research is available at www.cgey.com
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Date:Mar 1, 2002
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