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Global Trends in Supply Chain Achieving High-Performance through effective Global Operations Jaume Ferrer Managing Partner SC Practice Europe
SCM is facing old and new challenges!
Rising competition at home and in new markets Increased customer and Innovation product complexity and Time-to-Market Agility in response to changing market needs Continuous improvement Serving Emerging Markets is not enough Rising costs of Raw Materials
2
Could I please ask the audience if anyone knows these brands?
3
Agenda •
Introduction
•
Trends & challenges in Global Operations, Accenture Survey 2005
•
Key Strategic Enablers of High Performance in SCM
•
Examples of effective Global Operations models
•
Key success factors in Low-Cost Country Sourcing & Manufacturing
•
Case examples
•
Conclusions 4
Sales & Supply base outside mature markets will be over 40% in 3 years in most cases
Source: Accenture Global Operations Survey, 2005
5
Most important new emerging markets
Source: Accenture Global Operations Survey, 2005
6
Key Strategic Enablers Companies are rethinking their Supply Chains to achieve trade-offs between efficiency and adequate market response through a combination of global/regional consolidation "upstream" and market & customer-focused strategies "downstream”
Upstream Leverage & Harnessing of Efficiencies
Supplier
Transport
Plant
Downstream Flexibility and Adaptability Central Warehouse
Transport
DC
Customers
Innovation & Time-to-Market Effectiveness
7
Key Strategic Enablers •
There are a number of key strategic enablers within each objective Upstream Leverage & Harnessing of Efficiencies •
Global sourcing (including Low-Cost countries)
•
Supplier collaboration (e.g. design to cost, CPFR)
•
Global/Regional manufacturing consolidation (including LCC manufacture and outsourcing)
•
Fulfilment partnerships (cross BUs/with other companies)
•
Global/Regional sales & operations planning.
8
Global/Regional vs. Local Supply Chains •
There has been increased adoption of Central SC Planning Hubs “Regional SCP Hubs”
Company 1 Implemented regional SCP with DP in countries by BU Company 5 Implemented regional SCP with DP in countries (in one Crossi-BU Hub) Company 6 Implemented Regional SCP for long term timeframe and kept short term SCP in countries
Operating Principles; • Improved service (through inventory and capacity allocation rules based on genuine market priorities) • Improved asset utilization through adequate capacity planning (plant, DC and transport) • Improved total cost of Ownership through adequate balancing of trade-offs between costtypes and product availability (cost of stockout) Enablers to other Benefits; • Enable procurement savings via consolidated requirements planning visibility • Foundation for manufacturing and distribution network consolidation.
9
Key Strategic Enablers •
There are a number of key strategic enablers within each objective Upstream Leverage & Harnessing of Efficiencies •
Downstream Flexibility and Adaptability
• • •
Customer collaboration (e.g. demand signal, planning & replenishment, VMI) Supplier collaboration (e.g. planning & replenishment, new product design) Market/channel specific SC configuration (e.g. food service, convenience). Emerging market manufacturing and distribution alliances.
10
Key Strategic Enablers •
There are a number of Key Strategic Enablers within each objective Upstream Leverage & Harnessing of Efficiencies • Collaborative product design and introduction to market
Downstream Flexibility and Adaptability
• New product S&OP (commercialization and industrialization) • Product complexity management • Local Market-sensitive product development.
Innovation & Time-to-Market Effectiveness 11
Biggest challenges in global operations
Source: Accenture Global Operations Survey, 2005
12
Required capabilities for global operations • Global /Regional Integrated Sales and Operations Planning • Sourcing and Distribution Network to deliver quality, at target cost and leadtime (por each product) • Customer and Supplier SC Collaboration agenda • Global Logistics partnerships • Supplier recruitment, certification and alignment (metrics, process, IT) • Emerging market sourcing and distribution strategy
13
Which Operations Model to Adopt?
14
Product characteristics call for specific Operations Strategy Models (often within the same industry) Operations Strategy
Industry (examples)
Networks (Global Scale Î Dense Scale)
Utilities, Refinery, Metals, Chemicals, Telecoms, High turn consumer goods, Renewable Energy, Financial Entities, Hotels chains,
Low-cost country sourcing
Textile, Auto/Electronics assembly, Furniture,…
Rapid customer response (Short life cycle)
Fashion, Consumer electronics, food, convenience, hotels.
Know-How Clusters
Biotech, Systems Engineering, Custom-made Industrial Equipment, Jewelry, Fashion
Supplier Clusters (capacity based)
Industrial equipment, Aeronautical, Auto-supplier, Automotive, Ship building manufacturers
Risk Hedging
Supply Constrained materials: Electronic Equipment, Food,..
Some significant companies
15
European industry has a portfolio of alternative choices. Off-shoring is an option in some activities and industries as part of a wider operations foot-print
OFF-SHORING
ON-SHORE 1
Networks (Global Î Dense Scale) 2
Low-Cost Country Sourcing 3
VE I AT R ST U L IL
Rapid Customer Response
Know-How Clusters
4
5
Supplier Clusters 6
Risk Hedging
16
Balancing cost & service is a key issue Satisfaction with results achieved through low-cost country sourcing program (share of respondents in percent, neutral positions not shown)
86%
1%
Total cost
40%
33%
9%
14%
Quality
Source: Accenture Procurement Survey
Delivery reliability
16%
14%
Satisfaction Dissatisfaction
42%
48%
Lead times
Product innovation
17
In any case Low-Cost Sourcing and Manufacturing requires an integrated approach going beyond procurement and into supplier development and integrated logistics Category Assessment - Review of total spend profile - Country Profiling - Total Cost of Ownership model
Risk Assessment - Country risk assessment - Industry risk assessment - Supplier risk assessment
what to source where?
What countries to bet on?
Local Procurement Office - Organization design - Staffing, Recruiting, Training - Integration to global organization
Eastern Asia Eastern Europe
Established Procurement office
Supplier Identification - Supply Market Intelligence - Supplier Search - Qualification/On-site Audits Short list of qualified suppliers
South and Central Asia
Supplier Development - Assessment of capability gaps - Quality, 6 Sigma, Lean program - Workshops & Training
Africa and Middle East Middle- and South America
Sourcing - Differentiated Bid Strategies - Fact based Negotiation - Contracting
Capable Suppliers
Selected supplier/s
Fulfillment - Optimized Logistical Solution - Inventory locations - Freight sourcing
Low Cost Countries
Products delivered to own factories
Supplier Integration - Production process qualification - Quality & Delivery assured - Order-to-Delivery process defined Supplier integrated in Supply Chain 18
Lessons learned when setting up an International Procurement Office (IPO) in low – cost markets Focus on components with high manual labor input and low or little raw material dependence What to buy? Locate close to your suppliers and consider regional capitals outside main metropolis
Where to locate the IPO?
Where to buy?
Success factors to Set-Up an IPO in Low Cost Markets
Who to hire? Your people and operations need to be on par (or even better) with the people and operations in your customers’ countries
Focus on high potential private enterprises but need to develop them to achieve maximum gains
How to market? Build awareness and credibility, implement solid end-to-end Source to Delivery Process and IT
19
Example: Zara • Product development cycle time is 3-4 weeks (industry average 9 months) • NPI to stores every 2-3 weeks • > 14.000 SKUs per year launched • Two different operations models • Short life cycle fashions = On-Shore Quick Response Design-to-Supply Model • Basic products = Off- or Near-Shore low cost suppliers
20
Example: European Construction Equipment Manufacturer Challenges Lack of supplier capacity Difficult procurement situation in the global steel market Rising raw material prices and COGS (Cost of Goods Sold)
Results 30% total savings (on landed purchasing price) 50% potential savings on Castings 30% potential savings on Forgings 40% potential savings on Non-Metallic Components Development of Operating Model for sourcing from LCC suppliers 21
Example: Nokia • World #1, 14% ROA • Frequent product introductions • Global supply chain with high flexibility and efficiency • Global supply web • Rapid response manufacturing • Regional set-up • Quick ship logistics
22
Global operations case example: Manufacturing company Changing industrial structure to improve efficiency and reduce cost while keeping full control over core operations SPECIFIC CASE (SIMPLIFIED)
Near-shore (low cost)
R&D (non core) Purchasing
Body Frame
Centralization LCCM LC CoE
Geography
LCCS Body Frame SCM
On-shore (high cost)
Parts production (poor inhouse Onshore due to LT methods)
and transport cost
Chassis Core R&D Manufacturing
In house
Outsourced
Relative cost level Low
High
Organisation
Strategic importance Low
High
23
Organizational structures are not always aligned with market needs Geography Organization Country
19%
Multi-country
13%
Regional
19%
Multi Regional
36%
Global
16% Actual
Source: Internal
+5 years 24
Operating Models will need to adapt to market focus Challenge: Evolving Operating Models to reflect scope of business 3% Country
19%
Multi-Country
13%
Regional
19%
Multi-regional
36%
10% 16% 23%
45% Global
16% Actual
Source: Accenture Analysis
In 5 years 25
High Performance opportunities for our economies in Europe Drivers for manufacturing in Europe • Customer intimacy • Lead time to customer • R&D cooperation
Off shore production
• Supply chain complexity Production in Europe
• Automation
26
Conclusions • • • • • • • •
Right Operations Model is Required before off-shoring is decided (Selective) Off-shoring is clearly an opportunity Meeting market growth and operations challenges require a holistic end-to-end strategy European potential Î Play to strengths in R&D, CustomerProximity, Product Complexity A global operations model requires new capabilities Internal and external collaboration needs are enhanced by Global Operations Industry-specific R&D and manufacturing partnerships with joint agendas between private & public sector Mental & Cultural Shift! 27
Questions or Comments
•Thank you very much! 28
SCM is facing old and new challenges!
Rising competition at home and in new markets Increased customer and Innovation product complexity and Time-to-Market Agility in response to changing market needs Continuous improvement Serving Emerging Markets is not enough Rising costs of Raw Materials
2
Could I please ask the audience if anyone knows these brands?
3
Agenda •
Introduction
•
Trends & challenges in Global Operations, Accenture Survey 2005
•
Key Strategic Enablers of High Performance in SCM
•
Examples of effective Global Operations models
•
Key success factors in Low-Cost Country Sourcing & Manufacturing
•
Case examples
•
Conclusions 4
Sales & Supply base outside mature markets will be over 40% in 3 years in most cases
Source: Accenture Global Operations Survey, 2005
5
Most important new emerging markets
Source: Accenture Global Operations Survey, 2005
6
Key Strategic Enablers Companies are rethinking their Supply Chains to achieve trade-offs between efficiency and adequate market response through a combination of global/regional consolidation "upstream" and market & customer-focused strategies "downstream”
Upstream Leverage & Harnessing of Efficiencies
Supplier
Transport
Plant
Downstream Flexibility and Adaptability Central Warehouse
Transport
DC
Customers
Innovation & Time-to-Market Effectiveness
7
Key Strategic Enablers •
There are a number of key strategic enablers within each objective Upstream Leverage & Harnessing of Efficiencies •
Global sourcing (including Low-Cost countries)
•
Supplier collaboration (e.g. design to cost, CPFR)
•
Global/Regional manufacturing consolidation (including LCC manufacture and outsourcing)
•
Fulfilment partnerships (cross BUs/with other companies)
•
Global/Regional sales & operations planning.
8
Global/Regional vs. Local Supply Chains •
There has been increased adoption of Central SC Planning Hubs “Regional SCP Hubs”
Company 1 Implemented regional SCP with DP in countries by BU Company 5 Implemented regional SCP with DP in countries (in one Crossi-BU Hub) Company 6 Implemented Regional SCP for long term timeframe and kept short term SCP in countries
Operating Principles; • Improved service (through inventory and capacity allocation rules based on genuine market priorities) • Improved asset utilization through adequate capacity planning (plant, DC and transport) • Improved total cost of Ownership through adequate balancing of trade-offs between costtypes and product availability (cost of stockout) Enablers to other Benefits; • Enable procurement savings via consolidated requirements planning visibility • Foundation for manufacturing and distribution network consolidation.
9
Key Strategic Enablers •
There are a number of key strategic enablers within each objective Upstream Leverage & Harnessing of Efficiencies •
Downstream Flexibility and Adaptability
• • •
Customer collaboration (e.g. demand signal, planning & replenishment, VMI) Supplier collaboration (e.g. planning & replenishment, new product design) Market/channel specific SC configuration (e.g. food service, convenience). Emerging market manufacturing and distribution alliances.
10
Key Strategic Enablers •
There are a number of Key Strategic Enablers within each objective Upstream Leverage & Harnessing of Efficiencies • Collaborative product design and introduction to market
Downstream Flexibility and Adaptability
• New product S&OP (commercialization and industrialization) • Product complexity management • Local Market-sensitive product development.
Innovation & Time-to-Market Effectiveness 11
Biggest challenges in global operations
Source: Accenture Global Operations Survey, 2005
12
Required capabilities for global operations • Global /Regional Integrated Sales and Operations Planning • Sourcing and Distribution Network to deliver quality, at target cost and leadtime (por each product) • Customer and Supplier SC Collaboration agenda • Global Logistics partnerships • Supplier recruitment, certification and alignment (metrics, process, IT) • Emerging market sourcing and distribution strategy
13
Which Operations Model to Adopt?
14
Product characteristics call for specific Operations Strategy Models (often within the same industry) Operations Strategy
Industry (examples)
Networks (Global Scale Î Dense Scale)
Utilities, Refinery, Metals, Chemicals, Telecoms, High turn consumer goods, Renewable Energy, Financial Entities, Hotels chains,
Low-cost country sourcing
Textile, Auto/Electronics assembly, Furniture,…
Rapid customer response (Short life cycle)
Fashion, Consumer electronics, food, convenience, hotels.
Know-How Clusters
Biotech, Systems Engineering, Custom-made Industrial Equipment, Jewelry, Fashion
Supplier Clusters (capacity based)
Industrial equipment, Aeronautical, Auto-supplier, Automotive, Ship building manufacturers
Risk Hedging
Supply Constrained materials: Electronic Equipment, Food,..
Some significant companies
15
European industry has a portfolio of alternative choices. Off-shoring is an option in some activities and industries as part of a wider operations foot-print
OFF-SHORING
ON-SHORE 1
Networks (Global Î Dense Scale) 2
Low-Cost Country Sourcing 3
VE I AT R ST U L IL
Rapid Customer Response
Know-How Clusters
4
5
Supplier Clusters 6
Risk Hedging
16
Balancing cost & service is a key issue Satisfaction with results achieved through low-cost country sourcing program (share of respondents in percent, neutral positions not shown)
86%
1%
Total cost
40%
33%
9%
14%
Quality
Source: Accenture Procurement Survey
Delivery reliability
16%
14%
Satisfaction Dissatisfaction
42%
48%
Lead times
Product innovation
17
In any case Low-Cost Sourcing and Manufacturing requires an integrated approach going beyond procurement and into supplier development and integrated logistics Category Assessment - Review of total spend profile - Country Profiling - Total Cost of Ownership model
Risk Assessment - Country risk assessment - Industry risk assessment - Supplier risk assessment
what to source where?
What countries to bet on?
Local Procurement Office - Organization design - Staffing, Recruiting, Training - Integration to global organization
Eastern Asia Eastern Europe
Established Procurement office
Supplier Identification - Supply Market Intelligence - Supplier Search - Qualification/On-site Audits Short list of qualified suppliers
South and Central Asia
Supplier Development - Assessment of capability gaps - Quality, 6 Sigma, Lean program - Workshops & Training
Africa and Middle East Middle- and South America
Sourcing - Differentiated Bid Strategies - Fact based Negotiation - Contracting
Capable Suppliers
Selected supplier/s
Fulfillment - Optimized Logistical Solution - Inventory locations - Freight sourcing
Low Cost Countries
Products delivered to own factories
Supplier Integration - Production process qualification - Quality & Delivery assured - Order-to-Delivery process defined Supplier integrated in Supply Chain 18
Lessons learned when setting up an International Procurement Office (IPO) in low – cost markets Focus on components with high manual labor input and low or little raw material dependence What to buy? Locate close to your suppliers and consider regional capitals outside main metropolis
Where to locate the IPO?
Where to buy?
Success factors to Set-Up an IPO in Low Cost Markets
Who to hire? Your people and operations need to be on par (or even better) with the people and operations in your customers’ countries
Focus on high potential private enterprises but need to develop them to achieve maximum gains
How to market? Build awareness and credibility, implement solid end-to-end Source to Delivery Process and IT
19
Example: Zara • Product development cycle time is 3-4 weeks (industry average 9 months) • NPI to stores every 2-3 weeks • > 14.000 SKUs per year launched • Two different operations models • Short life cycle fashions = On-Shore Quick Response Design-to-Supply Model • Basic products = Off- or Near-Shore low cost suppliers
20
Example: European Construction Equipment Manufacturer Challenges Lack of supplier capacity Difficult procurement situation in the global steel market Rising raw material prices and COGS (Cost of Goods Sold)
Results 30% total savings (on landed purchasing price) 50% potential savings on Castings 30% potential savings on Forgings 40% potential savings on Non-Metallic Components Development of Operating Model for sourcing from LCC suppliers 21
Example: Nokia • World #1, 14% ROA • Frequent product introductions • Global supply chain with high flexibility and efficiency • Global supply web • Rapid response manufacturing • Regional set-up • Quick ship logistics
22
Global operations case example: Manufacturing company Changing industrial structure to improve efficiency and reduce cost while keeping full control over core operations SPECIFIC CASE (SIMPLIFIED)
Near-shore (low cost)
R&D (non core) Purchasing
Body Frame
Centralization LCCM LC CoE
Geography
LCCS Body Frame SCM
On-shore (high cost)
Parts production (poor inhouse Onshore due to LT methods)
and transport cost
Chassis Core R&D Manufacturing
In house
Outsourced
Relative cost level Low
High
Organisation
Strategic importance Low
High
23
Organizational structures are not always aligned with market needs Geography Organization Country
19%
Multi-country
13%
Regional
19%
Multi Regional
36%
Global
16% Actual
Source: Internal
+5 years 24
Operating Models will need to adapt to market focus Challenge: Evolving Operating Models to reflect scope of business 3% Country
19%
Multi-Country
13%
Regional
19%
Multi-regional
36%
10% 16% 23%
45% Global
16% Actual
Source: Accenture Analysis
In 5 years 25
High Performance opportunities for our economies in Europe Drivers for manufacturing in Europe • Customer intimacy • Lead time to customer • R&D cooperation
Off shore production
• Supply chain complexity Production in Europe
• Automation
26
Conclusions • • • • • • • •
Right Operations Model is Required before off-shoring is decided (Selective) Off-shoring is clearly an opportunity Meeting market growth and operations challenges require a holistic end-to-end strategy European potential Î Play to strengths in R&D, CustomerProximity, Product Complexity A global operations model requires new capabilities Internal and external collaboration needs are enhanced by Global Operations Industry-specific R&D and manufacturing partnerships with joint agendas between private & public sector Mental & Cultural Shift! 27
Questions or Comments
•Thank you very much! 28
