globalization: linking supply chain transformation...

Globalization Linking Supply Chain Transformation to the Profit and Loss Statement

September 2011

Bob Heaney

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies

September 2011

Globalization: Linking Supply Chain Transformation to the Profit and Loss

Statement

Company Size Demographics of the 56 companies with Active C-Level Executives

√ Small (less than $50 million) - 21%,

√ Mid-size ($50 million - $ 1billion) – 32%,

√ Large (greater than $1 billion) - 47%

Additional demographics are available at the end of this document.

Analyst Insight

Aberdeen’s Insights provide the analyst perspective of the research as drawn from an aggregated view of the research surveys, interviews, and data analysis.

Aberdeen Group's Chief Supply Chain Officer (CSCO) Survey (January 2011) collected data from 191 companies of which 56 claim to have active C-level support for supply chain process/technology investments. Findings from that survey were shared at Aberdeen’s Supply Chain summit (March, 2011) and indicate that globalization is driving change and transformation across virtually every process step of the inbound-to-outbound supply chain for companies of all sizes and industry segments.

This Analyst Insight will explore how the 56 companies with active C-level involvement are approaching the global expansion of their supply chains relative to their peers. It will examine the improvement areas addressed by these C-level Supply Chain Executives. This examination will trace 21key inbound-to-outbound process steps through a process hierarchy and link these actions to the benefits they yield to the company profit and loss statement, balance sheet and cash flow statement. This document demonstrates the types of capabilities that companies are leveraging and highlights case studies and business results. This document is intended for use as a decision framework for supply chain transformations that yield positive net contribution to the company's bottom line.

Globalization / Complexity is Dominating the CSCO Agenda According to the study, Figure 1, the top business pressures facing the C-level Supply Chain Executives or the office of the CSCO are the impact of increasing supply chain complexity as well as rising supply chain management costs (55% and 43% respectively).

Figure 1: Top Business Pressures: Globalization and Supply Chain Cost / Complexity

Growing complexity of global operations (e.g., longer lead times

51%

25%

43%

55%

0% 20% 40% 60%

Rising supply chain management costs (e.g., total landedcosts, fuel, labor costs)

and lead-time variability, or increasing numbers of suppliers,partners, carriers, customers, countries, logistics channels)

Percent of Respondents, n=191

All OthersC-Level Executives

Growing complexity of global operations (e.g., longer lead times

51%

25%

43%

55%

0% 20% 40% 60%

Rising supply chain management costs (e.g., total landedcosts, fuel, labor costs)

and lead-time variability, or increasing numbers of suppliers,partners, carriers, customers, countries, logistics channels)

Percent of Respondents, n=191

All OthersC-Level Executives

Source: Aberdeen Group, January 2011

provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 2

© 2011 Aberdeen Group. Telephone: 617 854 5200

The overseas supplier base (Figure 2) continues to grow relative to a given company's home country with up to 64% of all groups claiming suppliers in China and 56% claiming suppliers in Europe. Although the customer base is expanding globally, supply and demand remains unbalanced (e.g., China for represents 64% of supply but only 34% of customer demand). This imbalance increases complexity putting time and distance between source and customer.

Figure 2: Global Sourcing and Customer Demand is Driving Supply Chain Complexity and Transformation

77% / 73%

48%

38%

55%

38%

39%

31%

37%

Customers Red

35% /

25% /

56% /

14% /

16% /

64% /

29% /

USA

Canada

South America

Europe

Africa & Mid East

Asia Pac

Southeast Asia

Australia and Pacific

Suppliers Black

77% /

35% /

25% /

56% /

14% /

16% /

64% /

29% /

USA

Canada

South America

Europe

Africa & Mid East

Asia Pac

Southeast Asia

Australia and Pacific

Suppliers Black

73%

48%

38%

55%

38%

39%

31%

37%

Customers Red

Percents equal numbers of all companies having suppliers or customers in each region.

Source: Aberdeen Group, January 2011

For years companies have been transforming their domestic supply chains and have harvested double digit reductions in cost per unit handled in areas such as transportation (International Transportation: Optimize Cost and Service in a Global Market; July 2010). Supply chains that were once purely domestic have now gone international as an increasing number of shipments flow across borders and supply and demand imbalances increase. But the harvested reductions from supply chain transformation are largely tapped. What companies are realizing is that many of the benefits derived from their finely tuned / optimized domestic supply chains are being cancelled out by their poorly performing global supply chain (Figure 3).

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Figure 3: Global Complexity Degrades Cost/Service Compared to Domestic Supply Chains

Plant(Mfg Planning/

Execution)

Raw MaterialsSupplier

ComponentSupplier

Retail Store(Forecasting)

Customers(Forecasting)

Global Air

Global DC(Warehouse Mgmt)

International visibility from satellites and cloud technology

Improved Cost/Time

Degraded Cost/Time

Freight Forwarder

Ocean

DEMAND

SUPPLY

Customs Delay, Broker

Ocean


Transportation(TMS)

Plant(Mfg Planning/

Execution)

Raw MaterialsSupplier

ComponentSupplier

Retail Store(Forecasting)

Customers(Forecasting)

Global Air

Global DC(Warehouse Mgmt)

International visibility from satellites and cloud technology

Improved Cost/Time

Degraded Cost/Time

Freight Forwarder

Ocean

DEMAND

SUPPLY


Ocean


Transportation(TMS)

Longer lead-time and increased multi-party handoffs like customs degrade performance

Source: Aberdeen Group, September 2011 In Figure 3 we can see that the efficiencies between parties and process steps that are optimized in the domestic supply chain (the green arrows) are now in imbalance and degraded by the new complexities of the global supply chain (the red arrows). Companies tend to optimize the process steps which they can see and over which they have direct control. The domestic supply chain has benefited from this fact with respect to the following advanced process methodologies:

• Just-in-Time (JIT) • Lean and Six Sigma • Internal and external process collaboration

Automation: • Supply chain and manufacturing planning and execution • Inventory optimization and forecasting • Transportation management systems • Warehouse management systems




The positive impact from these process and automation tools has been significant for the domestic supply chain. Unfortunately, many of the benefits they produced domestically have fallen out-of-balance and focus as the supply chain has become more global (Table 1).

Table 1: Domestic vs. Global Supply Chain Performance / Complexity Imbalance

Domestically Optimized

Cycle Times

Cost Global Breakdown Impacts

Cycle Time Cost

Optimized domestic transportation plan

Mainly Improved

Mainly Improved

Expedited airfreight Failure to select low cost ocean carrier

Degraded Degraded

Just in Time (JIT) manufacturing plan

Mainly Improved

Mainly Improved

Parts or raw materials being delayed at Customs

Degraded NA

Optimized inventory plan

Mainly Improved

Mainly Improved

Excess safety stock required to offset lack of visibility into extended global supply chain

Degraded Degraded

Finding lowest cost supplier

NA Mainly Improved

Failure to take advantage of preferential duty programs

NA Degraded

Source: Aberdeen Group, September 2011 Globalization and supply chain complexity is opening up new avenues for optimization and transformation across the growing multi-tier global supply chain. The processes and technologies to manage the new global inbound-to-outbound flow of finished goods, parts or raw materials are much less mature / efficient than domestic operations, as are the processes and technologies to manage the outbound flow of goods. Islands of peak domestic performance are sandwiched between poorly performing global supply chains across each continent (Figure 3).

Best-in-Class (the top 20% of performers) definition from the February 2011 Supply Chain Visibility study:

√ 96% of orders delivered complete and on time

√ 96% of orders received from suppliers complete and on time

√ Decreased by 3% total landed costs per unit

√ Decreased by 3% supply chain cost relative to revenue

Yielding versus Laggards (the bottom 30% in study):

√ 25 percentage point higher complete and on time delivery to customers

√ 12 percentage point greater advantage in year-over-year unit landed costs

In the next sections, we examine the areas of global supply chain improvement by tracing the flow of product and information through each process step in the extended supply chain and applying the same process and automation techniques across the new areas of imbalance that now exist.

Capabilities by Process Step – Inbound to Outbound The global landscape is changing and the new priority for the office of the CSCO has shifted to supply and demand synchronization across each linked process step in the extended supply chain. The level of capability the average company has when it comes to coordinating information and synchronizing operations across these process steps from source to end consumer has been explored in a recent study (Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency, February 2011).

In Figure 4 and Figure 5, we plot the degree of automation from the 183 companies mentioned in the February study across the Best-in-Class (top


http://aberdeen.com/aberdeen-library/6834/RA-supply-chain-visibility.aspx






20% of aggregate performance scorers), Industry Average (the middle 50% of aggregate performance scorers) and Laggards (the bottom 30% of aggregate performance scorers) - see sidebar on previous page. Examining these companies across 21 key inbound to outbound process steps we can better understand process weaknesses and isolate potential areas of improvement.

As we discovered in prior studies, companies of all sizes and classes are hampered in their ability to track, monitor and synchronize supply chain process steps with trading partners. Generally, only about 30% (average of blue bars in Figure 4) of companies have automated data and event monitoring and/or have optimized process capabilities in place. From source to destination, the 13 inbound process steps or milestones needed to synchronize product and information flows are still being monitored manually (phone, fax and email) in up to 49% of all companies.

Figure 4 - Inbound Process Steps from Source to Destination/Country

25%

28%

31%

31%

30%

31%

23%

7%

9%

16%

44%

38%

38%

46%

42%

42%

43%

42%

39%

43%

43%

43%

28%

42%

43%

49%

0% 20% 40% 60% 80% 100%

Customs clearance events (INBOUND)

In-transit status events at order line level (INBOUND)

In-transit status events at shipment level (INBOUND)

Carrier pickup of goods (INBOUND)

ASN matches purchase order

Advance shipment notice (ASN) created by supplier

Quality control passed

Suppliers’ production in-process events

Suppliers’ projected production plans

Raw material arrival at supplier

Supplier invoice status (for invoices we receive fromsuppliers)

Order acknowledgment matches purchase order

Order acknowledgment by supplier

Percent of Respondents, n = 183

Monitor with our visibility software Monitor manually (e.g., via phone / fax / email)

25%

28%

31%

31%

30%

31%

23%

7%

9%

16%

44%

38%

38%

46%

42%

42%

43%

42%

39%

43%

43%

43%

28%

42%

43%

49%

0% 20% 40% 60% 80% 100%















Monitor manually (e.g., via phone / fax / email)

25%

28%

31%

31%

30%

31%

23%

7%

9%

16%

44%

38%

38%

46%

42%

42%

43%

42%

39%

43%

43%

43%

28%

42%

43%

49%

0% 20% 40% 60% 80% 100%
















25%

28%

31%

31%

30%

31%

23%

7%

9%

16%

44%

38%

38%

46%

42%

42%

43%

42%

39%

43%

43%

43%

28%

42%

43%

49%

0% 20% 40% 60% 80% 100%















Monitor manually (e.g., via phone / fax / email)

Source: Aberdeen Group, February 2011

The good news is that leading companies have superior financial and service metrics (see sidebar on the previous page for definitions) and also are several times as likely as their peers to automate many of these events. For




instance, compared to the Industry Average and Laggard companies combined (all others), the Best-in-Class are more frequently measuring and automating events for inbound:

• Suppliers’ projected production plans - 1.42-times more likely to track than all others (68% of the Best-in-Class monitoring this milestone)

• Customs clearance events (inbound) - 1.34-times more likely to track than all others (90% of the Best-in-Class monitoring this milestone)

• In-transit status events at order line level (inbound) - 1.34-times more likely to track than all others (87% of the Best-in-Class monitoring this milestone)

On the outbound side (Figure 5) eight additional linked process steps are plotted and the picture is almost identical. In the typical sequence of event flow (i.e., outbound from shipment/pickup to proof of delivery and settlement) the degree of visibility/collaboration and automated monitoring and control ranges from 24% to 45% (blue bars). So across warehousing, pickup, outbound transportation/delivery, and payment anywhere from 28% to 49% of respondents claim they are still manual (phone, fax and email).

Figure 5 - Outbound Process Steps from Receiving to Customer Delivery and Payment

0%

Bank interactions

invoices we send to customers)

Proof of delivery to customer

Trucking (haulage) events

In- -transit status events at orderline level (OUTBOUND)

In- transit status events atshipment level (OUTBOUND)

(OUTBOUND)

0%

Customer invoice status (for

Carrier pickup of goods

Warehousing events

41%

45%

38%

24%

27%

31%

37%

35%

31%

36%

51%

48%

46%

47%

45%

42%

20% 40% 60% 80% 100%Percent of Respondents, n = 183

41%

45%

38%

24%

27%

31%

37%

35%

31%

36%

51%

48%

46%

47%

45%

42%



0%

Bank interactions

invoices we send to customers)

Proof of delivery to customer

Trucking (haulage) events

In- -transit status events at orderline level (OUTBOUND)

In- transit status events atshipment level (OUTBOUND)

(OUTBOUND)

0%

Customer invoice status (for

Carrier pickup of goods

Warehousing events

41%

45%

38%

24%

27%

31%

37%

35%

31%

36%

51%

48%

46%

47%

45%

42%


41%

45%

38%

24%

27%

31%

37%

35%

31%

36%

51%

48%

46%

47%

45%

42%


41%

45%

38%

24%

27%

31%

37%

35%

31%

36%

51%

48%

46%

47%

45%

42%


41%

45%

38%

24%

27%

31%

37%

35%

31%

36%

51%

48%

46%

47%

45%

42%



"We were committed to re-designing our entire supply chain and becoming more flow-oriented in order to drive more efficiency and cost savings across our entire business. We wanted to be more just-in-time and less just-in-case. Working on supplier-side collaboration / visibility is key.”

~ James Hilzendeger, Director of Logistics, Giant

Eagle

Source: Aberdeen Group, February 2011




Once again the good news is that leading companies are performing better and are several times as likely as their peers to automate many of these events. For outbound compared to all others the Best-in-Class from the study are more frequently measuring and optimizing:

Note:

For a description of the impacts and implications that lack of visibility and synchronization of these 21 process steps produces, and to examine the capability and performance advantages that the Best-in-Class possess see the full report Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency.

• Trucking (haulage) events - 1.24-times more likely to track than all others (84% of the Best-in-Class monitoring this milestone)

• In-transit status events at order line level (outbound) - 1.20-times more likely to track than all others (84% of the Best-in-Class monitoring this milestone)

Linking Process Step Improvements to ROI Expectations by Investment Choice Today’s CSCO has many choices to select from when it comes to improving product and information flows and synchronizing events from source to consumer in the extended global supply chain. From our research we see how the C-level Executives are ranking the various investment choices they have in terms of ROI or payback expectations.

Table 2: Supply Chain Process Improvement ROI Investment Decision Matrix C-Level Executives - In 12 Months Planning to Enhance/Acquire Supply Chain Solutions

C-Level Executives Expected ROI

All Types

Supply Chain Visibility or

SCV

Supply Chain Network Design

Transportation Management

or TMS

Trade Compliance

Percent Companies Planning 84% 82% 73% 33% 0 - 6 months 2 1 1 1 1 7 - 12 months 13 12 11 11 5 13 - 18 months 17 16 16 12 4

19 months - 2 years 9 6 6 8 3 2 - 3 years 7 6 4 3 2

3 - 5 years 1 1 1 1 1 More than 5 years 2 1 3 1 1

Total Companies 51 43 42 37 17 Planned Months to ROI 18.2 17.6 18.9 17.3 19.5

Percent expecting less than 1 year ROI 29% 30% 27% 32% 35% C-Level Active companies (56 of 191companies)

Source: Aberdeen's Chief Supply Chain Officer Survey, January 2011 In our survey we asked the all respondents that were planning investments in one or more competing technology areas such as visibility, transportation, or trade compliance to indicate their interest in investment / improvement by technology type (Table 2).

Across the top of the matrix are the various technology types ranging from Supply Chain Visibility (SCV) at 84% of the investment responses, or 43 interested C-level respondents, and ending in Trade compliance (GTC) or import/export initiatives at 33% of the responses (17 companies). In the middle section of the matrix, there are the ROI financial payback hurdles







planned or justified for each solution type and company for the 56 respondents. These respondents claim that C-level Executives and the office of the CSCO are active in supply chain investment decisions. Overall, there is an average ROI expectation of 18.2 months to payback. Some of the companies are targeting paybacks in less than one year and the percent of companies with that expectation is in the last row. From the ROI matrix we can observe several key points:

"Now visibility needs to be simple and easy to look at. What customers are really asking for is the ability to interact. If you’re going to give me a portal, I want to be able to do something with it.”

~ Donald Meewes, Chief Information Officer ,

NYK Logistics

• The popularity of a given investment choice is ranked from left to right and the first two items SCV through and supply chain network design are closely ranked within the 82% to 88% range and they each have a payback within one month of the overall average of 18.2 months until planned payback.

• Supply chain visibility the top ranked option at 88% compares favorably with the next ranked supply chain network design. Likewise 30% of the companies have a planned payback on SCV within the first year. This is promising indeed for companies wanting to justify the SCV investment choice.

• Transportation management, with 73% popularity, is the most mature software area within supply chain execution (40% to 60% of companies claim they use a commercial package already). The fact is, however, most of the transportation management solutions companies have deployed to handle their domestic transportation do not address global transportation (i.e., ocean, air, cross-border rail). For instance we know that over 86% of companies are global but only 20% can claim that their TMS can handle import/export documentation (see sidebar).

Companies are Increasingly Global yet unequipped

√ 88% Exporting (shipping across country borders).

√ 83% Importing (receiving from other countries)

√ 87% Domestic shipping

√ 83% Domestic receiving

Hence 86% have import and/or export trade volumes yet :

√ Only 22% have the capability to include customs/duties in landed cost calculations

√ Only 20% have a formal Global Trade Compliance (GTC) program

• Finally, the fact that Trade Compliance or Import/Export stands at (33%) further illustrates the imbalance between domestic and global supply chains. While 86% of companies surveyed are global, only 20% reported having a formal Global Trade Compliance program for their global shipments. Ironically, GTM is likely the most important enabler and requirement for global expansion, but the least understood or addressed. Generally C-level executives and CSCOs are less familiar with Trade Compliance than other supply chain areas, but those who do understand it expect strong returns. In fact Trade Compliance had the highest percentage of respondents (35%) expecting a payback in less than a year. As Appendix A highlights, Trade Compliance is the source of strong financial returns and can help organizations to overcome the domestic vs. global supply chain performance imbalance depicted in Table 1 and Figure 3.

Linking Process Step Improvements / Benefits to the Profit and Loss Statement We have shown in Figure 3 and Figure 4 how product and information are synchronized and flow across a series of 21 key process steps in the




extended supply chain. We can also see the various solutions and investment choices that the supply chain executives have to choose from in bridging process and technology gaps (Table 2, ROI Decision Matrix). Each investment choice yields an ‘expected payback’ and we have ranked those expectations in the decision matrix for comparison.

Demographics

Between January and February 2011, Aberdeen examined the use, the experiences, and the intentions of more than 191 enterprises regarding their Supply Chain Executive's Agenda in a diverse set of enterprises. From this overall group 56 companies which claim to have active C-level support for supply chain process /technology investments were analyzed for purposes of this document.

Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on Supply Chain Executive's Agenda strategies, experiences, and results.

For the 56 enterprises responses included the following:

√ Job title: The research sample included respondents with the following job titles: Manager (30%); Managing Director / Director (37%); C-Suite including CEO / President (23%); EVP / SVP / VP (6%); Staff (2%); and other (2%).

√ Department / function: The research sample included respondents from the following departments or functions: supply chain, or logistics manager (45%); procurement (10%); operations manager (8%); senior management (20%); and IT manager or staff (14%); and other (5%).

d

However, even a top ranked choice like “supply chain visibility” or a regulatory requirement like “global trade compliance” have different financial implications from company to company (even from supply chain to supply chain). Each company has different operating profiles, technology infrastructure, and partnering requirements which should always be matched to the solutions that best fits their current operating needs. In this section, we introduce the reader to the detailed Global Supply Chain Process Steps Linked to Profit & Loss Hierarchy, in Appendix A. Compiled from analyst experience and numerous reference documents, customer interviews, and case studies (see Related Research Section) this table provides a chronology of supply chain Process Steps (2nd Column) across various dimensions (Process Area, Improvement Area and Financial Savings, and the Solutions or Investment Area). These dimensions are linked or matched to a particular category or benefit on the P&L Statement. In addition, sample savings calculations from our research across numerous research topics and insights from case study interviews are included. All in an effort to qualify the transformation efforts, and document the types of benefits companies have derived by improving various process steps in their global supply chain. The detail provided is comprehensive - covering the full range of inbound to outbound process steps - and links P&L benefits into an overall sequenced hierarchy of supply chain transformation options. Examined appropriately and in conjunction with the ROI Decision Matrix, this appendix provides a detailed primer for end-to-end supply chain transformations that can yield benefits that flow directly to the bottom line.

Recommendations and Summary Conclusions As the degree of global collaboration grows, and global supply chains become more expansive and complex, it is likely that collaborative processes, systems and platforms will gain added popularity. These trends also give rise to the growing complexity and multi-tiered nature of today's supply chain and in turn feed the next cycle of change and beget further global transformations. This document explores the capabilities and ranks the technologies that 56 companies that have active C-level support for supply chain process/technology investments are prioritizing for deployment. It demonstrates the manner in which supply chain executives can examine their options and derive supply chain value through a step by step assessment of each linked process step in their end to end supply chain. Aberdeen recommends that supply practitioners consider adopting the following three steps as they use this insight to indentify supply chain transformation opportunities:




1. Start with process. Many companies jump right to technology first without taking careful consideration of the process first. Using this primer and the linked process step hierarchy identify your process gaps and streamline/reengineer them first with careful consideration given to where the P&L benefits are. Once you have identified which process steps remain in your transformation plan determine which of these can be enhanced and begin to quantify the specific cost/benefit they bring to your P&L and your value proposition.

Demographics (continued)

√ Industry: The research sample included respondents from: Industrial Manufacturing (22%); Aerospace and Defense (17%); Automotive (15%); Computer Equipment (10%); Consumer Packaged Goods (CPG) (7%); Health and Medical (7%); Wholesale Distribution (3%) and all other (19%).

√ Geography: The majority of respondents (60%) were from North America. Remaining respondents were from Europe (22%) and the Asia-Pacific region (18%).

√ Company size: Forty-seven percent (47%) of respondents were from large enterprises (annual revenues above US $1 billion); 32% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 21% of respondents were from small businesses (annual revenues of $50 million or less).

√ Headcount: Sixty-six percent (66%) of respondents were from large enterprises (headcount greater than 1,000 employees); 27% were from midsize enterprises (headcount between 100 and 999 employees); and 7% of respondents were from small businesses (headcount between 1 and 99 employees).

2. Select technology appropriately. Using the cost benefit inputs developed in the first step, begin to link together areas of technology / service improvements that are required support the transformed supply chain. ROI analysis requires you estimate the costs of the technology investment offset by the benefits you quantified in isolation in the first step. In this step you can tie the specific benefits at each process step to an aggregated view of P&L benefits across all linked process steps to which the particular technology investment applies.

3. Equip and train your staff. Supply chain transformation is not simply the implementation of reengineered process or advance technology – it requires people, who must be equipped. Train and build a center of excellence around people, process and technology that spans an understanding of fundamental process linkages and training in systems and technology. No transformation is complete if the people cannot properly leverage technology or do not utilize it properly.

This document provides guidelines for ROI savings and transformational activates that can ultimately improve productivity and increase company profits. As companies adapt to the globalization of their supply chains these recommendations and guidelines can equip supply chain executives with actionable steps they can take to bolster performance and address each challenge. For more information on this or other research topics, please visit www.aberdeen.com.


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GStP

lobalization: Linking Supply Chain Transformation to the Profit and Loss atement

age 11

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For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2011a)

Related Research 2011 Transportation Contract, Tender and Spend Management; April 2011Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency; February 2011 International Transportation: Optimize Cost and Service in a Global Market; July 2010 State of Retail Logistics: Strengthening Cross-Channel Supply Chain Execution; March 2010 Supply Chain Visibility Excellence: Reduce Pipeline Inventory and Landed Cost; December, 2009

Integrated Transportation Management: Improve Responsiveness with Real-Time Control of Execution; October, 2009 Evaluating Logistics Outsourcing: Look Before You Leap!; October, 2009 Tending the Fleet: Paving New Roads with Effective Fleet Management; September, 2008 No Excuses! Why Optimizing Transportation Management is Within the Reach of Every Company; July, 2008 Achieving Closed-Loop Transportation Spend Management; January, 2008

Bob Heaney, Senior Research Analyst, SCM Practice ([email protected])

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Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Process Area Process Step Improvement Area and Financial Savings

P&L Benefits

Solution Area

Illustrative Case Study Examples and Metrics

Supplier Enablement

Supplier PO Management

Supplier Enablement / Supplier PO Management / Days in Inventory Reduce order cycle times • Improve coordination with suppliers to

reduce order cycle times by 1 to 2 days Automate and save SG&A • Cut the time needed to generate and

confirm an Advance Ship Notice from 1.5 days to less than an hour.

Improve Cost and Service • Secure buyer approval of the shipment by

confirming order compliance (fill rates and ship windows)

Days in Inventory -

Reduce order cycle

times

Supply Chain Visibility

Manager of Large European Distributor “The major problem is that we are dependent on customers with a trader mentality, hence it is difficult to obtain time sensitive data for global trade. This leads to considerable delays and problems when purchasing raw & packing materials for our suppliers. We need to leverage a collaborative global trade solution and get away from time differences and fax and email."

Inbound Customs

Inbound Customs

Clearance

Inbound Customs / Inbound Customs Clearance / Days in Inventory • Reduce inventory by pre-clearing Customs

and as well as reduce the percent of shipments held in Customs for exam

• Pre-clear Customs 90%+ of the time to avoid typical Customs clearance cycle time of 1 to 3 days. This can save 1 – 2 days of inventory

• Reduce the percent of import shipments held at Customs 80%. A best-in-class company can achieve 2.2% hold rate while an average company can be as high as 9.4% (Aberdeen GTM study 2010) ***. Assuming an average 4 -5 days for a Customs exam and a 7% differential, this translates to approximately .3 days of inventory

• Use Broker Scorecards to identify cycle time exceptions to SLA by broker by port

Days in Inventory -

Reduce inventories

Import Manager at an Automotive Manufacturer "We are an automotive subsidiary charged with providing supply chain management services in a global sourcing environment. We need to create conditions where dynamic planning of product purchases and logistics services enable optimized cost and time and avoid duties and inbound customs delays"

Manufacturing Events

Manufacturing Production

Status

Manufacturing Events / Manufacturing Production Status / Days in Inventory

These solutions provide importers detailed visibility of the supply chain: back to the

Days in Inventory -

Reduce safety stock


Manager of Large European Co-packer “We are a co-packer with some major captive customers. The major problem is that we are





P&L Benefits

Solution Area


Manufacturing Events

Manufacturing Production

Status

supplier at the time of purchase order, to manufacturing status, to the time the goods ship from the manufacturing facility, to the time goods are loaded onto the vessel, while they are in transit, and finally arrive at their destination. This visibility enables companies to see actual transit times vs. the padded times they are given by their suppliers and carriers, ultimately enabling them to strip out unnecessary safety stock, while still meeting customer delivery commitments.


dependent on customers with a trader mentality; hence it is difficult to obtain status of events to gain visibility to manufacturing production. This leads to considerable line changeovers & inability to optimize on economic order quantities when purchasing. We need an integrated visibility platform to operate."

In-transit Status

Carriers, Ocean other

In-transit Status / Carriers, Ocean other / Days in Inventory

These solutions provide importers detailed visibility of the supply chain: back to the supplier at the time of purchase order, to manufacturing status, to the time the goods ship from the manufacturing facility, to the time goods are loaded onto the vessel, while they are in transit, and finally arrive at their destination. This visibility enables these customers to see actual transit times vs. the padded times they are given by their suppliers and carriers. This increased visibility enables these SCV customers to strip out unnecessary safety stock, while still meeting customer delivery commitments.

Days in Inventory -

Reduce safety stock


A Supply Chain Visibility and Event Management solution provides a U.S.-based beverage distributor “with complete order and shipment visibility; synchronizes logistics data across the company’s supplier and trading partner network; and measures the performance of vendors and service providers using comprehensive scorecards and reports”. With access to real-time data on shipment dispatches and warehouse receipts, users can now better manage safety stock levels at each distribution centre, avoid expediting and reduce domestic transportation costs.

Import Process

Import Clearance efficiency

Import Process / Import Clearance efficiency / Days in Inventory By automating and streamlining the entire import process companies can compress supply chain cycles times by eliminating delays associated with improperly classifying products, performing regulatory checks, calculating total landed costs, clearing goods

Days in Inventory -

Reduce inventories

Import A large Asian-based electronics manufacturer automates over 30,000 import shipments annually with an import solution. The solution provides” up-to-date Customs documentation, performs regulatory compliance checks and manages other government agency document requirements to ensure that the manufacturer is taking reasonable care”. The company also conducts variance





P&L Benefits

Solution Area


Import Process

Import Clearance efficiency

through Customs, generating international shipping documents, etc.

reporting to benchmark broker performance, monitor shipment delays and data discrepancies, and reallocate resources to various internal sales companies.


Item Product Level Visibility

Supply Chain Visibility / Item Product Level Visibility / Days in Inventory SCV solutions give companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and re-allocate inventories to meet critical customer orders and backfill inventories to still meet orders with longer lead times.

Days in Inventory -

Reduce stock outs and mark

downs


By establishing a collaborative network with freight forwarders, carriers, suppliers, trading partners, and brokers using a Supply Chain Visibility solution, a large U.S.-based consumer packaged goods company is able to” pinpoint delivery dates, allocate inventory in-transit and resolve import and export problems before they impact customer demand.” With the SCV solution, the company has: • Reduced number of days of inventory in hand

by 24% • Reduced lead times by 28% • Improved on-time customer delivery from 33%

to 74%

Total Landed Cost

Total Landed Cost

Calculation

Total Landed Cost Management / Total Landed Cost Calculation / Cost of Goods Sold Total landed cost solutions enable companies to consider duty payments, freight charges and other global trade related costs when making sourcing decisions. In doing so, companies can reduce the total landed cost of imported goods.

Cost of Goods Sold

- Reduce total landed

costs on imports

Import - Landed Cost

Integrated into its ERP application, the Landed Cost Engine calculates duties and import taxes across complex tariff scenarios to optimize procurement decisions for a mid-sized electronics manufacturer.

Sourcing Support

Duty Manage- ment

Sourcing Support FTA / Duty Management / Cost of Goods Sold • A new free trade agreement solution helps

companies significantly reduce duties by helping them identify qualify for, and administer free trade agreements for which they are eligible.

Cost of Goods Sold

- Reduce duties

Free Trade Agreements

A furniture manufacturer uses a free trade agreement solution to manage its NAFTA certification data across 1,000+ suppliers worldwide, analyze 16,000 products and ensure compliance with all US Customs export regulations. Delivered on-demand as a web portal the solution automates “solicitation and





P&L Benefits

Solution Area


Duty Manage- ment

• Often companies will not attempt to fully capture FTA savings for all eligible products given headcount constraints - this ranges from 20% to 50%.

• Assuming duty savings of 2% to 3%, a 20% to 50% improvement in coverage will net on average .4% to 1.5% additional duty savings on the sourced value of goods from the first trade agreement

With automation, this benefit can be captured with no net change in headcount

management of qualification data from suppliers as well as integrating with company’s order management, warehouse management, and ERP systems. The manufacturer has realized $1.2 million in duty savings”.

Sourcing Support

Automated FTA Sourcing

Support

Sourcing Support / Automated FTA Sourcing Support / Cost of Goods • Automate the process to capture subsequent

duty savings (second and additional agreements)

• Many companies are reevaluating their sourcing options to take advantage of free trade agreements.

• With automation, this is a new opportunity for duty reduction without a change in headcount

• Assume 30 to 60% of the value of imports could qualify for one or more additional agreements, but is not currently managed today

• Assume a duty savings of 2% to 3% this equates to a reduction in duties paid per import value of .6% to 1.8%

With automation, this benefit can be captured with no net change in headcount

Cost of Goods Sold

- Reduce duties

Free Trade Agreements

A furniture manufacturer uses a free trade agreement solution to manage its NAFTA certification data across 1,000+ suppliers worldwide, analyze 16,000 products and ensure compliance with all US Customs export regulations. “We are currently reliant on this solution”.

Administer, automate

Foreign Trade Zones (FTZ)

Sourcing Support / Administer, automate Foreign Trade Zones (FTZ) / Cost of Goods Sold

Effective use of a foreign trade zone solution enables companies to avoid duty payments on

Cost of Goods Sold

- Reduce duties

Foreign Trade Zone





P&L Benefits

Solution Area


goods that get re-exported, eliminating the duties altogether. This savings go directly to a company's bottom line.

Duty Management

Automate Duty

Drawback

Duty Management / Automate Duty Drawback / Cost of Goods

Because the solution has a record of both imports and exports, it enables companies to identify instances where duties were paid on imported items, only to be re-exported as a finished good or as a bill of material component to a finished good. This enables companies to re-coup the duties paid originally on the imported good. That savings goes directly to a company's bottom line.

Cost of Goods Sold

- Reduce duties

Duty Drawback

Supplier Enablement

Automate Consolidated

Supplier Import Entries

Supplier Enablement / Automate Consolidated Supplier Import Entries / Cost of Goods • Consolidate shipments to reduce

Merchandise Processing Fee • Assume 5% of import entries can be

consolidated • Save $100 - $500 per consolidated entry

or on average, $5 to $25 per entry • In addition, broker fees can be eliminated

on the 5% of imports for an equivalent savings of $2.5 per entry ($50 per entry x 5%)

Cost of Goods Sold

- Reduce buyer fees

Supplier Management

Broker Enablement

Automate Pre-customs Entry

Broker Enablement / Automate Pre-customs Entry / Cost of Goods • Reduce broker fees by sending electronic

“Pre-Customs Entry” • Prepare 7501 and electronically transmit

to broker

Cost of Goods Sold

- Reduce broker fees

Import An import solution has enabled a large global retailer to take many of the import pre-clearance functions in-house for most of their products and self file for select products. This capability has “reduced the company’s total brokerage fees by 45%, which is a multi-million annual savings”.





P&L Benefits

Solution Area


Automate Pre-customs Entry

• Broker avoids having to rekey data and often a 20% to30% fee reduction is possible. Many companies have seen a 30% reduction in fees by automating this information feed.

• In addition, by avoiding errors related to rekeying, entry accuracy improves.

Broker

Enablement

Automate self-filing on Imports

Broker Enablement / Automate self-filing on Imports / Cost of Goods Further reduce broker fee by self-filing • Typically a company can self-file for less

than $10 per entry and leverage much of the effort of working with a broker

• This requires additional headcount, but typically each FTE can file 5,000 entries annually

• In addition to saving on broker fees companies can reduce entry cycle time, prevent delays by reacting to ABI errors in real time, and eliminate broker premiums for dock fees and transportation arrangements.

• Any Importer of Record can self-file without a license or permit ( just apply for a filer code which can take a few weeks. This also helps to establish a strong relationship with Customs.

Cost of Goods Sold

- Reduce broker fees

Import The average broker fee for filing an import is $75 per" (see Aberdeen study from June 2007 and revalidated our current GTM survey ). Moving to self filing, would reduce this cost to under $10 per. That is an 85% reduction in brokerage fees. Since implementing an import solution, a U.S.-based diversified manufacturer has improved visibility over origin operations, reduced overall cycle time, streamlined the process with broker to improve efficiency and reduced fees. The single biggest improvement in the compliance process, according to the company’s vice president of compliance, is that “the number of broker errors we are detecting in our post-entry audit review has gone down remarkably.” The company reduced broker fees and realized 3% product cost savings on imported goods.

Automate Export

Automate Exports

Automate Export / Cost of Goods Sold By simplifying and automating many of the functions required to export goods, companies are able to perform these functions in-house, thus eliminating the need to pay the forwarder fees associated with various tasks.

Tasks reduced include : • Electronically provide shipment details and

eliminate the need to re-key data up

Cost of Goods Sold

- Reduce forwarder

fees

Export An electronics parts manufacturer is leveraging a comprehensive product master, workflow tools and screening engines, which have enabled them to” improve export productivity by 50 percent without hiring additional staff”. The electronics part company has also reduced forwarder fees by an estimated 20%.





P&L Benefits

Solution Area


• Self file EEI, saving an average of $15 for a forwarder to file.

Supply Chain

Visibility Automate

Carrier Visibility and

Tracking

Supply Chain Visibility / Automate Carrier Visibility and Tracking / Cost of Goods Sold • By providing real-time visibility of ocean

container shipments, inbound from supplier all the way to port of destination, companies can better plan domestic pick up of goods, thus avoiding demurrage penalties associated with containers waiting for pick up

Cost of Goods Sold

- Reduce demurrage

and detention

fees


A Supply Chain Visibility solution helps an ocean carrier to “coordinate both internal and customer-facing operations in one online platform”. The solution also generates alerts such as ‘container ready for pick-up’ to streamline supply-chain hand-offs between multiple trading partners to minimize delays. This coordination helps reduce demurrage and detention fees by 25 – 50%.

Allocations Automate item-inventory

balancing

Allocations / Automate item-inventory balancing / Cost of Goods Sold A new SCV solution gives companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and re-allocate inventories to meet customer orders without the need to expedite shipments.

Cost of Goods Sold

- Reduce expedited shipments


An oil & gas engineering company proactively “address issues and minimize expedited shipments using a supply chain visibility solution, eliminating an average of 10% of the value of expedited freight”.

Transportation

Automate Freight Audit

and Pay

Transportation / Automate Freight Audit and Pay / Cost of Goods Sold A new transportation solution enables companies to compare actual freight charges to contracted freight charges by shipment in order to identify and recoup overcharges by the carrier.

Cost of Goods Sold

- Reduce overages on

freight charges

Global Transportation - Freight Audit

A large apparel manufacturer uses a global transportation management solution for “end-to-end freight audit capabilities across fourteen ocean carrier service contracts. The solution provides tools to quickly evaluate a range of options across its portfolio of service contracts prior to booking and identifies rating discrepancies to quickly resolve billing issues with carriers.” The company resolved and recouped over $220,000 in bill-of-lading overcharges in the first year it deployed the solution.

Automate,

Manage Transportation

Transportation / Automate, Manage Transportation Performance / Cost of Goods Sold A new transportation solution tracks the on-

Cost of Goods Sold

- Reduce global

Global Transportation

Using a new Contract and Price Management solution, a large forwarder was able to “automate their ocean service contracts, streamline the rate and quotation process, and audit all freight





P&L Benefits

Solution Area


Automate, Manage

Transportation

time delivery performance of global carriers which enables companies to determine which ones are meeting their SLA's and which ones are not. Where applicable, companies can recoup fees already paid to carriers based upon penalty clauses in their contracts. Companies can also use this performance data to negotiate lower rates on future contracts.

freight costs

transactions to track the cost and margin on each quote”, as well as eliminate carrier invoice overcharges. The company reduced misquotes and carrier overcharges, improved profit margin and realized cost savings of $1.45m per year.

Transportation

Automate Transportation Procurement

Transportation / Automate Transportation Procurement / Cost of Goods Sold A new global transportation management solution enables companies to evaluate and select carriers based upon freight charges and a variety of other assessorial charges, as well as on-time delivery performance. Therefore, companies can reduce freight costs by picking the lowest cost provider based on all charges.

Cost of

Goods Sold - Reduce

global freight costs

Global

Transportation

Implementing a new logistics contract management system provided a diversified manufacturer with a “ central online contract repository and rating engine for 100 users in US, Europe and Asia Pacific locations to calculate full bottom-line costs for any shipment”. As a result, the company was able to reduce its international transportation spend.

Supplier Enablement

Optimize shipments or

loads

Supplier Enablement / Optimize shipments or loads and consolidate / Cost of Goods Sold Identify consolidation opportunities: A new Supplier Order Management capability gives you visibility to supplier orders and ready dates to identify additional opportunities to consolidate loads and improve load factors.

Cost of Goods Sold

- Reduce global

transport


Assuming a Full Container Load (FCL) factor at 70%, an SCV solution can conservatively increase load factor by an additional 10% for a total reduction of ocean transportation costs of several million dollars per year.

Automate Export

Automate Export

Processes

Automate Export / Automate Export Processes / Days Sales Outstanding By automating and streamlining the entire export process, companies can eliminate delays of exported products to customers caused by compliance checks, license determination and generation, international shipment document generation, restricted party screening checks, etc.

Days Sales Outstanding - Improve Days Sales

Outstanding

Export A new Trade Export solution “streamlines a large U.S. defense manufacturer’s global logistics operations, ensuring full compliance with country-specific trade rules and regulations”. By simplifying the shipment process, automating trade documentation and enabling restricted party screening online, the company can control the regulatory and financial implications of all its international shipments.





P&L Benefits

Solution Area


Automate Export Status

and Billing

Visibility, Event Management / Automate Export Status and Billing / Days Sales Outstanding. By giving companies order level visibility to shipments throughout their supply chain, companies are notified as soon as a shipment reaches its destination port and officially changes hands. Consequently, companies can electronically bill the buyer as soon as the goods change hands, rather than days following the goods transfer, ultimately allowing them to shorten their accounts receivable cycle times.

Days Sales Outstanding

- Reduce accounts receivable cycle times


“Our continued improvements in supply chain visibility will help us do a better job of maintaining high in stock performance for our customers while effectively managing inventory level and days sales outstanding.”

~ VP Supply Chain, Large Distributor


Automate item,

shipment, customer outbound

export shipments

Visibility, Event Management / Automate item, outbound export shipments / Revenue & Profit Margin The solution gives companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and re-allocate inventories to meet critical customer orders and backfill inventories to still meet orders with longer lead times.

Revenue - Reduce

stock outs and mark

downs


By establishing a collaborative network with freight forwarders, carriers, suppliers, trading partners, and brokers using a new Supply Chain Visibility solution, a large consumer products company is “able to pinpoint delivery dates, allocate inventory in-transit and resolve import and export problems before they impact customer demand.” The company has:

• Reduced number of days of inventory in hand by 24%

• Reduced lead times by 28% • Improved on-time customer delivery from

33% to 74% Shipment

Expedite Visibility, Event Management / Automate Shipment Expedite / S, G & A The solution gives companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and re-allocate inventories to meet customer orders without the need to expedite shipments.

S, G & A - Reduce

expedited shipments


With an SCV solution, a large apparel manufacturer is able to “manage incoming products and to proactively address issues by exception. This has reduced manual tracking and tracing of inbound shipments by 98%”.





P&L Benefits

Solution Area


Automate

Export

Administrative / Automate Trade Export / S, G & A • Handle more export transactions with the

same of fewer staff • Automate entire process of screening,

licensing and document production • Provide access to information for all

interested parties (compliance, logistics, procurement, distribution, forwarders)

• Manage by exception to reduce manual effort by 90% (eg. verify compliance on less than 10% of all transactions)

• Realize productivity savings of 90% * (20 – 30 minutes of manual effort per export transaction) – assume 20 minutes per transaction

Eliminate the need to hire more staff at $80,000 to $100,000 (fully loaded) which is equivalent to $40 to $50 per hour or approximately $15 per transaction

S, G & A - Reduce

headcount costs

Export

Administrative

Automate Import

Administrative / Automate Trade Import / S, G & A • Handle more export transactions with the

same of fewer staff • Automate the entire import process including

classifying goods, determining duty, valuing assists/royalties, assembling a compliant purchase order, coordinating orders with suppliers, screening transactions, producing documents (and broker packets), and reconciling entries. This does not include filing (above)

• Provide access to information for all interested parties (compliance, logistics, procurement, distribution, forwarders, brokers)

• Manage by exception to reduce manual effort by 90% (eg. touch an import less than 10% of the

S, G & A - Reduce

headcount costs

Import

By using an import solution to automate the function, a large electronics manufacturer “nearly doubled import volumes with no increase in staff”.





P&L Benefits

Solution Area


Administrative

Automate Import

time) • Realize productivity savings of 90% * (15-20

minutes of manual effort per import transaction) assume 16 minutes per transaction

• Eliminate the need to hire more staff at $80,000 to $100,000 (fully loaded) which is the equivalent of $40 to $50 per hour or approximately $11 per transaction

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