Integrated Operating
models for Africa
Operating models for Africa
Wayne Whiffler
1
Integrated supply chain
operating model
2
Putting theory to practice: A
practical example
Executive Director, Africa Supply Chain
Transformation
Julian Tasker
Director, EMEIA Supply Chain Strategy
Page 1
You must act as if it is impossible to fail.
Do not let what you cannot do,
tear from your hands what you can.
~ Ashanti Proverb
Page 2
Africa tomorrow……..
Why all the hype?
•
The existing population of 1 billion is set to double by 2050
•
Consumer spending is expected to hit $1.4 trillion dollars by 2020
•
Africa’s economic growth is projected to accelerate from 4.5% in
2013 to 5.2% in 2015.
However……
Each additional day it takes to get
a consignment to its destination,
in Africa, is equivalent to approx.
1.5% additional tax.
Page 3
Opportunity and risks vary widely
African markets are diverse and fragmented
Note: A composite risk
index is indicated on a
colour spectrum from
green (relatively more
positive) to red
(relatively less
positive).
Source: World Bank; Transparency International; WEF Competitiveness Index; EY Growing
Beyond Borders
A fact-based approach to selecting and
prioritizing markets in Africa is critical.
Page 4
Size, scale and diversity makes Africa inherently
complex
The sheer size and complexity of the
continent, combined with the relative
underdevelopment of many of its
markets, makes Africa an inherently
challenging place to do business.
►
Land mass greater than USA, Europe,
China and India combined
►
Vast geography, with 54 different markets
►
More than 2,000 languages and diverse
cultural dynamics
►
Few individual markets provide scale to
be commercially attractive in themselves
(in the short term)
►
Inadequate infrastructure in many
markets
►
People/talent shortage
Source: Kai Krause
Page 5
Although pattern of growth are evident
Africa follows the typical growth and org. development path
Establish competitive
position; grow, defend
and unlock potential;
optimize performance
and returns.
Page 6
Polling Question
What is the greatest challenge that your company
faces in Africa?
A. Logistics
B. Lack of infrastructure
C. Lack of transparency in government
D. Complex direct and indirect tax regimes
E. All of the above
Page 7
Establishing Supply Chains in Africa has challenges
There are however a number of enablers to assist
Network design
Incorporating:
► Strategic, operational and tax
criteria
► Integrated sea & road freight
design
► Adaptable to rapid Africa region
sales growth
► Pan Africa & Sub Region
planning
► Inbuilt flexibility and resilience ,
e.g. addressing physical, product
& route to market differences
Systems, processes & ways of
working
► Creating a single set of planning
and execution processes to
reduce complexity, maximize
service consistency, instil a
common language
Page 8
Organisation
► Building regional/ sub-regional
level logistics CoE,
management, supplier
contracting & performance
management
Internal collaboration
Including:
► Cross site/ sub-region
asset sharing
► Strengthened role of
logistics in sub-regional/
regional S&OP alongside
manufacturing, finance and
commercial functions
External collaboration
Incorporating:
► 3PL/ shipping lines
integration
► (organisation, process
& IT)
► Single sourced/ 4PL
logistics
providers
► Shared risk & reward
pricing
Why an integrated OM and not simply an integrated SC?
►
Operating Model choices create sustainable competitive advantage
►
They serve as platform to be able to better
►
►
►
►
Manage cost and margin
Optimize working capital and return on capital
Improve operational excellence
Imply a company’s transaction model while taking complex direct & indirect tax obligations and
optimization
►
An operating model encompasses the end to end value chain including Intellectual Property
management, brand & product management, sales & marketing, channels, distribution,
treasury, risk management & finance
►
International companies are finding they need help shaping their operating model in a
holistic way incl. organization & performance management, processes, physical & financial
transaction flows, legal structure, IT systems
Page 9
“….in a globalised world, companies compete OM v.s. OM”
Business
Model
‘the idea’
How will you make
money?
Page 10
Operating
Model
How and where you organise your people,
organisation, processes, transactions, technology,
assets and IP deliver the Business Model
Companies usually structure their OM around one or
more core models
Page 11
Integrated Supply Chain Operating Model
A holistic, approach is generally required to improve supply chain performance
1
Governance
Supplier
Performance
Management
2
Supply chain network, distribution and indirect tax
Strategy
Customs and excise
Network design
Plan
Source
Purchase to pay
Transactional
Move (includes Return)
Order to Cash
Roles and responsibilities
Training
Location + organisation
Transactional model and transfer pricing RandD
Suppliers
HQ
SC Hubs
Talent management
Marketing and
brand mgt
Opcos
Customers
Legal title flows
Financial flows
Physical flows
Customer
interface
Systems, Information and data
Supply chain, PLM
ERP, e.g. SAP ECC , Oracle
SRM
Master data management
Page 12
Make
Organisation, location and people
Supplier
interface
6
Regulatory
Record to Report
Experience and capability
5
VAT
Processes
Functional, e.g.
4
Customer PM
Performance
Management
KPIs and performance Mang.
Organisation
Distributors
3
DOAs and decision rights
Contracts and SLAs
CRM
BI and reporting
Integrated operating supply chain model (ISCOM) design
principles
Key Design Principles
Layers of an ISCOM
1
Governance
Supplier
Performa
nce
Manage
ment
2
Custome
r PM
Perform
ance
Manage
ment
KPIs and performance
Mang.
Organisation
Supply chain network, distribution and indirect tax
Customs and
excise
Network
design
Distributors
3
DOAs and decision
rights
Contracts and SLAs
Regulat
ory
VAT
Processes
Functional,
e.g.
Transactio
nal
Plan
Source
Purchase to pay
•
The design is driven by business strategy,
agreed design principles and business case
•
The design is holistic and consider all layers
•
Changes in one layer are reflected in other
layers
•
Governance drives performance and desired
behaviors
•
Supply chain network configuration considers
total delivered cost, inventory taxes and lead
time
•
Processes are end to end and cross functional
to avoid silo/ functional/ geographical bias
•
Location choice balances operational, skill and
substance requirements
•
The operational and tax models are aligned
•
IT drives implementation plan and cost
•
Centralized shared services are considered in
the design
Move (includes
Return)
Make
Record to Report
Order to Cash
Organisation, location and people
4
Roles and responsibilities
Training
Location +
organisation
Experience and capability
5
Transactional model and transfer pricing
RandD
Supplier
interface
HQ
Talent management
Marketin
g and
brand
mgt
Legal title flows
Custome
r
interface
Financial flows
Suppliers
SC Hubs
Opcos
Customers
Physical flows
Systems, Information and data
6
Supply chain, PLM
SRM
CRM
ERP, e.g. SAP ECC , Oracle
Master data management
Page 13
BI and reporting
Story-telling is important
Numbers make it real
Credibility is critical
Page 14
Putting theory to practice
A practical example of improving supply chain
performance by applying an integrated supply chain
operating model approach
Context
Integrated supply chain operating model example
Typical African operating environment and issues
Strategic direction
• Significant growth
• Expansion into new markets
• New channels
Page 5
Operational issues
• Severe delays in raw material and finished product
deliveries driving service failures, stock-outs and
returns
• Inability to manage demand and supply volatility
resulting in large stock buffers, working capital
requirements and obsolescence
• High exceptional costs due to inability to respond
quickly to short term competitive moves, price changes
and longer
Exceptional cost in selected markets (supply chain
process effectiveness gaps will contribute to this)
Reason
Loss in £m Year 1
Air freight (RSA)
0.12
Product write-offs (Ke, Ni and
RSA)
4.30
Write off RM/PM etc. (Kenya)
1.13
Demurrage (Ni)
3.30
Total :
£8.8m
Approximately £20m - £27m when extrapolated over continent
Page 16
Integrated supply chain operating model example
Processes
Fixing processes alone rarely delivers a performance step change
Functional
Transactional
Plan
Source
Purchase to pay
Make
Record to Report
Order to Cash
Process issues
Suppliers
Raw materials and
packaging
Findings
Customers
Company
Plant
DC
Depots
Distributors
Consumers
Planning and inventory management
• Local/ regional and demand planning/ supply planning/ S&OP integration
• Plan numbers and parameters
• New product development participants and data
Procurement
• Lead times
• Reliability
• Quality
Manufacturing
• Conformance
• Reliability
• Scrap/ defect %
Customer replenishment and logistics
• Reliability
• Manual and disconnected processes
• Returns integration
Distributor
management
• Stock mix
• VMI
• Credit management
Page 17
Move (includes Return)
• Manual activities
prone to error
(forecasting,
budgeting, supply
planning, master
data)
• Poor culture of
discipline and control
• Poor organisational
memory – process
falls over when
people move role
• Key inputs missing or
steps not performed
adequately
• Lack of end-to-end
process ownership
• Functional silos with
poor communication
• Skill/ capability
shortage
Integrated supply chain operating model example
Organisation, location and people
Integrated organisation and process change is often necessary for ‘step
change’
Roles and responsibilities
Experience and capability
Training
Location + organisation
Talent management
Example resource sharing and co-location benefits
• Broken processes may be fixed by:
• Clarifying roles and responsibilities
• Identifying and leveraging
experience and capability
• Training
• Talent management
• However, this may not be
sustainable
• Turbo charge process
improvement through:
• Resource sharing
• Co location
Page 18
Scale
• Africa wide visibility and capability, e.g.
• Supply and demand balancing
• Spend aggregation and supplier rationalisation
Skill
• Improved decision making across:
• Multiple supply points and markets
• End to end supply chain
Standardisation
Development
• Common processes, roles , governance and
technology
• Complexity reduction
• Shared best practices
• Centres of excellence
• Common vision, roadmap and language
• Talent management
Integrated supply chain operating model example
People, organisation and location
The key question is what activities to locate where
Roles and responsibilities
Experience and capability
Training
Location + organisation
Talent management
Consumer product company Africa organisation location choices
Globally managed
Regionally managed
Source direct materials
Source indirect materials (tiered)
Demand Planning - Generate base line forecast
Demand planning - sales forecast / input
Aggregate and check demand
Plan capacity, supply and inventory policy / mgmt
Manufacture product
Own logistics strategy and manage logistics suppliers
Plan and manage warehousing: Pick, pack and despatch
Plan and manage transportation to customers
Capture and manage sales orders
Manage cross region supply chain development
Manage cross region supply chain performance
Key
Company 1
Page 19
Company 2
Company 3
Company 4
Company 5
Locally managed
People, organisation and location
Integrated supply chain operating model example
This will be determined by the distribution of activities and product
characteristics
Roles and responsibilities
Training
Location + organisation
Experience and capability
Talent management
Characteristics
• Global/ Regional product portfolio
• Regional S&OP
• Sub regional manufacturing control
• Localised product portfolio
• Regional and sub regional S&OP
Operating Model key characteristics
Global
Global
Regional
Africa
Sub regional
North Africa
East Africa
Other
Market
• Policies and processes
• Direct procurement
• Standardise KPI dashboards
• S&OP
• Production schedule
• Logistics contracts
West Africa
South Africa
Other
• SandOP
• Outbound logistics to
markets
• Reporting, coordination,
consolidation and cascade
•
•
Developed Growing New Distributor •
•
Page 20
Sales and marketing activation
Demand planning
Order management
Logistics
Global
Regional
Global
Asia- Africa
• Policies and processes
• Direct procurement Standardise
KPI dashboards
• S&OP
• Logistics contracts
Africa
Sub regional Middle East and • Production schedule
Turkey
Market
Primary Secondary Tertiary
markets markets markets
• Reporting, coordination,
consolidation and cascade
•
•
•
•
Sales and marketing activation
Demand planning
Order management
Warehousing and distribution
Integrated supply chain operating model example
Standing still is normally not an option
Groups often have existing structures in place that need to evolve
African Regional Management Hubs often exist providing some level of oversight and support
services
• Strategic direction with budget and forecast approval
• Risk management, financial and control frameworks with IT/ERP systems standardization
and support
• Sales and marketing, new product development and innovation leadership
• Sourcing, procurement, technical/ manufacturing, supply chain and logistic support services
Above-Market
Management Hub
Market Sales and
Supply
Customers
Cash flow
Suppliers
Goods flow
Typical service model
• Market operates
independently
• Hub provides
support services
across a range of
functions
• Hub charges market
for services
• Limited leverage of
skill and scale
With growth,
complexity, and
resource shortages,
the question
becomes, “How best
to leverage skill and
scale?”
Management Hub
Provides typical HQ services, e.g. strategic
direction, risk management frameworks, etc.
Sourcing/
Procurement Hub
Owns/operates the source to contract/pay
function and process for key materials/services
Supply Chain
Planning Hub
Owns/operates planning function and process
for key products/manufacturing locations
Logistics Hub
Owns/manages end-to-end in/outbound
logistics, e.g. control tower
Shared
Services/BPO
Outsource routine functions and processes, e.g.
accounts payable, human resources, debtors
• In Africa, focussing on what can be done to elevate part or all of the core supply chain functionality and accountability above
market is typically a key source of significant incremental operational benefit
• Shared services and BPO are often helpful enablers too
Page 21
Integrated supply chain operating model example
Transactional model and transfer pricing
Enabling transactional models have tax implications that must be considered
HQ
RandD
Supplier
interface
Suppliers
SC Hubs
Legal title flows
Marketing
and brand
mgt
Opcos
Financial flows
Physical flows
Customers
• Supply chain functions generate significant value for multinational businesses
• Creating an “above market” supply chain organisation results in supply chain value being
generated by both the “above market” and “in market” organisations
Above-Market
Supply Chain Hub
Market Sales and
Supply
Customers
Cash flow
Suppliers
Goods flow
Service model
• Market provides forecasts
• Hub provides services, e.g.
creates supply plans,
contracts logistics
• Hub charges market for
services
• Market manufacturers,
sells and ships direct to
Customer
Above-Market
Supply Chain Hub
Market
Sales
Market
Supply
Customers
Suppliers
Cash flow
Goods flow
Customer
interface
“Above market”
organisation requires
remuneration
Transactional model
• Sales provide forecasts
• Hub create supply plans
and Supply produce for Hub
• Hub owns inventory –
always finished goods,
sometimes inputs
• Hub sell to Sales and Sales
sell to Customer
• Supply ships product to
Sales warehouse/Customer
• A complex web of regulations and tax legislation applies – it needs to be understood when changing a supply chain operating model
• “Above market” and “in market” tax authorities want to secure their “fair share” of supply chain value to tax it in their country
• Functions performed, assets employed, and risks borne by a supply chain function, and the physical locations of its people, assets and
legal entities, impact a territory’s entitlement to a “fair share” of that value
• Cross border transactions have income tax, transfer pricing, withholding tax, customs and VAT implications
Page 22
Integrated supply chain operating model example
Reflecting the growth and importance of transfer pricing
The last 20 years
Countries with transfer pricing legislation / rules
1995-2000
2001-2005
2006-2010
2011-2013
1.
South Africa
1.
Namibia
1.
Algeria
1.
Algeria
2.
Zambia
2.
South Africa
2.
Egypt
2.
Angola
3.
Zambia
3.
Kenya
3.
Egypt
4.
Malawi
4.
Cameroon
5.
Namibia
5.
Ghana
6.
South Africa
6.
Kenya
7.
Zambia
7.
Malawi
8.
Nigeria
9.
Namibia
10.
Senegal
11.
South Africa
12.
Uganda
13.
Zambia
Driven by ATAF’s focus on transfer
pricing, there has been an almost 100%
increase in growth in transfer pricing
regulation, within 3 years.
Countries in Africa have placed a greater
emphasis on arm’s length compliance
regarding cross-border transactions
Page 23
Integrated supply chain operating model example
Supply chain network distribution indirect tax
Tax should also be considered when optimising the distribution network
Network design
Dsitributors
Page
7
Customs and excise
VAT
Regulatory
Group of companies
45
30
5.40
Supplier
8.10
50
8.10
Local Manufacturing
Co
9.00
Local Sales Co
Local Customer
45
30
1.50
Foreign Supplier
50
0
5.40
9.00
5.40
Foreign Sales Co
2.25
8.10
Foreign Customer
8.10
Total VAT and duty “throughput”: 70.35
(70.35% of consolidated turnover)
Legend:
Supply
VAT payable
VAT
recoverable
Duty
Note: Indicative Africa VAT rate of 18% and duty rate of 5% used for example
Page 24
Integrated supply chain operating model example
Systems information and data
Supply chain, PLM
ERP, e.g. SAP ECC , Oracle
SRM
Master data management
CRM
BI and reporting
BI Program & Project Management
BI Change Management
Source
Systems
BI Architecture Governance
Information
Consumers
External
Dimensional
Data Stores
Data
Quality
Data Quality, Reconciliation and Control
Metadata Management
Security and Data Privacy
Page 25
Scorecards
Visualisation
Geospatial
Data Mining
Modelling
Information Access
Data
Integration
Normalised
Data Stores
Dashboards
Visualisation
Analytics
Interface
Files
Staging
Data
Integration
Tallyman
Data
Integration
Other
Source
Systems
Dimensional
Data Views
& Models
Semantic
Layer
Reporting
Decision
Point
Information
Delivery
Landing
Information
Delivery
Data Warehouse
ICBS
Integrated supply chain operating model example
Governance
Governance enables the whole organisation to ‘live’ the model
Supplier
Performance
Management
Roles
Performance management
Controls
Processes/ organisation
Example governance mechanisms
Page 26
Role based
• Delegation of authorities
• Decision rights
• Job profiles
Performance management
based
• KPIs
• Reporting
• SLAs
Control based
• Authorisations
• Workflow
• Audit
Process/ organisation based
• Collaborative S&OP
• Procurement councils
• Continuous improvement
Customer PM
Performance
Management
Integrated operating model example
Integrated supply chain operating model example outcomes
Business case achieved through implementing operating model changes
Operating model changes
Integrated
supply
chain
Fully integrated end to end supply chain extending into distributors and managed
by Supply Chain
Organisation and
location
Regional supply chain hubs to drive benefits of regional scale, and cross region
optimisation plus drive continuous process improvement and skills development
Decision making
Regional S&OP to drive commercial, supply chain and investment decisions
Network
Optimised trade routes based on total delivered cost (including international
trade)
Operational and
tax alignment
Set up a service model to correctly remunerate hubs for planning and Centre of
Excellence services provided
Governance
Introduced regional and local KPIs and performance management forums
Page 27
Thank-you