Supply Chain & Cost Optimization

Supply chain strategy

Supply chain strategy was always, yet more today a key success factor for the Life Science industry. Industry 4.0 while presenting endless opportunities, only increase the complexity and challenges. Companies are going from being completely virtual to building and owning assets and capabilities across the value chain.

Tefen’s Supply chain strategy approach is on one hand very strategic and structure but very pragmatic as well. We start with alignment of Business Strategy with Operational strategy using a dual approach:

Bottom up top down - supply chain

The overall analysis phase will look at three main elements in the supply chain:

Operational Structure

We will then drill down to the main processes as well as the supporting technologies required:

main processes as and supporting technologies required

S&OP – Sales and Operations Planning

A lack of cohesion between supply and demand can manifest into significant costs for companies as out-of-stocks, excess inventory and over discounting multiply. With the addition of complexities such as new product introductions, promotions, packaging changes or demand variances, the need to align Sales and Operations Planning (S&OP) is vital to sustaining profitability. Companies that are proactive with S&OP gain visibility and the agility to improve delivery performance and pricing management, while streamlining inventory and increasing revenue forecasts.      

The value of S&OP may be deciphered by considering whether your company experiences the following problems:

• Departmentally segmented planning, which is typically misaligned with business objectives and the corporate strategy
• Reactive capacity planning and first batch planning, excessive or lack of inventory and unplanned logistics, all leading to significant additional costs
• Poor on-time delivery due to subpar scheduling
• Introduction of promotional campaigns, which cause instantaneous shifts in inventory or services, subsequently incurring additional unexpected costs

Our Approach

Tefen’s approach to S&OP is to create harmony between our clients’ sales and manufacturing functions. This process differs from traditional planning methods, moving away from daily or weekly planning reviews. Instead, planning reviews are arranged on a monthly or annual basis, and involve higher level management. This arrangement includes critical knowledge of demand and operations, allowing for a well-rounded horizon to create a planning strategy. Input from higher level management also ensures that the formulated plan will remain in line with the business strategy, be profitable, productive, and realistic with lead times, among other things.

Methodology

Our S&OP process also involves a thorough redesign and the implementation of a demand and supply review process, each of which is handled independently.

For the demand review, the primary objective is to forecast the sales of each product line. This forecast is a collective agreement between stakeholders from marketing, sales and even product development. Consideration of factors such as new or deleted products, competitors or market conditions ensure the best possible forecast accuracy.

Given a reliable demand plan, a supply review may be planned accordingly. The objectives of this review are to consider the potential for temporary capacity bottlenecks or under-utilization; ensure staff planning is aptly distributed; and deliver a high level capacity plan. This review is also capable of producing a procurement plan. Essentially the goal here is to ensure optimal resource utilization.

Finally, an S&OP review will address any disparity between the demand and supply plans. The output is a single published plan that examines forecasted demand revenue and the associated planned production cost, stock levels, purchasing projections, financials (budget versus actual) and productivity and performance utilization.

Expected Benefits

It is more important than ever to streamline supply and operation processes to gain competitive advantage. An effective S&OP process can provide improved visibility across the supply chain; leading to increased control of product and inventory management, better targeted promotional planning and enhanced revenue forecasts.

Supplier Management

Sourcing and managing suppliers is crucial for sustaining profitability because suppliers essentially dictate a major proportion of an organization’s variable costs. A supplier becomes part of the foundation upon which a product is built; therefore it is essential that suppliers share similar business objectives / strategy. When selecting a supplier, one must consider attributes such as:

• Supplier delivery performance
• Geographic proximity
• Logistic offerings
• Technological advancement
• Flexibility/ responsiveness

Price should not always be the leading attribute while choosing a supplier.

Selecting the ‘best fit’ supplier can be difficult to justify; and this process must undergo continuous inspection. This can require substantial resources. Meanwhile, managing suppliers is also crucial; forging mutually beneficial relations with suppliers will help minimize costs and ensure good service.

Our Approach

Traditional procurement methods are passive, and the response to requisitions and unexpected requirements is reactive. Tefen's strategic sourcing methodology differs from the norm in that it causes sourcing teams to conduct analysis of the supplier market and only recommend suppliers that can deliver solutions which meet pre-defined and agreed upon business needs. We also use roadmaps for supplier technologies, so that full knowledge of forthcoming opportunities is absorbed, allowing clients to capitalize as early as possible.

Methodology

Leverage with suppliers is pivotal when it comes to deal making, meaning that the ability to create leverage is key to gaining competitive advantage. Tefen moves away from fragmented supply orders and instead uses a holistic approach to supplier sourcing and management. This allows us to ask the question: are X products from supplier A more advantageous than Y products from supplier B? Leveraging bulk buying value or reducing logistics cost all add up to significant cost savings.

Management of suppliers is also a continual process, which should be subject to continuous review. Tefen uses contracts with contingencies as tools to mitigate the risks that suppliers may pose. Suppliers for stable products are usually governed by long term agreements, while suppliers for products that are more volatile or in development are governed by short term, flexible deals. We also provide sustainable strategies to follow-up with supplier performance and to prevent supplier relation losses.

Expected Benefits

The current, reactive nature of supplier sourcing and management is changing. A more thorough understanding of supplier markets and associated technological advancements is required. With our experience in this field, Tefen can implement and inject the necessary pace into this function to ensure that the best suppliers are selected to reflect your specific business needs.

Network Design

A firm’s supply chain is the vehicle through which materials and products are moved from the source to the customer. A good supply chain design can become an effective strategic weapon for competitive advantage. On the other hand, lacking an optimized supply chain network design can place a structural stranglehold on costs as well as cause a reduced agility to react to changing market demands. In addition, given the variance of products, customers and facilities, it thus becomes vital to continuously review the network design for potential savings.

Potential Improvements

A network design covers a vast scope of business and may be manipulated to solve any one of the following business problems:

• Elevated operations, logistic, or warehousing costs, which are imbalanced with revenues
• Changes to the availability of manufacturing capacity. Reduced productivity, plant shut down, plant age etc.
• Customer demand profiles changing with time
• Increased standards of customer service levels
• Shift in inventory strategy: Build-to-Stock vs. Postponement
• Shift in logistic strategy: Fragmented vs. Consolidated
• Underutilized distribution resources
• Changes in legislation
• Process improvements alone do not deliver the required financial cost savings

Our Approach

A conventional method to design a network focuses mainly around operations and geographical layout. Tefen’s approach expands on this methodology and presents a more strategic outlook for capturing any opportunity between distinct operational units, while ensuring that customer demand is fulfilled. By analyzing up to date labor cost, legislative and tax policy, logistical costs and inventory requirements, Tefen can help companies design efficient networks, ensuring potential savings are not missed.

Tefen recognizes that there is no satisfactory one-size-fits-all solution. Our methodology systematically models the network design exercise on four tiers: suppliers, factories, warehouses and customers. We consider multiple ‘what if’ parameters and iterate different scenarios and designs to ensure the optimum design is chosen. While we do use tested mathematical models to assist with network design, it is the combination of our experience with the client’s input that delivers a tailor-made network design tool for your specific needs.

As companies consider a reconstruction of their network design, they have the opportunity to reconsider the various benefits and trade-offs associated with alternate constructs. This heavily quantitative and qualitative exercise—addressing the number and locations of these facilities—is a critical factor in the success of any supply chain. Essentially, Tefen not only provides the first design solution, but also implements a vehicle which is self-sustaining and can provide ongoing benefit, itself.

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