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Supply Chain Management in a Changing World-The Challenges for Organisations and Managers

Alan Waller

- Chairman - Institute of Logistics and Transport

- Vice President - Solving International

- Visiting Professor - Cranfield School of Management

- Project Director - European Council on Global Supply Chain

- Chairman - ELUPEG

Nyborg Denmark6 November 2003

Supply Chain Day 2003

2

AGENDA

Understanding the business world

Understanding the customer

Understanding the organisation

Understanding the value chain

Understanding the individual manager

Barriers to success

The way ahead

3

AGENDA






Barriers to success

The way ahead

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Global forces are shaping a radically different competitive environment

Ever more demanding

cus tomers andcons umers

Changing market boundaries and

new channels

Aggres s ive global competition

Indus try cons olidation and

alliances

Environmental and ris k is s ues

Stakeholderpres s ures

Speed of technology change

Shortening product life cyc les

HypercompetitionHypercompetition

++Globalis ationGlobalis ation

… and the frontiers of competition are changing at an ever increasing rate

Competitive Pres s ures in the Supply Chain

, Serving localis ed cus tomer needs through longer more complex s upply lines

5

AGENDA






Barriers to success

The way ahead

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A new customer is emerging …

Customers want buying to be

easier

faster

cheaper

more fun

… real value

Quality

ConsistencyService

Selection

Convenience

Price

TimeEffort

Risk

These trends are forced up through the value chain

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Suppliers will seek solution-based offers …

They will focus on

providing tomorrow’s customers with solutions

shifting from commodity products to differentiated solutions

world-class products and world-class service

enthusing their customers

Reaching out to understand their customers’ customers

Suppliers will expect their suppliers to react in the same way

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AGENDA






Barriers to success

The way ahead

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“Our Focus is on markets and brands, but without an effective supply chain, we cannot even begin to compete”

Chairman, Unilever

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Business pressures in the new millennium

The top 5

Globalisation

Hypercompetition

Focus on core competence

Speed of change

Stakeholder pressures

Doing nothing is not an option

: , - 2000 2002Source European Supply Chain Directors Dis cus s ion Forum to

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Globalisation

“As the world shrinks, supply chains become

longer and more complex”

Alan Waller

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Hypercompetition

The customer demands excellence across all competitive dimensions

Supply chain performance will make or break the competitive offering

Businesses need to excel at designing and executing all key customer-facing business processes throughout the end-to-end value chain

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Focus on core competence

Vertical integration Network organisation

Businesses are responding by focusing on core competencies and outsourcing non-core activity creating networked organisations

Source: Chatham House Forum

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Speed of change - fuelled by technology

Functional

Innovative

Products

Focused

Agile

Manufacturing

Fast

Warp Speed

Speed of Change

Design-make-sell

Sell-design-make

Process

Passive

Interactive

Customers

Organised

Chaotic

Planning

Hierarchical

Networked

Organisations

Guarded

Available to all

Information

Turnover

Profit

Growth Focus

All areas of business are challenged

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Stakeholder pressures

Customer pressures - attracting and retaining profitable customers

Shareholder pressures - competing for funds - not just sales

Employee pressures - competing for people - not just markets

External pressures - legislation / regulators / environmentalists / public opinion

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AGENDA






Barriers to success

The way ahead

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Developing a strategic supply chain vision

The globalised Supply Chain must deliver the required service at the lowest total cost ...

This requires:● ensuring all supply chain players work together, by integrating

● across functions● across borders● across interfaces

● developing and implementing strategies to deploy all assets to give an optimised total value chain

● plants and warehouses (internal and suppliers/distributors)● sales offices● product portfolios● service centres● IT and support services

... which can only be achieved through

EXPLOITING eSUPPLY CHAIN OPPORTUNITIES AND

SOLUTIONS IN SUSTAINABLE PARTNERSHIPS

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Economies of scope in technology and innovation ...In automotive production resource sharing has already happened

Contract Manufacturing “Co-Makership” will increase

One people carrier

● Galaxy

● Sharan

Vehicle manufacturers’ share

● One plant

● One assembly track

● “Purchased by the hour”?

“Partner with your competitors and compete with your partners”

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Drivers of the 21st Century Supply Chain

SUPPLY CHAIN

RESPONSE

Retailers● Global

● Seek solutions

● Increase range

Manufacturers● Focus on core

● Network/outsource

● AgilitySystems

● ERP

● Bolt-ons

● Process driven

Technology● New channels

● New business

● Low cost

● Co-makership

● Mass customisation

● Process driven

Consumers● Ever more demanding

● Pro-active

● Interactive

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“How do we deliver distinctive value and

differentiated service to local customers whilst at the same time exploiting opportunities from a globalised view of supply chain?”

How do we align the whole enterprise - people, processes,operations, technology, suppliers , other business partners - around a programme of progressive strategic change“?”

“How do we futureproof, and build agility, into our supply chain operations in response to the pace of external change and ever increasing pressures from shareholders and competitors?”

Strategic Strategic ImperativesImperatives

The Key The Key EnablersEnablers

Managing at the Managing at the Pace of ChangePace of Change

Three central themes emerge consistently on the CEO agenda

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Twelve Imperatives for Outstanding Supply Chain Performance

4. Strategic Sourcing and Co-Venturing Partnerships

Searching for Structural Advantage

Adding Value to the Customer

Business Integration and

Performance Drivers

6. Operations beyond the Productivity Edge

3. Global Operations Restructuring

5. Integrating / Synchronising the Supply Chain Network

1. The Customer Value driven Supply Chain

Managing at the Pace of Change

Strategic Imperatives

2. Differentiation through the Product Offering

12. Agility and Ability to

Respond to Change

10. High Performance Partnerships7. Process

and Performance Measures

9. Business Structure and Organisation 11.

Leveraging Information

and Technology

Key Enablers

8. People and Behaviours

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Managing at (or beyond) the pace of change

Some key messages which emerge….

“Board level leadership is essential for success”

“Agility to respond to changing market circumstances is key for survival… and can be a competitive weapon in its own right”

“Don’t get locked in by assets, partnerships, people or systems”

“Strategic change must be built into the ‘everyday job’ “

“Achieving agility should be seen as an investment, and therefore may require short term sacrifices”

“The old model of strategy, design and implement is dead… the future model will be vision led… with continuous implementation, continuous benefits, “proving by doing” and pro-active adaptation of strategy”

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ClientClient

The benefits – some recent experience

In all cases, with increased Customer Service across Europe

FMCG Manufacturer

Pers onal Care Products

Computer Supplies

Engineering Plas tics

Healthcare Products

Cons umer Products

Wines and Spirits

8% reduction in total manufacturing and logis tics

cos ts 5% reduction in total

manufacturing and logis ticscos ts

15% reduction in total logis tics, cos ts inc luding s ignificant

(30-40%)inventory reductions

25% decreas e in total logis ticscos ts

20% inventory reduction

30% reduction in total logis ticscos ts

60% reduction in finis hed 2-3 goods inventories and £ m

. . p a in operating s avings

Focus ed factory s ourc ing and regional warehous ing

, Retail logis tics res tructuring new , s ourc ing arrangements European

DC

, New European DC with introduction of DRP

, New s ourc ing arrangements , centralis ation of s low movers

res pons ive trans port s ys tem

Regional log is tic s s tructure

Regional log is tic s cons olidation in, heartland with s ate llite warehous es

National network rationalis ation and s upply chain s ynchronis ation

Value Identified Strategy Focus

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“ 2003, 60% By around of SCM functionality will be provided

[80% ]from outs ide the enterpris e probability ”

Gartner Group

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Outsourcing in the supply chain continues to grow reflecting focus on core competencies

… and many now regard co-venturing as an alternative

0 1 2 3 4

Dis tribution and Trans port

Warehous ing

Information Management

Production

New Product Deve lopment

Supply Chain Management

Purchas ing

Now Within five years

No Yes0

Inhous e

Outs ourced Overall trend

- Is co venturing a viable?alternative

5

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Supply chain outsourcing requirements in the new millennium

The top 5

help with developing strategic supply chain vision

help with implementing supply chain vision

access to economies of scale

access to skills and competence

access to technology and innovation

eSCM capability will become golddus t

: – 2000 2002Source European Supply Chain Directors Dis cus s ion Forum to

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Drivers of Collaboration Between Supply Chain Players

-Along s upply chains

– - - Strategic optimis ation end to end s upply chain s tructure

- Integration s upply chain proces s es acros s organis ations

– Synchronis ation s ys tems s panning organis ations

-And acros s s upply chains

– - Economies of s cope multi us er s olutions

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…Collaboration is

[ ] i “ Working with others for mutualbenefit”

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…Collaboration is

[ ] ii “Willingly as s is ting the enemy”

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Collaboration - putting technology into perspective

“ , ’ A bus ines s can have all the technology in the world but if I don t trus t my

.trading partners then it becomes very difficult ”

“ - ’ This is not about beating a s upplier into s ubmis s ion it s actually about

, .s haring information s ome of it competitive ”

Gartner Group

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“ Enterpris es that employ collaborative SCM technologies to optimis e bus ines s proces s es

, will thrive whereas thos e that do not will los e .market s hare ”

Gartner Group

The Present – A Case StudyShow me the network!

John DoranLogistics Director (until 30/9/03)

Sony Europe – EMCS(Engineering, Manufacture & Customer Service)

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Sony Europe EMCS logistics

Current s ituation Current s ituation

Direct control and influence

Consumer electronics

3PL / 4PL3PL / 4PL

• Games – PlaystationGames – Playstation

• REE (Recording, Energy, Europe)REE (Recording, Energy, Europe)

• BPE (Broadcast & Profesional Europe)BPE (Broadcast & Profesional Europe)

Total logisticslogistics spend > €300 million

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TilburgCologne Prague

Copenhagen

18 Country Stockholding Location18 Country Stockholding Location

5 Hub Warehouse5 Hub Warehouse

5 Plants5 Plants

Current network locations

Hamms HallThatcham

Eragny

Lisbon

Ribeauville

Barcelona

Milan

Zurich

Pencoed

Helsinki

Godollo

Trnava

Dublin

Athens

Vienna

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Tilburg

Prague

Copenhagen

3 Country Stockholding Location3 Country Stockholding Location

5 Hub Warehouse5 Hub Warehouse

PlantPlant

Network locations 2003/2004

Thatcham

Ribeauville

Barcelona

Milan

Zurich

Pencoed

Helsinki

Godollo

Trnava

Athens

Closed Whs.Closed Whs.

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Sony Europe EMCS logistics

Warehousing mostly internal some outside

Transport

Very fragmented

125 companies

25 relationships with Deutsche Post

200+ accounts with DHL

Project to rationalise

Current situationCurrent situation

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Who Can Satisfy Sony Requirements ?

European One Stop Shop

Channel

Geography

Relationship management

Uniform standards

Service

KPI’s

Tariffs

Partnership

Share risk & benefits

Build long term

Flexibility

Allow our business to change

Manage resource up & down

Share risk

Innovate

What value to do you add?

Why should I choose TNT above Versteijnen Transport?

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How to move forward

Improving European Transport/Logistics – Catalysts for Change

Initiative Source Ranking

Collaboration 1

Shippers 2=

LSPs 2=

E-Freight Exchanges 4

E-Marketplaces 5

Technology Providers 6

Capital Providers 7

Consultants 8

Source-European Survey Alan Waller 2001-2002

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Achieving step-change in the performance of European Logistics by Collaboration

ELUPEG MISSION

To achieve real improvements in the performance of European Logistics by action -based collaborative projects involving users, providers and enablers whose business success depends on sound European Logistics.

European Logistics Users , Providers and Enablers Group

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• Alan Waller and John Doran (Sony) gave a presentation on board the Oriana for the Logistics Forum 2001 to tell the story of European Logistics as they saw it - the history, the current situation and the potential future developments.

• This was backed up by a survey which showed that the satisfaction levels of users, providers and enablers with the various aspects of European Logistics were between 40% and 60%.

• At the request of Oriana 2001 delegates, a group was assembled to tackle the issues on a joint collaborative basis - this was the origin of ELUPEG

Background to ELUPEG

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• Members engage in collaborative action-based projects to improve European Logistics.

• Open to all users, providers and enablers of European Logistics services - but members must engage in collaborative projects, which are intended to be self-funding.

• Representation must be at appropriate and senior level.

• Over 200 European companies are registered to receive ELUPEG progress reports.

• Full membership is currently approaching 100 major businesses, with users representing some 20% of the logistics spend in Europe.

• Run by members for members, with independent chairman plus steering group of user/provider/enabler leaders and secretariat.

• User driven but democratic.• Non-profit-making with modest meeting/joining fee to cover costs.

ELUPEG Formation and Development

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ELUPEG Progress 2003

High Tech/Electronics Collaborative Working Group

Opportunities being addressed

Network Integrity: Security/Track-and-Trace/e-POD

Asset-sharing:Combine deliveries/Warehouse use/Air Freight

Benchmarking

Customs

User Companies Involved Include

Sony

Samsung

Philips

Panasonic

EMI

Xerox

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ELUPEG Progress – 2003

Automotive Collaborative Working GroupOpportunities being addressed

Common Inbound

Spares and Repair

Reverse Logistics


Ford/PAG

GM

Honda

Pirelli

Unipart

Renault-Nissan

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CPG/FMCG Collaborative Working GroupOpportunities Being Addressed

Common Trunking/Delivery Lanes

Road Freight Cubing:Heavy on Light

Reverse Flows:Scandinavia/Baltic


Kimberly Clarke

Georgia Pacific

Rexam

Heinz

Sylvania

Sara Lee

45


Chemical/Industrial Collaborative Working GroupOpportunities Being Addressed

Return Flows

Tanker Pooling

Shared Fleet Facilities

IBC Consolidation


Du Pont

Wavin

Atlas Copco

Dow

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Collaboration in Action-1

Manufacturing Consolidation Centre (NL)Opportunity

Historically independent logistics hubs serving each manufacturer and separate delivery to retail DCs

Approach

Single Consolidation Centre serving both manufacturers with consolidated deliveries to retailer DCs

Start-up Feb 2003

Benefits

Increased delivery frequency

Fewer truck movements

Increased on-time performance

Lower inventory

Fewer out-of-stock situations

Players

Lever Faberge

Kimberly Clarke (NL)

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Asset Pooling (UK)Opportunity

Two Competing Breweries run own delivery using own barrels

Three deliveries to outlets per week for each brewery

Approach

One consolidated delivery per week-or more-using common barrels

Third party buys the barrels

RFID tags on barrels

Announced Sept 2003

Benefits

Reduced Barrel investment

Reduced Supply Chain Inventory

Reduced Distribution Costs

Players

Scottish Courage

Carlsberg-Tetley

Trenstar

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Fleet Pooling (UK)Opportunity

Two Competing Dairy Businesses collect 4.5 m litres of milk from 7,500 farms using 500 trucks in the UK

Approach

Consolidated collection using common LSPs

6 month project to set the strategy

Announced Aug 2003 to start Autumn 2003

Benefits

Increased fleet utilisation

£8m pa saving

Players

First Milk

Dairy Farmers of Britain

Wincanton

Lloyd Fraser

Bibby

Interoute

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Collaboration-Conclusions

The most important core skill for the future will be the ability to develop and sustain effective partnerships between providers, shippers, customers, business partners and with competitors

This skill is probably the one shortest in supply at this point in time

There is now an appetite for collaboration that is essential to drive forward improvement in Supply Chain Performance

50

AGENDA






Barriers to success

The way ahead

51

Impact on the manager in the supply chain

Jobs for life

Life of jobs

Employment

Manage the business

Change the business

Management

Solo working

Team working

Ways ofworking

Education for life

Life of education

Education

Functional Performance

Cross-functionalperformance

KPI’s

Direction

Empowerment

Leadership

Reference books

Gateway to the world

Knowledge

Organisationalperformance

Supply chainperformance

Vision

Competitive

Collaborative

Relationships

Managers will need to be focused but flexible - for life

52

AGENDA






Barriers to success

The way ahead

53

Bridging the Implementation Gap

Pan-regional supply chain integration across Europe

There are major challenges in translating vision into reality

‘86 ‘88 ‘90 ‘92 ‘94 ‘96 ‘98 ‘00 ‘02

% of Companies

0%

75%

50%

25%

100% Opportunity Awarenes s

Effective Implementation

Active Implementation

Strategy Planning

Source: Surveys 1992, 1994 , 1996 and 2002

54

People and information are the critical ingredients and information depends on people

Management of People( 43% )

Lack of appropriate IT

s ys tems14%

Lack of information availability

and integrated

planning10%

Management of Information

( 24% )

Quality ofManagement

10%

PowerPlay6%

CompanyCulture

10%

Organis atio n Structure

andPerformanc e Meas ures

8%

-Work force

Skills4%

Fear ofChange

5%

. 1No

Unlike 2-4 years ago the systems are now available

Barriers to supply chain improvement – 1998 /2000 surveyBarriers to supply chain improvement – 1998 /2000 survey

55

Management ofPartners hips

Switch from a Stock Pus h to a

Demand PullPhilos ophy

Antic ipate End Cus tomer and

Manage DemandProactive ly

New mindsets and management behaviours are required

Focus on Performance of Extended

Enterpris e

Total Commitment to

Cus tomer Service

- - End to End Supply Chain Mentality

For many this is a major shift away from today’s functional ways of working

Key KeyManagementManagementBehavioursBehaviours

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Leveraging Technology – the key issues

“The technology is now available to do whatever we want in the supply chain ----

---- the problem is that either it is not mature enough to be used or we are not mature enough to use it”

Source – Discussions groups Logicon Interactive 2001 , 2002 & 2003

57

AGENDA






Barriers to success

The way ahead

58

The Way Ahead

Stand back and take a careful look at where you sit in your supply chain

Decide the critical elements of the proposition to the end customer and how the total supply chain needs to help deliver this

Decide what your critical focus needs to be and which other supply chain players are critical to your success

Decide who you are going to partner with and how you will do it

Get your own house in order and then reach out to your supply chain partners

Develop strategy, processes, and connectivity

Start small and use trials to “prove by doing”

Agree up front how to share the investment and benefits

Ensure that technology and systems are backed up by cross business processes, new people skills, and a partnership culture across the organisations

59

The Business shape of the future

BusinessBusiness

PerformancePerformance

Focus on core competenceFocus on core competence

Supply Chain PerformanceSupply Chain Performance- Outsourcing- Outsourcing

- Collaboration- Collaboration

- Partnering- Partnering

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The Manager of the future

ProfessionalProfessional

DepthDepth

•Functional capabilityFunctional capability•Skill developmentSkill development•Professional developmentProfessional development

Business BreadthBusiness BreadthSupply Chain Supply Chain capabilitycapability

Team workingTeam working

LeadershipLeadership

NetworkingNetworking

Knowledge Knowledge developmentdevelopment

Professional Professional developmentdevelopment

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The way ahead - for your organisation – and for you

GET T-SHAPED !

62

For further information contact

Professor Alan Waller

Solving International

email: [email protected]

Mobile:+44(0)7802 170507

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