I interviewed Ankit Khullar who discussed Strategies for Superior Results through Supply Chain.
Please provide a brief background of yourself.
Hi,Dustin Thank you for having me, I am Ankit Khullar from Fluor India. I have been working in Supply Chain management from past 4 – ½ years. I started my career with Telecom insutry and moved to mining and metals and currently I am working in Oil and Gas. After Serving versatile industries, I am in a position to generalise that supply chain can effect a major part of your strategies. Untill late 20thcentury ,generally we saw supply chain as buying and negotiation but now in 21st century executives and management eyeballs is on supply chain at the time of drafting strategies.
What are the important strategies for getting superior results through supply chain?
Leading organizations are continuing to incorporate best supply chain practices into their operations. Executives agreed that declining commodity prices (Energy) and contracting availability of capital for new projects is not over and recovery from this slowdown will be slow and painful. Optimism for green shoots is premature at this stage.
The precipitous fall in the prices of oil has forced governments all over the world as well as the international companies to review their investments and risk assessments for 2015 and beyond. Generally business unit are expecting Business units are expecting immediate price concessions from suppliers based on the collapse in commodity prices. Supply market softness does not necessarily mean that a given supplier’s costs align with this softness; therefore, price reductions may not be as readily attainable as imagined by business unit leaders. It is important to draft short term and long term supply chain strategies to meet business units expectation.
There should be more of a balance between short-term cost improvement and longer-term strategic supply objectives. As per a recent report 85% companies have a rigorous cost reduction program and only 8% reach their target because program is biased either on short term or long term objective. Supply strategies basically fall into two categories, it must be a balance between short term and long term strategies-
1. Short Term cost improvements through supply chain include quickly reduction in supplier prices, especially for the material related to declining raw material prices. Short term price reductions are based on opportunities with raw material & orthodox strategies of contract renegotiation & alternate sourcing opportunities. Most of the world is moving towards Asia Pac for sourcing ex- if we are buying through Europe the prices will be 30% extra when compared to Asia Pac but we should focus on origin of material and quality. If same quality standards are meet than I do not see any problem in going to china/india for Sourcing needs.
2. Long Term strategies aimed at achieving:
• best-in-class status
• longer-term cost and revenue benefits
• upgraded talent
• enhanced supplier relationships
• Enhaced Integrated work progress
• enhanced internal relationships
It has been found that generally one time big transformation program offer magnified results. Comprehensive transformations drive larger shareholder gains. For example, Companies are taking action to stabilize the supply chain (prices, suppliers, adjusting capacity to demand) while continuing its journey to world-class supply chain excellence. Continuing focus on enhancing talent, process, total cost, strategicsourcing and supplier working relationships, indirectly aimed at winning against the competition. Longer term initiative for cost improvementthrough collaborative action with a shared vision can improve cost transparency & companies expect the magnified gains that supply chaincreates. Companies are taking initiative for complexity reduction, value engineering and sharing risks with suppliers. I think long term strategies depends on different industries based on their experience but these are generalise parameters that need to be consider to gain magnified results.
How is this done in practice?
Lets take some generalised cases-
a) Cash is King- If Company is a living machine, cash works as a spine for it. Companies need cash to pay their workforce and suppliers. If enough cash is not generated by the business, than companies need to borrow the money to meet the cash deficit. In current economy, Credit is very expensive. Supply Chain Management is playing an important role in preserving cash by delaying deliveries, delaying payments and reducing inventories.You can delay deliveries so cash management can help you in getting stronger in market.
b) Payment Terms – Payment Terms play an important role in planning your cash flows. Earlier we used 100% net 30 days. Stretching out terms to the supplier helps the cash position of the buying company, it shifts a financial burden to the supplier. Thus companies are carefully considering payment terms and discount terms for their impact on both the buying firm and their suppliers. Few suppliers are coupling earlier payment terms with the offer of significant discounts, so taking advantage of early pay discounts can make economic sense.
c) Now a days cost models are drafted as per purchase categories and cost elements that had significant raw material content for which the raw material costs were declining at a rapid rate ..To take best advantage of falling commodity prices, companies need a detailed understanding of raw material content in the products they buy. A drop of 50 percent in copper prices does not mean suppliers of copper-based products can drop prices by 50 percent across the board. For better understanding, few companies are using third-party cost-modeling tools to examine the raw material content elements . An analysis of raw material usage and key cost drivers helps quantify the real opportunities for price reductions. What is supplier price entitlement and what is an opportunity for cost reduction is a mindset. Companies need to shift the mindset to capture the opportunity
g) Spend Analytics- Are we buying the same items across our location and pay different prices? Spend analytics can answer many questions who,why,where,what,when and how’s of a organization expenditures. Spend analysis can provide valuable visibility into an organisation’s procurement spending.which in turn allows the organization to consolidate both its supplier and its spending.
Spend analytics can help companies achieve wonders in their operations ex- Lower Procurement cost, streamlined procurement process and efficient procurement staff.
Where have you seen good results?
I have seen good results as I read an article on ISM where it was mentioned that supply chain constitute 60% of total cash movement, if we able to save 5% we can reduce the total cost by 3%.
Current turmoil in Oil and Gas industry has forced governments all over the world as well as the international companies to review their investments and risk assessments for 2015 and beyond. The difficult time has created new demand and expectation for Supply ChainManagement.Companies are discussing with consultants for reduction in net value of project, so being a supply chain professional i can suggest supply chain can have a huge impact on strategies. Companies are showing keen interest in Supplier Risk Mitigation, Now a days we centre our discussion on financial risk assessment as well. We are using third party agencies who are looking at 90 days credit load, debt load of supplier and credit score. These types of strategies can help different industry in different segment and executives eyeballs are focusing on supply chain.
Thanks dustin for having me today, If anybody has any queries they can shoot me an email at firstname.lastname@example.org or email@example.com and I will try to respond as soon as possible. Thanks
About Ankit Khullar
Specialist-2 Operations at Fluor Corporation