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Getting fit for profitable growthTurn your supply chain into a strategic asset

May 2015About the study p4 / The Supply Chain, an engine for profitable growth p5 / Eleven stories of profitable growth p11 / The strategic importance of the supply chain p13 / Connect – get close to the market and tailor services to customer needs p17 / Coordinate – link partners in your value chain p21 / Consolidate – integrate fragmented channels and regroup dispersed activities p23 / Create – build a chain that can cope with innovation and creativity p25 / Customise – build a chain that masters the complexity of choice and customisation p27 / Collaborate – work closely with customers, suppliers and internal departments p29 / The 6Cs of supply chain growth – making it happen p32 / The research team p34

11 casesbpost p6 / AztraZeneca p8 / Barry Callebaut p12 / Coca-Cola Enterprises p14 / Daikin p16 / Van de Velde p20 / Atlas Copco p22 / Bekintex p24 / Barco p26 / Distriplus p28 / A.S.Adventure p30

PrefaceYou’re richer than you think

Operating in mature markets is a real challenge, particularly in terms of realising shareholder growth expectations. And while realising growth is one thing, realising profitable growth is altogether different. Vlerick and PwC are working together to investigate the models and drivers behind profitable growth.

This year, the underlying topic is: “How can the supply chain contribute to profitable growth?”

Following a great deal of research, we came across a number of companies – the case studies presented in this report - that have successfully changed or extended the scope of their supply chain or indeed introduced an entirely new supply chain to transform their business and realise profitable growth for the future.

We found that while much has been written in this area, the material forms many pieces of a puzzle. With this report, we hope to put all those pieces together to offer a compelling story of the substantial contribution the supply chain can make and the different roles it can play in driving profitable growth.

Efforts to drive profitable growth generally focus on how to expand product lines, market expansion and other possibilities. Only recently have some companies thought to look at the role that their supply chain could play in helping them achieve their ambitions.

Traditionally, the supply chain has had an execution function, doing what needs to be done in the most efficient way possible. Transformation has been based around how it can be made even more efficient. But a number of forward-looking enterprises are assessing – and as our report shows, actually realising – the contribution the supply chain can make to their growth strategy.

“In every large project, the supply chain function should be at the table, from day one.”

Coca-Cola Enterprises

3Getting fit for profitable growth – Turn your supply chain into a strategic asset

Let us help you play your trump card and realise the riches you already possess.

By selecting cases from across industries and different types of business (B2B, B2C, B2Retail, etc.), we demonstrate that this phenomenon is by no means limited in its potential scope to certain sectors or sorts of enterprises. An appropriate approach can likely be applied to almost every company. One thing the companies we researched have in common is that they reinvest costs saved back into their supply chain, creating step-by-step change to generate much more on the top line than they were saving on the bottom line.

Peter Vermeire

Partner, Strategy & Operations, PwC

Ann Vereecke

Professor in Operations & Supply Chain Management, Vlerick Business School

What’s very clear from our research is that companies are richer than they think. You have the trump card in your hand already – your supply chain -, you just need to see how to play it to reap the greatest reward in your specific business context.

We can help you consider and assess your supply chain from a different perspective, and decide on the most appropriate approach to turning it into a real engine for growth. We can work with you to discover what you would like to achieve and design a tailor-made solution for your business. Our expertise will let you find the approach you need to succeed.

4 Getting fit for profitable growth – Turn your supply chain into a strategic asset

About the study

This report is the result of a study conducted by Vlerick Business School and PwC in 2014, in which 11 multinationals took part. Our aim was to identify the different ways companies can profitably grow their business by extending the scope of current supply chain practices.

The study was conducted against the backdrop of two key trends:

the evolution of supply chain management’s role from primarily operational

(focusing on reducing cost and improving efficiency) to more strategic (focusing on increasing agility and responsiveness to changing market needs)

the increasing prevalence of companies looking for new ways to grow their business

as markets mature and the economic climate hinders customary organic growth. As a consequence, companies need to rethink their supply chains in order to remain competitive

Findings offer six approaches for companies to use to leverage their supply chain as an engine for growth. These can be put into six categories of actions that we call the 6Cs of supply chain growth.

The 6Cs of supply chain growth

These 6Cs create a platform for profitable growth. By implementing and combining them, you can build the required capabilities into your supply chain to get new products to the market more easily, attract new customers, serve existing customers better and – bottom-line – grow sales without increasing costs or requiring additional assets.

The Supply Chain, an engine for profitable growth

Supply chain management puts a strong focus on cost and efficiency. In an economic downturn, it’s one of the first areas that a company looks at to find opportunities to reduce costs. Can we reduce inventory levels to improve working capital? Should we move production to a country with lower labour costs? Should we consolidate regional warehouses into a larger, central warehouse to reduce warehousing and inventory costs? Such questions are often on the supply chain manager’s agenda. Their objectives typically include targets for reducing operational costs, inventory levels and CO² emissions, while increasing capacity utilisation. Supply chain optimisation projects are often about minimising cost and maximising the use of resources.

The supply chain’s new strategic role

A focus on growth creates a new role for supply chain management; to support and facilitate growth – to make sure that new products and services get to the market quickly and that the distribution channel is well equipped to serve new markets flawlessly. Agility and responsiveness are added to the list of performance criteria. All this comes on top of the traditional supply chain role of reducing cost and improving efficiency. However, the objective of cost reduction and efficiency improvement is no longer downsizing, but freeing up the resources required for growth.

This is creating a true paradigm shift in supply chain management. It implies that the supply chain function has become strategic rather than purely operational. For our study, 11 companies from a variety of industries shared their views on market trends, their strategies for growth and the supply chain practices they’ve adopted to accomplish growth. These cases illustrate supply chain management’s new strategic role.

What is profitable growth?

Profitable growth is achieved when you increase sales with a less than proportional increase in costs and assets, or – ideally – with no increase in costs and assets. Doing more with less is the aim.

There are multiple dimensions along which you can work to achieve sales growth. Given that sales is the combined effect of volumes and price, sales can be amplified by increasing the volumes sold in the market, by raising the prices charged for products and services or by using a combination of both. Companies that aim for profitable growth can apply these strategies on either products and services or on the markets and customer segments they’re active in. Our 11 cases illustrate the different dimensions of profitable growth.

However, a growing number of companies realise and acknowledge that the supply chain function can go beyond contributing to cost reductions and efficiency improvements. They understand that the supply chain can be an engine for growth. In mature economies in particular, a company’s future development depends on this focus on growth. Cost reduction, by definition, has limited potential. And if used as the only focus of supply chain management, there’s the risk that the company will face a downward spiral of continuous downsizing. Growth opens up new horizons. When tapping into new markets, targeting new customers or offering new or better products and services, the ‘sky’s the limit’.

bpostA license to deliver

bpost is the Belgian postal provider responsible for both national and international mail. It also provides a range of postal, courier and banking services. Although bpost operates in a highly competitive environment, it’s managed to grow sales in some segments significantly in the last couple of years. One driver has been increased business in the packages segment; bpost evolved from day+4 to day+1 delivery.

By leveraging its last-mile competencies and developing new capabilities, bpost has expanded its service portfolio and now offers new products. An opportunity came in 2010 in the form of the processing of EU license plates for the Belgian government. A change in European legislation requires all license plates to have seven characters, as opposed to the six used in Belgium. The logistics of changing all license plates would be massive – the project included the production process of the new plates, delivery to car owners and collection of payment. The Federal Service Department of Mobility that was in charge of this project was facing a serious bottleneck in handling the administration and since the extra costs had to be covered by car owners, an additional tax seemed unavoidable. But citizens would only be prepared to pay if service levels were improved. A tender for full concession was launched.

bpost seized the opportunity and engaged in far-reaching collaboration with the Belgian government. It already had a reliable distribution network covering the post box of every Belgian household and it had easy access to the other elements required for a fully integrated system. Speos, a daughter company with high-tech printing facilities, would print the secured certificates of registration and invoices, and provide an automated solution to match these to the correct license plates in the warehouse. License plates are delivered to the warehouse in advance, allowing bpost to deal with the complexity of around 100 different types of license plates in a day+0 timing. bpost’s carriers deliver products to customers’ doors and take care of payment. To get the process launched in the just 16 weeks it was given, the project team was allowed to deviate from the traditional bottom-up reporting process and had the necessary flexibility to put everything in place without having to report to several committees. All capabilities were up and running in just a few months creating an optimised end-to-end process, from order to delivery.

Unlike in the past when customers had to either send a letter or visit a local registration office to order a new license plate and registration certificate - that could easily take weeks - with the new bpost process, all customer orders for license plates are placed online via the local registration office website. Once the vehicle is registered, the order is automatically sent to bpost. Speos prints the certificate of registration and invoice when the order comes in. An automated system in the warehouse combines the two documents and the license plate into a single package, which enters the bpost distribution network on the same day. The following day, the package is delivered to the customer, who pays upon delivery. bpost then transfers the money to the Belgian government and closes the loop from order to credit collection.

bpost now delivers 5,000 to 6,000 plates per day with a lead time of just one day. By totally redesigning the process from order to delivery based on a clear supply chain strategy, bpost has been able to tap into an entirely new market segment and proved itself to be a true supply chain orchestrator.

“Change, change, change – every day again.”

Case study

Growth can also be triggered by offering a wider choice of products and services to respond to every customer’s needs. This creates challenges for the supply chain:

• Atlas Copco (page 22) evolved from a product provider to a solutions provider. By centralising all its service departments into one global service division the company could build the necessary capabilities to actively grow the portfolio of services it offers to customers.

• Van de Velde (page 20) excels in offering a broad range of fashion products with a perfect fit for each customer. Twenty thousand different SKUs run through the supply chain at any point in time.

• Distriplus (page 28) competes in the beauty sector by having a wide variety of perfumes and beauty and care products available in stores.

• Barry Callebaut (page 12) pushes the breadth of its product range to extremes, by offering customers the opportunity to fully customise their chocolate.

To boost sales, you can choose to target new markets with existing or new products and services:

• Bekintex (page 24) constantly searches for new technologies that lead to innovative products and for new applications for existing products, which are introduced in new sectors.

• bpost (page 6) expanded its service offering by leveraging its ‘last mile’ competencies – to supply new car license plates, for example.

• Barco (page 26) opened new markets by playing on the evolution in digital cinema.

• A.S.Adventure (page 30) made the conscious and well-prepared move from the traditional channel of solely brick-and-mortar shops to an omnichannel approach.

• For Barry Callebaut (page 12), growth means increasing its global reach by rapidly entering into new geographical markets.

A review of your product portfolio can allow you to target different segments in your existing market, yet another option for growth:

• When Daikin (page 16) extended its offer from high-tech cooling installations for building projects to include basic air-conditioning products as well, it could reach both highly demanding B2B customers as well as B2C customers looking for commodity products.

• Along the same lines, Barco (page 26) added a lower-end version of its product to the existing high-end portfolio for the healthcare sector, thus expanding its customer base without impacting its high-end clients.

• Coca-Cola Enterprises (page 14) began offering its brand to hard discount retailers in a sustainable way. Whereas A brands used to stay away from the hard discount sector, some are now concluding that they can no longer ignore this fast-growing channel.

AstraZeneca is a British-Swedish biopharmaceutical company with a global network of 27 production facilities in 16 countries. Its centralised supply chain team orchestrates the network. Feeling the impact of the patent cliff in the pharmaceutical sector, AstraZeneca focused its energy on filling the product pipeline with new, innovative products, some developed in-house, others brought to the company through acquisitions.

“Velocity” is key for AstraZeneca’s supply chain. For new products, time to market is crucial. In addition to strong R&D competencies, it requires strong supply chain capabilities to get products to patients as soon as they’re approved. For existing products, it’s critical to have products available where and when patients need them. To reach these very high service levels, AstraZeneca opted for operational excellence, shifting the company’s operational focus to an enterprise-wide philosophy. Several projects were launched.

The lean philosophy was introduced to manufacturing to boost supply chain speed. Waste was eliminated in the entire process of new product introduction so that the supply chain could support fast-track approval and introduction of innovative medicines.

In the downstream part of the supply chain, large projects were initiated to ensure full market availability, increase visibility on customer demand and reduce the long lead times from production to final customer, a prerequisite to prepare the supply chain for the digital economy.

The main focus was on redesigning the distribution channel to be more responsive, gain more control and improve visibility in the supply chain. In some markets, a traditional channel approach was used (Figure 1) in which products were sold to distributors. This supply chain set-up was straightforward for sales, who had to deal with a relatively small number of distributors, but gave limited control over products once they left the packing centre, and visibility into the end-to-end chain was missing.

AstraZeneca (1) Bringing pharmaceuticals closer to the patient

Case study

Interestingly, several companies try to get closer to their end customers:

• AstraZeneca (page 8) has redesigned its supply chain set-up and insourced part of the distribution channel in specific geographical areas and for specific products to reduce the distance to customers. This not only ensures optimal product availability, but also provides a better view on customer needs and a greater understanding of market trends.

• Being closer to customers also creates the opportunity to differentiate products and add specific value-adding services. A.S.Adventure (page 30) adopted a multichannel approach to lock customers in, anywhere and anytime.

Rather than doing something new or offering more, another growth strategy can be to offer better products or services, as a differentiator:

• Atlas Copco’s (page 22) commitment to providing excellent service allowed the company to build a long-term trust relationship with customers.

• Through excellence in product quality, Barco (page 26) grew exponentially in the digital cinema market, its competition couldn’t match the high quality level it offered.

By linking pricing strategies – a typical sales and marketing responsibility – with supply chain strategies, companies can optimise the revenue generated by different market segments. Supply chain segmentation is all about tuning the supply chain to the needs of the customer and charging them at the ‘right’ price – allowing profit margins per market segment to be maximised:

• Daikin (page 16) differentiates customer service levels and delivery options to optimise the cost-to-serve toward different customers and the price it can charge to each customer group.

• By designing and optimising the distribution channel towards new hard discounter retail customers, Coca-Cola Enterprises (page 14) created margin in the hard discount channel, without cannibalising its existing market channels.

Figure 1: The distributor channel

Recently, the company moved to a more centralised approach with regional distribution centres that ship directly to wholesalers (See Figure 2).

By taking ownership over inventory and working directly with wholesalers, AstraZeneca’s control over the supply chain has increased and it’s come closer to end customers. Long lead times have been reduced.

Figure 2: The wholesale channel

In some more established markets, a direct-to-pharmacy model was introduced in which the wholesaler acts as a logistics provider for AstraZeneca (See Figure 3), bringing the company even closer to end customers.

Advantages are legion: very short customer lead times (down to a single day); a high degree of control over the entire supply chain, allowing for batch control and guaranteeing product integrity; and better visibility on demand, improving forecast accuracy for a positive impact on inventory levels. Bottom-line: increased velocity, improved visibility and reduced variability in demand.

Figure 3: The agency channel

The new design offers new opportunities for supply chain improvement. Projects are underway to assign a unique code to each item (“serialisation”) and to track and trace the product from production to consumer.

Products can then be verified at the point of dispensing. Serialisation also reduces the risk of falsified medicines entering the supply chain.

In an industry that’s moving more into the digital era, this supply chain set-up should result in competitive advantage.

AstraZeneca (2) Bringing pharmaceuticals closer to the patient

Case study

Eleven stories of profitable growthOur 11 cases – spread throughout this report - tell the stories of companies that have accomplished profitable growth by exploiting existing markets more intensively, by tapping into new markets, by improving existing products and services, by adding new products and services to their portfolio, by creating more value for existing customers and by approaching new customers. Sales and marketing has a clear role to play in accomplishing growth in sales figures. Equally important is the role of research and development (R&D) that designs new and innovative products.

And how can you guarantee that additional costs don’t outweigh the margin generated by new products? Redesigning your supply chain may help you decrease the distance to the customer and increase service levels, but how can you do this without increasing warehousing and transportation costs? Answering these questions calls for a robust and agile supply chain.

Not only does the supply chain function supervise the profitability of growth in sales, it can also be the driving force for profitable growth.

Through these cases, the supply chain function is shown to be an important partner to sales, marketing and R&D. How the supply chain is designed and managed determines whether growth in volume can be translated into growth in profit. Adding products to your portfolio may look like a straightforward solution in a mature market, but how can you keep the added complexity under control?

Barry CallebautA sweet blend of scale and responsiveness

Barry Callebaut is the world leader in high-quality cocoa and chocolate products, operating in 30 countries worldwide. Active on a global level, Barry Callebaut has many different customer types, often with specific needs. To realise its value proposition, the company is fully integrated and has established a strong position in many cocoa-origin countries. This is a major strategic advantage as it allows the company to develop the necessary scale for its operations. Barry Callebaut doesn’t own cocoa plantations, but maintains close collaboration with cocoa farmers. It has a number of cocoa processing plants in cocoa-origin countries, keeping logistics costs throughout the production chain low. Raw beans are processed into cocoa liquor before being shipped to plants, the shipped product has a much higher value density than the original beans and the amount of shipped waste (approximately 20% of the beans) is highly reduced. After shipping, the cocoa liquor is pressed into cocoa butter and cocoa powder to be converted into chocolate in a chocolate plant somewhere in the world. Proximity of the plants to the customer is key for logistics and allows Barry Callebaut to tailor its offering to the needs of a given market.

Growth for Barry Callebaut over several years has mostly come from outsourcing and strategic partnerships, entering emerging markets and expanding its gourmet and specialties business.

One of the drivers of cost leadership – one pillar in Barry Callebaut’s four-pillar growth strategy – was the introduction of “mass customisation”. This has been Barry Callebaut’s answer to the challenge of maintaining economies of scale in production while delivering over 6,000 different recipes, most of which are custom-made for specific customers and with many recipes changing every year. The company developed an interesting concept that has revolutionised the chocolate-making process: by producing a limited number of ‘mother chocolates’ (white, milk and dark) which are blended later in the process, Barry Callebaut can deliver any recipe of chocolate – in small quantities with a limited additional cost. This combination of postponement and modular chocolate design significantly reduces complexity in the production chain and transformed a traditional batch process into an efficient continuous process.

The use of mass customisation has helped Barry Callebaut grow in emerging markets where meeting the challenge of speed-to-market is paramount to lock in customers before the competition does. Information on new market needs and customer expectations is limited and often inaccurate, making it hard to forecast the market’s exact preferred taste. Blending several mother chocolates helped combine the necessary speed and flexibility towards the market with efficiency in the production process. The taste can easily be adjusted to customer expectations, based on new market intelligence and early sales data.

This approach also inspired Barry Callebaut to set up “Or Noir”*, a unique service that stresses authenticity and targets artisan customers who want to create their very own chocolate. By applying the mass customisation approach to this set of 11 origin-specific dark and milk chocolates and chocolate liquors from the same 11 origins, an endless variety of personalised chocolate tastes can be designed. Barry Callebaut processes the cocoa beans into 22 made-to-stock chocolate components that can be ‘assembled’ into customised chocolate based on the customer’s design of the product.

The implementation of mass customisation in the production process provided Barry Callebaut with an important competitive advantage and strengthened the company’s reputation as an innovator.

“Mass customisation helps make complexity manageable.”

Barry Callebaut

For more information on Barry Callebaut’s “Or Noir” concept, read the case online at: http://www.thecasecentre.org/educators/products/view?id=98468

Case study

The strategic importance of the supply chainWhat unites the 11 cases presented in this report is their view on the strategic importance of the supply chain function for the company’s future. Management in these companies realised that, for the supply chain to be an engine for profitable and sustainable growth, it needs a robust design and a strong set of capabilities.

Our 11 cases reveal an interesting set of supply chain practices that build the capabilities needed to drive profitable and sustainable growth now and shape the supply chain for future growth. We’ve summarised them into the 6Cs of supply chain growth.

In the case of new product introductions, sourcing has to be able to provide the right material and components in the right quantities, manufacturing has to be able to ramp up rapidly and distribution has to deliver new products to the market according to the plan. In other words, the design of the supply chain determines the time-to-market for new products.

When moving into new markets and new customer segments, having a reliable distribution channel is paramount. The availability of products to customers and the responsiveness to changing customer needs depend on the strength of the supply chain.

This leads to the questions:

• How can the supply chain become an engine for growth? What are the capabilities needed?

• How can you (re)design your supply chain to make sure it can cope with growth – or even better, make sure it triggers growth?

Companies that want to offer total solutions by complementing products with a wide array of services need to have the skills to sync the flow of goods and services. Again, having the right supply chain capabilities is key to the success of these growth plans.

The design of the supply chain also determines how close you can get to end customers and how accurate and timely market information is. Strong supply chain capabilities allow you to segment the chain to fulfil customer expectations without over-delivering, thus optimising the value generated in the chain.

Coca-Cola EnterprisesAlways Coca-Cola – Soft drinks at the hard discounter

Coca-Cola Enterprises markets, produces and distributes Coca-Cola products in the UK, France, Sweden, Norway and Benelux countries. The company’s supply chain ambition is to be both cost-focused and customer-centric. This requires efficiency, flexibility and skilled people with responsibility and sustainability. The underlying reason for the focus on cost and efficiency is to be competitive and free up resources for growth projects.

At Coca-Cola Enterprises, growth is realised mostly by fine-tuning the product portfolio; by adding new brands, products and packaging, more customers can be targeted. A strong end-to-end supply chain is one of the key drivers for generating consistent, long-term profitable growth.

A-brand companies usually stay out of the hard discount retail sector. Nevertheless, we see increased interest to enter this rapidly growing channel because of the sales potential. Most of these retailers have specific requirements in terms of size of packaging or which pallets to use to ensure that product characteristics and logistic flows match the retailer’s DNA. To provide a supply chain offer that’s both customised and optimised for hard discounters, Coca-Cola Enterprises has Logistic Account Managers (LAMs) who work with commercial account managers. LAMs discuss optimal delivery

methods in terms of timing, volume, packaging, etc. with the customer; they’re the liaison between Coca-Cola’s sales and supply chain departments and the customer.

A new contract closed with a hard discount retailer illustrates the strength of involving sales people and supply chain experts in negotiations with the customer. The customer wanted a specific pallet type that was not supported by Coca-Cola Enterprises, as well as a “contour-shaped” 2.25 litre PET bottle – that Coca-Cola Enterprises didn’t have. Strict requirements, in combination with the short time window of only six weeks to get the first delivery into stores, illustrate the importance of a flexible and responsive supply chain.

Coca-Cola Enterprises went to great lengths to make sure that a joint effort would result in a win-win for both the producer and the retailer. By tapping into expertise in other Coca-Cola sites in Europe, a temporary solution was found. A Coca-Cola plant in Spain was able to supply bottles for the first couple of months, which helped meet the six-week project deadline. As these bottles were “straight-wall-shaped” and not the ones the customer asked for, a design project was launched simultaneously to build the capabilities for a contour-shaped 2.25 litre PET bottle. To meet the customer’s expectation of very short lead times, an intermediate supply solution was worked out by producing the bottles in Spain. In parallel, an optimised supply chain solution was being worked out; Coca-Cola invested in new capabilities in one of its plants to meet the full customer request for both contour-shaped bottles and a specific pallet type. This approach ensured increased supply chain productivity and reduced cost at the same time.

Coca-Cola Enterprises was able to launch the product in the requested shape and on the specific pallet in time. It was also able to reduce the cost-to-serve towards the hard discount channel. The key drivers of success for a supply chain project like this include employees’ attitude, their customer-focus and cross-functional collaboration.

“In every large project, the supply chain function should be at the table from day one.”

Coca Cola Enterprises

Case study

This serves as an important motivation to create and customise products and services. Supply chains that are able to cope with innovation and customisation – while managing the added complexity – will generate competitive advantage. The complexity and uncertainty inherent in many supply chains requires stringent coordination across the chain. Some companies take this one step further and move from coordination to consolidation by centralising, or even vertically integrating, supply chain activities.

If your supply chain is connected to the market, and comes as close to the final customer as possible, you can serve customers faster and better. You’ll also increase your overall flexibility and responsiveness, two important ingredients for growth. Connecting to the market also makes capturing the voice of the customer much easier – a voice that increasingly asks for new, innovative and individualised products and services.

“Cost focus is important to enable growth.”

Daikin

“IT is a vital element in many supply chain projects, despite it often being the bottleneck due to limited resources.”

“It is imperative that we grow our business. The supply chain plays an important role in this growth.”

Finally, our cases show that collaboration between partners in the chain – both internal and external – is a key engine for growth.

Interestingly, our 11 cases also reveal that these six growth drivers often go hand-in-hand with traditional supply chain practices that have been regarded as basic tools for cost reduction and efficiency improvements. Operational excellence was mentioned in several cases as a facilitator for growth.

Another common denominator of most of our cases is access to advanced systems to support growth. Advanced data gathering and analysis tools, systems that enable efficient data sharing between and within companies, state-of-the-art IT platforms and integrated ERP systems were all considered to be important facilitators for growing the business.

Daikin (1) Cool! – How Daikin’s supply chain offers both low-cost and high service

Daikin Europe, a fully-owned subsidiary of the Japanese company Daikin Industries, is active in the sales and manufacturing of air-conditioning, refrigeration and heating equipment. Since 2000, Daikin has tripled sales as a result of diversification – introducing new product lines (e.g. heating) and targeting new segments in existing markets (e.g. offering basic models of air-conditioning equipment). A move into emerging economies has opened up new markets. Daikin’s supply chain agility, a result of its European manufacturing footprint, allowed it to seize new market opportunities faster than competitors.

Daikin’s growth pushed the supply chain to its limits and led to a delivery service that was no longer in line with customer expectations. Its “one-size-fits-all” supply chain approach was holding it back in a market where different customers expect different service levels. Some customers were over-served, and the cost-to-serve was too high; others would be willing to pay more if greater flexibility or delivery service (e.g. track-and-trace information or a proactive message with updated delivery details) could be offered.

To tackle these issues, Daikin launched its VELVET project, combining a restructuring of the warehouse network with stock integration. Even with half the number of warehouses, delivery service could be increased while keeping stock levels low.

Previously, Daikin transferred products from its factories to strategic DCs and affiliates took care of shipment from there. As part of the VELVET project, affiliate warehouses were removed from the chain and replaced with Daikin’s own regional DCs, offering additional control over product flows and providing a better view on market demand. It also enabled the flexibility that would be required for the fast deliveries Daikin wanted. A few years after the success of VELVET, Daikin went a step further and took over responsibility for delivery from DCs to customers.

Case study

Connect – get close to the market and tailor services to customer needsGrowth starts with a focus on the market. In addition to managing and improving the supply side of the chain, supply chain managers should keep a close eye on its demand side.

Getting as close to the customer as possible is crucial. To connect to customers, many companies – both manufacturers and retailers – are rethinking their route to market. This is happening in different ways. Some companies adopt a focused distribution channel, others – especially those in retail – set up multiple channels towards the same customer. Whatever their choice, their aim is to connect more closely to customers by serving them better and faster, without increasing the cost-to-serve. Flexibility and responsiveness to customer needs are key to realising growth. This has implications for investment strategies.

The focused supply chain

Some companies find there’s no single best route to serving the market. Different customer segments have different needs. While product availability is key for some, price may be the determining factor for others. A focused supply chain approach starts by identifying different customer needs and designing a supply chain that best fits the needs of each segment. Fine-tuning the supply chain towards customer expectations allows the company to offer the required service at the right price, with an acceptable cost-to-serve. Air-conditioner manufacturer Daikin (page 16) realised a ‘one-size-fits-all’ supply chain approach was holding it back as different customers expect different service levels.

The omnichannel approach

Retailers are undeniably ‘going digital’, using a mix of channels - brick-and-mortar stores, online web-stores and social media, etc. - to offer customers a unique shopping experience and connect to them in an interactive way. When customers come in to a store, they may already have some information about a product and want to know more from a store employee, or they want to see, feel and try the product. Vice-versa, they may see something in the store, but decide to order it later for home delivery. The supply chain needs to keep up. No matter which channel customers uses to place an order, they expect the right product delivered in the right quantity, at the right location, at the right time and with the required quality. That calls for a streamlined and efficient supply chain. An effective omnichannel approach requires a common product database across channels, a coordinated forecasting and planning system, an integrated inventory management system and often a central distribution centre that serves as a hub for all logistic flows toward different channels. Read about how multi-brand retailer A.S.Adventure developed a true omnichannel approach on page 30.

Daikin

“There are no high- or basic-service customers – any customer can choose to order products according to ‘high’ or ‘basic’ service requirements. The difference between ‘high’ and ‘basic’ service is simply the fee.”

Barry Callebaut

“In chocolate, it’s important to be the first in the market, because the first mover becomes the reference in taste.”

With full control over the entire chain, and full visibility from factory to customer, it was possible to segment the chain and fine-tune segments to customer requests. Different supply chain set-ups were implemented depending on the relationship with the customer, cost-to-serve and predictability of demand. Whereas in the past wholesalers had to order everything from affiliate warehouses, the new tailored supply chain offered the possibility to combine different options. For example, stock could be ordered a few months before the start of the high season (with a long lead time, but at a lower price), followed by additional small replenishment orders during the season (with a 24-hour lead time, but at a higher price). The first order was delivered in full containers from Asia and the following ones were delivered in 24 hours from a European warehouse. This lowered the average delivery costs while increasing flexibility and service levels to customers.

Product availability also increased for the more popular products, resulting in additional sales. This worked especially well for lower-tier air-conditioning products in the Turkish market, where the competition still sells through a traditional distribution channel. For the competitor’s end customer, choice is limited to what the local wholesaler has in stock, especially since lead times are long.

The next step is further expansion of delivery options. By becoming even more tailored to customer expectations, the path to growth is wide open.

“A ‘one-size fits all’ is no longer sufficient, as different customers expect different value.”

Daikin

Daikin (2)

Case study

Using an omnichannel approach to reach customers also impacts producers upstream in the supply chain and forces them to assess their distribution channels. Biopharmaceutical giant AstraZeneca (page 8) redesigned its downstream supply chain in several markets to match specific market dynamics.

The supply chain for emerging markets

Entering emerging economies often brings the challenge of investing in unknown markets. Investment in production capacity can be substantial and the return may be uncertain at the moment the decision needs to be made as it can be extremely difficult to forecast the speed of new market growth. Information about market needs and customer expectations is also often limited and inaccurate.

“Winners in ecommerce are those who have a good website and … strong logistics.”

The trade-off in investment decisions is whether to enter the market through import and invest in capacity after sufficient market volume has been reached or to invest up front in production and develop the market through local presence. The latter is more risky, but allows you to capture market knowledge and respond to market needs. It also increases speed-to-market, which can be crucial to locking customers in before the competition gets there. This trade-off can be avoided by designing your supply chain for agility and customisation. That’s exactly the approach Barry Callebaut (page 12), a world leader in cocoa and chocolate products, took.

Van de Velde A tailored supply chain for a perfect fit

Van de Velde is a Belgian designer and manufacturer of luxury lingerie that strives for high-quality design and perfect fit. The company sells its products under different brands with shopping outlets in the USA, the UK and parts of Europe.

An item can comprise around 45 components and take approximately 50 operational steps from fabric to final product. While product design and fabric cutting take place in Belgium, the majority of the company’s production takes place in Tunisia or China. After production, units are shipped back to Belgium for a final quality check. They’re then grouped for distribution. The throughput time for the entire production process is about 10 weeks.

Van de Velde constantly launches new products, new designs and new product families. To reach as many women as possible, variety is key: each brand (e.g. Marie Jo) is built up of a number of series (e.g. the Avero line) that consist of different product groups (bras, briefs or swimwear) in different styles (e.g. strapless) and colours. The supply chain has to cope with short product lifecycles and a high degree of product proliferation. The base year-round portfolio consists of 8,000 different products, complemented with an additional 8,000 ‘seasonal’ SKUs that change every six months. This results in around 20,000 different units on hand and 40,000 SKUs in the administrative system at all times. Forecasting is difficult and planning and inventory management challenging.

Add to that a continuing upward trend in the number of products, the multi-country manufacturing process and Van de Velde’s zero defects policy and you arrive at a highly complex production and logistics setting.

To deal with this in a cost-effective way, Van de Velde designed a tailored global supply chain for production and distribution. Products are designed and market-tested in Europe. The supply chain team in Belgium takes care of forecasting and planning at brand level. To guarantee quality, fabric is ordered and cut in Belgium per type of fabric for each product family. As up to 20 specific forms per unit need to be cut, it’s important to centralise this step to optimise use of material and reach economies of scale. Flow of products is then split per product group (bras, briefs, etc.), and sent to a dedicated plant abroad for stitching to allow Van de Velde to reap the advantages of low-cost labour. By focusing plants on a specific product group, economies of scale can be achieved and quality increased. Final products are shipped back to Belgium for quality control, recombined on a family level and stored in the central distribution centre.

The central supply chain team plays a critical role in the company’s success. It splits the entire portfolio into product categories following a production logic and pushes these products through focused supply chains. It then gets all products back into the distribution centre, where they are regrouped following a market logic. This allows Van de Velde to push products to stores as soon as possible so that availability to customers and reorder possibilities for stores are maximised. As a result, Van de Velde controls the number of unsold products effectively despite the very broad product range and limited product lifecycle. By combining high-quality processes in Belgium with low-cost stitching abroad, Van de Velde can guarantee a high gross margin per product.

“In true luxury, every detail counts.”Van de Velde

Case study

Coordinate – link partners in your value chain

Demand fluctuations propagate and amplify through the chain. Upstream players experience very unstable demand, causing high levels of safety stock or unnecessary volume swings in production, generating costs that could have been avoided. To cope with the impact of demand uncertainty and smooth out the chain, coordination among different players is absolutely key. Shared forecasting and planning are crucial for a coordinated chain.

The more complex the chain, the more difficult and challenging coordination is. Imagine having to deliver hundreds of SKUs to hundreds of customers spread all over the globe, via a network of factories and distribution centres located in different countries, using various components and materials sourced from several suppliers.

You need strong supply chain competencies and a sophisticated planning system to make this work. Van de Velde has a strong coordination system, the benefits of which are clear in the case on page 20.

If you’ve ever played the Beer Game, a prevalent supply chain simulation, you’ve likely seen what happens in uncoordinated supply chains.

Atlas CopcoThe Customer Service Centre at the heart of the supply chain

Atlas Copco is a world-leading provider of industrial productivity solutions, with products and services ranging from compressed air and gas equipment to generators, industrial tools and mining equipment. The company is headquartered in Sweden and operates in more than 180 countries worldwide.

The company is structured as a house of almost 40 brands, with the Atlas Copco brand at the centre. This multi-brand approach allows Atlas Copco to tap into different customer segments and regional markets, and to target high-, medium- and low-end markets. Although some brands are sold globally, the majority are sold in specific geographies.

Atlas Copco has expanded its brand portfolio and grown strongly through acquisition, enabling synergies and consolidation. The company has shifted to more organic growth in recent years, with customer centricity as the main focus. This urged the company to go through an operational excellence trajectory and rethink how it approached customers.

By stepping away from focusing solely on products, attention shifted to offering services and communicating with customers. Services take the form of aftermarket offerings, such as preventive maintenance agreements, compressed air audits and compressor room optimisation services.

The shift from selling products to services led to the creation of a service division for each of the company’s four business areas (Compressor Technique, Industrial Technique, Mining & Rock Excavation Technique and Construction Technique) to handle all related service and spare parts activities. Atlas Copco’s ultimate goal was to enhance service quality and the customer experience so that its superior service would become a differentiator in the market. The firm goes to great lengths to understand customer needs by playing into future trends and building extensive knowledge about customer applications. In its industry, knowledge and service are as important as the product itself. This new approach also led to a refocus on the core business in a much more cost-efficient manner.

Atlas Copco’s service divisions are now the linchpin between customers, production plants and distribution centres. With a single customer point of contact, value creation from a customer viewpoint is even more important to enable better collaboration with end users and allow the company to move further towards becoming a solutions-oriented provider in a sustainable way. Proactively involving the customer in its market offering accentuates Atlas Copco’s new position as a company that “provides air”, rather than one that “sells compressors”.

The new service divisions take care of technical support, service delivery, spare parts and follow-up, as well as new service development and the marketing and sales of services. As a result, Atlas Copco’s overall market offering grew quickly, resulting in a rapidly expanding aftermarket business. This also created an important buffer for cyclical sales: machine sales are subject to shifts in the macro economy, sales of services are rather stable, ensuring a year-round increase in both revenue and profit.

Case study

Consolidate – integrate fragmented channels and regroup dispersed activities

• Upstream, they reduced their supplier base to work more closely with a limited number of key suppliers.

• Downstream they brought distribution activities that used to be outsourced in house.

• Decentralised service departments were centralised.

• Local inventories were consolidated into a central distribution centre.

The companies shared common objectives when consolidating:

• To improve transparency in the chain.

• To get closer to customers.

• To have better access to data on customer demands.

• To have greater control over their supply chain.

Our cases show how consolidation can be achieved in different ways.

To prepare for direct delivery to the wholesaler and, in some cases, to the pharmacy, AstraZeneca (page 8) consolidated inventories into regional warehouses.

Daikin (page 16) consolidated and integrated its distribution network to gain additional control over product flows and have better visibility on market demand.

Distriplus (page 28) centralised all logistic flows, replacing its manual and decentralised ordering system in stores with an automated and centralised one.

Within Atlas Copco (page 22), different service departments were consolidated, transforming four business areas into dedicated service divisions.

Most companies that took part in our research went through a phase of consolidation to prepare for the growth they were looking to achieve.

Atlas Copco

“We evolved from being a producer of compressors to a provider of air.”

BekintexWeaving the supply chain: Bekintex’s sub-contractor network

Bekintex is a fully-owned daughter company of Bekaert, the world market and technology leader in steel wire transformation and coatings. Bekintex plays in a specific segment in the B2B market, focusing on the development, manufacturing and sales of very thin metal fibres and metal fibre-based textile products, ranging from yarns to woven fabrics to knitted structures. One typical application is heated car seats. The company has production plants in Belgium, Japan and China and sales offices in Belgium, Brazil, China, India, Japan, Korea and the USA.

In the past, Bekintex mainly grew organically. Current opportunities for growth are mostly centred on providing new products to the market; including new and innovative products delivered to existing customers, ensuring the highest product durability in the market, and new applications of existing products to enable the company to capture new markets. The automotive industry, which is still growing worldwide, is boosting Bekintex’s growth. As overall quality requirements continue to increase and front window glass shapes become increasingly complex, there’s a need for new and upgraded heat-resistant textiles – a product Bekintex can supply.

Increasingly demanding customer requirements mean a growing product portfolio that requires strong product proliferation, leading to a constantly growing number of SKUs – although some with only small sales volumes. Add to this the high costs of production machinery, the high quality requirements from the market, and the very specific expertise that is required to produce many of the products, and the challenges for sustaining growth become apparent. What’s needed is a strong supply chain that can cope with the complexities imposed by this growth strategy.

A key aspect of Bekintex’s supply chain strategy is collaboration with nearby sub-contractors for SKUs that have a relatively low production volume or that require specific capabilities. These sub-contractors are often companies with extensive expertise in textiles, but no prior experience in applying this knowledge to metal fibres. Bekintex brings in its own expertise and works closely with the sub-contractor to combine both companies’ know-how. One example is a supplier who used to work for the traditional textile industry and who became Bekintex’s key supplier for specific textile structures of metal fibres.

A significant part of the products that leave the main plant in Wetteren, Belgium, are manufactured by one of these sub-contractors, increasing capacity flexibility at the Bekintex plants; a peak in demand can easily be outsourced, whereas a drop in demand hardly impacts the plant. There’s intense collaboration with suppliers to make sure desired volumes and quality levels are reached and to help the suppliers improve their processes.

Close collaboration with suppliers also gives Bekintex access to an invaluable network of know-how and expertise. To protect intellectual property, many suppliers have exclusive contracts with Bekintex. Also, given the strategic nature of the collaboration, they’re designed as long-term partnerships, sometimes including the option for Bekintex to buy equipment from the supplier or even to acquire the sub-contractor and its technologies if the product is of paramount importance to Bekintex’s strategy.

Daughter company of:

Case study

Create – build a supply chain that can cope with innovation and creativity

Most – if not all – of the companies that contributed to this report mentioned the creation of new products or the use of new technologies in their growth stories. They all say that the supply chain has to be capable of coping with innovation, despite the difficulty it brings.

A strategy built on innovativeness needs a supply chain that excels in time-to-market. A supply chain that runs like a well-oiled machine for sourcing and delivering existing products may be too rigid to be able to get new products to market quickly. The challenge is to create an agile supply chain that can easily cope with new products without losing efficiency or increasing cost. Are these two objectives contradictory or is it possible to build a supply chain that allows for both efficiency and speed? Our cases show that it is.

The new packaging that Coca-Cola Enterprises (page 14) introduced for a new hard discount retail customer tells a story of focus on speed-to-market followed by efficiency.

The case of AstraZeneca on page 8 illustrates how efficiency can even facilitate speed-to-market.

Innovation is not only about being fast, but also about being able to master the impact of creativity on the supply chain. Creativity in the product portfolio easily introduces complexity into the supply chain, and complexity, if not managed well, increases costs and hinders efficiency. Creativity in technology and process development may create a need for expertise that doesn’t currently exist in house. Having a robust supply chain that combines internal and external expertise is essential. At Van de Velde (page 20), the solution was found by tailoring and orchestrating the chain. At Bekintex (page 24), the involvement of subcontractors made the difference.

Van de Velde

“In true luxury, every detail counts.”

Innovation is key to growth.

BarcoA digital light at the end of the tunnel

Display manufacturer Barco is specialised in digital cinema projection, LED displays, video walls, image processing and display controllers. Headquartered in Belgium, Barco is active in over 90 countries.

It introduced several strategic projects that helped almost double sales in six years. The most important included the addition of a low- and mid-end product line to the existing high-end segment in the healthcare sector, a successful move into the meeting room market and the rise of digital cinema, of which Barco now holds around 50% of total market share.

Digital cinema technology has been around since the beginning of the 21st century, but it took years for the ecosystem to be ready for this evolution. Counterfeit was a major obstacle. To increase overall security while guaranteeing high quality, the industry decided to work with just four licensed manufacturers. Barco was one and invested heavily. The first sales materialised in 2008, demand rocketed from 2010 on.

Speed-to-market proved vital. With only four licensed projector manufacturers worldwide, and global supply lagging behind global demand, having the product available was key to capturing market share. The supply chain turned out to be a bottleneck for Barco’s growth, mainly due to inbound lead-time; suppliers couldn’t follow the fast-growing demand for parts, leading to issues in the ramp-up of production and impeding an Assemble To Order policy. The lifetime quality of products was also key, service contracts typically lasted for 10 years and maintenance and repair would lead to severe costs.

Barco launched a ‘Wall-E’ project to ensure it could fulfil demand and guarantee quality. The project spanned several business areas and focused on improving demand management, increasing flexibility, fine-tuning suppliers’ lead times, improving quality and reliability, and reducing complexity.

Close involvement of the supply chain department in product design phases led to a portfolio of modular products with over 90% parts commonality for all digital projectors. Assessing supply chain design alongside product portfolio development allowed Barco to be first in its industry to put both a medium- and high-end line on the market. Modular designs meant that manufacturing plants could easily take on additional models. Postponement ensured operational excellence in manufacturing and a broad product range.

Barco also made sure that enough capacity was available in the extended supply chain to realise the necessary flex-up in production. As this was mostly a supplier issue, the supplier portfolio was rationalised and in-depth collaboration with the remaining strategic suppliers was set up. Barco brought in its own experts to improve processes at the supplier side, payment terms were revised and several quality projects were launched to minimise the number of defective units. Production planning was also shared and a Vendor Management Inventory (VMI) system implemented. By working closely with suppliers, Barco has built a high-quality, reliable end-to-end supply chain.

The Wall-E project led to a significant increase in Barco’s own output, and that of its suppliers. For some suppliers, lead times were reduced by more than 80%. Barco quickly captured market share by using its product design and flexible supply chain as a competitive advantage in a market where demand exceeds supply. Intensive collaboration with suppliers to improve quality resulted in a more than 80% reduction in the number of defective parts. Superior quality allowed Barco to further build its brand and become the preferred supplier for many customers.

“Supply chain is the glue between the different functions”

Case study

Customise – build a supply chain that masters the complexity of choice and customisation

This creates real challenges for the supply chain. Small batch sizes – ideally, batches of one! – can represent a nightmare in terms of production, unless a creative solution is found. There’s no room for error in the supply chain; quality has to be “right first time”. Customers have tight delivery expectations; they expect on-time, in full, home delivery of their individual package(s). And packages must be able to be tracked and traced throughout the chain. Return flows of products – if not managed well – can evaporate product margins.

In his pioneering book on Mass Customisation back in 1993, Joe Pine discussed how the concept was changing the fundamentals of production systems and supply chains. It became clear that many companies would have to shift from a mass production logic to a make-to-order, customisation logic. How to do so without losing economies of scale – the main advantage of a mass production system – was a major challenge. Mass customisation builds on several concepts, some of which have changed the fundamentals of industrial systems. Technological developments have altered the cost structure of processes, making small-scale production feasible.

The printing industry is a clear example of an industry in which optimal batch sizes have decreased, making individualised printing of books, articles, brochures, etc. possible. Three-dimensional (3D) printing – or additive manufacturing – is introducing this production logic to a wider range of components and products.

Modular product design also shows how customisation can go hand-in-hand with efficiency in the supply chain: standard product modules can be produced in large batches, at low cost; and assembly-to-order of a selection of modules late in the chain, close to the point of delivery, gives the customer the option to design an individualised product and have it delivered with a short lead time. This “postponement” technique helps break through the traditional supply chain trade-off between low cost and efficiency on the one hand, and flexibility and responsiveness on the other. On page 12, Barry Callebaut offers an interesting example of mass customisation in the food industry. Barco (page 26) managed to build a portfolio of modular products with over 90% parts commonality for all its digital projectors. Postponement ensured operational excellence in manufacturing and a broad product range.

Barry Callebaut

“Mass customisation helps make complexity manageable.”

We live in a world in which consumers are used to defining their own individual products and services. We customise our jeans, our t-shirts, our cars, our banking services, our sport shoes, etc. Product variety and, ultimately, customisation have become key requirements in many sectors.

DistriplusFrom sales to seduction

Distriplus, a retailer that operates under two different brands; Planet Parfum (high-end perfumes) and Di (beauty and care products), has around 200 stores in Belgium and Luxemburg. Both chains were integrated in 2010, allowing for significant improvements in IT and logistics.

Over the last years, the company has grown organically by increasing the number of stores and remodelling existing ones. Both brands also launched customer relationship management (CRM) programmes to ensure higher customer retention. The redesign of the company’s supply chain to deal with changing market conditions proved a big driver for sustainable and profitable growth.

Distriplus is in a fast-changing niche market where customers have increasingly more power and expect products to be available anywhere and anytime. A wide product portfolio no longer suffices; availability and new products increasingly influence customer behaviour. This is evident in Planet Parfum’s portfolio which has around 12,000 active references, of which 30% are new each year. Removing products from the portfolio is a tough decision, even though most stores only sell one unit of the product per month. Add to this strong seasonality of sales, and the need for an efficient supply chain becomes clear.

In the past, the company struggled to ensure product availability in stores and experienced out-of-stock rates of up to eight percent. Inventory levels in the distribution centre were also unnecessarily high for many products and overall supply chain costs seriously impacted the bottom line. Distriplus decided to redesign its supply chain to make it future-proof.

A major decision was to centralise all logistic flows. Manual and decentralised ordering in stores was replaced by an automated and centralised ordering system. An integrated inventory management system was developed in-house to monitor stock levels in stores, aggregate forecasts and pool orders to suppliers. As a result, forecast accuracy improved and purchasing power increased. Also, orders can be placed “just-in-time”, improving supply chain efficiency. The distribution centre is the central hub in the supply chain.

Suppliers deliver products to the central distribution centre, where they’re cross-docked and shipped to stores. The traditional sequence of decision making has also changed. Distriplus now places replenishment orders with suppliers before knowing to which stores these products will be cross-docked. How much to ship to which store is decided based on the actual inventory levels in each store at the moment orders are dispatched, in combination with the up-to-date forecast. A few selected items (for example, the more expensive ones) are kept in stock in the central warehouse. The new system also manages all return flows from stores, via the central distribution centre, back to the supplier or for transfer to another store.

The supply chain redesign led to a significant overall reduction in inventory levels – freeing up millions in working capital that can be invested in new stores and extra marketing. The most important advantage, however, is the strong reduction in lead time to stores. The redesign also drove an increase in sales. As out-of-stocks were reduced considerably and store personnel no longer had to worry about logistics and reordering, they could focus on selling products to the customer.

These results could not have been accomplished without the tight collaboration between the supply chain team and business unit managers. Centralisation of the supply chain has prepared the company for its next journey: the introduction of e-commerce and the move to an omnichannel market approach.

Operates under two different brands:

Case study

Collaborate – work closely with customers, suppliers and internal departments

Internal collaboration is crucial:

• between production, purchasing and sales to match supply and demand;

• between R&D, production and purchasing to make sure products are designed for both manufacturing and logistics;

• between finance and the supply chain to be sure working capital needs and customer service levels are optimised;

• between sales and supply chain to segment the supply chain, tune it to specific customer needs, set prices accordingly and optimise margins.

External collaboration with customers and suppliers provides the glue that creates a smooth end-to-end supply chain. Sharing is crucial.

• Sharing forecasting and planning information with suppliers and customers helps streamline the chain, leading to reduced costs and better customer service.

• Sharing best practices with customers and suppliers moves supply chain performance to the next level.

• Sharing transportation leads to reduced logistics costs and lower CO² emissions.

These and other examples of collaboration generate improved efficiency and service levels. Our cases show how collaboration – both external and internal – can also be an engine for growth.

Collaborating with subcontractors offered Bekintex (page 24) capacity flexibility as well as access to an invaluable network of know-how and expertise.

Through intensive collaboration with strategic suppliers, Barco (page 26) created a high-quality, reliable end-to-end supply chain for its rapidly growing new market of digital projectors.

The new contract that Coca-Cola Enterprises (page 14) signed with a hard discount retailer illustrates the advantages of involving sales people as well as supply chain experts in negotiations with the customer.

At Distriplus (page 28), the supply chain team acts as a partner to the business and is actively involved in business development decisions, bringing operational expertise to the table.

bpost (page 6) has managed to grow sales of packages significantly in the last couple of years by engaging in a far-reaching alliance with its customer, the Belgian government.

Collaboration – both inside and outside the company - is at the heart of supply chain management.

“Supply chain is the glue between the different functions.”

Atlas Copco

“Collaboration is the essence of logistics.”

A.S.AdventureAdventure anywhere, anytime, anyhow

A.S.Adventure is a Belgian multi-brand retailer that sells premium products for active leisure seekers. The group has around 45 stores in Belgium, Luxemburg, France, the Netherlands and the UK. It targets its audience by differentiating itself with specialised product knowledge. By providing quality products and personal service, it offers a truly unique in-store shopping experience. This is one of the principal reasons for the company’s success.

It achieved part of its organic growth by adding stores and boosting store potential. It also moved towards online sales and made a strategic shift to a multichannel approach to create a superior customer experience. To avoid competition between channels, A.S.Adventure took a fully integrated approach, with a single pricing policy and a common customer relationship management (CRM) programme.

Traditional multichannel approaches offer customers the possibility to buy products in store or order them online for home delivery, A.S.Adventure went one step further with its cross-channel “Always Available” offer. If a customer wants to buy an item in store, but the specific version (e.g. size, colour, shape) isn’t available, they can order it in store, pay and have it delivered at home. A.S.Adventure also offers “Click and Collect”, another cross-channel initiative that allows customers to order products online and have them delivered to their choice of store where they can try them, feel the fabric, see the colour and decide whether or not to keep them. This high degree of flexibility has increased customer satisfaction, customer lock-in and sales.

A.S.Adventure’s approach put severe pressure on the company’s supply chain: in-store and warehouse inventories need to be visible everywhere at all times, the distribution process has to deal with the adapted flow of products and last-mile deliveries to customers need to be guaranteed on time, in full and 100% correct. A cost-efficient supply chain that excels in speed, availability, accuracy and quality was paramount.

A.S.Adventure developed its own integrated IT system to connect all physical stores, the warehouse and web-store; flows and inventories are fully transparent at every node in the network. The central warehouse is the critical node, all logistic flows go through it; web and store sales, inter-store flows and returned items. For inventory management, all online orders are treated as if they’re delivered from the central warehouse to a virtual “web store”. The company also sells products from other suppliers whose systems are linked to the A.S.Adventure system, allowing for automated ordering. Product quality is assured as products are cross-docked in the central warehouse. Transportation is optimised as these products are pooled with others to be shipped to stores or customer homes.

One of the key success factors of this project was A.S.Adventure’s internal organisational structure. The warehouse function, IT department and web store development team all report directly to the COO. Sharing a common goal prevents silo-thinking, potentially conflicting KPIs and departments speaking ‘different languages’. The company’s business analysts are part of the IT team so all required competences were in place to create a focused project team. It worked with short, data-driven decision cycles to accomplish results quickly. The tailor-made IT system – connecting the entire business – and the stringent commitment to customer experience, provided clear competitive advantage in the company’s journey to a multichannel offering.

“In omnichannel, a single pricing policy is necessary to prevent internal competition.”

A.S.Adventure

Case study

Operational excellence and information systems – facilitators for growth

Somewhat surprisingly, several managers in our case companies mentioned lean operating principles when asked to list the supply chain practices that fostered profitable growth. They stressed the importance of eliminating waste in processes, not so much for the sake of reducing cost, but for the opportunities it creates.

Waste reduction means:

• better use of equipment, freeing up capacity that can be used for volume expansion;

• reduced inventories, freeing up working capital that can be invested in growth projects;

• cost reductions, generating higher margins on products sold.

“Lean operations” – and “operational excellence” in general – prepare the way for expected growth. By making the supply chain more robust and reliable and ensuring that it can master the complexity that comes with the growth, lean practices can make the difference between profitable and unprofitable growth.

“We sent consultants to our key suppliers, to raise capacity and work on resolving bottlenecks.”

AstraZeneca (page 8) introduced Operational Excellence into the organisation to improve “velocity”.

Having managed to get its product in stores in time for the hard discount channel, Coca-Cola Enterprises (page 14) shifted focus to identifying opportunities for efficiency improvements in the supply chain to reduce the cost-to-serve towards its new client.

Distriplus

“Reducing costs in the supply chain frees up money to invest in growth elsewhere in the company.”

The 6Cs of supply chain growth – making it happen

The 6Cs of the supply chain – connect, consolidate, coordinate, create, customise and collaborate – create a platform for profitable growth. By combining the 6Cs, you can build capabilities into your supply chain that allow you to get new products to market easily, attract new customers, serve existing customers better and – bottom-line – grow sales without increasing cost or utilising more assets. Companies that understand the potential of their supply chain to be an engine for growth are equipped for a bright future. Whereas supply chain management’s traditional role has been rather operational, focusing on reducing cost and improving efficiency, its new, additional role, is strategic and focuses on increasing agility and responsiveness to changing market needs.

But this doesn’t happen overnight. Change takes time and requires patience and effort. Most, if not all, of the cases showcased in this report took months – or even years – to accomplish. The projects were carried out step by step, with a phased approach and from a long-term strategic perspective. Benefits also take time to materialise, although investment is visible and needs to be made up front. And not all projects are immediately successful. There can be setbacks, but strong companies learn from these and come out even stronger as a result.

A typical struggle is how to manage the complexity that accompanies growth and make sure it doesn’t drive cost. Or even better: how to avoid complexity creeping into the supply chain to begin with. Trade-offs need to be made which require constant interaction between sales and supply chain people. By listening to customers’ expectations, sales people have a good understanding of market needs. Supply chain experts understand constraints in terms of sourcing, manufacturing and distribution – they know what can actually be delivered. Bringing these two views together leads to a good understanding of the limits of complexity. “How many new products can we add before complexity starts to drive costs that the market’s not willing to pay for?” This question should be on the agenda for every sales and operations meeting. The next question should be whether current supply chain design can be adapted to increase the supply chain’s ability to cope with this complexity. If the answer’s yes, the supply chain truly contributes to competitive advantage.

For a supply chain to be a real engine for growth, gradual improvements may not be sufficient. Some of the projects we came across required a total redesign of the supply chain: it was no longer about doing things better or faster, but about doing different things; not using the supply chain in a more efficient way, but redesigning it or even introducing a totally new supply chain. This takes courage and empowerment and a strong mandate from the board or executive committee. In some cases, it requires an approval process that is shorter than the usual one: short-cutting committees and reporting straight to the board.

Some of the projects had a significant impact on the organisation. The challenge is to make sure all stakeholders are involved and committed. Collaboration with suppliers or customers won’t happen unless there’s a high level of trust between all partners. Changing the way people work won’t succeed unless they understand the rationale for the change and are confident that their job is not at risk.

Breaking “silo thinking” to foster collaboration with other departments won’t happen unless the incentives of all people involved are aligned. These are just a few examples that illustrate the need for a robust change management process to successfully complete any supply chain project.

The research team

This report was written by the following authors: Professor Ann Vereecke, Tom Van Steendam, Alex Waterinckx, Peter Vermeire

Vlerick Business School

Maud Van den Broeke

Doctoral Research Associate

Ann Vereecke

Professor in Operations & Supply Chain Management

Tom Van Steendam

Research Associate

Pieter Bauwens

Director, Marketing & Sales

Peter Vermeire

Partner

Alex Waterinckx

Senior Manager, Strategy & Operations

Acknowledgements

We are very grateful to the managers of the 11 companies that participated in all phases of this research project. Their willingness to share their growth stories with us and with the other companies during workshops is highly appreciated. We thank them for their openness in describing the supply chain practices that they have adopted and for the time they devoted to our project. Our thanks go to:

Antoon Spiessens Commercialisation Director North West Europe & NordicsCoca-Cola Company

Birk VanderweeënVP Supply Chain Systems Processes and AnalyticAstraZeneca

Christophe Van den BergheCoach Flow ProjectsAtlas Copco Airpower

Dirk PoelmanCOOBarry Callebaut

Filip LanckmansPlant ManagerBekintex

Filip MattelinBusiness Project ManagerBarco

Filip PintelonCOOBarco

Frits van ZijderveltVP Finance European Supply ChainCoca-Cola Enterprises

Geert OpdedrynckDepartment Manager SCM PlanningDaikin

Geert VosGeneral Manager European Supply CentreDaikin

Hedwig SchockaertDirector Supply Chain & ITVan de Velde

Inge BuylGroup Development ManagerA.S.Adventure

Inge NevenCOODistriplus

Karel SoeteOperations Manager Worldwide Fibre TechnologiesBekintex

Kathleen Van BeverenIndustry Director Public & Healthbpost

Kathy MaeyaertSupply Chain ManagerBarco

Lieven KeymeulenGlobal Product Market ManagerBekintex

Peter DemetsCOOA.S.Adventure

We would also like to thank the managers we interviewed in the first phase of this project for giving us feedback on our initial framework and providing us with interesting insights and supply chain practices:

Ben BooneDirector Supply Chain BelgiumDelhaize

Jo SwennenGroup Logistics ManagerSpadel

Julie SuttonVP Global S&OPBiomet

Peter LeemansVice President Competence Development & CommunicationsAtlas Copco Compressor Technique Service

Soraya Van DoninkBusiness AnalystA.S.Adventure

Wim HaentjensOperations & Development Director Shop & Deliverbpost

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