Presentation Given at the SAS Manufacturing Forum in August 2017

Driving a Digital
Transformation
August 2017
For the Supply Chain Leader Who Wants to Rise Above

Supply Chain Insights LLC Copyright © 2017, p. 2
What I Believed

The Supply Chain Is a Complex System with Increasing Complexity. Each Supply
Chain Operates on an Effective Frontier

Only 12% Of Companies Are Driving Improvement and
Performance Better Than Their Peer Group at the Intersection
of Operating Margin and Inventory Turns.

2004
2016
2004
2016
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
-0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11
InventoryTurns
Operating Margin
Toyota Honda
Best Scenario
HMC
0.06, 6.88
TM
0.06, 11.35
Average (Operating Margin, Inventory Turns)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2004-2010 from YCharts
An Example: Toyota and Honda
Operating Margin vs. Inventory Turns
(2004 – 2016)

2006
2016
2006
2016
3
4
5
6
7
8
0.07 0.10 0.13 0.16 0.19 0.22 0.25 0.28 0.31
InventoryTurns
Operating Margin
Mondelez Nestle
Best Scenario
NSRGY
0.13, 5.20
MDLZ
0.12, 5.90
Average (Operating Margin, Inventory Turns)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2006-2016 from YCharts
Mondelez and Nestle
Operating Margin vs. Inventory Turns (2006 – 2016)

Productivity From the Third Industrial Revolution Stopped in 2004

What Makes a Difference?

• Autonomous Supply Chain: Automation of supply chain processes through cognitive
learning and artificial intelligence eliminating labor and reducing the need for people to
touch data.
• Value Chain Uberization: A platform to enable shared resources across a community.
• 3D Printing: Localization of manufacturing through the sharing of digital images using
additive manufacturing.
• Internet of Things: The use of machine-to-machine streaming data to improve supply
chain outcomes.
• Multi-Tier Networks and Redefinition of B2B: The building and execution of multi-tier
networks for data sharing, collaborative workflows, and improved decision making. This
includes a discussion of blockchain, network canonicals, and interoperability.
• Cloud-Based Computing. The promise of cloud is federation and democratization of data,
in both private and public clouds, with the promise of lower cost of ownership.
• Listening: The use of unstructured data–social sentiment, warranty, and quality data–to
improve organizational productivity and outside-in processes to be market-driven. Market-
Driven Value Networks is a more mature definition of demand-driven.
What Does Digital Transformation Mean for You? There Is No
One Definition

What Is Next-Generational Thinking?

Current Supply Chain Process Thinking
Rows and Columns:
Transactional Data
Fixed Hierarchies with
Structured Data
One-to-One Enterprise Linear Flows
Descriptive and Predictive Analytics

Eating My Own Dogfood: Experimenting with Hadoop
Lora
Cecere
Founder &
CEO
Alina
Beskrovna
Research
Associate
Kathi
Gagliano
Enterprise
Data Architect
Michael
Hambrick
System
Administrator
Heather
Hart
Research
Director
Data
Experts
Survey Export
Experts

GOALS PROCESS DELIVERABLES
• Build a structured,
foundational data lake of
relevant qualitative and
quantitative data.
• Practice data mining and
visualization techniques to
test hypotheses and
uncover new intelligence
about supply chain
excellence.
• Peer group definition and
tier grouping, keeping
companies anonymous.
• Data identification and
collection.
• Cross-metric analysis,
partnering with experts.
• Present preliminary
findings in
September.
• Develop reports &
infographics.
• Invite others into a
“hack-a-thon” to
uncover further
insights.
DATA SOURCES
• Financial Metrics (YCharts) – 500 metrics for 1500 public companies
• Market & Industry Indices – 20 unique measures
• Supply Chain Index – measuring improvement (strength, balance, & resiliency);
calculated for 400+ companies across pre-recession (2004-09) and post-recession
(2010-16) periods
• Survey Responses – 40 surveys conducted 2012-17; includes quantitative and open-
ended responses
What Drives Supply Chain Excellence?
Project Overview

Trend #1: Outside-In Processes

Today’s Reality

Traditional Approaches of ERP/MRP/DRP Amplify the Bullwhip Effect

Impact of Outside-In Processes

Impact of Channel Data

POS Cost Profile by Year
2006 - 2009
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
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K
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W
K
51
WMT Week
BaseIndex
2006 2007 2008 2009
Claritin Case Study: Spring and Allergies
• 40% of Annual POS done in 16 spring weeks
• Every Year the Season Flows Essentially the Same In Aggregate
– WM Store and DC build strategies the same across the country
Source: IRI

0.0
0.5
1.0
1.5
2.0
2.5
3.0
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1W
K
2W
K
3W
K
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52
WM WEEK
POSBASEINDEX
Profile CA-40 MID-N SOUTH NORTH PAC
Wal-Mart Allergy Regional Inventory Flow
• Utilized store level data to develop 5 regional profiles based on
average 5 year POS
– Worked with Walmart to develop Store and DC Build and Exit
Strategies Based on Profiles
– Implemented Throughout Entire Allergy Category at Walmart

The Need to Listen

• Newell Rubbermaid
Listening: Newell Rubbermaid

Newell Rubbermaid

Trend #2: The Autonomous Supply
Chain

Data Needs to Move Securely Through Value Networks In…
Clouds Streams Pools

Need for New Forms of Analytics

Autonomous Supply
Chain
Cognitive Computing
Machine Learning
Text Mining and
Pattern Recognition
Predictive and
Prescriptive
Analytics
Building the Autonomous Supply Chain

Evolution of Insights

Supply Chains Don’t Play by the Rules
But,
what if
they
could?

Redefining
Time

1.5M sku locations
~ 95% slow or intermittent
Seasonal demand (at the item level) is identified down to a
specific location.
Simplified for clarity In reality, looks more like this
•365 days
•150+ local climates
•Avg 3,000 items / location (165M)
•15 year lifecycle changing amplitude
Lennox International

•Replace
•Compressor
•Engines
• Dealer gets service event
• We get parts sales
• Customer has non-event
• Customer - Dealer & Brand loyalty
Your compressor shows that it will fail
within the next 30 days. What day would
be good for us to come replace it?
Lennox Redefining Service

Internet of Things

Rich user interface in full HD
Evocative sound track with
burring grinder and tinkling
of spoons
Memorable flavours and
fragrances
Cutting edge reliable /
ultra efficient computer
processing hardware
Stunning curved design by
Italian automotive designers
Irresistible aromas of Costa’s
coffee shops
Innovative coffee-making
system providers
Redefining Replenishment

Proven operation &
back office system
Real time
demand
planning and
supply chain
Operational
Support
The perfectly prepared
Mocha Italia coffee
Proprietary
equipment
Unique telemetry
& monitoring
World-class
helpline support
Redefining Service

AUTOMATED
COMMISSIONING
LIVE OPERATIONAL
DATA BY MACHINE
IMPROVED MACHINE
MONITORING
AUTOMATED OPERATOR
ALERTS
DYNAMIC MACHINE
LOCATION INFO
RESILIENT MACHINE
CONNECTIVITY
REINVENTING BACK OFFICE SYSTEMS

Transforming Inbound Logistics
Mobile Device Apps
AIS Vessel Location
Sensors

• Shipment Plan
– Truck from Atlanta to Jacksonville
– Ocean vessel ‘ABC’ from Jacksonville to Limon, Costa Rica
– Truck from Limon to Retail Store
• Actual Route
– Truck from Atlanta to Jacksonville
– Rail from Jacksonville to Port Everglades
– Ocean vessel ‘XYZ’ from Port Everglades to Kingston, Jamaica
– Ocean vessel ‘XYZ’ from Kingston to Limon, Costa Rica
– Truck from Limon to Retail Store
• EDI Message Data
– After it had already departed Port Everglades on Vessel ‘XYZ’
• Gate in at Jacksonville
• Vessel ‘ABC’ departure from Jacksonville
• Container loaded on vessel ‘ABC’
– After it had already arrived in Limon
• Container loaded on to vessel ‘XYZ’
• Vessel ‘XYZ’ departed Port Everglades
• Vessel ‘XYZ’ arrived in Limon
• Streaming Sensor Data
– Departed Atlanta
– Arrived Port of Jacksonville
– Moved to Rail Yard Jacksonville
– Departed Jacksonville
– Arrived in Port Everglades
– Departed Port Everglades on Vessel ‘XYZ’
– Arrived in Kingston
– Departed Kingston
– Arrived in Port of Limon
– Departed Port of Limon
– Arrived at Retail Store
Streaming Data vs. EDI Messages

• EDI Messages
– Significant latency
– Arrived out of order
– Significant data quality issues
– Based on carrier version of the truth
• Streaming Sensor Data
– Real-time, what is happening right now
– End-to-end visibility
– Notifications on geo-fence arrival and
departure
– Alerting on deviations from the plan
– Significant learnings about your carriers and
shipping lanes
– “Observed” version of the truth
Streaming Data vs. EDI Messages

Improved On-Time Delivery

Trend #4. Digital Manufacturing

What Is Digital Manufacturing?
Additive
Manufacturing
Paperless Processes Robotics

Evolution of 3-D Printing Organs

Ultimate Ear

The adoption of distributed and open technology
by the ecosystem of technology providers and
business users to drive inter-operability in value
networks to improve business outcomes.
What Is the Network of Networks?

What Did Not Work

The View in 2016

Network and Company Nodes
Community
Directory of
Supplier Data
Blockchain Blockchain Blockchain

Confluence of Technologies
Blockchain
Distributed
Processing
Cognitive
Learning
Artificial
Intelligence
Hadoop
Distributed
Massive
Parallel
Processing
Spark
Streaming
Data

Write once and use company and contact information many times.Community Directory
Reduce onboarding through once source of data.
Blockchain redefines visibility and track and trace.Traceability
Confluence of Blockchain and Spark/Internet of Things Redefine Lineage.
Bitcoin and Blockchain disintermediate traditional banking.Supply Chain Finance
Emergence of the supply chain digital wallet
An alternative to EDI
Cognitive computing eliminates the need for master data
management and standards.Interoperability
Data is mined through patterns and translated for context through cognitive
computing. Shift from standards to process canonicals.
What Could Change?

Wrap-up
• Adopt new technologies and
challenge current thinking.
• Manage the supply chain as a
complex system.
• Build with the goal in mind
outside-in.

Time to Take a Different Path?

Visit Us Online
www.supplychaininsights.com
www.supplychainshaman.com
www.beetfusion.com
www.linkedin.com/company/supply-chain-insights
www.slideshare.com/loracecere
Follow Us on Twitter
@scinsightsllc
@lcecere
Attend a Live Event
www.supplychaininsightsglobalsummit.com
www.supplychaininsights.com/the-shamans-circle

About Lora Cecere
• Founder of Supply Chain Insights
• “LinkedIn Influencer”
• Guest blog for Forbes
• Author of 5 books: Bricks Matter (2012), Shaman’s Journal (2014),
Supply Chain Metrics That Matter (2014), Shaman’s Journal (2015),
Shaman’s Journal (2016)
• Partner at Altimeter Group (leader in open research)
• 7 years of Management Experience leading Analyst Teams at Gartner
and AMR Research
• 8 years Experience in Marketing and Selling Supply Chain Software at
Descartes Systems Group and Manugistics (now JDA)
• 15 Years Leading teams in Manufacturing and Distribution operations for
Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream and
Procter & Gamble.
Contact Information:
• Email: lora.cecere@supplychaininsights.com
• Blog: www.supplychainshaman.com (15,000 pageviews/month)
• Forbes: www.forbes.com/sites/loracecere
• Twitter: twitter.com/lcecere (8,200 followers)
• LinkedIn: www.linkedin.com/in/loracecere (210,000 followers)
• LinkedIn Influencer: www.linkedin.com/today/author/446631

Five Themes:
1.Supply Chains to Admire
2.Changing Economies and Changing Times
3.Digital Supply Chain Innovation to Power Growth
4.Driving Supply Chain Transformation
5.Leadership and Supply Chain Talent
Register Now!
• Registration is $1750 and includes breakfasts, lunches and
receptions
• Seating is limited to 150 attendees
• Discounted room rates at The Ritz-Carlton expire August 15th
• Email us at regina.denman@supplychaininsights.com
www.SupplyChainInsightsGlobalSummit.com
Fifth annual event  Designed for line-of-business leaders  Explore the future of business processes

Three Options: Next-Generation Supply Training
SEVEN COURSES OFFERED
1. Supply Chain Metrics That Matter
2. Building the Customer-Centric Supply Chain
3. The Market-Driven Value Network Journey
4. Making the Digital Pivot
5. End-to-End Supply Chain Orchestration
6. Driving Improvement in Decision Making Through Supply Chain Planning
7. Building Agility Through Horizontal Processes
www.SupplyChainInsights.com/Services/Training

Presentation Given at the SAS Manufacturing Forum in August 2017

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Presentation Given at the SAS Manufacturing Forum in August 2017