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Driving Value from the Supply Chain: Best Practices to Deliver Results

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L.E.K.'s Michel Brekelmans recently spoke at Supply Chain Asia 2013 on "Driving Value from the Supply Chain: Best Practices to Deliver Results". Review his presentation here.

L.E.K.'s Michel Brekelmans recently spoke at Supply Chain Asia 2013 on "Driving Value from the Supply Chain: Best Practices to Deliver Results". Review his presentation here.

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  • 1. ^ìÅâä~åÇ_~åÖâçâ_ÉáàáåÖ_çëíçå`ÜÉåå~á`ÜáÅ~ÖçiçåÇçåiçë=^åÖÉäÉëjÉäÄçìêåÉjáä~åjìãÄ~ájìåáÅÜkÉï=aÉäÜákÉï=vçêâm~êáëp~å=cê~åÅáëÅçpÉçìäpÜ~åÖÜ~ápáåÖ~éçêÉpóÇåÉóqçâóçtêçÅä~ïDriving value from the Supply Chain:Best practices to deliver resultsiKbKhK=`çåëìäíáåÖ=iáãáíÉÇI=cäççê=PQI=`fqf`=pèì~êÉI=NNSU=k~åàáåÖ=oç~Ç=tÉëíI=pÜ~åÖÜ~á=OMMMQNI=`Üáå~==qW=USKONKSNOOKPVMM===cW=USKONKSNOOKPVUU===ïïïKäÉâKÅçã
  • 2. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFTL.E.K. Consulting is a leading global strategy consulting firmOverviewEstablished in 1983 inLondonClients include 25% of thelargest 200 companiesglobally, as well asinnovative start-ups andleading private equityfirmsAreas of expertise:Strategy & PlanningM&A ServicesMarketing and SalesOperationsOrganizationWorldwide over 1,000professionals, led by 100+Partners in 22 officesGlobal NetworkNote: * AllianceTokyoSanFranciscoLondonMunichMilanMumbaiBeijingShanghaiSingaporeMelbourneAucklandBangkokChicago ParisBostonNew YorkSydneyNew DelhiWroclawLosAngelesSaoPaulo*CountryCoverageNorth AmericaU.S.CanadaSouth AmericaArgentinaBrazilWestern EuropeAustriaBeneluxDenmarkFinlandFranceGermanyGreeceEastern EuropeCzech RepublicPolandPortugalRomaniaMiddle EastIsraelKuwaitAsiaJapanChinaThailandKoreaAustraliaAustraliaMexicoChileColombiaIrelandItalyNorwaySpainSwedenSwitzerlandU.K.RussiaTurkeyHungaryUkraineSaudi ArabiaJordanTaiwanIndiaSingaporeHong-KongNew Zealand1SeoulChennai
  • 3. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFT2 Offices and consulting professionals in China’smajor urban markets Wide and deep network of resources in PRC, HongKong, and Taiwan Seamless worldwide practice with 22 global officesand additional affiliates China practice established in 1998 with offices inShanghai and Beijing Experienced professional staff- 4 partners with decades of consultingexperience in Asia and in China- 65+ bilingual and bicultural professionalsdrawn from leading Chinese and globaluniversities Focused on providing firms with the insight andsolutions to succeed in China’s complex businessenvironment Clients include multinational companies in andoutside of China, Chinese companies, privateequity firms, and government entitiesBackground Greater China NetworkBeijingShanghaiIn China, L.E.K.’s capabilities and experience support our clients asthey grow their business or prepare for major investments
  • 4. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsFrom Supply ChainTo Demand ChainInto the Boardroom3
  • 5. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsIs Your Supply Chain Disconnected from Corporate Strategy?4
  • 6. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsA Golden Opportunity Missed5 Japanese Imports Reagonomics/ Thatcherism Long Range Planning Corporate Takeovers Decentralized BusinessGovernanceCorporate Agenda(circa 1980) TQM (Total QualityManagement) SPC (Statistical ProcessControl) JIT (Just in Time) MRP II (MaterialsRequirement Planning) Six SigmaSupply Chain Agenda(circa 1980)● Elevate the Message● Align with Corporate Strategy● Holistic / Inclusive DeliveryMessage / contentirrelevant tocorporate issues
  • 7. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsAnother Golden Opportunity Missed6 Y2K Dot Com “e” China / Emerging Markets EVA (Economic Value Added)Corporate Agenda(circa 1990) VMI (Vendor ManagedInventory) 3-PL (Third Party Logistics) Strategic Sourcing “e” ERP (Enterprise ResourcePlanning)Supply Chain Agenda(circa 1990)● Translate to Shareholder Value● Move from a Cost to Revenue Focus● Consider the current marketenvironment (competition)Delivered theright message butwrong language
  • 8. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsIs Your Supply Chain Misaligned with the Corporate Agenda?7
  • 9. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsHow to Achieve Success in the Boardroom8Fully connectedand alignedProfitability (Top-linegrowth)SecurityCorporateAccountabilityMergers andAcquisitionsRaw Material CostsGlobal UncertaintyCorporate Agenda(Today)CapabilitiesSecurity / PrivacySarbanes - OxleyGlobalCustomer ExpectationsVisibilityLean & agileSupply Chain Agenda(Today) Align to holistic corporate priorities/issues Focus on how objectives are supportedbefore communicating “how it works” Use audience’s language & sequence
  • 10. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsSupply / Demand Chain Boardroom Qualifications Technology Capabilities Process Lean & Agility VisibilityFunctional Sales and Marketing Mergers and Acquisitions Business Financial Technical Risk ManagementExecutive9
  • 11. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFT“It is not the strongest of the species that survives, nor the mostintelligent, but the one most responsive to change.”— Charles Darwin10We now know he was referring to supply chainChange is the only constant in evolution
  • 12. CONFIDENTIALDRAFTSupply chain is frequently highlighted on recent studies and articles In 2010 alone, economic losses across the globe resulting from natural and man-made disastersreached $222 billion Over 70% of survey respondents say the risks to their supply chains have increased over the past fiveyears. Over 85% said they had suffered at least one supply chain disruption during 2011 80% of large organizations will face a crisis of at least 10 days every four to five years. Of thoseaffected, over 70% will close or suffer a significant long-term impact A well-known insurance company recently revealed that more than half of the claims it received from theJapanese earthquake and tsunami came as a result of supply chain disruption that was not caused byphysical damage In 2011, while 92% of survey respondents had reviewed their supply chain operations, just 12%expected to make significant changes Investors are becoming increasingly interested in the actions that companies are taking to mitigate riskas supply chains are getting more complex11Driving value from the Supply Chain: best practices to deliver results
  • 13. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsMany organizations have spent years streamlining operations Re-engineering processes, integrating with partners Implementing enterprise systems Moving production to low-cost, offshore locations12They have done all of this in an attempt to improve the services they provide tocustomers at a more competitive cost
  • 14. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsNew risks of creating a global supply chain Terrorism Piracy Currency Fluctuation Government Instability Labor Strikes Quality Considerations Energy Cost Transportation Problems Natural Disasters Supply Chain Complexity13
  • 15. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsMany corporations have tremendous risk hidden in their supply chain Technology dependence- Have we become too dependent on technology?- “How do I turn on the TV?” Workforce management and oversight- The people controlling the dials and millions of dollars of decision makinghave never stepped on a warehouse floor Preparing for and adapting to industry evolution- As margins shrink, supply chain becomes more visible. “Are we ready andable to respond?”14
  • 16. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsWhat about China? Six myths of the China Supply ChainDespite Weak Links, the Supply Chain is EffectiveChina’s Workforce is Increasingly SkilledRethink How You Forge Strategic PartnershipsDespite Rising Wages, Manufacturing is Still a Good BetOptimize Production at Home, Replicate AbroadUnderstand the Real Currency of Business12345615Capitalizing on Market Opportunities in China
  • 17. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsDespite Rising Wages, Manufacturing is Still a Good Bet116150Product Cost Index by Country (2016F)*Index U.S. 2010 = 1001251007550250Romania93Bulgaria86Mexico94Brazil128Vietnam85Thailand91129Germany136US109China98Sri Lanka83Malaysia85Indone-sia82India94Switzer-landMaterialOverheadLaborTransportationInventoryDutyChina US GermanySwitzer-landIndiaIndone-siaMalaysiaSriLankaThailand Vietnam Brazil Mexico Bulgaria Romania2.5 1.5 1.2 0.5 1.7 1.4 1.5 1.3 1.5 1.2 2.2 1.5 1.4 2.0CAGR% (2010-16F)Asia Latin America Eastern EuropeSource: EIU, World Bank, searates.com, freght-calculator.com, L.E.K. analysis
  • 18. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsChina’s Workforce is Increasingly Skilled17Note: * GDP at PPP takes the relative cost of living and the inflation rates of countries into accountSource: The World Bank, EIU, L.E.K. analysis0.750.600.450.300.150.00-0.15USAGermanyRomaniaMexicoBrazilVietnamBulgariaGDP at PPP, per worker* (2005-15F)U.S. Dollars1.501.35ThailandSri LankaMalaysiaIndonesiaIndiaChina15F14F13F1.201.050.9012F11E10090807062005CAGR%(05-10) (10-15F)10.5 8.44.6 4.83.0 4.22.62.4 3.81.9 3.42.1 2.72.3 2.21.2 1.10.1 1.60.3 0.73.76.1 6.47.0 5.62
  • 19. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsDespite Weak Links, the Supply Chain is Effective18Weak links Antiquated informationtechnology (IT) systemsand operational proceduresPotential upside/ solutions Better understand the supplychains of their Chinesecounterparts Cloud technology will providemore room to improve supplychain efficiencySource: L.E.K. analysis3
  • 20. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsOptimize Production at Home, Replicate Abroad Manufacturers tend to increase specification standards byas much as 20-30% for outsourced suppliers vs. in-housesuppliers in Asia19CurrentSituationKey Actions Manufacturers need to ensure they review theexpectations that they place on Chinese supply chains toensure that they are reasonable and fairSource: L.E.K. analysis4
  • 21. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsRethink How You Forge Strategic Partnerships20Local hiringIn-personbusinessmeetingPartnering withsupply chainexpert firmsFinding varioustypes of partnersStrong strategicpartnershipMultiple localrelationshipCollaborativerelationshipSource: L.E.K. analysis5
  • 22. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsUnderstand the Real Currency of Business In China, local distributors can be strongpartners Distributors’ margins can be significant inChina due to the business model Chinese companies may value verydifferent things as their internationalcounterparts21Multi-leveldistributionmodelPlatformmodelHospitalsL1 dealerManufacturerL2 dealerHospitalsPlatformManufacturerDealer(Non inventoryholding)Different distribution models for MedTech companiesSource: L.E.K. analysis6
  • 23. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFT22RoutineBusinessImpactSupply PowerBottleneckLeverage StrategicCase Studies22
  • 24. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsSpending on marketing services accounted for almost 30% of thecompanies worldwide spending on materials and services 5 “C” level executives estimated that advertisingagency spend was less than $30 million Preliminary analysis showed the company spentalmost 70% of the $135 million (i.e., $95 million) inworldwide marketing services on advertising agencies By taking a process view of a typical advertisingagency, we are trying to understand if opportunityexists for cost reduction Unbundling the various functions performed by theagencies we were able to identify specificopportunities Therefore, companies became more concerned withagency accountability, agency profitability andadvertising effectiveness23Executive estimate:$30 millionAnalysis result:$95 millioncostreductionopportunityAdvertising spend analysis
  • 25. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsCompanies have become more demanding in driving value fromtheir advertising agencies Outsourcing global media planning and buying resulting in lower transaction costs andgreater buying leverage Negotiate a lower rate for media planning and buying or move to a $/hour rate Negotiate overall rate reductions based on an explicit longer term contract Compensation based on value added (pay for performance) Hire experts that specialize in advertising agency negotiations Technological advancements - desktop publishing of print advertising— Examples of Cost Reduction Methods—24
  • 26. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFTRoutineBusinessImpactSupply PowerBottleneckLeverage StrategicCase Studies25
  • 27. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsSupplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6Ahold’s Sourcing Challenge● Dispersed spend across six retail banners● Limited insight into true NFR spend− Stored within multiple incompatible financial systems− Over 300 unmanaged categories− Specifications not clearly documented● 45% of NFR spend was service related● Lacked standard sourcing approach● Supplier base in excess of 60,000 suppliers● No structured supplier qualification or performance rating systems26
  • 28. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFTRoutineBusinessImpactSupply PowerBottleneckLeverage StrategicCase Studies27
  • 29. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver results● Suppliers are also customers● Lack of focus on aggregation● Non-compliance● Everyone can get a better deal● Insufficient spend in manycategoriesSolutionCase Study – Key Client Issues28OutsourcedAggregationupgraded skillsBrought BackIn-house
  • 30. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFTRoutineBusinessImpactSupply PowerBottleneckLeverage StrategicCase Studies29
  • 31. CONFIDENTIALDRAFT Driving value from the Supply Chain: best practices to deliver resultsExamples of completed initiativesMarketingCircular Printing . . . . . . . . . . . . . .Commercial Printing. . . . . . . . . . .In-Store Music Service . . . . . . . . .Hired ServicesArmored Car . . . . . . . . . . . . . . . . .Floor Care Services . . . . . . . . . . . .Locksmiths. . . . . . . . . . . . . . . . . . .Third Party Check Collection . . . . .Pest Control . . . . . . . . . . . . . . . . . .Parking Lot Sweeping . . . . . . . . . .Security Guard Services . . . . . . . .Window Washing . . . . . . . . . . . . . .Commercial Debt Collection . . . . .Recruiting . . . . . . . . . . . . . . . . . . . .Waste Removal . . . . . . . . . . . . . . .Travel/MeetingsAir . . . . . . . . . . . . . . . . . . . . . . . . . .Meeting - Group Travel . . . . . . . . .Savings %49%34%63%21%11%34%35%*17%22%5%15%22%*17%7%3%**16%Logistics & DistributionFleet Graphics . . . . . . . . . . . . . . . .Distribution Labels. . . . . . . . . . . . . .Helium . . . . . . . . . . . . . . . . . . . . . .Plastic Totes . . . . . . . . . . . . . . . . . .Batteries . . . . . . . . . . . . . . . . . . . . .ConstructionLight Fixtures . . . . . . . . . . . . . . . .Skylights . . . . . . . . . . . . . . . . . . . . .Elevators . . . . . . . . . . . . . . . . . . . . .Elevator Maintenance . . . . . . . . . . .TPO Membrane Roofing . . . . . . . . .Switch Gear . . . . . . . . . . . . . . . . . . .Store EquipmentFront-End Check Stands . . . . . . . . .Coolers & Freezers . . . . . . . . . . . . .Bakery Cases . . . . . . . . . . . . . . . . . .Evaporator Coils & Condensers . . . .40%30%37%21%27%24%33%25%39%12%3%25%14%31%10%Savings %IT/TelecomHandhelds . . . . . . . . . . . . . . . . .Wireless . . . . . . . . . . . . . . . . . . .KII Telecommunications . . . . . . .Enterprise Storage Server . . . . .IVR System . . . . . . . . . . . . . . . . .Store SuppliesScale Sheets . . . . . . . . . . . . . . .Chicken Containers . . . . . . . . . .Store Apparel . . . . . . . . . . . . . . .Produce Bags . . . . . . . . . . . . . . .Dome Lids . . . . . . . . . . . . . . . . . .Departmental Bags . . . . . . . . . . .Salad Bowls . . . . . . . . . . . . . . . . .Fruit & Veggie Trays . . . . . . . . . .Office Products/ServicesToner . . . . . . . . . . . . . . . . . . . . . .Copy Paper . . . . . . . . . . . . . . . . .Office Supplies . . . . . . . . . . . . . .23%15%8%20%11%40%22%50%11%5%17%18%5%20%10%20%Savings %30Note: * of revenue; ** of incremental
  • 32. CONFIDENTIALDriving value from the Supply Chain: best practices to deliver resultsDRAFTTHANK YOU!31Michel BrekelmansPartner & Managing DirectorL.E.K. Consulting LimitedFloor 34, CITIC Square1168 Nanjing Road WestShanghai 200041ChinaT: 86.21.6122 3900F: 86.21.6122.3988m.brekelmans@lek.comLEK.COM