Supply Chain Excellence What I Learned from the Juror Box

Pete Edwards Supply Chain Director, Thiochemicals, Arkema Inc

Show of hands… How many here consider themselves a supply chain professional?

Show of hands… How many here consider themselves a pretty good supply chain professional and have good processes and procedures for your business endeavor?

Show of hands… How many here believe that supply chain excellence can be invented, and more importantly, executed by those with a 9th grade education or perhaps a GED?

Our journey this afternoon… …take you to the Juror Box of the US District Court and highlight what I learned from a real life prosecution of a businessman who ran a supply chain for the distribution of cocaine in Philadelphia.

Now stop laughing…

Question… How much money does a regional (NE Philadelphia) “supply chain manager” for cocaine distribution bring in over a 1-month period?

$2,000,000 to $4,000,000

per month – cash! at 20-30% margin!

By show of hands… Ø Who feels under-paid? Ø Who wants a job as the Director of

Supply Chain for “Cocaine Am Us” for NE Philadelphia?

Cocaine distribution is a high risk profession. The “mentor” of this story is currently serving a life + 30 yr sentence in federal prison. But, as the lead prosecutor said in her opening statement, “Joe” was a very astute and successful businessman who… “ran a very efficient supply chain”.

disclaimer My company, Elemica, the Chemical Heritage

Foundation, the City of Philadelphia, the Philadelphia PD, the US Office of the DEA, the

great United States of America, and of course me, absolutely and without question strongly

discourage – and in fact will actively support full prosecution – for any illegal activity including but

not limited to the possession and/or distribution of cocaine. Anything presented here is for reflection

purposes only and not intended to be used as a business model for illegal activities.

Question… What are some key, critically important elements of a supply chain model for excellence?

Supplier Risk Management

Customer Management

Business Rules to Serve

Value Pricing

“Supply” Model

Question… Why are drug dealers called “pushers”?

Cocaine distribution is based on a “push” vs a “pull” supply chain model.

Supply Model Push Model

n Commodity n Limited product

differentiation n Max upstream

operations (manufacturing)

n Control demand

Pull Model n Specialty product n High differentiation n Custom specification n Production cycle on

common mfg assets n Inventory

management

What supply model best fits your business?

Supply Model

n MTS = make to stock n MTO = make to order n ATO = assemble to order n PTO = package to order

What supply model best fits your business?

Inventory Management

1. Lot Control & Lot Traceability – batch/lot control, ship on CoA – lot traceability up/down the supply chain – expiration dates

Cocaine “bricks” have unique, identifying markings designating supply source & “production lot”

Inventory Management

2. Packaging – How many SKU’s do

you need to meet customer requirements? How many do you have?

– What is the “best” package for your product?

Inventory Management

3. Inventory Control – detailed records by batch/location – chain of custody/authorization to release – detailed shipment history: who, when – high valued material warehouses may be

monitored by security cameras – off-grade quarantine/write-off procedure

Cocaine distribution… yes to all

P P P P

P

Inventory Management

4. Reverse Logistics – return authorization protocol – logistics/routing; carrier(s) – credit/reimbursement process

What is your process and is it robust?

Cocaine distribution… yes to all

P P P

Inventory Management

5. Quality Management – sample on receipt or accept on CoA? – sample retain policy – FIFO control to manage shelf life – quality management system reporting

What is your process and is it robust and providing value to your customers?

Cocaine distribution… let’s not go there…

Supplier Risk Management Where are your supply risks? What margin is at risk?

– single or sole sourced – domestic or foreign – logistics/routing assessment – social responsibility?

Have you quantified your upstream supply risk? Cocaine distribution… “Joe” assessed his supplier

portfolio to minimize risk and maximize profit.

P P P

Distribution Network

How do you manage post-manufacturing logistics? – direct ship from the plant? – hub ‘n spoke regional warehouse/terminal? – bulk vs FTL vs LTL – assess the robustness of your carrier program

What is your process? Is it meeting the needs of your customers? Does it manage total working capital? Is it cost effective?

Business Rules to Serve

What are your key business rules? – lead time – ATP (available to promise) – custom services: package, label, fill – pricing management & payment terms

Do your business rules support your SC process? Which rules drive chaos in your SC?

Cocaine distribution deals with all the same issues

P P P P

Consignment

Is consignment good or evil? – Is it a competitive advantage? Why? – Are you the single sourced supplier? – Is this a good use of your working capital?

Is consignment right for you and your business? What business rules do you have to make this

work for you? Cocaine distribution relies on consignment from the cartel “king” to the street dealer.

P P P

Customer Management

How do you qualify your customers? – specific product stewardship issues? – downstream applications? – social responsibility? – credit worthiness? – cross-business synergy?

What is your process and is it robust? Cocaine distribution… 4 out of 5

P P

P

P

Value Pricing

Are you capturing the value of your product and service you provide to your customer?

– how do you differentiate yourself? – what is your competition doing? – is this a topic in your business meetings?

Cocaine distribution… yes to all

P P P

P&L Statement

Do you understand your financial statement? Do you know how your actions impact the P&L?

Cocaine distribution relies on a simple yet detailed account ledger. The biggest challenge… as a cash business, how do you move millions of $$ every week?

Metrics & Benchmarking

What do you measure and how do you stack up to your peers & competition?

– Do you measure what is important to your customers?

– Do you perform to your customer expectations?

What’s on your scorecard? Does it drive results? Cocaine distribution… customers are always “glad”

to see you is the ultimate satisfaction survey.

P

P

Supply Chain Model

1. Push vs Pull 2. Inventory Management & Control 3. Supplier Base Risk Management 4. Understand your Distribution Network 5. Business Rules to Serve 6. Is consignment right for you? 7. Customer Qualification 8. Value Pricing 9. Understand your P&L Statement 10. Metrics & Benchmarking

3 Life Lessons

1. Embrace Juror service… you never know what you might learn!

2. Every business has a supply chain model – ensure that your model fits your business for your customers.

3. Where will you look for your next supply chain innovation?