This document discusses the link between supply chain and financial performance. It argues that the best supply chains integrate demand, supply and product development, and work backwards from customers. It also discusses how aligning supply chain and finance processes, such as through shared reporting and cost accounting, can improve outcomes. Examples provided estimate tax and supply chain optimization could increase profits by 59-101% through strategies like supply network redesign and contract negotiations using total cost of ownership analysis. The call to action is to strengthen collaboration between supply chain and finance functions.

1. SupplyChain and Finance
The Critical Link
16/04/2013

2. Agenda
The Best Supply Chain....is it enough?
The relationship between the Supply Chain and Financial
performance...is it proven?
The link with Finance what does it look like
•Language
•Structure
•Processes
The best examples
• Tax and Supply Chain
• Cost to Serve
• Total Cost of Acquisition
The Call to Action

3. The Best SupplyChain bring together the worlds of
Demand, Supply and Product Development
3
VMI
SIOP
DFx
Market
Research
PostponementDEMAND
Supply
Product
Development

4. 4
The Best SupplyChains work backwards….
Supply ChainProducts
Industry Standard Servers
Commercial Printing
Digital Imaging
Shared Printing
Personal Printing
Supplies
Portables and Handhelds
Business PC & Workstation
Consumer PC
Monitors & Options
Network Storage Solutions
Business Critical Servers
Managed Services Solutions
Customer Support Solutions
Consulting & Integration Sol.
Enterprise Solutions Services
High value &
solutions
Configure-to-order
(CTO)
Low touch
No touch
Demand Chain
Enterprise
SMB
Consumer
Direct/Indirect/PartnerDirect
Public
Invent the future
Collaborate for success
Leverage size/ scale
Put customer first
Adaptive supply
chain
Invent the futureInvent the future
Collaborate for successCollaborate for success
Leverage size/ scaleLeverage size/ scale
Put customer firstPut customer first
Adaptive supply
chain
Adaptive supply
chain
Put customer first
Hewlett Packard*

5. 5
The Best Supply Chains integrate……..
React Department level optimization
Supply Chain
Optimization
Anticipate Company level efficiency
Collaborate Single tier partnering
Supply Chain
Integration
Orchestrate Multi-tier federation
Supply Chain
Coordination
…….. And inspire…..”the moment of truth”

6. But is this enough?.....and were do we go to next?
6
VMI
SIOP
DFx
Market
Research
PostponementDEMAND
Supply
Product
Development
Treasury
Reporting
Tax
…….. Making ourselves relevant where it matters

7. 7
Can we prove a good supply chain gives good financial
results.....
EPS
Return on
Assets
Profit
Margins

8. And that a Bad Supply Chain produces Bad Results
“Supply Chain Glitches and Shareholder Value
Destruction”, Vinod Singhal, (Georgia Tech)
•861 supply chain „glitch‟ announcements reduced
shareholder value by 8.6%
•Average value destruction per glitch - $120M
•Including 60 days pre-announcement, glitch
reduction of shareholder value is 20%

9. Talking the Same language
ROI
Gross Margin
Revenue
COGS
Operating
Margins
SG&A
Depreciation
Cash
Inventory
DSO
DPO
Tax
Direct
Indirect
Supply Chain
Demand Variability
Tax
Transport
Warehousing
Customs Duties
Supply Variability
Compliance
Finance

10. And Aligning ourselves Organisationally ....
16/07/2013 10
Tax Efficient
Network Planning
(Direct and Indirect)
Transactional
Integrity
Tax and
Treasury
Compliance
Supply Network
Design
SupplyChain
Execution
Finance Execution
(e.g. Payables &
Receivables)
Finance SupplyChain
Strategic
Tactical
SupplyChain
Accounting and
Decision
Support
Divisional
Financial
Reporting and
decision
support
IT
SupplyChain
Management
And
Measurement

11. Creating Processes that Link Supply Chain and Finance
11
Demand Supply
Product
Direct
Tax
Indirect
Tax
Subsidy
Treasury Risk
Transaction
Banks
Tax
AuthoritiesFSC
Tax
SC Cost
accounting
Auditing
CTS
TCA ReportingAudited Accounts and
Management
Reporting

12. Tax and Supply Chain......

13. 13
The Impact of Co-Optimising Tax
E
T
R
19%
35%
0 15%
20%
25%
30%
35%
40%
Profit Before Tax
Profit After Tax
Effective Tax Rate (ETR), in %
P
r
o
f
I
t
Current Structure Tax and commercial advantage
+59%
+101%
I - Actual II - Actual
E
T
R
19%
35%
0 15%
20%
25%
30%
35%
40%
Profit Before Tax
Profit After Tax
Effective Tax Rate (ETR), in %
P
r
o
f
I
t
Current Structure Tax and commercial advantage
+59%
+101%
I - Actual II - Actual
(Deloitte)
 A potential to reduce corporate
tax rates by 40%
 An additional 30-50% added to
the payback of international
Supply Chain configurations
 A range of returns from 3.71x to
11x within twelve months
 10-15% reduction in COGS
gained through leveraging tax and
customs
 US CPG Saves $50M
 Irish CPG Saves $10m
 German Chemicals $80m

14. 14
Stages in TESCM Maturity

15. 15
Cost to Serve: what is it?
What it is
•Cost to Serve is a method for understanding the true cost drivers in
a supply chain, allowing a company:
• to allocate cost reduction resource in the most effective
areas,
• to range and price to maximum profit advantage,
• to track improvements to the bottom line and balance sheet.
• Cost to serve brings together, item, customer, and Channel
profitability analysis to enable the client to determine what
combinations are truly profitable and what are absolutely loss
making
It is Not
• ABC: Its is less granular: it concentrates on the 20% of factors that
drive 80% of the cost, and factors may not be activities, they can be
behaviours (ordering patterns), requirements (Customer Service
Levels) etc
• IT Driven: they key is in understanding supply chains, and selecting
the cost drivers, the engine itself is secondary
Revenues
Gross Margin
Costs

16. 16
How the Business derives benefit…….
Application Outcomes
Part Number Rationalisation Understand true profitability of the tail Part deletion, re-allocation to
alternative channels
Customer Profitability Customer Portfolio management, and routes to
market
Re-assigning customers to
distributors, and to standard
products
Cost Optimisation To identify true cost drivers and to ensure
targeting of resource, showing the real trade-offs
between costs and service
Projects prioritised
Supply Chain redesign Determine profitable and unprofitable routes to
market
Changes to the routings of goods
through the network
Contract negotiations Helps to understand to true total cost of
acquisition, or cost to serve
Ensures that new buy-side or sell
side contracts will be absolutely
profitable, or at least that the
risks are understood

17. Total Cost Ownership
17
In order to try and understand the ‘True’ cost of device we have developed a
Total Cost model to assess the costs/benefits a supplier /device brings to EE.
The model currently includes elements covering both pre and post sales with
service related costs being added as a related element.
These can then be calculated as a value against past or future purchases.
Procurement Pricing, Retro’s, MSF, ESD & Payment Term
Supply Cost of Inventory & Availability
After Sales Cost and Benefits of After Sales
Quality Cost of Quality Conformance
PTC Cost of Customer Calls

18. 18
Examples
Cost
This analysis helps us to optimise Ranging, and Contract Negotiations

19. 19
The Call to Action
Locate your CFO/FD and take them to lunch, you have a lot to talk to
them about
Tax should always have a signoff in any changes to Supply Networks
Build finance into your critical business processes, and reporting:
think about a SC Cost accountant, integrate Finance into S and OP
and run on one plan
The Supply Chain transaction is not completed until the invoice is paid
and taxes are recovered, all your good work in planning can die in
transactional failure