Adding Value to the Supply Chain

Emerson is listed second in Fortune’s most admired electronics organizations, just behind GE. Innovation is how the Company likes to distinguish itself - offering a vast array of products and services committed to produce innovative solutions for its customers. So, too, has its services delivery strategy taken up the challenge to drive innovation to support greater value, particularly in the order to ship process. Carlos Di Brico, President of Emerson Argentina and the Chief Administrative Officer for Emerson Southern Cone shares how this is done in the Southern Cone.

Introduction

Shared services plays a key role for Emerson in terms of effectiveness, cost reduction, cost containment, governance and internal control. The main focus is to continue sharing local assets and resources, and driving the necessary synergies to support business growth. Emerson’s shared services platform for the Southern Cone was launched in 2002, servicing four business units that run their operations in Argentina.

At its launch, the shared services group provided a classic range of services: finance & accounting, HR and IT. As the operation evolved, however, we’ve added to these functions, expanding our scope to include supply chain, corporate marketing and facilities - functions that used to be managed by the businesses themselves, but which we are now able to service more productively. The geographic scope, too, was increased to include Chile, thus adding six additional business units or divisions to our customer base.

Although the early steps taken were based on the notion of looking for savings via "functions centralization," (i.e., tactical), as we moved forward we changed our approach from centralization to integration (i.e., strategic). For that reason our mission was and still is to be a business partner to the business units, providing them with strategic support in each service area, and installing and maintaining proper financial controls to secure business growth in a profitable and ethical manner. Our value adding contributions align with this idea: basically, leveraging and sharing resources, assets and knowledge through implementing consistent governance, fiduciary and internal controls.

The Supply Chain Model

The supply chain was a key area of focus for us. The main target for our supply chain was to design, implement and execute an integrated system that would include order entry, purchases, and foreign trade; and that would expedite and deliver so as to guarantee the lead times required by our customers, as well as meet their expectations for quality in goods, services and information. Everything had to be delivered at the best cost.

This type of organization, which we adopted a year ago, has contributed significantly to improving the productivity of the processes managed in this area.

The main advantages of a cellular structure are as follows:

1. It enables a group of people sharing the same objectives to help each other so that information flows smoothly across processe
2. It allows a setting of common or group objectives and carrying out meetings in order to ensure continued process improvement
3. It motivates people through teamwork
4. It supports the implementation of a Kanban methodology.

Today, the whole "order to ship" process is managed by the supply chain area. This concentration is the result of consolidating the sales orders receipt and processing areas. The purchase orders related to these sales orders are also placed by sales administration staff.

The main functions of sales administration are:

• Customer order processing
• Customer service
• Booking and backlog organization and control
• Plants PO processing
• Selling prices control
• Intercompany prices control
• Reps commissioning
• Profit analysis by customer order

Prior to this arrangement, all these functions were decentralized in each business unit.
We identified the following opportunities in moving from a decentralized organization to a consolidated one:

• Improving productivity
• Uniform service level
• Improving internal control
• Standardizing procedures along every division
• Improving the leverage of current resources

The early drivers for this initiative were cost reduction and better internal controls across the whole process. However, some other interesting added-value benefits became apparent as we moved to a consolidated model.

Adding Value

The value we have added are basically related to increasing the efficiency and the effectiveness of the entire order to ship process:

1. Cost reduction: as a consequence of consolidating every order-processing platform in one single group, we leveraged resources and knowledge
2. Flexibility: every data entry easily works for any business platform; our services do not depend on dedicated resources; everybody backs up everybody
3. Enhanced customer service focus: a single point of contact with our customers with clear communication guidelines and clear timing
4. Inventory optimization: the supply chain group owns inventory management for every business; so although the business is an important part of the process, inventory management is based on the supply chain
5. Negotiating additional price reductions: working on bulk/bigger orders for an extended term allowed us to get better purchasing prices
6. Reducing the order to ship process: standardization (one procedure, common processes, one single platform) has helped us in reducing the length of the order to ship process impacting favorably on the cash cycle
7. Keeping the focus on the business: management and sales people keep their eyes on the business, while we run the processes
8. More effective internal control: the centralization of transactions processing helps in getting a more effective internal control environment. This is particularly important for public companies under current SOX requirements

Key Performance Indicators

Our relationship with internal customers is managed through Service Level Agreements.
We have kept these written agreements very simple, and linked them to the following KPIs:

• On time and complete: percentage of on time delivery on total monthly deliveries
• Order to buy: length of the order to buy process in days
• Service cost: actual cost vs budgeted cost

Some Benefits in Figures

After implementing the new consolidated supply chain model achieved improvements in most of the KPIs:

1. On time and complete ratio improved by 20%
2. Order to buy cycle reduced by four days
3. Service cost reduced by 15%
4. Foreign logistics costs on imported goods: -8%

Summary

As we apply a continuous improvement mindset within shared services, we are constantly working on identifying and implementing additional improvements to our process. IT and the associated automation are playing a key role in this respect, as we plan to leverage our investments and capabilities.

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Carlos Di Brico is the President of Emerson Argentina and the Chief Administrative Officer for Emerson Southern Cone. He is the leader of the Shared Services organization. Before joining Emerson in 2001, Carlos worked with the following companies: Union Carbide (1975-1982), Eveready (1982-1995), Block Drug (1995-1998) and M&S Consultores (1998-2001). Carlos has both an Accountant degree and a Business Administration degree.