supply chain mastery in the global marketplace poms conference april 30, 2005

Supply Chain Mastery in the Global Marketplace

POMS Conference

April 30, 2005

2Copyright © 2005 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Agenda

• Predictions for the global economy

• Global trends in supply chain management

– Theme #1—The supply chain as a competitive differentiator

– Theme #2—The outsourcing phenomenon

– Theme #3—Collaboration and integration come of age


Today’s “export” economies will prosper and become consumption economies

500

600

700

800

900

1000

1100

2004 2005 2006 2007 2008 2009East West

China Imports Exceed Exports in 2006

Source: EIU Views Wire, China Economic Structure, 10 Dec 2004


“Global Trade” – Then and Now

Old Conventional Wisdom New Conventional Wisdom

“Imports” and “Exports” In my Backyard

Multi-Nationals Global

Think Global, Act Local Think and Act Global – and Local

Expatriate Local Leadership


Companies that can overcome organizational and cultural barriers first will dominate their markets

• Who Needs Sleep Anyway?

0 2 4 6 8 10 12 14 16

Geopolitical Instability

Unknown Legal Rights

Distance

Unknown Suppliers

Cultural Differences

Language Barriers

Time Zone

Top Risk Factors Considered When Operating Globally

Source: IDC, US Customer Experiences and Best Practices When Going Offshore


Agenda

• Predictions for the global economy






In many industries, supply chain management has a major impact on business performance:

• Accounting for as much as seventy percent of operating costs

• Typically comprising at least half of all assets

• Driving a significant percentage of promised synergies for many mergers and acquisitions


Executives surveyed for an Accenture, INSEAD, Stanford University research project perceived supply chain management to be extremely important.

CriticalVery Important

Moderately Important

Not Important 1%

10%

45% 44%Increased Significantly

Decreased 2%Not Increased

Increased Somewhat

51%

9%

38%

How important is supply chain management to your business?

Has the importance of supply chain management increased over time?

Source: Accenture, INSEAD, Stanford University research, 2003


Research has demonstrated that a failure to excel at supply chain management has a significant impact on shareholder value.

Comparison with stock market reaction to other corporate events

Source: Dupree College of Management at the Georgia Institute of Technology

-10.6

-12.7-11.8 -12.2

-11.6

-7.7

-14

-12

-10

-8

-6

-4

-2

0

Par

t

Sho

rtag

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Cha

nges

by

Cus

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ion

prob

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Ram

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prob

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Qua

lity

Pro

blem

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Dev

elop

men

t

prob

lem

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Ave

rag

e S

har

eho

lder

ret

urn

s (%

)

Reasons for Glitches


The statistical component of our research with INSEAD and Stanford University established a correlation between supply chain leadership and financial performance

Leaders

1994 - 1997 1997-2000

+20%

+10%

-10%

-20%

+30%

Transformers

Laggards

Decliners

1. Leaders Rewarded 3. Poor SCM Performance Punished

Industry Average

2. SCM Transformation Works

Time

Market CapCAGR

4. Leadership Difficult to Maintain


We found six characteristics that were common to supply chain masters

Incorporate Supply Chains into Business Strategy

Execute Effectively against Defined Goals and Metrics

Develop effective linkages with trading partners

Adopt Leading-Edge TechnologiesAnd Practices

Make strategic in-source versus out-source decisions • Customer-centric

• Supplier linkage

• Collaboration

• Service-level agreements• Innovation agenda

• Industrialization

• Workforce capability

• Continuous improvement programs

• Board mandate

• Customer insights

• Segment-specific value propositions

• Competitive advantage

• Extended enterprise-wide, high-level metrics

• Incentive alignment across functions and potentially enterprises

• Measurement & continuous improvement

• Channel strategy

• Internal & external coordination

• Supply & demand balancing

End-to-end integrated operating model• Strategic

partnerships

• Performance framework

• ‘make’ or ‘buy’ framework


British Airways committed to becoming an industry leader in Procurement.

Key Components• Current state included 30,000 suppliers and an

annual procurement budget of $6.5B

• Assess British Airways’ current procurement processes and compare to best practice

• Help develop an company-wide Strategic Sourcing (effective buying) capability

• Optimize key procurement processes and centralize overall procurement organization

• Work with client to reduce overall quantity of supplier relationships

• Implement internet-based procurement applications (eRequisition, eRFX, eAuction)

• Guide British Airways through negotiation and participation in new eMarketplace for airline industry buyers and suppliers

Results Achieved• Business case estimated annual savings of

$260M as a result of:

– Rationalizing supplier to enable BA to develop strong relationships with fewer suppliers

– Implementing “eAuction” processes

– Reducing amounts paid for products and services: (security services, cleaning services, courier services, temporary labor, uniforms, training, engineering spare parts, office supplies, fuel etc.)

– Tiered smaller suppliers under one umbrella; enabling smaller providers to supply but BA maintains one key contact

– Implementing Web-based approaches to buying, enabling easier management of tendering process for BA and simplifying the process for suppliers


In response to a difficult market, British Airways was able to rapidly deliver an innovative new service for business travelers.

• Unlike many competitors, British Airways looked for ways to drive additional revenue, not just cut costs

• Launched the flat bed in Club World Class in record time using innovative design and procurement strategies that leveraged their new supplier management and procurement capabilities

• British Airways was able to increase revenues through gained market share

• Contributed to British Airway’s being one of only a few major airlines that increased profits in Q2 Y2002


Agenda






In the ten years we have been studying supply chain outsourcing, there has been a steady increase in the number of companies using the services and the portion of budget used for these activities

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04

'05 P

roj.

'06 P

roj.

Users % of Budget

46% of Budget

Northeastern University / Accenture 2004 Annual 3PL User and Provider Surveys

Use of Third-Party Supply Chain Services

Survey Year

80% Use


Most companies (80%) have international services requirements, continuing the theme of globalization, with most concentration on Europe and China.

Per

cen

tag

e R

esp

on

din

g

Non-US countries where respondents have services requirements


3PL SupportSales

Manufacturing

China

100%

66%

India

90%

50%

0%

10%

20%

30%

40%

50%

60%

70%

Canada Mexico LatinAmerica

WesternEurope

EasternEurope

Asia (excChina)

China India

bradley.nixon

Narendra, these are responses from senior logistics executives at 60 of the 500 largest manufacturers in the US, as defined primarily through Fortune magazine. This information is in the Notes section of the previous slide.


0% 10% 20% 30% 40% 50% 60% 70% 80%

Selection of software

Product Testing

Contract manufacturing

Assembly/Installation

Operation of IT systems

Purchase of Materials

Order processing

Fleet management/operations

Merge in transit

Customer spare parts

Re-labeling/repackaging

Consulting Services

Product returns

Rate negotiation

Measurement of carrier performance

Reverse logistics

Order fulfillment

Carrier selection

Tracking/tracing

Shipment consolidation

Freight forwarding

Warehouse management

Freight payment

Customs brokerage

Direct transportation service

Freight payment, direct transportation and customs brokerage services are used by more than half of the companies and a relatively small list of services are seen to provide the most value.

Percent of users citing use

Ser

vice

s U

sed


Perceived Greatest Cost or Service Benefits


Outsourcing procurement functions is another high growth area.

• Outsourcing of procurement functions has been identified as one of the logical BPO starting points for clients given it’s a non-core function.

• The global market for procurement outsourcing is expected to grow 10x in the next 5 years to $4B as clients see early savings at early adopters.

• Companies are examining their business and seeing inefficient processes, high labor and technology support costs, and partially realized savings from existing procurement initiatives which are driving them to consider outsourcing their procure-to-pay functions.

• Our experience indicates that by transitioning headcount to low cost locations, transforming procure-to-pay processes, and increasing control over spending, clients can realize 40%+ savings on their total procurement cost baseline.


Thames Water

Business Challenge

To keep its water and wastewater-management systems up and running, Thames Water must have more than 5,000 different items—pipes, valves, pumps, tanks and so forth — readily available. However, because it also is a private company doing business in a highly regulated industry, the company must be vigilant about controlling costs. For this reason, Thames Water came up with a unique way to save money and revolutionize the business: outsource all of its supply chain operations to Accenture.

How Accenture Helped Develop a new collaborative outsourcing model through

a joint enterprise: “Connect 2020”

Assume responsibility for procurement operations: Revamp purchasing processes Streamline acquisition of commodity items, such as

electricity, chemicals and MRO Help shrink Thames’ stable of approved suppliers

and negotiate new agreement frameworks

Assume responsibility for logistics and distribution: Hire 300 Thames Water employees, including lorry

drivers and warehouse staff Consolidate warehouse network into single Logistics

Centre and marshaling yard

Design hand-held wireless communication device to improve productivity of field service personnel

Innovation Delivered $150 million savings in overall operating costs

35 percent drop in the cost of service and materials

50 percent reduction in inventory

Significant improvements in customer service

Dramatic rise in materials availability (now >99 percent)

Greater productivity from supply chain personnel

20 percent improvement in field-support productivity and seven percent reduction in costs following implementation of wireless devices

Opportunity to re-deploy scarce resources to competitively critical areas

Largest water utility in the United Kingdom Supplies 12 million customers covering 5,000 square miles in and around London


Agenda





Copyright © 2005 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

The “bullwhip” effect was one of the drivers that created a rallying cry around collaboration

True end customer demand

Supply cannot meet initial projected demand, resulting in real shortages

Channel partners over-order in an attempt to meet demand and stock their shelves

As supply catches up with demand, orders are canceled or returned

Financial and production planning are not aligned with real demand; therefore, production continues

As demand declines, all parties attempt to drain inventory to prevent write-down

6

2

1

3

5

4

1

Launch Date

True End Customer Demand

End of

Life

Units Per Period

Channel Fill and Phantom

Demand

3

Channel Orders

2Real

Shortage

Supply

4

Returns/Cancellations

5

6

Over-Supply


In practice, collaboration occurs in different horizons

• Product designs

• future product plans

• Forecasts

• Fulfillment processes

Joint buyer/seller processes, decision making and measurement, often proprietary

Strategic

• Order status

• Product prices / descriptions

• Quantities available/allocations

Share information before or after a purchase is made

TacticalInformation Sharing

• Purchase orders

• Invoices

• Transfer of funds

Integrate and automate the the flow of information so that is is aligned with product flow

Transactional

Example Data ExchangedDefinition

Relationship Type


In the past three years, the level of collaboration within companies has either increased or remained the same. Very few companies have seen a decrease in collaborative activity.

Compared to 3 years ago, would you say the level of collaboration conducted with your trading partners has: Increased, Decreased, or Remained the Same?

Source: Accenture 2004 Survey


Supply Chain executives see closer relationships with their suppliers as one of the most significant benefits of a collaborative relationship

48%

58%

34%

18% 17%

4% 2%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OperationalEffectiveness

Closer relationshipswith Customers

Top Line Growth CloserRelationships with

Suppliers

2002 2004

Which one of the following factors would most persuade you to invest in integrated processes and technologies with your trading partner?


Companies that are collaborating have mostly transactional and information-sharing relationships and are relying largely on traditional means, such as EDI, to exchange information – AMR Research

Companies continue to increase collaborative activity on transactional information through the use of vendor managed inventory (VMI) and electronic data interchange (EDI)

In what area has collaboration increased the most?


The value of collaboration is recognized across industries, as evidenced by the increase in their collaborative activity.

• Consumer Goods/Food Retailers – movement from tactical supply chain to strategic collaborative merchandising and joint consumer trend analysis opportunities

• Automotive – enhanced sophistication of dealer systems that provide collaborative marketing, customer experience, and product quality information exchange

• Government – to speed replenishment of items based on dynamic field conditions, usage, and planned activity for our military

• Electronics – to speed new products to market based on consumer feedback, technological change, and retailer “exclusives”

• Industrial Products – service parts replacement and in-field preventative maintenance intelligence


CPFR Benefit Examples

USLead time

- 10 days to 11Wal-Mart/Warner Lambert

USNabisco/Wegmans

Others

2 weeks

18%

Inventory Decrease

13%

Sales Increase

92% (+12%)

Forecast Accuracy

98% (+ 11%)

In-stock Availability

USWal-Mart/Sara Lee

US Lead time – 67%Heineken and Distributors

14% 45% + 2.7%

US Lead time – 50%Mitsubishi and Dealers

USKimberly Clark/Kmart

25%

14% 96% (+ 12%)

USSofamor Denek and Customers

Europe Truck fill 9%Henkel/Eroski

+ 10-15%

+ to > 85%

97% (+ 12%)

98%

Europe Rush orders – 63%Cartisa/Henkel/Condis

EuropeVandemoortele/Delhaize

40% in 4 months

1 day

62% (+ 20%) 97% (+ 12%)

Increased during promotions

Europe Rush orders – 33%Procter & Gamble 15% 1.5% + 32% 99% (+ 0.5 – 2%)

Area

Sources:Secondary Research, Accenture Analysis


Dell enhanced their build-to-order supply chain though select application of planning and communications technology

Program Goals

• Extend Benefits of “Direct Model” to Component Suppliers

– End to End Visibility – Globally

• Common Global Process with Suppliers

– Closed loop/dynamic

– Constraint Based - Replanning Cycle

• Schedules Generated Multiple Times/Day

– Generated Based on Materials Availability

– Material Pull to Order

• Enhance Simple Visual system for priority build and product complexity

• Process = High Volume, Speed, Efficiency, Future Growth

Physical InventoryInformation

FP/RCP

RCP

Supplier

Factory

Hub

RCP

SCP/RCP

MaterialsPlanning

Orders Forecast

Every 2 Hrs Weekly


Leading companies also establish benefit realization tracking mechanisms to ensure the business case estimates are met or exceeded.

0

10

20

30

40

50

60

70

5/1/

2000

5/15

/200

0

5/29

/200

0

6/12

/200

0

6/26

/200

0

7/10

/200

0

7/24

/200

0

8/7/

2000

8/21

/200

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2000

9/18

/200

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/200

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6/20

00

10/3

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11/1

3/20

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11/2

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12/2

5/20

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1/8/

2001

1/22

/200

1

Ho

urs

of

Inv

en

tory

(H

SI)

Actual HSI Target HSI

New line Startup

Go Livein June

Lines 1 & 2 RampUp

Q2FY01 End -- 11.45 DSI

Q3FY01 End -- 10.28 DSI

Best Quarter End Performance -- 6.16 Q4FY01

Process Change

•Multiple Metrics Tracked•Formal Process / Feedback Loop•Joint Business / IT Accountability


Thank you.

[email protected]

supply chain mastery in the global marketplace poms conference april 30, 2005

Documents

trademarks of accenture

high performance

supply chain management

supply chain mastery

age slide

business performance

global economy global

offshore slide