April, 2009
Discrete Manufacturers: Order-to-Delivery
Performance Checkpoint
Of the 115 manufacturers surveyed in February 2009 for the Perfect Order,
Happy Customer: Managing the Order-to-Delivery Process report, 36 discrete
manufacturers shared the goals, and the gaps, of their order-to-delivery
process. This process includes order quoting, order promising, sourcing,
delivery, fulfillment, and payment. For discrete manufacturers, customer
service as a competitive differentiator is held almost as equally important as
product quality and price, which makes the order-to-delivery process an
important source of customer service or customer complaints as it has
multiple touch points.
In the order-to-delivery report, Aberdeen examined the capabilities and use
of technology among companies that were decreasing order-to-delivery lead
times and finished goods inventory as a percentage of sales; as well as
reducing out-of-stock inventory occurrences and achieving above average
perfect order deliveries. This Sector Insight compares those Best-in-Class
companies with discrete manufacturers to assess where they can improve
their performance through best practices.
Research Brief
Aberdeen’s Research Briefs
provide a detailed exploration
of a key finding from a primary
research study, including key
performance indicators, Bestin-Class insight, and vendor
insight.
Why Order-to-Delivery?
In Figure 1, we see a comparison of top pressures that are forcing
companies to evaluate their order-to-delivery process. It is apparent that
many companies, regardless of industry, view order-to-delivery as a
customer facing process.
Figure 1: Top Driver is Meeting Customer Demands
Customer mandates for faster, more
accurate and more unique fulfillment
"We have increased the
efficiency of our order-todelivery process. We are able
to show the dealers (our key
customer group) one price and
one inventory source. This is
just one of the benefits, which
allows dealers to source from
multiple warehouses around
the globe, rather than being
tied to one warehouse.”
26%
29%
26%
22%
Need to increase revenue
17%
Need for improved cash flow due to
credit crunch
12%
13%
Rising supply chain operating costs
18%
Management of increasingly global
supply chains
0%
13%
12%
10%
20%
% of Discrete Respondents
% of All Respondents
30%
40%
~ Kenneth Bergström, Volvo
Construction Equipment AB,
Global Order Engine
Coordinator
% of All Respondents
Source: Aberdeen Group, March 2009
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Discrete Manufacturers: Order-to-Delivery Performance Checkpoint
Page 2
There are many points within order-to-delivery that might cause customer
dissatisfaction and are a challenge for companies to remedy. Some of the
challenges that companies are facing include:
•
Disparate ERP or WMS systems resulting in lack of a single
repository of orders or shipments, respectively
•
Order fulfillment processes that concentrate on individual orders
rather than holistically viewing order fulfillment
•
Customers want quoted lead times, but there is no visibility into
available finished goods or scheduled production
•
Mergers and acquisitions resulting in complexity in order
management processes due to disparate order processing systems
Some of these examples lead to internal inventory problems or logistics
costs as well as unsatisfied customers. Before comparing the tools of the
Best-in-Class and discrete manufacturers, let's look at the differences in
performance.
The Performance of Discrete Manufacturers
The end of 2008 was not easy for discrete manufacturers. As a result of the
demand drop and the credit market tightening its belt, dealers were making
fewer purchases and end customers were rethinking purchases.
Figure 2 shows just how much this brought down any improvements that
had been made over the past two years, by comparing the two-year change
in certain Key Performance Indicators (KPIs) across Best-in-Class, Industry
Average, Laggard, and discrete manufacturers. In addition to these KPIs,
discrete manufacturers achieved an average perfect order delivery rate of
72%, compared to 93% by Best-in-Class companies and 70% by Laggards.
Figure 2: Discrete Manufacturers Achieve Below Average Performance
Best-in-Class
Average
Laggard
2-Year Change
0.05
4%
0.03
1%
-1%
0.00
-0.03
Discrete Manufacturers
4%
2% 2%
2%
3%
0%
-3%
-1%
-2%
-1% -1%
-1%
-4%
-0.05
Order to delivery leadtimes
Days of finished goods
inventory as a percentage
of sales
Logistics costs as a
percentage of sales
Out-of-Stock inventory
occurrences
Source: Aberdeen Group, March 2009
With the exception of out-of-stock inventory occurrences, discrete
manufacturers are near or below Laggard performance. One of the core
© 2009 Aberdeen Group.
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Fax: 617 723 7897
Discrete Manufacturers: Order-to-Delivery Performance Checkpoint
Page 3
business goals of this group is to expand in non-developed countries in the
Middle East and Asia, for example. Another vehicle for growth is
acquisitions. In either scenario, these manufacturers need to consider
improving their order-to-delivery process to expand their operations in a
sustainable and profitable way (see Volvo CE case in point to follow), with
high performance marks.
Key Strategies for Improvement
The key strategic actions being taken by discrete manufacturers to improve
order-to-delivery performance are shown in Figure 3. Discrete
manufacturers are focused on front-end processes such as matching supply
chain / order management capabilities with customer orders, improving the
order promise date accuracy, and creating a single, unified quoting process
to customers.
Figure 3: Need to Improve Order-to-Delivery Capabilities
Improve ability to match customer needs
(product requests, lead times) w ith supply
chain / order management capabilities
16%
10%
Improve the order promise date accuracy
Create single, unified quoting process to
customers, irrespective of business unit or
geography
9%
Improve the ability to dynamically allocate
supply to w arehouses/DCs based on
customer demand
0%
6%
5%
10%
15%
20%
25%
% of Discrete Respondents
Source: Aberdeen Group, March 2009
These planned initiatives are not only justified in the low performance of
discrete manufacturers, but in their limited process capabilities compared to
Best-in-Class companies. Figure 4 reveals that, in comparison to discrete
manufacturers, the Best-in-Class are:
•
2.1-times more likely to have a strong to very strong ability to
perform order promising for finished goods inventory.
•
3.9-times as likely to have a strong to very strong ability to flexibly
schedule and reschedule orders based on due dates.
•
10.3-times more likely to have a strong to very strong ability to
support cost optimization strategies.
© 2009 Aberdeen Group.
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Telephone: 617 854 5200
Fax: 617 723 7897
Discrete Manufacturers: Order-to-Delivery Performance Checkpoint
Page 4
Figure 4: Discrete Manufacturers behind the Best-in-Class
Ability to support single quoting process to
customers irrespective of sales channel
17%
Ability to perform order promising for finished
goods inventory (ATP)
11%
14%
6%
3%
0%
17%
46%
39%
17%
22%
Ability to flexibly schedule & reschedule
orders based on due dates
Ability to support cost optimization strategies
35%
33%
46%
54%
24%
Best-in-Class
Average
31%
Laggard
Discrete
20%
40%
60%
% of Respondents
Source: Aberdeen Group, March 2009
Order promising is challenging for discrete manufacturers especially if they
have a configured bill of material. Another challenge is that discrete
manufactures have to support multiple distributors that may have
completely different quoting processes.
As we will see in the case in point to follow, discrete manufacturers can
bring customers the option to view ATP inventory, as the system behind
the scenes aggregates inventory data from multiple warehouses and
determines back order recoveries.
Case in Point
Volvo Construction Equipment (Volvo CE) is a global enterprise
headquartered in Brussels. The company manufacturers its industrial
equipment products on four continents and distributes in more than 200
countries via dealership and rental outlets. Volvo’s history of mergers and
acquisitions created various order systems, which prevented efficient
management of global orders.
Historically, all regional Volvo CE regions hosted their own independent
order and warehouse systems. Each time dealers wanted to place orders,
they had to access several warehouses. The fragmented IT environment
made global order management difficult for Volvo CE staff and dealers. Also
when newly acquired companies were getting integrated into the enterprise
structure, the process took too much time.
The company wanted a fast implementation for a problem that had
challenging integration requirements – a solution that enabled integration of
© 2009 Aberdeen Group.
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Discrete Manufacturers: Order-to-Delivery Performance Checkpoint
Page 5
a new warehouse system in no more than six months. The company
implemented a Global Order Management (GOM) solution from Syncron.
There were four solution capabilities that comprised the implementation.
•
Inventory Visibility (within GOM): As mentioned above, Volvo
CE was dealing with multiple legacy systems and so were its
customers. These systems are now connected and the dealers see
a top layer graphical user interface (GUI) that displays the necessary
inventory and order information, like where the order line is
coming from and the lead time information. The key for Volvo CE
was to implement a uniform presentation for all of the dealers.
Now, approximately 90% of the company's dealers utilize the
system, which is around 1,000 users.
•
Order Routing (within GOM): With the change in the
warehouse systems, inventory in one warehouse is not tied to a
specific customer; inventory can be allocated from multiple
warehouses. With order routing they can distribute order lines to
the correct warehouse according to the logistical setup.
•
Global Price Suite: Prior to the implementation two warehouses
might offer different prices on an oil filter, for example, because the
warehouse systems were different and thus the price calculation
methods were as well. The new system has decoupled the price
calculation so the dealer sees one fixed price for each part. The
driver for this decision was based on the company's desire to find
the best sourcing solution for the dealer, considering lead time and
logistical matters.
•
Supply Chain Planning: Referred to by Volvo CE as
Manufacturer Managed Inventory (MMI), this solution calculates
what dealers would have in their stock. "In combination with the
GOM solution, this is a very powerful tool. It minimizes the need of
receiving emergency orders to the dealers," explain Mr. Bergström,
Global Order Engine Coordinator. "We want to be able to ship
mainly stock orders. We work with our dealers by considering onhand availability and the lowest stock needed, which we can help
the dealer balance."
With these implementations, the company realizes that there are set goals
to meet, but the order-to-delivery process is continuously evolving. They
consult with a user group and are continuously refining the system.
"Volvo CE recently acquired the Road Development division from IngersollRand (road construction equipment) and inserted their production range
into the business. If we didn’t have the GOM and the business rules set up
the change would have had a lot more costs for development. It is table
driven and a lot more flexible and allowed Volvo CE to save costs in system
development," acknowledged Mr. Bergström, Global Order Engine
Coordinator. "If we are moving one product range from one warehouse to
© 2009 Aberdeen Group.
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Telephone: 617 854 5200
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Discrete Manufacturers: Order-to-Delivery Performance Checkpoint
Page 6
another, from a physical point of view it is a huge orchestration – tons of
trucks on the road. In the business setup it is one switch of table."
Volvo CE implemented the GOM solution in Europe and shortly thereafter
in the International market. After this it was rolled out in Singapore, Korea,
Canada, India and China, and now ongoing rollout in Brazil. Through the
system, the company now has a single, integrated web interface to manage
all ordering, price and availability, part information, order placement and
status. The company is also enabled to integrate with suppliers and planning
to utilize a direct ship model in the coming year.
Volvo CE improved customer service, increased efficiency in global order
management, cost savings due to less administration and more efficient
maintenance, and better overall pricing and customer credit control.
Key Insights
Based on responses from the discrete manufacturing industry, there are
some key insights that can be taken from the data:
•
Know what you have and where it is - inventory visibility.
Expanding revenue and the global footprint are some of the key
business goals for this industry. This could include expanding
product lines (internally or through mergers and acquisitions),
offering different components to satisfy a demographic, or building
new warehouses to get closer to the customer. Whatever the
scenario, enterprise inventory tracking is proving to help companies
reduce unnecessary inventory and meet customer needs more
efficiently. It is a data rich implementation that is going to be a longterm benefit.
•
Streamline and automate where possible. This Sector Insight
identified some of the many handoffs and steps in the order-todelivery process. Each of these steps presents an opportunity for
creating a more streamlined process to customers and automated
process internally. With Volvo CE, the goal was to enable smoother
transitions for M&A activity and to present customers with easy
ordering using a single order window, access to enterprise-wide
inventory levels, and pricing information. The company also
automated order routing. Where could your order-to-delivery
process be improved with automation? What is primarily resulting
in unnecessary costs or lost sales?
•
Define solution and business rules with the customer in
mind. There are many elements to the order-to-delivery process lead times, pricing, customer demands, logistics and other costs. As
with the Volvo CE case, the objective was to understand the
customers needs and build the solution around them (though it
should also meet the corporate business goals as well).
The next few years should present interesting opportunities and challenges
in the discrete industry. Aberdeen will continue to monitor the industry's
© 2009 Aberdeen Group.
www.aberdeen.com
Telephone: 617 854 5200
Fax: 617 723 7897
Discrete Manufacturers: Order-to-Delivery Performance Checkpoint
Page 7
overall innovation and growth in this market to track how best practices are
applied and how they evolve.
For more information on this or other research topics, please visit
www.aberdeen.com.
Related Research
Perfect Order, Happy Customer:
Managing the Order-to-Delivery
Process; February 2009
Technology Strategies for Closed Loop
Inventory Management; April 2008
Authors: Melissa Spinks, Sr. Research Associate, Supply Chain Management
(Melissa.Spinks@aberdeen.com); Nari Viswanathan, VP and Principal Analyst,
Supply Chain Management (Nari.Viswanathan@aberdeen.com)
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© 2009 Aberdeen Group.
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Telephone: 617 854 5200
Fax: 617 723 7897