Delivering Availability: Fulfilling consumer wishes

better, faster and at less cost

Breakout 3.3 OSA

ECR Europe CongressBerlin

Wednesday 28th May 2008

Session Overview

• OSA – an overview

• ASDA and Unilever – Theatre and Factory

• L’Oreal and dm-drogerie markt

• P&G – Winning at the first moment of truth

OSA – an overview

Dr Paul Chapman Oxford University

Saïd Business School

Saïd Business School

Europe’s newest and fastest growing business school.Known for faculty expertise in specialist areas, including retail management.Develops business leaders by providing a complete range of academic activities. Recent executive education clients include:

Metro; Sainsbury’s; L’OréalConducts research not only into the nature of business, but the connections between business and the wider world.

OSA – An Overview

• Status:– OSA remains a key challenge across Europe to fulfilling

customers wishes. – Solutions prove elusive or temporary with out-of-stocks

quickly returning.

• Underlying issue:– Availability is not a simple problem that can be addressed

through seeking and implementing ‘best practice’.– OSA cuts across functional and organisational boundaries so

needs to be viewed as a “complex problem”.

• Way forward:– Few prescriptive answers are available to solve complex

problems. Instead a collaborative approach is required to identify and implement specific solutions.

On Collaboration

“creating new value together” (Kanter, 1994)

“(1) The pooling of appreciations and/or tangible resources, e.g. information, money, labor, etc.

(2) by two or more stakeholders(3) to solve a set of problems which neither can solve

individually.” (Gray, 1995)

“ … collaboration is at the same time the most used, the most frequently misunderstood, the most popular - and the most disappointing strategy that has come along to date.” (Daugherty et al, 2006)

Culture Culture

Collaboration requires alignment

Strategy Strategy

Operations Operations

“creating new value together” (Kanter, 1994)

“(1) The pooling of appreciations &/or tangible resources, e.g. information, money, labor, etc.(2) by two or more stakeholders(3) to solve a set of problems which neither can solve individually.” (Gray, 1995)

“The pooling of appreciations and/or tangible resources”

Source: after Payne, A., Christopher, M., Clark, M. and Peck, H. (1995)Relationship Marketing for Competitive Advantage. Oxford: Butterworth Heinemann

Limited to sales and buying

Extended across many functions at both organisations

S RS

R

“creating new value together”

S R

“creating new value together”

S R

1) Shared goals …

2) …

delivered through co-created solutions …

3) …

enabled by an intimate understanding of each other’s businesses

Theory into practice, using the ECR Roadmap …

2. Map & Measure5. Implement

1. Plan6. Evaluate

3. Analyse4. Develop Solutions

Corporate Policy

Does the ECR Roadmap work?

Session Overview

• OSA – an overview

• ASDA and Unilever – Theatre and Factory

• L’Oreal and dm-drogerie markt

• P&G – Winning at the first moment of truth

Asda and Unilever Theatre and Factory

CollaborationSaeed Anslow

AsdaHead of Availability - Retail

Rebecca CloseUnilever

Supply Chain Innovation Manager

Theatre and Factory

Operate in 23 categories, World No. 1 in 7 categoriesOperate in 150 countries220,000 employees“Live Service, Deliver Growth”

2nd Largest Retailer in UK342 shops, 26 depots165,000 colleagues15 million customers/wkLowest Price Supermarket for 10 years

ASDA - Approach• Phase 1 (07/08) “Always Different”

– Academic support using ECR roadmap– Asda cross functional team– One best way– Short term horizons

• Change Office

• Dedicated Project Team

ASDA– Opportunities Phase 1

• Separate out factory from theatre

• Exploit Wal*Mart innovations

• Availability a business priority

• Supplier collaboration

•On Shelf Customer Availability Measure •New Operating Model - “Trailer to Shelf”

– Health & Beauty– General Merchandise– Music Video & Games (MVG)

•One Best Way - Implementation

ASDA– Solutions (Phase 1 Examples)

On Shelf Customer Availability (OSCA)

• Corporate Epos based measure • Launched April 2008 • Replaces 3rd party measure• Daily availability measure • 70+ Categories

One Best Way – Operating Model H&B, GM

One Best Way – Replenishment Example

PRIORITY FILL 22:00 - 06:00 : NIGHT REPLEN COLLEAGUE

o Work all delivery directly from blue

totes o Do not work overstocks

o Clean, tidy & face-up o Fill promo ends/sideframes o Return overstocks to BOH

o Rack away all overstocks by

commodity in the BOH o Ensure TUC codes on outer packaging

face outwards

ASDA - Store Implementation

Store Of Learning

What a Good Job Looks Like

Evaluation

Health & Beauty General Merchandise

Stockholding 20% reduction 20% reduction

Availability(On Shelf Gaps)

35% reduction 31% reduction

OSA +2% +2%

•

Collaboration•

Factory approach

•

Continuous Improvement •

Long term horizons

ASDA – Phase 2 (08-10) “Always Brave”

Asda and Unilever: A Leap of Faith

Unilever - OSA Vision

A relationship that has grown

Asda/ UnileverUK Journey

Project Pocket

Project Poppy

Project Sunlight

Global Journey

40 pilots

OSA Improvement > 98%

Reduced Inventories

Increased Sales

Improved Morale

Phase 2: Asda and Unilever

Vision:

• Deliver a step change in OSA and improve productivity

• Embed changes throughout both businesses

• End-to-End Supply Chain optimisation

Asda and Unilever - What?Health & Beauty

Chilled Ambient Generic

Apr – Jun ‘08

Jul - Aug ‘08

Sep - Dec ‘08

‘09

Asda and Unilever - How?

“Be Brave”

Trading Supply StoresDistributionSuppliers CustomerCustomer

Sustainable improvement for the Value Chain

Asda and Unilever

Session Overview

• OSA – an overview

• ASDA and Unilever – Theatre and Factory

• L’Oreal and dm-drogerie markt

• P&G – Winning at the first moment of truth

Delivery of make-up wall units

LEANER and FITTER logistics concept for cosmetics setting

new standards

ContentPartners involved in the project

Facts and figures

Reasons for the project –

the challenges

Targets

Procedure

Realization –

the impossible became true

Results

Involved partners

•“Deutscher

Handelspreis”

for 2007 for excellent image and social engagement

•High level position at “Kundenmonitor

2007”

as most popular retailer through clear victory with different performance levels

•Victory among 19 retailers at “Qualitätsbarometer”

of research institute PULS

•Ranking-position at retail brands 2007 of the BBDO Consulting; classification as retail brand which provides the highest benefits

A modern and innovative company, multiple awarded

Worldwide activities

Wide performance range from procurement to production replenishment and all typical logistics outsourcing activities

Involved partners

Turnover 2007: 180 Mio. €

Branches: 20 national, 3 international

Employees: 1.600

Capacity: 350.000 qm

logistics&service

area

200 vehicles/trucks

A multichannel pure player in beauty

Channels Brands

Food, Drug and Mass

The Body Shop

Pharmacies

Parfumeriesand department stores

Professional

No.1 in Beauty

(in millions of euros)17.100

15,79014,53313,641

2004 2005 2006 2007

+ 6.5 %

+ 8.7 %

+ 8.0 %

7

Facts and Figures16,100 make-up unit walls in German retail for the brands Maybelline and L’ORÉAL PARIS

Of them 1,900 at customer dm-drogerie

markt

256 wall unit in 2007 for new stores, re-opening or change at dm

Reasons for the project – the occasional challenges

Missed deliveries of one part (products or unit-wall)Support of the store-staff was necessaryDamaged, missing and lost productsMake-up area partly inaccessiblePick-up of the no longer needed make-up wall in separate step

A lot of interfaces and complex communication control and high costsOut of StocksLost turnoverInconvenience for consumers and staff

Separate delivery of products and wall unit

Installation and replenishment of the wall-unit l in a separate step by a merchandiser

Duration 4 –

5 hours

Excessive waste material

A lot of interfaces and complex communication,control

and high costs

Inconvenience for consumers and staff

Reasons for the project – the permanent challenges

Process overview before re-organisation

L‘ORÉAL Forwarder dm-store

DeliveryWall unit

Delivery Products

Transport Wall unit

Transport Products

CoordinationMerchandising

DeliveryWall unit

DeliveryProducts

B

E

F

O

R

EInstallation,

Replenishment

Merchandiser

TimingRessources

TargetsReorganisation of the complex supply chain with the

objective of being in the right place at the right time and to prevent out of stocks

│Reduction of interfaces and complexity

│No inconvenience for consumers and staff

│Avoidance of loss of sales

│Cost optimization

Procedure

Extensive analysis of the behaviour of consumers and staff during installation of a unit wall

Process-

and cost analysis of the present process- where are the problems and the cost drivers?

Clear requirement to the necessary performance of a partner

Project team consists of members of the client, the partner, sales, marketing, customer service and logistics

During the project phase live tests of different solutions at POS

Realization - Changes│6 services from one hand│Storage

│Due date control

│Replenishment

│Transport to POS

│Installation

│Reshipment of old unit-wall

Reduction of interfaces and workload for communication and control

Realization - Process overview after re-organisation

DeliveryProducts

Delivery control,Storage and completion

Wall unit,Replenishment

Packaging Transport

Delivery,

Installation

EDI-DESADV

A

F

T

E

R

L‘ORÉAL Forwarder dm-store

DeliveryWall unit

Delivery Products

Transport Wall unit

Transport Products

CoordinationMerchandising

DeliveryWall unit

DeliveryProducts

B

E

F

O

R

EInstallation,

Replenishment

Merchandiser

TimingResources

HegeleL‘ORÉAL dm-store

Realization

ready replenished unit wall at Hegele

premisesarriving at POS transportation at POS

unpacking installation

ResultsUnique in the market

Integrated logistics-concept with EDI-DESADV

Concentrated transportation

No inconvenience for consumers and staff

No interruption of sales

Reduction of costs by 20% and OOS-level by 50%

Roll-Out through customer to his 6 other make-up suppliers in October 2006

Win-Win-Win

Situation

Thank you

Session Overview

• OSA – an overview

• ASDA and Unilever – Theatre and Factory

• L’Oreal and dm-drogerie markt

• P&G – Winning at the first moment of truth

Context – OSA Linked to Corporate Mission

Progress

% of Customer / Category Combinations where out of stocks are greater than 5%

FEB 2003 FEB 2008

42%30%

Product not Supplied

Un-planned Demand

Information / Data Errors

Store Operations

Shelf Out of Stocks

% % % %

A Typology of Shelf Out of Stocks

Conventional approach

Product not Supplied

Un-planned Demand

Information / Data Errors

Store Operations

Shelf Out of Stocks

Where to Start….

Conventional approach

Shelf Backwards approach

The improvement process starts from the shelf

• Inconsistent demand is a root cause of service level failures

• Understanding the process from the shelf backwards identifies how to remove the opportunity for failures

• By engaging the right stakeholders from the start, results can be delivered quicker

ECR Road Map

2. Map & Measure5. Implement

1. Plan6. Evaluate

3. Analyse4. Develop Solutions

Corporate PolicyCall to Action!

Call to Action

Lost sales Additional Costs• Store / brand switching• Trade up / regimen• New stores

• Damaged product• Additional inventory• Additional labour• Wasted transport• etc

Sales opportunity = $ Cost opportunity = $

Scope:

Engage and involve the right stakeholders

• Store Operations

• Store & Backroom design

• Logistics & Distribution

• Human Resources & IT

• Sales, Marketing & Buying

• Loss Prevention

• Store Process Improvement / Audit

• etc

Learn to see – go on a journey together

• Follow products

• Identify failure points

• Analyse root causes

• Brainstorm solutions

• Prioritise

Deliver results….

22%

18%

14%

8%5%

3%

0%

5%

10%

15%

20%

25%

Base Line2001

CreateAwareness

2002

Fix theBasics

JointEngagement

2004

Root Cause& ActionPlanning

2005

Embed /New Metrics

2007

Out of Stock Rate

Change in P&G scheduling helped lead to same day delivery to store and 1 less days inventory

Clearer labelling on orders for split cases has speeded up checking and reduced errors

Takeaways

• OSA needs to be linked to corporate objectives and a joint “size of the prize” agreed

• Speed up the improvement rate by starting at the shelf and working backwards

• Engage and involve all the right people from the very beginning

• Go on the journey together, follow the products back up the supply chain, find and remove opportunities for failure

• Establish new metrics to hold the gains

Session Overview

• OSA – an overview

• ASDA and Unilever – Theatre and Factory

• L’Oreal and dm-drogerie markt

• P&G – Winning at the first moment of truth

In summary

S R

• Status:– OSA remains a key challenge across

Europe to fulfilling customers wishes. – Solutions prove elusive or temporary with

out-of-stocks quickly returning. • Underlying issue:

– Availability is not a simple problem that can be addressed through seeking and implementing ‘best practice’.

– OSA cuts across functional and organisational boundaries so needs to be viewed as a “complex problem”.

• Way forward:– Few prescriptive answers are available to

solve complex problems. Instead a collaborative approach is required to identify and implement specific solutions:

1) Shared goals …2) … delivered through co-created solutions …3) … enabled by an intimate understanding of each

other’s businesses