Changing the Game with Your Customers – A Supply Chain Strategy in Action ECR Asia Pacific Conference 2008, Thailand Jeffrey Russell, Accenture / Metta Siramongkholkarn, L’Oreal Copyright © 2008 Accenture All Rights Reserved. In order to drive Consumer Products companies performance to the next level, many are adopting a ‘Game Changing Supply Chain’ strategy - Game Changing Supply Chain - Value Supply chain differentiation based on customer / consumer behaviour and value to drive topline growth - Performance Optimization Focus on service levels by raising the performance bar, fine-tuning the overall model and collaboration with the extended supply chain. - Every Day Great Execution Getting the basics right in terms of people process, systems, organisation and data. Cost optimisation through rationalisation of the cost base Supply Chain Performance Journey Copyright © 2008 Accenture All Rights Reserved. 2 Effective supply chain strategies form the basis of competitive advantage and increase shareholder value Developing differentiated channel value propositions Improving the ability to meet customer needs and buying behaviour Reducing total cost to serve as the level of service provided is varied between channel segments Aligning operations and sales and marketing in the way they treat customers Enabling the organisation to structure resources around segments, e.g. options to outsource customer service activities for selected segments vs retain in-house Copyright © 2008 Accenture All Rights Reserved. 3 Typical benefits achieved in FMCG companies through customer aligned supply chains Copyright © 2008 Accenture All Rights Reserved. 4 Historically, FMCG companies have developed a ‘one size fits all’ supply chain that is designed to achieve cost efficiency -- Accenture’s SC Customer Alignment Framework -- Supply Chain Strategy Supply Chain 1.0 Strategy Demand Generation Market Segmentation Product Segmentation & Portfolio Management Supply Alignment Supply Replenishment Strategies Supply Sourcing Options Foundation Customer Demand Profiling Segmentation & Forecasting Network Optimisation Capabilities Sales & Leadership - Process Cost to Performance Operations Behaviours - Organisation serve Metrics Planning Culture - Talent - Technology Copyright © 2008 Accenture All Rights Reserved. Fulfilment Operations PLM Risk Management 5 Accenture’s Customer Alignment Framework provides the structure and rigor to design ‘fit for purpose’ supply chains for differentiated customer/product segments Business Strategy Strategy Supply Chain 2.0 Supply Chain 1.0 Supply Chain Strategy Supply Chain 3 Supply Chain 2 Product Supply Chain 1 Segmentation Demand Market Customer Demand Generation Supply Alignment Foundation Copyright © 2008 Accenture All Rights Reserved. Profiling Product + Portfolio Segmentation Demand Segmentation & Forecasting Segmentation Market Management Customer Profiling Product + Portfolio Demand Segmentation Segmentation & Forecasting Market Segmentation Customer Management Profiling Segmentation & Portfolio Segmentation & Forecasting Supply Supply Management Network Fulfilment Replenishment Sourcing Optimisation Operations Supply Supply Strategies Options Network Fulfilment Replenishment Sourcing Optimisation Operations Supply Supply Strategies Fulfilment Options Network Replenishment Sourcing Optimisation Operations Strategies Options Cost to serve Sales & Operations Planning Performance Metrics Leadership Behaviours Culture Capabilities - Process - Organisation - Talent - Technology PLM Risk Management 6 Example Supply Chain Re-design “fit for purpose” 6 – 12 Months SC Manager Customer Care Sourcing / Procurement Physical distribution SC Manager SC Manager SC Manager Segment 1 Segment 2 Segment 3 Segment 1 Segment 1 Segment 1 Customer Care Customer Care Customer Care Segment 2 Segment 2 Segment 2 Sourcing / Procurement Sourcing / Procurement Sourcing / Procurement Segment 3 Segment 3 Segment 3 Physical distribution Physical distribution Physical distribution Challenges : - multi-skills Supply Chain Managers - Limit increase of headcounts Copyright © 2008 Accenture All Rights Reserved. 7 Benefits after 1 Year • Privileged Relation 1 Point of contact between Supply Chain manager (supplier / retailer) • Tailor-made Service (especially for Mass Market retailers) • 100% focus on Service level : Gain 10% in average over 12 months • Team/talent development : Create succession Plan Copyright © 2008 Accenture All Rights Reserved. 8 Different supply chain models are more appropriate depending on the demand predictability and the nature of the customer relationship Lean Loose Agile Segment 2 Transactional ‘Base Model’ Collaborative Agile Flexible Segment 3 Customer Relationship Segment 4 Joint Planning Segment 1 Tight High Copyright © 2008 Accenture All Rights Reserved. Demand Predictability Low 9 Potential service offerings for strategic customer group Potential service offerings to Customer Group: Tier 1 strategic importance Low relative demand variability Demanding behaviour Trade terms Cash Management Efficient Assortment / Ranging Growth Incentives Product Discount - case deals Checkout Display Promotional Display Standard (prompt) payment Accelerated payment Electronic payment Order to Cash Weekend deliveries Advance shipment notification Backhaul Ex factory gate / NDC Cross docking Direct store delivery Drop trailer Web ordering Field sales call Phone / fax EDI Weekend ordering Short lead time EDI invoice EFT e-POD Operational Integration CRM Category Management Nominated logistics contact Fulfilment Copyright © 2008 Accenture All Rights Reserved. 10 Differentiation between the stable and variable components of demand is a key step to determine fulfillment setup – managing volumes differently balances service levels and cost to serve - Demand Types - - Fulfilment setup - Identify what parts of the business can be treated as fundamentally stable: • Stable, predictable demand • Commoditised or mass market products • Collaborative customers Fulfil through a ‘lean’ supply chain configuration: Identify what parts of the business are variable and truly complex: Fulfil through a more flexible supply chain: • Local sourcing and / or finishing • Short lead times • Variable configurations • • • • Variable demand Promotions Premium products Low visibility customers • • • Thailand indicative SC alignment Customer C1 Indicative SC alignment Thailand - indicative stable / variable split Customer C12006 Indicative stable / variable split Stable orders Cases ordered 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 = 59% Stable Stable Stable (58%) (60%) = 41% W ee k W 01 ee k W 04 ee k W 07 ee k W 10 ee k W 13 ee k W 16 ee k W 19 ee k W 22 ee k W 25 ee k W 28 ee k W 31 ee k W 34 ee k W 37 ee k W 40 ee k W 43 ee k W 46 ee k W 49 ee k 52 - Variable Variable (42%) (40%) Copyright © 2008 Accenture All Rights Reserved. Demanding / Efficient Collaborative Customers Customers 500,000 450,000 Maximum capacity Lowest cost Long lead time Variable orders Collaborative = 53% Lean = 27% Agile = 20% 11 So in summary, consumer goods companies need to change the game while continuing to deliver everyday execution - Game Changing Supply Chain - Value Supply chain differentiation based on customer / consumer behaviour and value to drive topline growth - Performance Optimization Focus on service levels by raising the performance bar, fine-tuning the overall model and collaboration with the extended supply chain. - Every Day Great Execution Getting the basics right in terms of people process, systems, organisation and data. Cost optimisation through rationalisation of the cost base Supply Chain Performance Journey Copyright © 2008 Accenture All Rights Reserved. 12