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  • MANAGING INTERNATIONAL Click on this icon to go back to this page SUPPLY CHAINS INTERNATIONAL SUPPLY CHAIN INTERNATIONAL DIFFERENCES BEST PRACTICE SUPPLY CHAIN SUMMARIES SUPPLY CHAIN OPTIMISATION BAROMETER AND EMERGING MARKETS MANAGEMENT Key Findings & Executive Summary IGD’s International Survey Optimisation through Warehousing Managing International Differences Enablers of Best Practice in Supply Chain Chapter 1 - International Supply The Supply Chain Overview Technology in Supply Chain China - Retailing and Global Chain Barometer Sourcing Continuous Improvement Outsourcing Optimisation through Transport Chapter 2 - Supply Chain Best-in Class Companies Optimisation India - Retailing Opportunities Supply Chain Challenges Chapter 3 - International Differences Central & Eastern Europe Top Supply Chain Projects and Emerging Markets Chapter 4 - Best Practice Supply Chain Management Auchan (France) Using the Canal SPaP Bratislava, Inter-Modal Hub CASE STUDIES KEY FOCUS TOOLS Network Management Unilever, Managing International Exel and Unilever UK, Foods Freight Distribution Parks Asda UK, Use of Ports Contents Supply Chains Management Sale and Lease Back Kursiu Linija List of Tables Zara’s Vertical Supply Chain Wal-Mart, Assimilating International Operations Reckitt Benckiser France, Shared User List of Figures Superquinn & Coca-Cola HBC Networks (Ireland) Wal-Mart, China Automation in Tesco, UK 0DQDJLQJ ,QWHUQDWLRQDO Carrefour, China 6XSSO &KDLQV Mattel, European Distribution Procter & Gamble, China Wal-Mart US, RFID Roll-Out Powerpoint Slides Carrefour France, Pooling Double click on the icon Auchan Group, International to view PowerPoint Slides Metro/Nestlé & SATO Germany, RFID Gruppo PAM and Number 1 Logistics Sourcing Group, Italy Tesco, Hungary Automation in CVS/Pharmacy, USA Henkel, Central & Eastern Europe To achieve maximum benefit from your PDF, it is advisable to use the Metro Group Logistics Germany, FGP latest version of Acrobat. To download your copy, click on the link and Cross-Docking Carrefour Poland, Multi Cross Dock www.adobe.com
  • Report Managing International Supply Chains Identifying best practice across borders
  • © Institute of Grocery Distribution 2006. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any way by any means, electronic, mechanical, photocopying recording or otherwise without the prior permission of the Institute of Grocery Distribution, a registered charity and company limited by guarantee registered in England no.105680. IGD is the trade mark of the Institute of Grocery Distribution. Under the terms and conditions of this contract, IGD authorises you to; • View and print out the material for personal use only • Extract small amounts of text, tables and charts for inclusion within internal company documents for limited distribution. IGD must be referred to as the source of information when this occurs You are not authorised to; • Sell, license or dispose of the material for commercial or any other gain • Alter the material in any way Failure to adhere to these conditions will result in the immediate termination of your access to this information.
  • Who Are We? We aim to be the leading source of information, research and education for the food & grocery industry.We are unique in that we are the only organisation in the world that has members from all parts of the food and grocery market, including retailers, caterers, wholesalers, distributors, manufacturers and farmers. From this unique position we are experts on the grocery supply chain and also have a good understanding of shoppers. We have no vested interests and we do not lobby. We bring the whole industry together to address issues and examine strategies for the future. What Do We Do? We are a one-stop shop for information, research and education for the food and grocery industry. At IGD we are passionate about this industry and work hard to bring people together to improve mutual understanding. Our main activities are: • Producing business reports. Analysing developments and forecasting trends in the food and grocery industry • Running educational programmes. We run a variety of training courses and our conference programme is renowned throughout the industry • Keeping close to the shopper. We conduct regular consumer research to understand the big issues that concern consumers • Bringing people together. We develop practical ‘best practice guidelines’ that also benefit the consumer • Providing free information. Fact sheets and industry best practice guides are now available on-line free of charge and our information unit is there to provide answers to queries (the information unit service is only free of charge to members of IGD) For more information please visit our website: www.igd.com IGD Grange Lane, Letchmore Heath, Watford, Herts WD25 8GD, UK Tel: +44 (0) 1923 857 141 Fax: +44 (0) 1923 852 531 Email: igd@igd.com © IGD 2006
  • Managing International Supply Chains January 2006 © All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any way or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Grocery Distribution, a registered charity and company limited by guarantee registered in England no. 105680. Registered Office: Letchmore Heath Watford WD25 8GD (01923) 857141 Whilst every effort has been made to ensure that the information contained in this publication is correct, neither IGD nor any of its staff shall be liable for errors or omissions however caused. ISBN 1-904231-99-3 © IGD 2006 www.igd.com/supplychain
  • www.igd.com/supplychain © IGD 2006
  • Contents List of Tables i List of Figures iii Key Findings and Executive Summary 1 1. International Supply Chain Barometer 13 1.1 IGD’s International Survey 14 1.1.1 IGD Research Methodology 15 1.1.2 What is Your Business? 16 1.1.3 Which Country Operation(s) Do You Represent? 17 1.2 The Supply Chain Overview 18 1.2.1 The Definition 18 1.2.2 Which Functions or Departments are Part of Supply Chain? 20 1.2.3 How Important is Supply Chain in Your Company’s Strategy? 21 1.2.4 How is Your Supply Chain Managed? 23 Case Study - Unilever, Managing International Supply Chains 25 Case Study - Zara’s Vertical Supply Chain 27 1.3 Outsourcing 31 1.3.1 Penetration of Outsourcing to Third Party Logistics Providers 31 1.4 Supply Chain Challenges 35 1.4.1 What Key Challenges are Facing Supply Chain in Your Area of Operation? 35 Case Study - Superquinn & Coca-Cola HBC (Ireland) 37 2. Supply Chain Optimisation 45 2.1 Optimisation Through Warehousing 47 2.1.1 Centralised Distribution Hubs 47 Key Focus - Distribution Parks 47 Case Study - Mattel, European Distribution 48 2.1.2 Warehouse 'Sale and Lease-Back' Schemes 50 Key Focus - Sale and Lease-Back 50 2.1.3 Consolidation and Shared-User Initiatives 50 Case Study - Carrefour, France, ‘Pooling’ 51 Case Study - Gruppo PAM and Number 1 Logistics Group, Italy 52 Key Focus - Reckitt Benckiser France, Shared-User Networks 54 2.2 Technology in Supply Chain 55 2.2.1 Automation and Automated Distribution Centres 55 Key Focus - Automation in Tesco, UK 57 Case Study - Automation in CVS/Pharmacy, USA 57 contd.../ © IGD 2006 www.igd.com/supplychain
  • Contents (continued) 2. Supply Chain Optimisation (continued) 45 2.2.2 RFID/EPC 59 Key Focus - Wal-Mart US, RFID Roll-Out 61 Key Focus - Metro/Nestlé & SATO Germany, RFID 62 2.2.3 Global Data Synchronisation (GDS) 62 2.3 Optimisation Through Transport 65 2.3.1 Factory Gate Pricing 65 2.3.2 Cross-Docking 66 Case-Study - Metro Group Logistics Germany, FGP and Cross-Docking 67 2.3.3 Intermodality - A European Perspective 69 Key Focus - SPaP Bratislava, Inter-modal Hub Management 70 Case-Study - Auchan France, Using the Canal Network 71 Key Focus - ASDA UK, Use of Ports 73 Key Focus - Kursiu Linija 75 2.3.4 4th Party Logistics Transport Management 75 Case-Study - Exel and Unilever UK Foods, Freight Management 76 3. International Differences and Emerging Markets 77 3.1 Managing International Differences 78 Case-Study - Wal-Mart, Assimilating International Operations 80 3.2 China – Retailing and Global Sourcing 82 3.2.1 Key Developments 82 Case-Study - Wal-Mart, China 83 Case-Study - Carrefour, China 84 Case-Study - Procter & Gamble, China 85 3.2.2 Opportunities in Global Sourcing 86 3.2.3 Challenges for Global Sourcing 86 Case-Study - Auchan Group, International Sourcing 91 3.3 India – Retailing Opportunities 93 3.3.1 Distributors 93 3.3.2 Sales Field Force 94 3.3.3 Legislation 95 3.3.4 Inventory Challenges 96 3.3.5 National Brand Coverage 96 3.3.6 Infrastructure Challenges 97 3.3.7 Delhi versus Mumbai 97 3.3.8 Supply Chain Improvements 97 3.3.9 The Future 98 contd.../ www.igd.com/supplychain © IGD 2006
  • Contents (continued) 3. International Differences and Emerging Markets (continued) 77 3.4 Central & Eastern Europe – Supply Chain Restructuring 99 3.4.1 Supply Chain Advantages 99 3.4.2 Supply Chain Trends 100 Case-Study - Tesco, Hungary 101 Case-Study - Henkel, Central and Eastern Europe 103 Case-Study - Carrefour Poland, Multi Cross Dock 105 4. Best Practice Supply Chain Management 107 4.1 What Unit Measure of Performance Do You Benchmark? 109 4.2 External Benchmarks 111 4.3 Availability 112 4.4 ECR Scorecard 113 4.5 How do you Analyse the Root Cause of Success? 114 4.6 How Do You Transfer Improved Performance to Other Parts of the Business? 116 4.6.1 Formal and Informal Methods 116 4.7 Enablers of Best Practice in Supply Chain 118 4.7.1 People 118 4.7.2 Process 118 4.8 Continuous Improvement & Re-Engineering Approaches 119 4.8.1 Business Process Re-engineering (BPR) 119 4.8.2 Total Quality Management (TQM) 119 4.8.3 Lean Methodologies 120 4.9 Best-in-Class Companies 121 4.9.1 Which Retailer Do You Most Admire? 121 4.9.2 Which Manufacturer Do You Most Admire? 124 4.9.3 Which Service Provider Do You Most Admire? 125 4.10 Top Supply Chain Projects 127 4.10.1 Demand Planning and Forecasting 127 4.10.2 Cost Management 128 4.10.3 Inventory Management 128 4.10.4 Customer Service 128 4.10.5 Production, Warehousing and Distribution 128 4.10.6 Availability and Retail Ready Packaging 129 4.10.7 Data Issues and IT Improvements 129 4.11 In Summary 130 © IGD 2006 www.igd.com/supplychain
  • www.igd.com/supplychain © IGD 2006
  • List of Tables 1. International Supply Chain Barometer 13 Examples of International Retail Expansion 14 Companies Contributing to IGD's Survey Research 15 Sample Job Titles Responding to IGD's Research 16 Views of companies with Supply Chains being of 'Medium' strategic importance 22 Views of companies with Supply Chains being of 'High' Strategic Importance 22 Organisational Structure 24 Unilever HPC Critical Success Factors 26 Lead Logistics Provider by Supply Chain Management Structure 33 Key Supply Challenges 35 Results versus Target 40 2. Supply Chain Optimisation 45 Solution Sets 46 The Process 56 The Process 57 Benefits of GDS 63 Short-Sea Shipping - Opportunities and Challenges 74 3. International Differences and Emerging Markets 77 International Differences in Supply Chain Challenges 78 Opportunities for Global Sourcing 86 Challenges of Global Sourcing 87 Choosing a Distributor 94 Inventory Challenges 96 Modes of Transport 97 Examples of Central & Eastern European Growth 100 © IGD 2006 www.igd.com/supplychain i
  • List of Tables 4. Best Practice Supply Chain Management 107 Supply Chain Performance Measurement Matrix 109 Standardisation and Simplification 110 External Benchmarks 111 Root Cause of Success 114 Review and Share Performance Data 114 How do you improve performance? 115 Formal & Informal Methods of Performance Transfer 117 Winning Characteristics for the 'Leading' Retailer 121 Winning Characteristics for the 'Leading' Manufacturers 124 Winning Characteristics for the 'Leading' Service Providers 125 Opportunities for Supply Chain Improvements 127 Focus of Top Supply Chain Initiatives 127 Winning Characteristics 130 ii www.igd.com/supplychain © IGD 2006
  • List of Figures 1. International Supply Chain Barometer 13 Key Elements in Supply Chain Management 18 Strategic Importance of Supply Chain 21 Organisational Design 23 Balancing In-house and External Operations 28 The Learning Programme Project Plan 37 Process Flow at Each Stage of Implementing NPI to Store 42 2. Supply Chain Optimisation 45 Pressures for Greater Supply Chain Efficiency 46 Global Data Synchornisation Vision 63 What Makes up the Total Product Cost? 66 3. International Differences and Emerging Markets 77 Distribution Network in India 94 4. Best Practice Supply Chain Management 107 ECR Scorecard Process 113 Methods of Performance Transfer 116 Enablers of Supply Chain Best Practice 118 Use of Continuous Improvement Techniques 119 Most Admired Retailer 121 © IGD 2006 www.igd.com/supplychain iii
  • iv www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains Key Findings and Executive Summary Key Findings and Executive Summary Key Findings and Survey Results 1. The top three international supply chain challenges have been identified as Demand Planning & Forecasting, Retail Ready Packaging and New Product Introduction. 2. The top five focus areas for international supply chain projects have been identified as: Demand Planning and Forecasting; Cost Management; Inventory Management; Customer Service; Production, Warehousing and Distribution. 3. From a supply chain perspective, Tesco and Procter & Gamble were cited as the most admired companies in the industry. 4. The emerging markets of China, India and Central & Eastern Europe continue to offer low production costs but now offer significant international retail opportunities. 5. Transferring best practice across geographies should be done in a simplified and standardised way, and the key enablers are people and processes. But there are differences between organisations: from more formalised methods, such as ‘global’ management roles, through to more informal methods of multi-discipline project teams. 6. 64% of surveyed companies say that supply chain performance is of high importance to their company but many still think that their sphere of influence does not extend past delivery to the retailer. 7. Mirroring the trend for ‘end-to-end’ supply chain solutions offered by third party logistics providers, 60% of companies surveyed outsource their warehousing operations, whilst 70% outsource their transportation. 8. Factory gate collections and cross docking practices are becoming more widespread across international markets, as retailers explore the opportunity of reducing cost and improving service levels. 9. There is increasing demand for inter-modal services, but a level of harmonisation in infrastructure across Europe is still required before the true benefits can be fully realised. 10. The challenges of getting businesses to truly collaborate cannot be underestimated, but getting it right can yield significant benefits. Collaborative practices are fast becoming a pre-requisite to doing business. 11. Where the supply chain is being seen as a key element in driving competitive advantage, organisational capability and business integration, companies are starting to take a holistic approach to organisational structures and integrate supply chain functions. © IGD 2006 www.igd.com/supplychain 1
  • Key Findings and Executive Summary Managing International Supply Chains 12. Traditional methods of driving logistics efficiencies, such as tariff management, full- load deliveries and competitive tendering, now combine with cross-docking, consolidation, and leading-edge technologies to create a significant business improvement tool-kit. 2 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains Key Findings and Executive Summary Executive Summary International Supply Chain Barometer Through primary research conducted in 2005, IGD has identified the current status and views of practitioners on international supply chains. Whilst the holistic view of supply chain involves both information and product moving from raw material right through to the end shopper, many companies still think that their sphere of influence stops with delivery to the retailer - whether at the distribution centre or at the store. The supply chain is now being seen as a key element in driving competitive advantage, organisational capability and business integration. With 64% of respondents viewing supply chain as being of high strategic importance. Strategic Importance of Supply Chain 10% High 26% Medium Low 64% Source: IGD Research, 2006 Where there is greater understanding of the inter-dependencies between logistics, sales and production, companies are starting to challenge more traditional organisational structures and integrate supply chain functions. Whilst functions such as Purchasing, Manufacturing and Distribution tended to be the most commonly-cited functions playing a key role in supply chain, the move to incorporate more traditionally customer-facing roles, such as Sales, Marketing and Customer Services is increasingly apparent. A large proportion of companies are now outsourcing their warehouse and distribution functions to third party logistics providers. Of respondents: • 60% outsourced warehousing • 70% outsourced transportation © IGD 2006 www.igd.com/supplychain 3
  • Key Findings and Executive Summary Managing International Supply Chains Those companies who outsource elements of their supply chain were also aware of the complexities this may bring in managing a number of different logistics operators. To assist with this added potential complexity, logistics providers are looking to become 'lead logistics providers' with integrated technology solutions. Such integrated solutions may incorporate activities from labelling, packaging and 'in-store' replenishment initiatives through to global sourcing and international freight management. Such 'end- to-end' solutions assist retailers and manufacturers to improve their total supply chain visibility and achieve efficiencies through integration, streamlining and improved real- time data. As the supply chain responsibilities have been broadening, the respondents in the survey cited the top supply chain challenges facing their businesses: Key Supply Challenges Challenges Facing Supply Chain Percentage of Replies i. Demand Planning & Forecasting 72% ii. Retail Packaging 54% iii. New Product Introductions 54% iv. Fuel Costs 48% v. Availability 44% vi. Multi-Modal Distribution 24% vii. Labour Shortages or constraints 22% viii. Shrinkage 15% ix. Other 9% Source: IGD Research, 2006 On-shelf availability is a key area of focus within all of the top three cited challenges, impacting significantly on the likelihood of a shopper finding the product they want, at the time they want it and in the quantity they want to purchase. The biggest proportion of respondents identified the ability to accurately plan and forecast demand as their number one issue. This issue is particularly important in an international supply chain environment where there is increased uncertainty around lead times and reliability of service. Improving the levels of collaboration between trading partners will be an important step in meeting those challenges head-on, and delivering the right service levels, in the most efficient and cost-effective way. Supply Chain Optimisation A number of factors have been impacting on the supply chain, adding complexity and increasing pressure on costs, service, availability and the need to accurately plan and forecast demand. The chart highlights these pressures. 4 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains Key Findings and Executive Summary Pressures for Greater Supply Chain Efficiency More Promotions Global Sourcing & Congestion Longer Lead-Times Costs Retail Service Levels Packaging Availability Price Sensitivity Demand Planning Skilled Labour Fuel Costs Shortages New Product Introductions Source: IGD Research, 2006 Companies are responding through a variety of supply chain initiatives to help maintain total costs, service levels, availability and accurate demand planning. Traditional methods of driving logistics efficiencies, such as tariff management, full-load deliveries and competitive tendering, now combine with cross-docking, consolidation, and leading-edge technologies to create a significant business improvement tool-kit. Solutions are highlighted in the table below: Solution Sets Then Now • Tariff Management • Centralised Distribution Hubs • Full Load deliveries • Warehousing Sale & Lease-Back • Safety Stocks • Consolidation & Shared User Initiatives • More Frequent Deliveries • Vendor-Managed Inventory • Routing efficiencies • Cross-Docking & Factory-Gate collections • Competitive Tendering • Increased use of Technology Source: IGD Research, 2006 Whilst some companies are moving into large-scale centralised distribution parks, that will sometimes service several countries from one single location, others are selling off their warehousing assets, and then leasing them back, thereby reducing capital commitments and injecting cash into the business. Warehouse automation continues to prove that technology can bring significant operational benefits for some companies. The following table highlights potential benefits and considerations when looking to introduce automation. © IGD 2006 www.igd.com/supplychain 5
  • Key Findings and Executive Summary Managing International Supply Chains Benefits of Automation Challenges of Automation What to Watch Lower long-term operating costs. High initial capital investment. Software specification and configuration - the best-designed solution will still fail to deliver the desired results if the software is poorly configured. The marginal cost of volume It can be difficult to adapt if Training - despite automation, people are still increases is much less than with significant business changes occur. employed in a whole variety of roles, and these manual systems. people need to understand the systems and processes in detail, and ideally to have used them before the facility 'goes-live'. Improved accuracy in picking and Automation represents a long- Exception Management - systems must be loading. term commitment, from which it is designed to be able to manage the exceptions in a not easy to disengage. user's business model, no matter how small, because any level of manual intervention or reconfiguration is likely to increase costs. Improved productivity and speed There is a requirement for long- of response. term planning and vision, well in advance of implementation. Source: Exel, 2005/IGD Research, 2006 Other new technologies like RFID/EPC and the benefits of Global Data Synchronisation remain firmly on the industry agenda. However there are still a number of challenges that continue to limit widespread adoption, not least the ability to create a solid business case for the large scale investment. Transport costs account for a significant proportion of total supply chain costs, and these are being challenged across many international markets by fuel cost increases, legislative changes, road tolls and a lack of investment in transport infrastructure. Factory-gate collections and cross-docking practices are becoming more widespread, as retailers in particular understand the real benefits of increased inbound cost visibility, and the opportunities for integrating transport fleets. Inter-modal activity is on the increase across Europe in particular, as more and more companies look to move freight back onto the rail and canal networks. There is also a growing trend for short-distance sea-shipping. Logistics service providers want to capitalise on improvements in these linkages to offer full end-to-end supply chain solutions. International Differences IGD's international survey confirmed that companies encountered different supply chain challenges depending on the market in which they operate. These differences can be grouped under cultural; infrastructural & operational; internal & external business management issues; and legislative differences. The challenges and examples of these are shown in the following table: 6 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains Key Findings and Executive Summary International Differences in Supply Chain Challenges Theme Challenge Examples Cultural • Different shopper preferences, particularly • Germany prefers lean meat with regards fresh produce • Japan prefers meat with more fat • Different language variants/customisation • Indians prefer to shop in wet markets for fresh produce, rather than modern supermarkets Infrastructure & • Lack of cold chains in some developing • No public cold chain logistics supply in China Operational markets • South American ports • Bottlenecks at ports • Permit issues in Russia and former Soviet • Export and goods movement permit controls Union states, India and China • A lack of truly international logistics companies means that different contractual agreements have to be made for different countries Internal • Demand volatility depending on brands life- cycle • For retailers, international franchise operations are generally managed differently from wholly-owned stores • Critical mass can be an issue in developing markets, leading to service level issues • When exporting, the required quantities are often fixed well in advance, compared to 'home territory' orders which can be very volatile • Availability issues in some developing markets can be solved through using extra lower-cost labour, whereas in more developed markets alternative solutions are required External • Different approaches to bar-coding, • In the UK and northern Europe there tends to packaging, case-sizes, shelf-ready packaging, be more centralised distribution and delivery and pallet requirements into distribution centres, whereas in Italy, • Different trade structures, with different levels Spain and southern Europe, there is a of market concentration, require different tendency for more direct-to-store deliveries outbound logistics solutions and demand • The UK focuses heavily on delivery within a planning fixed hour delivery slot, whereas in France it • Different performance management could be delivery on the day, but with heavy penalties if this is missed • The UK is viewed as one of the most difficult markets to satisfy, due to short lead-times and demand fluctuations Legislation • Different legislative requirements for • Switzerland - vis-à-vis the adoption of the permissible ingredients in food products European Working Time Directive - Transport • Different requirements for ingredient declarations and labelling • Different legislation for driver hours Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 7
  • Key Findings and Executive Summary Managing International Supply Chains The emerging markets of China, India and Central & Eastern Europe offer a plethora of opportunities for the food and grocery industry, in terms of global sourcing, cheaper production costs, and large populations with high, but relatively untapped consumer demand. With 12.9% retail growth in 2005 alone, IGD predicts that China will become the second largest food retail market in the world by 2020, with India also moving into a top five position. With widespread investment from the leading international food & grocery players, further supply chain development will certainly encourage this trend. Opportunities for Global Sourcing 1. Lower wages 2. A large, flexible and well-educated work force 3. High local growth - New markets expand at a quicker rate than more developed markets (China +8% growth compared to the EU average of +2%). 4. The market for prime materials is already global, and countries have specialised over time so that companies must act global to reach every production zone. For example whilst China has focused on garments, hardware and electrical goods, Thailand has looked at food and plastic products, and India has focused on home textiles, shoes, garments and decoration.This global reach means that wooden furniture, for example, could have the wood imported from Brazil, be crafted in Vietnam, but then sold into the EU. 5. Buying directly from the factory on an 'ex-works' basis could bring a margin bonus of anything from 10-50%, and in times of consistent margin pressures, this is an attractive option for many companies. Source: Auchan 2005/IGD Research, 2006 Nevertheless, combining the size of these countries and the remoteness of some of their populations, with a number of legislative restrictions and infrastructural limitations, there are significant challenges for the speed of supply chain transformation. • China The Chinese economy is booming, competition is on the increase, and retailers are not only sourcing large quantities of product from the country, but are also opening increasing numbers of stores, as the Chinese government continues to reduce restrictions on foreign direct investment. Opportunities in global sourcing include high local growth rates, driving further investment and stability, and a cheaper, flexible workforce, which can help improve margins. A combination of organic growth and supply chain development will help retailers consolidate their market positions, especially as international retailers hold only 3-4% share of the total grocery market. 8 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains Key Findings and Executive Summary • India India currently restricts foreign direct investment from multi-brand retailers, and so it is fair to say that there has not been the same level of investment in developing modern retailing practices and new transport links as has been the case in China. Leading manufacturers, however, are present in the Indian market, and via the distributor route to market, and with the use of field sales forces, are able to reach the most remote areas of the country and improve their brand awareness. Distribution Network in India Sub-Warehouse Retailer Manufacturer Shopper Distributor Wholesaler Retailer Source: IGD Research, 2006 • Central & Eastern Europe Similarly to China and India, as a result of significant political change and the subsequent high levels of economic growth, the countries of Central & Eastern Europe have also become attractive places to invest, in terms of both manufacturing production and international retail expansion. The advantages of countries such as Poland, the Czech Republic and Hungary, are that they benefit from cost-effective labour and a culture of hard work, but without the long transit times for delivery. Best Practice Supply Chain Management Transferring best practice across departments, markets and geographies is a key method for driving international efficiencies and improving end-to-end capabilities, but this should be done in a simplified and standardised way. Key supply chain performance measures focus primarily on: availability, forecasting, service levels, order fulfilment, financial indicators, warehousing, transport, and inventory. Order fulfilment is the most common performance measure. The following matrix shows examples of supply chain performance indicators: © IGD 2006 www.igd.com/supplychain 9
  • Key Findings and Executive Summary Managing International Supply Chains Supply Chain Performance Measurement Matrix Availability Forecasting Service Levels • On-shelf availability (OSA) • Forecast accuracy • Customer service • Items out-of-stock (OOS) • MAPE (Forecast error) • Supplier delivery performance • Stock availability • Conformance to manufacturing plan • Service levels • Supplier/Wholesaler availability by • SKU forecast accuracy SKU • Sales forecast accuracy Order Fulfilment Inventory Warehousing • On-Time In-Full (OTIF) • Inventory management • Pick Accuracy • OTIF (All costs) • Stock-holding • Pick Rates • Case fill rate • Stock turnover ratio/Forward weeks' • Cost per case • Order fill rate cover • Handling costs per m3 • Working capital (Inventory values) • Cost per pallet General Financial Transport Other • Supply chain costs as a % of net • On-time deliveries, late deliveries & • All components of the 'perfect order' sales delivery windows • SKU complexity • Lost Sales • Drop-size • Waste/Write-off • Invoice accuracy • % of direct delivery • Non-quality costs • First-time invoice acceptance • Vehicle utilisation • Lead-time achievement • Low code sales • Load efficiency • Time/Speed to market • Cost savings • Distribution cost per case/m3 • Information efficiency • Cost per unit delivered • Cost by kilometre • Distribution build • Cost vs. volume vs. turn-over • Cost of production of best quality • Profitability vs. cost product (which is different for different regions) Source: IGD Research, 2006 External benchmarking is gained primarily from the retail customer sharing information on cross-supplier performance and is often based on order fulfilment and availability. In addition, there are a variety of other methods used by companies, including the ECR Scorecard, industry bodies, and external consultancy firms. External Benchmarks Customer Industry Body/Expertise Other • Customer OTIF • External consultants x3 • Nothing concrete - based • Customer tables or service • IGD in international experience level reports, comparing • ECR Scorecard • Tendering with peers • ELUPEG forum (inter- • In-market distributors • Retailer KPI's company comparisons) • None • Retailer availability data • Case fill rate (shared by retailers) Source: IGD Research, 2006 10 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains Key Findings and Executive Summary Root cause analysis of good performance is most likely to be shared around a business via internal reporting methods and communication processes, including collaborative work between trading partners. Improved use of data, greater internal and external communication, and focus on inventory management and forecast accuracy are all key factors in improving overall performance. In terms of transferring best practice around the business, there are differences between organisations, from more formalised methods engraved in organisational structure, such as 'global' management roles, through to more informal methods via multi-discipline project teams. In this way, the key enablers for supply chain best practice are people and processes. Formal & Informal Methods of Performance Transfer Formal Global Roles Some organisations have global roles, with accountability for developing, spreading and training best practice solutions. These can take the form of country visits, teleconferences, intranet utilisation and best-practice presentations. Some organisations argue that if the business is managed at an international regional level (e.g. Europe), then improvements become visible to all geographies. Reporting & Weekly or monthly reporting methods, and monthly Meetings steering committee meetings, are used to share performance results and best practice solutions. Multi-Functional These can be a very effective way of driving cross- Project Teams functional understanding and communication, and are essential for many project design and implementation initiatives. Collaborative project teams with the retailer customer can also ensure that strategic goals are aligned. Informal Word-of-mouth Word-of-mouth - but with no specific PR exercises. Source: IGD Research, 2006 There are a number of standardised continuous improvement techniques used across the food & grocery sector, particularly amongst the supplier base. The production environment lends itself to process re-engineering techniques, total quality management initiatives and lean methodologies. Process management is the most common method employed by the international companies surveyed by IGD. © IGD 2006 www.igd.com/supplychain 11
  • Key Findings and Executive Summary Managing International Supply Chains Use of Continuous Improvement Techniques 9% 20% 41% Business Process Re-engineering Total Quality Management (TQM) Lean Methodologies 20% Six Sigma Total Productive Maintenance (TPM) Other 24% 24% Note - companies can choose more than one technique Source: IGD Research, 2006 Finally, IGD's supply chain survey asked companies to choose a best-in-class company - retailer, supplier and service provider. Amongst others, companies most admired by the Supply Chain Executives included Tesco and Procter & Gamble. The characteristics displayed by recognised leading retailers and manufacturers are highlighted in the tables below: Winning Characteristics for the 'Leading' Retailer 1. Growth (Sales & Profitability) 2. Strong customer focus 3. Integrated supply chain 4. Distinct business model 5. Strong collaborative relationships Source: IGD Research, 2006 Winning Characteristics for the 'Leading' Manufacturers 1. Innovative 2. Effective brand management 3. Speed-to-market 4. Excellent customer management 5. Scale and agility of supply chain Source: IGD Research, 2006 'Best-in-class' can represent something slightly different for a retailer (collaborative), a supplier (brand management) or a service provider (cost effective), but there are also some distinct similarities across the end-to-end supply chain for a winning business formula. The companies that came out on top of the IGD international supply chain poll all show elements of the following key characteristics in their business models: Winning Characteristics 1. Strong customer focus 2. Operational delivery 3. Innovation Source: IGD Research, 2006 12 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer 1. International Supply Chain Barometer Summary • A holistic view of supply chain involves both information and product moving from raw material right through to the end shopper. However, many companies still think that their sphere of influence stops with delivery to the retailer, whether at the distribution centre or at the store. • Where there is greater understanding of the inter-dependencies between logistics, sales and production, companies are starting to challenge more traditional organisational structures and integrate supply chain functions. The supply chain is now being seen as a key element in driving competitive advantage, organisational capability and business integration. • A large proportion of companies are now outsourcing their warehousing and distribution functions to third party logistics providers. These same companies are also aware of the complexities of managing a number of different logistics operators across markets. • Logistics specialists are now offering 'end-to-end' international supply chains solutions to help retailers and manufacturers improve their total supply chain visibility and achieve efficiencies through integration, streamlining and improved real-time data. • The top supply chain challenges for the food and grocery industry includes accurate demand planning & forecasting; retail packaging; and the management of new product introductions. On-shelf availability is a key area of focus, and all three of the above issues can impact significantly on the likelihood of a shopper finding the product they want, at the time they want it, and in the quantities they want to buy. • Improving the levels of collaboration between trading partners will be an important step in meeting those challenges head-on, and delivering the right service levels, in the most efficient and cost-effective way. Cost and information management are key challenges for a number of the companies surveyed by IGD for this report. © IGD 2006 www.igd.com/supplychain 13
  • 1. International Supply Chain Barometer Managing International Supply Chains 1.1 IGD’s International Survey Key Points to Note • Collaborative logistics is seen as a key opportunity to find the right balance between an efficient cost save and time to market. • 44 companies contributed to IGD’s International Survey. • A broad spectrum of businesses (UK and International) have a vested interest in international supply chains. • Supply Chain Executives surveyed held a mix of country-specific responsibilities, through to Regional, European and Global management accountability. Against a backdrop of price deflation, shopper demand for more choice, and varying customer loyalty, the market for consumer goods is now very much a global phenomenon and continues to grow at an accelerated pace. In the last ten years, global trade of consumer goods has leapt from over 5% growth per year to double-digit growth, as the booming economies of India, Central Europe, and China have joined the more traditional markets of America, Western Europe and Japan on the world trading stage. Examples of International Retail Expansion Carrefour South Korea is set for another 15 new hypermarkets over the next three years, with three new stores and re-furbishment of existing units planned for 2006. Metro Could open its first cash n' carry store in Pakistan in early 2007.This would be Metro's 31st country and its fifth Asian location alongside China, Japan, Vietnam and India. Pyaterochka The Russian retailer has acquired another 25 stores, mostly in Moscow, and also plans to have 30 stores in the Ukraine by the summer of 2006. Tesco Set to open 20 more stores in Malaysia within the next five years, adding to their existing ten stores through a joint-venture. Wal-Mart Reinforced its international presence in Brazil, through an acquisition of 140 stores, bringing their total to 295 and a number three market position. Source: IGD Research, 2006 With an increasingly promotion-led marketplace and extended lead-times from global sourcing, demand variability has increased, but reactivity and flexibility has reduced. The whole supply chain (retailer and supplier) demands less inventory, and yet on-shelf availability continues to challenge the industry. 14 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer Companies are therefore looking for even greater supply chain efficiencies to support business sales and growth strategies through excellent customer service. Developing collaborative logistics is therefore now seen as a key opportunity to find the right balance between an efficient cost base and time to market. Consequently, the challenges of managing international supply chains have never been greater. IGD's new report aims to discuss just some of those challenges, provide a variety of case-studies and examples of innovative solutions. It will highlight supply chain complexity with key emerging markets, and share examples of best practice management across the international food & grocery industry. 1.1.1 IGD Research Methodology In order to supplement the extensive number of case-studies included in the Managing International Supply Chains report, IGD carried out an on-line survey of Senior Executives to provide both a quantitative and qualitative insight into how leading companies manage their supply chains internationally. This unique research, conducted in November 2005, explores the facts, beliefs and future predictions of Senior Managers who are responsible for driving international supply chain efficiencies. The following tables indicate the companies and a list of sample job titles that contributed to IGD’s research for this section of the Managing International Supply Chains report. Companies Contributing to IGD's Survey Research ACR Logistics Kraft International Commerce AJC International Inc. Kraft Foods Allied Domecq Spirits and Wine Lion & Dolphin ARC Advisory Group Liven SA Arc International Logisys A/S Arla Foods (UK) plc Lornamead Europe Ltd Bacardi-Brown-Forman Brands Masterfoods Campbells Grocery Products Mondi Hypac Carrefour Czech Republic Muller Dairy (UK) Ltd Colgate Palmolive (UK) Ltd PIC (part of Sygen International) Cott Beverages Ltd Proctor & Gamble Diligio Advisers AB Sara Lee International Elizabeth Shaw Ltd SCA EverNew Int Inc. SC Johnson ExxonMobil Seegrid Corp. Freudenberg Household Products SSL International Golden Wonder Ltd Unilever Habitat UK Ltd Universal Pictures International HJ Heinz Frozen and Chilled Foods Ltd Universitat Autnoma de Barcelona HP Foods University of Colorado Information Resources Weetabix Ltd KPMG WD Irwin & Sons Ltd Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 15
  • 1. International Supply Chain Barometer Managing International Supply Chains Sample Job Titles Responding to IGD's Research Director Outbound Logistics W. Europe International Logistics Manager European Logistics Director International Retail Operations Director European Sales Manager Logistics Director European Supply Chain Director Manager Global Customer Services European Supply Chain Project Manager Nordic Sales Director and Category Director Head of Logistics Sales and Marketing Director Head of Planning & Customer Service Sales Director Head of Supply Chain Supply Chain Information Manager Head of Warehousing and Logistics Supply Chain Manager International Business Account Manager VP Business Development International Commercial Manager Source: IGD Research, 2006 1.1.2 What is Your Business? In order to understand the range and role of participating companies within the food and grocery sector, IGD asked respondents to specify their type of business. • The vast majority of respondents classified their company as a Fast-Moving Consumer Goods (FMCG) supplier with 65.2% of the total responses. • The next largest group was Management Consultancy Firms at 10.9%. • Retailer responses represented 8.7% of replies. • The remainder was made up of logistics service providers, packaging companies and other specialist producers. It is perhaps not surprising that IGD’s research into international supply chains gained the most responses from manufacturing companies. These organisations represent the largest single group within the food and grocery sector. Global operations management and international manufacturing have long been at the heart of their production and distribution processes, and this continues to be a growing trend as companies place strategic importance on driving global branding and scale efficiencies. In this way, it is often the suppliers who have the most experience in managing supply chains internationally and the challenges that different markets and cross-border movements can present. Although this contrasts with the relative few numbers of retailers with significant international presence, through the variety of international case- studies in this report, and a share of voice in the survey, it is fair to say that leading retailers are becoming increasingly adept at using their supply chains as a means of competitive advantage, and are now often at the very forefront of driving innovation in supply chain management, from product sourcing right through to the shopper’s in- store experience. Combined with participation across consultancy firms, logistics, and packaging companies, the wide response to the survey provides some interesting insight into best practices and thought leadership in this vital area of operation. 16 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer 1.1.3 Which Country Operation(s) Do You Represent? To ensure a truly international perspective on supply chain challenges within the industry, the survey asked respondents to highlight the geographic responsibilities of their role. The Supply Chain Executives surveyed held a mix of Country-specific responsibilities, through to Regional, European and even Global management accountability. • Caribbean • Ireland • Czech Republic • Middle & Far East • Denmark • Scandinavia • Europe • South America • France • Spain • Germany • UK • Global • USA • Hungary • Western Europe • Indian Sub-continent © IGD 2006 www.igd.com/supplychain 17
  • 1. International Supply Chain Barometer Managing International Supply Chains 1.2 The Supply Chain Overview Key Points to Note • Many companies still think that their sphere of influence stops with delivery to the retail customer, whether at the distribution centre or at the store. • There is a growing trend for Sales & Marketing functions to be integrated into the supply chain structure. • 64% of companies surveyed by IGD say that supply chain performance is of high strategic importance to their company. • Managing the international supply chain as part of a 'global operations' business model is prevalent amongst many of the leading manufacturing companies. IGD asked survey participants to define the term ‘supply chain’ from their company’s perspective.This helps us to understand the role of logistics professionals within the food and grocery sector, but also the structure of the leading companies. Specifically, IGD was interested in whether there is a holistic view, or a more compartmentalised view of the role of supply chain and how it interacts within organisations, and externally with trading partners. 1.2.1 The Definition Is it the ‘buy, make, move and sell' functions in the business? Key Elements in Supply Chain Management Product Raw materials Manufacture Distribution Retailer/Wholesaler Consumer/Shopper Information Source: IGD Research, 2006 18 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer If we consider the above diagram which aims to re-group all of the main links and elements in the end-to-end supply chain, it is fair to say that no single company was able to mention all of the individual components explicitly. Either the focus was on ‘product’, with no mention of the importance of ‘information’, or the supply chain stopped either at the retailer (customer) warehouse, store or shelf. Even when most elements were mentioned, the end shopper who purchases the product was often excluded from the definition, so that ‘shelf’ is now synonymous with ‘shopper’: Scale of Definition Definition of 'supply chain' within each company • "The flow of information and product between the various parties from raw materials supplier to customer (retailer) shelf" 'Text-Book' • "All activities dealing with information and physical merchandise flow from procurement and manufacturing to POS (point-of-sale)" Source: IGD Research, 2006 In this way, many companies now recognise the importance of on-shelf availability, the ‘last 50 metres’, and the need for an integrated end-to-end view of the role of supply chain: Scale of Definition Definition of 'supply chain' within each company • "From inbound factory flows through to on-shelf availability" 'Raw material to shelf' • "The ability to get the right product to the shelf at the right time at the most effective cost" Source: IGD Research, 2006 Nevertheless, for many companies, the role of their supply chain stops either at the retailer’s depot or store, so that the flow of product to the shelf and the shopper remains the primary role of the retailer: © IGD 2006 www.igd.com/supplychain 19
  • 1. International Supply Chain Barometer Managing International Supply Chains Scale of Definition Definition of 'supply chain' within each company • "The purchase and delivery of product from supplier to store" 'Stops at store' • "A fluid, reliable flow of merchandise going to the stores" • "Total supply process - from ingredients/packaging procurement to delivery to customer depot" 'Stops at warehouse' • "End-to-end process from supply of raw materials to manufacturing plants to delivery of product to customer warehouses" • "Material ordering through demand forecast and distribution to retail" 'Factory-focus' • "Management of customer demand…management of inventory forecasts and production levels" Source: IGD Research, 2006 Finally, it was interesting to note: • The importance of equitable trading relationships: “The efficient transfer of information and product to meet customer and supplier requirements.” Organisations expect supply chain initiatives to have more equal consideration of the needs of both retailer and supplier. • The focus of the trading relationship: “Manufacturing through to shelf (executive level) and forecasting to shelf (focus level with customers).”In this example, one of the key factors in the supplier-customer supply chain relationship is the link between the demand forecast and on-shelf availability. Overall, the role of supply chain seems to vary quite considerably from one organisation to the next, so that where some companies have accepted that their sphere of influence has moved down the supply chain and into the store environment, others still have a more traditional view, where supply ends at the back-door. 1.2.2 Which Functions or Departments are Part of Supply Chain? A holistic view of supply chain can be facilitated by the organisational structure of a company. IGD’s survey sought to understand the current linkages between internal departments, by asking which functions or departments were considered part of ‘supply chain’. 20 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer In response, Purchasing, Manufacturing and Distribution tended to be the most commonly-cited functions playing a key role in supply chain, highlighting the physical transformation and movement of product around a business. Sometimes more detail was provided, to include planning & forecasting, quality, order processing, or logistics & warehousing. However, it is equally true to say that those parts of the chain that have been traditionally considered as more customer-facing, such as Sales & Marketing and Customer Service, are increasingly being integrated into ‘supply chain’. Where in previous times there have been organisational divides between commercial and distribution roles, alignment between these sometimes distinct parts of the chain now appears to be widespread. Nevertheless, there is not complete alignment across all functions, and departments such as IT, Human Resources and Finance are still viewed very much as ‘support functions’ to supply chain, and were mentioned infrequently by companies in the survey. 1.2.3 How Important is Supply chain in Your Company’s Strategy? In a highly competitive and challenging business environment, supply chain can be viewed as a key weapon in driving competitive advantage. IGD’s survey asked whether supply chain was of high, medium or low strategic importance. Strategic Importance of Supply Chain 10% High 26% Medium Low 64% Source: IGD Research, 2006 High Importance Over 64% of responses said that supply chain was considered as being of high importance in their company strategy. What this actually means in operational terms varies considerably however from company to company, and may even depend on how a particular individual interacts within the organisation. A selection of views is provided in the table below, where inventory management, a focus on improving on-shelf availability, and cross-departmental training are all key outward signs of supply chain being considered of high strategic importance. © IGD 2006 www.igd.com/supplychain 21
  • 1. International Supply Chain Barometer Managing International Supply Chains Views of companies with Supply Chains being of 'High' Strategic Importance • "Fixing empty shelves is a priority and a multi-billion dollar opportunity" • "I have recently run a series of Supply Chain awareness sessions with all staff. The key issue currently is creating efficient linkages with each of the functions" • "Control of inventory at all stages is vital to cash flow, production efficiencies and customer service" • "Emphasis is on operational management of a business plan to ensure maximum possible levels of customer service" • "Supply chain seen as a way to gain competitive edge" Source: IGD Research, 2006 Medium Importance 26% of replies said supply chain was of medium strategic importance. It is interesting to note here that the main differences between medium and high importance are the operational practices and the links between parts of the chain. This means that companies need to have ‘visible’ signs of the importance of supply chain within the company – for example, real end-to-end processes and cross-functional interdependencies - for it to be considered by employees as being of high strategic importance. Views of companies with Supply Chains being of 'Medium' strategic importance • "Not yet walking the talk" • "Supply Chain as a function is beginning to get recognition within the business" • "We have too big an emphasis on manufacturing competencies versus true supply chain competencies" • "We see the supply chain as an area to achieve efficient implementation of our brand/trade marketing plans. If we can exploit the supply chain, then the consumer will have more sustained opportunity to purchase our product" Source: IGD Research, 2006 Low Importance In contrast, the remaining 10% of replies believed supply chain was considered as being of low strategic importance for their company. Whilst it is not surprising to learn that this group included a number of the management consultancy firms, to whom supply chain activities per se would be expected to be of low importance, it was somewhat more surprising to find a number of leading manufacturers who also believed that supply chain was not considered of high importance in their company strategy. If there is not a holistic approach to supply chain management, and departments work in silos across warehousing and distribution, production operations, and sales, then it is indeed possible for production and sales to be viewed as the primary focus of the manufacturing company, and that the logistics element is viewed simply as supporting that primary function. 22 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer Where functional inter-dependencies are not explicitly included in organisational design, and with a growing trend towards the outsourcing of warehousing and distribution to third party operators – the argument being that these activities are indeed ‘non-core’ – then there is some logic to the view that supply chain cannot subsequently be considered of high strategic importance. 1.2.4 How is Your Supply Chain Managed? Companies were asked to explain how their supply chains were managed, whether at a regional, national or international level, in order to understand both the level of internationalisation and the degree of supply chain integration. Organisational Design 24% 41% International Regional National 35% Source: IGD Research, 2006 In response, the majority of companies said their supply chains were managed internationally, with 41% of respondents, followed by 35% managed at a regional level, and the smallest number managing their supply chains at a national level, at 24%. Nevertheless, within this overall view, there are variances, and often the reality is that the supply chain is managed as a mixture of all three options. © IGD 2006 www.igd.com/supplychain 23
  • 1. International Supply Chain Barometer Managing International Supply Chains Organisational Structure Type of Design Characteristics Example Organisation Global Operations • Manufacturing will often be managed at a 'group' Companies showing elements of this type level, thus as part of 'global' operations. of management structure include: • Global manufacturing sites feed multiple regions and then countries, with shared SKUS, or products. • Procter & Gamble • International teams will manage the purchasing • Colgate-Palmolive through to the production part of the supply chain, • Bacardi whilst the rest of the chain will be managed locally. • SSL International • The commercial aspects of supplier-retailer • Unilever. relations will often operate at a more regional international level, such as Europe, Asia Pacific, Americas, Rest of World (ROW). Regional • Some organisations, especially in terms of factory • Masterfoods International production and commercial, structure themselves at a regional international level, for example, Western Europe. National & Regional • For some organisations, mature markets are • Kraft managed at a national level, whilst developing markets are regional. • All divisions report internationally, so that best practice can be shared across the international organisation. National • Some companies, despite being part of a large • Arla international group, will still manage their supply • Müller Dairy chains autonomously at a country-level, • Sara Lee International particularly for secondary deliveries into retailer premises. • The senior supply chain team will often report into the international head-office, and will aim to drive cross-border efficiencies, where appropriate. Source: IGD Research, 2006 Implications IGD believes that for many global international organisations, one of the many challenges in driving scale economies is how to implement cross-border synergies, and transfer best practice across different markets and operating companies. The management of supply chain best practice within surveyed companies is discussed later in this chapter. Source: IGD Research, 2006 24 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer Case-Study - Unilever, Managing International Supply Chains Unilever is a leading manufacturer of FMCG, with close to 300,000 employees, brands on sale in 150 countries, and strong positions in both developed and developing markets.Within the Home & Personal Care (HPC) division, Unilever products range from fabric cleaners through to hair/skin care and deodorants, with brands such as Cif, Dove and Comfort. Context Against an industry backdrop of tightening margins in a climate where fixed assets and working capital are taking a larger proportion of sales, there have been 4 key drivers for Unilever HPC to consider managing their supply chains on a global or regional basis, whilst being able to react to individual customer demands at a local level. Four Key Drivers • Scale: in supply of materials, manufacturing and distribution. • Speed: in delivery of innovation and responsiveness. • Excellence: in their ability to leverage skills and expertise. • Alignment with the rest of the Unilever business. Process I - Global Executive Supply Management (GESM) • What? GESM has created a single point of contact for a material or group of materials. This contact is empowered to negotiate on price, terms and conditions on behalf of all regions, categories and brands, thus securing materials supply on a global basis and developing, maintaining and implementing supply strategies. • Why? Unilever HPC has introduced a global supply management programme to leverage their scale with suppliers, avoid bidding against themselves, to develop deeper understanding and knowledge of the market, to enable global innovation and simplification and to manage supply constraints more effectively. • How? Through a defined management structure (made up of a global supply management director, regional team members, and technology and administrative support teams), Unilever's GESM uses a combination of strategic and operating frameworks, formal and informal networks, and processes and systems. The operating framework concentrates on clear roles and accountabilities, including the decision-making and contractual frameworks, and a code of business principles, whilst the process and systems includes people and information management, and project and performance management techniques. © IGD 2006 www.igd.com/supplychain 25
  • 1. International Supply Chain Barometer Managing International Supply Chains • Results (between 2001 and 2004) - 85%of global spend was through the executive teams. - Globally-synergised spend - Global co-ordination in supply crisis. - Creation of supply market specialists. - Executive buying as an enabler of global innovation. - Large-scale, focused projects with fewer suppliers. - A consistent information structure. Process II - Strategy into Action in Manufacturing • What? The 'Strategy into Action' initiative aims to deploy the global and regional manufacturing strategies through the organisation and down to the local shop-floor production environment. • How? Through a number of critical success factors (CSF), Unilever HPC aims for regional and local accountability, which drives global capability. Unlocking global economies of excellence, speeds and scale in the supply chain, Unilever aims to deliver exceptional top and bottom line growth. Unilever HPC Critical Success Factors Innovation Customer Cash for Growth Corporate Organisation Delivery Service Social and People Excellence Responsibility • Design for • Output • Operational • Environmental • Global and manufacture reliability efficiencies targets regional virtual • Early • Reduced lead- • Capacity utilisation • Employment sites (GVS/RVS) equipment times • Line speeds policies • Skills management • Late variant • Manufacturing development • Vertical ramp- additions savings programmes up (postponement) • Waste reduction Source: Unilever HPC, 2005 Strategic Deployment The overall divisional strategy will be split down for both categories and regions, and then translated into a category and regional supply chain strategy. This can then be communicated through the Global and Regional Virtual Sites, who play a key role in deploying the strategy locally through a series of work plans and scorecards. Unilever Key Learnings 1. Everything flows from the original vision and strategy. 2. Although a challenging process, it is imperative to have clear common key performance indicators in all territories. 3. Invest time in the operating framework, ensuring clarity of roles and accountabilities globally, regionally and locally. 4. Processes and information must be aligned to this framework. 5. It is important to invest in developing informal networks and relationships. Source: Unilever, Feb. 2005/IGD Research, 2006 26 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer Case Study - Zara’s Vertical Supply Chain Formats No. of Stores Zara 816 Kiddy's Class 143 Pull&Bear 414 Massimo Dutti 356 Bershka 344 Stradivarius 254 Oysho 139 Zara Home 101 Source: Zara UK, 2006 Zara Store, Casablanca Background Zara is a fast fashion retailer that has a highly responsive supply chain enabling it to get new fashions onto the marketplace in a matter of weeks. It is part of a bigger group of companies owned by Inditex. Inditex has over 2,500 stores across 400 cities in 58 countries generating sales of €66bn. It operates eight independent formats of which Zara is the dominant format. During 2005, Inditex opened 323 stores and by 2009 aims to nearly double its total number of stores to 5000. The most successful store opening in Zara's history was the 20,000 sq.ft. site located on Henry Street, Dublin. With no formal advertising, anticipation about the impending store opening spread quickly by word of mouth. Like most of Zara's store openings, all the directors arrived two days before the opening to unload the garments from the vehicles and merchandise the stock in store; encouraging feedback from junior staff on what works and what doesn't. Zara is driven by the introduction of new designs. A big selling item may well mean a store only receives ten of those items. The focus is on selling through, giving an air of exclusivity about the Zara brand. In turn building up anticipation amongst the customer on the next exciting new design to come into store. Zara’s model differs from conventional clothing retailers, it more closely emulates a ‘make to order environment’. It allows more stock to be made available during the season it is sold (in season). This helps to retain higher exit margins with subsequent 'markdowns' close to half the industry average (Source: Zara UK). Confirmed Stock Zara Industry Average 6 month pre-season 15-25% 45-60% Start of season 50-60% 80-100% In season 40-50% 0-20% Source: Zara UK, 2006 © IGD 2006 www.igd.com/supplychain 27
  • 1. International Supply Chain Barometer Managing International Supply Chains Vertical Supply Chain Zara operates a unique model in the fashion industry. It’s vertically integrated business undertakes a variety of activities in-house from design, manufacture, sourcing, distribution to running retail operations. 'Zara even sources the marble for its shop floors from its own quarry'. Balancing In-house and External Operations Supply of Fabrics Manufacturing 40% 40% 60% 60% Inhouse (Zara) External (Outsourced) Source: Zara UK Clearly, having a significant supply base in Spain is more expensive than sourcing from Asia - but the increased flexibility of producing to demand is an advantage. This is particularly true for fast fashion items where over 50% is produced in Spain and 26% from the rest of Europe. Asia is used more extensively to produce steady or permanent lines. All functions of the business continuously work together in teams able to produce new collections each season, which are updated and completed on a weekly basis, continuously renewing the fashion offer. Designers Attend international fashion events and Stores create designs. Merchandise stock, sell Modelists product and feedback Make patterns and comments and new sample garments. design ideas. Commercial Buyers Monitor sales patterns Source material and and adapt collections to negotiate with the tastes of each Distribution suppliers. country. Executives Manage the available stock with the orders required by stores. 28 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer The continuous feeding of ideas is a key feature of this chain from store staff inputting potential design trends to manufacturing extending the length of a sleeve of a particular garment to more fully reflect the average size of an individual in a country. As a new product is made available for sale, within 2 hours the manager's feedback the customer response and identify if it is a good or bad seller. Zara doesn't mark down its products because if the product is not selling they stop manufacturing it. They do hold sales, but only within two distinct periods during the year at the end of Winter and Summer. Stores order their own stock from an offer they receive twice weekly from the commercial managers who then have to negotiate the stock for their respective country of responsibility. Stores are ranked according to level of sales and forecast accuracy and receive priority orders as a result. New product is made available to countries after successful trials and is not pushed onto the stores. Commercial managers pre-warn countries of upcoming styles. Just as new styles are introduced, Commercial Managers decide the cut-off point when the product is considered unsuitable. This in turn helps to control the range density in- store. Distribution Nearly all of Inditex stores receive deliveries centrally from Spain. These highly mechanised distribution centres are dedicated to the individual store formats:: • Zara Logística (A Coruña) • Plataforma Europa (Zaragoza) • Tempe (Alicante) • Pull and Bear (Narón, A Coruña) • Massimo Dutti, Bershka and Oysho (Tordera, Barcelona) • Stradivarius (Cabrianes, Barcelona) Source: Zara UK, 2006 The depot in A Coruña is a cross docking facility where most of the stock is shipped onwards to Zara and not held for long periods on site.This is achieved by the 127km of moving rails that connects the DC to the manufacturing site on the opposite side of a road (product moves on rails under the road). Apart from a small warehouse in Mexico, the A Coruña warehouse sends out stock to all of Zara's stores twice a week. Typically order lead time from factory to store is 1-2 days. © IGD 2006 www.igd.com/supplychain 29
  • 1. International Supply Chain Barometer Managing International Supply Chains Materials Distribution Source: Zara UK, 2006 All product deliveries are made from the central sites in Spain. For international deliveries the product is delivered to the border of the country, and the corresponding logistics provider for that country takes over the distribution to the store. In Summary Zara's vertically integrated supply chain supports its fast fashion business model. It helps to increase the speed to market, getting a new product into store in a matter of weeks compared to months for a typical competitor. With no advertising costs it relies on the strength of its offer and the anticipation amongst it customer base to create awareness and brand recognition. In an environment where discounting is commonplace, Zara maintains a higher percentage of full price sales. Controlling all aspects of the supply chain gives it the flexibility to customise the garment to meet the changing needs of its customers all over the world. Source: IGD Research, 2006 30 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer 1.3 Outsourcing Key Points to Note • Seamless supply chain flow is a challenge for many companies operating across different locations, departments, and countries. • 60% of surveyed companies said that their warehousing activities were outsourced to a third party logistics provider, compared to 70% of companies who outsource their transport operations. • When supply chain is viewed as a 'non-core' activity, the levels of outsourcing tend to increase, but few companies have a lead-logistics provider managing their end- to-end supply chain. • In response to some of these complexities, some organisations are simplifying their logistics operations by harmonising contracts and reducing the number of operators used. 1.3.1 Penetration of Outsourcing to Third Party Logistics Providers In organisations where logistics is outsourced, the challenge for the supply chain teams is how to promote the seamless integration of product movement and supply chain management across locations, departments, and partner companies, whilst benefiting from the advantages of not having to manage all of the links in the chain directly themselves. To this end, many third-party logistics providers continue to broaden their service offering, and now aim to manage the whole end-to-end supply chain. The reasoning behind such initiatives is the ability to improve full supply chain visibility, thus driving efficiencies, and simplifying both reporting and event management for the customer. In response to this trend, IGD wanted to gauge the level degree of supply chain outsourcing that occurs across international markets. For both warehousing activities and transport movements, the survey asked respondents: • Is the supply chain managed internally, or is it outsourced to a third-party logistics company? • What volume of goods is managed in-house or via the third-party company? • Do you employ a lead logistics provider - that is to say, a preferred logistics company, providing extensive services? © IGD 2006 www.igd.com/supplychain 31
  • 1. International Supply Chain Barometer Managing International Supply Chains Warehousing In terms of warehousing activities, 60% of responses showed that warehousing was outsourced to third party providers, compared to 40% managed internally by the company. Of those 60% of companies that outsource their warehousing, 89% of responses said that this represented 50% or more of their total volumes, whilst 30% said that this represented all of their warehousing volumes. These results show that outsourcing is indeed highly prevalent within the warehousing part of the supply chain, and that when warehouse management is outsourced, it often represents a significant part of the company’s total volume throughput. In contrast, there are still a large number of companies who still manage their warehousing internally (40% of replies). In addition to legacy practices, or a strategic decision to control all parts of the chain, this trend could also be due to the fact that warehousing is often integrated into the production facility for many manufacturers, and so it would be difficult to separate the management of these two parts of the chain. Implications As companies review their supply chain operations, sometimes resulting in the rationalisation of production and storage activities.With rising cost pressures it is likely that an increasing number of companies will view warehousing as a 'non-core' activity, increasing the potential to outsource to a third party company. • For suppliers, this may well mean locating centralised storage, pick and distribution facilities away from the main production plants. • For some retailers, this will mean more warehousing activities are outsourced, as they focus on in-store execution and product sourcing initiatives. • The level of integration of third-party logistics companies within the international supply chain is therefore expected to increase over time. Source: IGD Research, 2006 Transport In contrast, the picture for transport activities is somewhat different. At nearly 70% of replies, more volume is outsourced and transported by third-party logistics companies, compared to only 30% of volumes being managed internally on companies' own-fleets. Of the 70% of companies that outsource their transport movements, over 56% said that all of their volume was outsourced. These figures confirm the pivotal role of specialist logistics firms in moving inventory within the food and grocery sector. When transport is outsourced to a specialist company, the client delegates all management of the movement of goods. It is due to this traditional view of the role of logistics firms that many of the sector's leading logistics companies are now focusing on broadening their service offering with a range of value- add activities and end-to-end management. 32 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer Lead Logistics Providers Aiming to become 'lead logistics providers' with integrated technology solutions, the larger logistics firms are moving up the chain towards the store environment, with both labelling and packing, and 'in-store' replenishment initiatives. Back down the chain, these companies are aiming to reduce the complexity and challenges of global sourcing and international freight management. Expectations and demand for quality integrated logistics services are just as high in more developing markets, and because of the heightened challenges supply chain professionals and Third party logistics service providers will be even more focused on driving efficiencies, reducing costs, and designing and managing more fully-integrated supply chain solutions. Some of the leading players in outsourced logistics, such as Exel, have created organisational structures that are regionally-based, thus concentrating on large geographical areas and the inter-linkages.This strategy presents growth opportunities in being able to offer integrated solutions, and simplifying the management of the supply chain for their customers. Third party logistics service providers, therefore, aim to get even closer to their customers, ensuring they remain focused on customer requirements. Some are even considering the prospects of joint inventory ownership and gain-share arrangements to drive further efficiencies and build stronger business partnerships. For those companies in IGD's survey who do have a lead logistics provider, the responses have been split by supply chain management structure, in order to see if there is any correlation between the way the supply chain is managed (regionally, nationally or internationally) and the logistics company employed to manage the flow of goods throughout the supply chain. Lead Logistics Provider by Supply Chain Management Structure Regional Management National Management International Management • Baylis x 2 • Stiller Osbourne Logistics • Exel • Suederelbe in Germany in the UK • DHL in the USA • "Depends on the country • CERT in the UK • Global Services in which the company • Celsius First in the UK x 2 • DHL operates" • ND Logistics in Czech • Maersk • Frans Maas in Europe Republic x 2 • Youngs Transport • Exel Danzer • Baylis in the UK • A local co-operative of • TNT in the UK entrepreneurs (Hungary) • Bougheys in the UK • ND Logistics in Europe Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 33
  • 1. International Supply Chain Barometer Managing International Supply Chains Overall, despite over 40% of responses stating that the supply chain was managed at an international level, companies often do not have a lead logistics provider.This means that organisations currently outsource their international supply chains to a variety of logistics operators. Whilst benefiting from local knowledge, flexibility, and sometimes cheaper rates, the variety of contracts can also add complexity into the supply chain - which in itself can increase costs - and can also make inter-company comparison difficult. Points of difference: • Müller Dairy, which manages its supply chain nationally, outsources all of their warehousing and transport logistics, but to a wholly-owned subsidiary of the Müller Group called Culina Logistics. • For secondary deliveries, Arla Foods often delivers direct to store, and this is managed in-house. However, for deliveries that will go into retailer distribution centres (RDCs), the vast majority of these are managed ex-Factory Gate, and so the transport element is managed by the retailer, either by their own fleet, or by a sub- contractor. Source: IGD Research, 2006 Implications In an aim to drive scale efficiencies across markets through improved visibility of logistics costs, many international companies are now stream-lining their operations and choosing to reduce the number of divergent contracts and/or the number of logistics operators in the chain. • A clearer view of costs and comparable key performance indicators will aide companies understand their real 'cost-to-serve', and for manufacturers, this can help in the development of service-based pricing initiatives. • For example, if a retailer requires specific value-add services (like labelling), then there will be greater insight into the real costs that this service will create for the supplying company, thus helping to protect profitability. Source: IGD Research, 2006 When a lead logistics provider is used, there is a concentration of companies being cited, which includes, perhaps unsurprisingly, the international logistics giants of DHL, Exel and Maersk. Through international integration and consolidation, DHL-Exel being a prime example, these companies have been at the forefront of moves to offer end-to-end solutions. IGD believes that this trend can only increase as both suppliers and retailers continue to internationalise their operations and seek global supply chain solutions. 34 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer 1.4 Supply Chain Challenges Key Points to Note • Demand Planning & Forecasting, Retail Packaging, and New Product Introductions are the top three supply chain challenges in IGD's international supply chain survey. • Collaborative planning between manufacturers and retailers can bring solid business improvements, particularly when considering the in-store availability challenge. • Retail Ready Packaging continues to be a hot industry topic, and 2006 will see the challenges and benefits being further debated. • Other key issues include understanding true cost-to-serve; increasing fuel costs; and the need for improved management information. In order to understand the challenges that international supply chains are facing, IGD's international survey asked companies to highlight: • their main supply chain issues • whether these differed by international market • and also to share their main top three supply chain projects Whether there are any supply chain issues that have truly global implications can be debated, but the companies surveyed found the below issues to be of particular relevance. 1.4.1 What Key Challenges are Facing Supply Chain in Your Area of Operation? Key Supply Challenges Challenges Facing Supply Chain Percentage of Replies i. Demand Planning & Forecasting 72% ii. Retail Packaging 54% iii. New Product Introductions 54% iv. Fuel Costs 48% v. Availability 44% vi. Multi-Modal Distribution 24% vii. Labour Shortages or constraints 22% viii. Shrinkage 15% ix. Other 9% Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 35
  • 1. International Supply Chain Barometer Managing International Supply Chains i. Demand Planning and Forecasting Clearly, the biggest supply chain challenge facing the international supply chain, with 72% of replies, is demand planning and forecasting. With two thirds of respondents being FMCG suppliers, the ability to accurately plan and forecast demand is the number one issue for manufacturers within the food and grocery industry. Improvements in this area would help ensure production targets, service levels, and availability targets are consistently met. Specifically, effective demand planning for short shelf-life products in highly promotion-led categories proves particularly challenging, and with promotions being increasingly used as a key competitive tool, then successful event and promotional planning and forecasting can make a real difference to the success of any initiative. Taking a more holistic view of the supply chain can facilitate improved planning and forecasting. This can come about though closer working relationships and a greater understanding of the impact of one decision on other parts of the chain. • Sales managers should know that over-forecasting brings additional stocks into the business, and hence increased storage, shrinkage and write-off costs for unusable items. • Merchandisers should know that the over-ordering of products leads to greater volumes of sale discount or mark-downs. • Whilst supplier managers should know that the over-production of one product can lead to higher stocks of what you do not want to sell, yet lower stocks of what you do want to sell. Amplification of changes in demand - termed the ‘bull-whip effect’ - can have knock-on effects in the supply chain. Whilst demand at the retailer’s till may be relatively constant, replenishment ordering in full truck-loads, minimum batch/order quantities, the mis- receipt of deliveries, additional ordering due to unreliable supply, and poor in-store implementation and compliance can all distort real shopper demand. This often translates into huge peaks and troughs in demand placed further back into the supply chain. This demand fluctuation can create uncertainty in the chain, which can impact on capacity and inventory levels. This pressure on space and handling efficiencies subsequently affects productivity and shrinkage. Perhaps even more importantly, incorrect demand forecasting and demand can adversely affect sales targets and profitability. Collaboration IGD believes that integrated demand planning processes and tools will not only aid internal operations, but also when used collaboratively, can improve relationships between supply chain partners. In this way, the following case-study illustrates an end-to-end supply chain initiative, with particular focus on in-store implementation and product availability, and how through working together the supplier and retailer can unlock both sales growth and improved business relationships. 36 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer Case Study - Superquinn & Coca-Cola HBC (Ireland) ‘Availability for Impulse - Collaborating to deliver 30% growth in category sales’ Superquinn and Coca-Cola HBC were among six companies brought together by ECR Ireland to work at improving on-shelf availability in the Republic of Ireland. IGD, with experience of running similar programmes in the UK, organised and facilitated the end-to-end project. Retailer-Supplier pairings were pulled ‘out of the hat’ and cross-functional teams were put together from Logistics, Category Management, Store Management and Commercial. An ambitious pace of business improvement and personal development was maintained through regular reporting back on progress, measures and results to the other project teams, company sponsor directors and IGD facilitators. The Learning Programme Project Plan Web-based reference material On-Boarding meeting 01/02/05 Measure and understand 1 Priority meeting 01/03/05 Measure and understand 2 Progress meeting 30/03/05 Redesign and pilot Progress meeting 02/06/05 Roll-out and sustain Evaluation meeting 27/07/05 Jan Feb Mar Apr May Jun Jul Source: IGD Research, 2006 Phase 1: Measure and Understand On-shelf availability (OSA) needs to be measured and analysed to avoid action – or non-action - being based on myth or gut-feel alone. The first set of data gathered by Superquinn and Coca-Cola HBC showed good availability, but major opportunities came to light when more thorough analysis was undertaken. At first internal ‘Not-Available-For-Sale’ audits completed three times a day, over a two- week period, and across four locations gave 98% OSA. At this point, there was a high likelihood that Superquinn and Coca-Cola HBC could have walked away from the project after this first analysis, if they had not had the prospect of having to report their findings to other project teams, sponsor directors and IGD facilitators. © IGD 2006 www.igd.com/supplychain 37
  • 1. International Supply Chain Barometer Managing International Supply Chains Results from initial analysis Store EPOS sales by SKU by day were then tracked for two weeks using lost sales analysis.Whilst this revealed a ‘Take Home’ OSA of 94% and a ‘Multi-packs’ OSA of 94%, ‘Impulse’ lines and ‘New Items’ recorded an OSA of only 80% and 71% respectively! Independent audits across thirteen stores and the top twenty Impulse SKUs gave an even lower Impulse OSA of 77%. The project team at Superquinn and Coca-Cola decided to focus on Impulse because of the very high level of lost sales and their high margin. Project Definitions • The team defined Impulse as “chilled immediate consumption beverages across carbonated soft drink, juice, water, energy and sports.” • The definition of OSA included “all placements for each key consumer occasion: Main Shop, On the Go and With Food.” Further analysis revealed inconsistencies in the number of SKU’s listed per store (e.g. ranging from 8 to 49) with some stores not stocking any of the top ten lines due to space allocation and lack of planogram compliance. Superquinn had given the category lower than average category space and consequently had the lowest Impulse mix of business versus their competitors. Objective ‘To develop and implement a comprehensive impulse activation plan which will maximise On Shelf Availability for each of the core consumer occasions.’ Performance Measurement The success of the project will be measured against the following criteria: • Impulse mix within category from 5% to 11% • Planogram compliance from 61% to 95% • DC stock holding down to 10 days • On-Shelf Availability from 77% to 98% • Impulse category sales growth by 25% Phase 2: Redesign and Pilot The emphasis here was to develop and test solutions locally, achieve early wins, motivate others, and learn by doing: • Six test stores were selected, representing a cross-section of Superquinn shopper occasion mixes. • Across the trial stores, the Impulse range was rationalised to ensure listing of the top selling SKUs, maximise availability and increase consumer satisfaction. • Assets were audited and planograms developed accordingly. • An ‘Impulse Planogram Champion’ was identified in each store to raise any range and planogram compliance issues with head office and suppliers. 38 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer • ‘Impulse Beverage Centres’ were created as part of the Main Shop pattern. All suppliers were involved so all available assets from the total industry could be employed to generate early returns in 2005. The alternative was to design ideal solutions for Superquinn, put assets on order, but wait until 2006 for a return. Superquinn Stores Source: IGD Research 2006 Space allocated to Impulse Soft Drinks across all stores was reviewed with each Store Manager. This increased the opportunity to purchase a chilled soft drink in store ‘With Food’ and increase basket size for consumers purchasing food-to-go. Assets were also placed in the ‘On The Go’ shopping path, for example near delicatessen counters, at the checkouts, and near the kiosk area. In-Store Equipment On The Go Sandwich Unit On The Go Hot Food Counter Unit In-Store Locations Checkouts Kiosk Source: IGD Research © IGD 2006 www.igd.com/supplychain 39
  • 1. International Supply Chain Barometer Managing International Supply Chains Phase 3: Roll-out and Sustain The approach taken in the trial stores and the lessons learnt were rolled out to all stores. Planogram compliance audits were undertaken every six weeks, OSA audits every eight weeks and range reviews every twelve weeks. Results versus Target • Impulse mix within category from 5% to 11% 10% • Planogram compliance from 61% to 95% 85% • DC stock holding down to 10 days WIP • On-Shelf Availability from 77% to 98% 93% • Impulse category sales growth by 25% 30% Source: IGD Research The range was reduced by 100% and aligned with the market coverage, which reduced ‘off- sales’ and increased consumer satisfaction. Stockholding has been adversely impacted, however, by a move to full pallet ordering, especially on new lines. Attention is to be paid to adjusting thresholds for ordering full pallet quantities and changing to layer ordering for new lines. All Shops achieved OSA above 92%. The trial stores achieved 100% availability. Trial stores over-performed due to increased focus, communication and education. These fundamentals continue to be delivered to all stores to maximise availability. There was a proved direct correlation between planogram compliance and increased sales. The above work has grown the impulse category by 30% in Superquinn. This is 50% higher than the category growth across all supermarkets. Key Learnings Beyond the improved business results already summarised, the Superquinn and Coca- Cola HBC team highlighted the following benefits from engaging in the structured collaborative learning programme: • Open and honest dialogue and great cross-company team working. • Whole process perspective of product demand and supply chain. • Discovering quick and simple wins that would only be found through dialogue. • Bias for action: by piloting a solution quickly to generate immediate wins, rather than waiting for an ideal solution. • Better understanding of each business at head office and local level. • Additional opportunities identified and dialogue progressing. Source: IGD Research, 2006 40 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer ii. Retail Packaging With 54% of replies, retail packaging continues to be a ‘top of mind’ supply chain issue for the food and grocery sector, as some of the major international and market leading retailers focus on ways to streamline the in-store replenishment process. In recent IGD research, better on-shelf availability is number one on the wish lists of shoppers, ahead of shorter queues and products being easier to find (IGD Research, 2005). Retail packaging is not only about the in-store experience though, and organisations are also investigating how they can influence and improve the flow of product and packaging solutions through the distribution network. RRP Applications Aldi RRP transit solutions Tesco Source: IGD Research, 2006 ECR UK published its first Blue Book on Retail Ready Packaging (RRP) entitled ‘Retail Ready Packaging – Getting Started on the RRP Journey’ in July 2005, with both Tesco and Unilever at the leading-edge of this initiative in the UK. After helping define the term RRP, ECR UK is now working on developing guidelines and standards for branding and symbols, amongst other attributes, to help ensure co-ordination between various retailer demands, and the ability of international manufacturers to respond accordingly. At a European level, Carrefour and Metro have also started to make moves in this area, and ECR Europe has formed a Workgroup to co-ordinate the various national initiatives. iii. New Product Introductions New product introductions (NPI) also prove to be a key supply chain challenge, and equally received 54% of survey replies. Recent work within ECR UK on the subject of availability and new product introductions – in ‘Availability 2005 – Closer to the Shelf’ - highlighted the need for joint retailer- manufacturer business planning, and especially the need to review the success of the implementation. With up to a third of products changing, or churning, every single year, it is imperative for organisations to ensure that the associated investment is adding shopper value, and that new products are reaching the shelf in-time, and in the right quantities, and at the right distribution.The level of discussion and agreement between retailers and suppliers on an NPI forecast can vary considerably, as can the level of detail of the forecast. © IGD 2006 www.igd.com/supplychain 41
  • 1. International Supply Chain Barometer Managing International Supply Chains Process Flow at Each Stage of Implementing NPI to Store Phase Out Execution Mark down & clearance Forecasting Planning Developed for both Phase in Execution Review Aligning Retailer & phase out of old order, deliveries & (KPIs, exceptions) Supplier Join product and phase merchandising Objectives in NPI Source: ECR UK, 2005 Often linked to the issues associated with NPI, some companies mention the challenges of discontinued lines. In this way, ECR UK advised that a clear exit strategy for end-of-line products can be highly influential on the success of the implementation of the new line. There are many options that need to be considered for an effective ‘phase-out’ process, including local versus central decision-making, whether mark down is prior or post NPI launch, and whether the supplier takes the costs, or these are shared with the retailer. iv. Cost-to-Serve Initiatives The difficulty in attributing costs to a varied product portfolio, have been cited as an area that continues to challenges suppliers, both large and small. In addition to specific product attributes, the quantity and frequency of order replenishment for different retail customers can have a significant effect on supplier operational costs, especially full-pallet picking versus layer or single-picking. It is important for suppliers to understand the real costs associated with servicing a given customer, so that the account’s true profitability can be accurately accounted and reflected in further commercial discussions. v. Fuel Over the last year in particular, the increases in the price of fuel, due to capacity issues and security of supply, have increased the costs of doing business for many organisations. Almost 50% of survey replies cited fuel costs as a supply chain issue for their organisation. It is expected that fuel costs will continue to be a burden on organisations for the foreseeable future. When combined with skilled labour shortages in some markets, IGD maintains that initiatives which focus on even greater distribution efficiencies will become increasingly important. 42 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 1. International Supply Chain Barometer vi. Internal Relationship Management It is important for organisations to create the right internal relationships, both within departments and cross-functionally, in order to ensure the organisation is truly focused on supplying not only the customer, but also the shopper. After all, in strategic terms, ‘operational capability’ can only come about if a business is managed as a joined-up set of supply chain processes. Within this view, departments run as silos, concentrating on their own goals, ignore the impact they have on the efficiency of their internal customers within their own organisation, and the ultimate consequences for the external customer. vii. Management Information The ability to transform data into business critical management information in a real- time environment also continues to challenge some organisations. As supply chain visibility improves, through both physical integration and system tools, and more data becomes available, it is important for companies to be able to access and interpret that information quickly and simply, so that action can be taken when required, in a timely fashion. At the operational level, the role of the logistics team in providing information should not be underestimated, particularly when outsourced to a third-party logistics provider. In addition to information on the geographical flows, the optimisation of payload (vehicle fill-rates), costs per square metre, and assistance with identifying inefficient or non-cost- effective deliveries, the logistics operator can also provide information on the supplier’s loading performance, and the receiving retail warehouse performance. There are even examples where waiting time is a key performance indicator for staff reward. Queuing, whether at collection or delivery points, is often considered the single greatest waste in the transport sector. As penned by R. Boughton in 2003, vehicles should not be viewed as “low-cost warehousing on wheels” and so reductions in delays and queuing , should be of primary focus for supply chain managers. Conversely, the reliability of the transport carrier in being able to meet their designated delivery window is also a key performance indicator that should be readily monitored and managed by the warehouse teams, in addition to the cleanliness of the vehicle and the available space. viii Shrinkage Whilst supply chain shrinkage as a key supply chain issue only accounts for 15% of survey replies, other supplier companies quote high levels of claims from retailers for over and under deliveries into their receiving depots. The supplier often finds it is unable to prove the contrary, but believes that these discrepancies are due to mis-counting at the receiving depot, as opposed to real delivery errors. © IGD 2006 www.igd.com/supplychain 43
  • 1. International Supply Chain Barometer Managing International Supply Chains In ECR terms, this type of loss would be considered as shrinkage, and could be tackled in a pro-active way by ‘walking the chain’ and identifying process gaps. Solutions could include improved retail packaging, clearer paperwork, or even rounded order quantities, so that full layers and/or full pallets are delivered, thus reducing the opportunity for mis- picking at the supplier, and mis-counting at the retailer depot. ECR Europe’s survey into supply chain stock loss in 2004 cites ‘process failure’ as the single largest reason for shrinkage in the FMCG sector. (source: ‘Shrinkage in Europe: A Survey of stock loss in the FMCG sector, 2004’). For further details of ECR UK activities, and free downloads of any Blue Book best practice guide, see (www.igd.com/ecr). 44 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation 2. Supply Chain Optimisation Summary • Pressures for greater supply chain optimisation include global sourcing, increased promotional activity, price sensitivity and cost pressures. Companies are responding through a variety of supply chain initiatives to help maintain total costs, service levels, availability and accurate demand planning. • Traditional methods of driving logistics efficiencies, such as tariff management, full- load deliveries and competitive tendering, now combine with cross-docking, consolidation, and leading-edge technologies to create a significant business improvement tool-kit. • Whilst some companies are moving into large-scale centralised distribution parks, that will sometimes service several countries from one single location, others are selling off their warehousing assets, and then leasing them back, thereby reducing capital commitments and injecting cash into the business. • Warehouse automation continues to prove that technology can bring significant operational benefits for some companies. Other new technologies like RFID/EPC and the benefits of Global Data Synchronisation remain industry talking points, but there are still a number of challenges that continue to limit widespread adoption. • Transport costs account for a significant proportion of total supply chain costs, and these are being challenged across many international markets by fuel cost increases, legislative changes, road tolls and a lack of investment in transport infrastructure. • Factory-gate collections and cross-docking practices are becoming more widespread, as retailers in particular understand the real benefits of increased inbound cost visibility, and the opportunities for integrating transport fleets. • Inter-modal activity is on the increase across Europe in particular, as more and more companies look to move freight back onto the rail and canal networks.There is also a growing trend for short-distance sea-shipping. Logistics service providers want to capitalise on improvements in these linkages to offer full end-to-end supply chain solutions. © IGD 2006 www.igd.com/supplychain 45
  • 2. Supply Chain Optimisation Managing International Supply Chains When the supply chain is performing well, it is delivering the best service levels at an efficient cost. This has often been achieved through regularly tendering for new tariffs, delivering full loads, holding safety stocks and implementing operational excellence initiatives. But a number of factors have been impacting on the supply chain, adding extra complexity and increasing pressure on costs, service, availability and the need to accurately plan and forecast demand. Pressures for Greater Supply Chain Efficiency More Promotions Global Sourcing & Congestion Longer Lead-Times Costs Retail Service Levels Packaging Availability Price Sensitivity Demand Planning Skilled Labour Fuel Costs Shortages New Product Introductions Source: IGD Research, 2006 One of the responses to these pressures has been a trend for more frequent deliveries from suppliers to retailers, and onward into stores. But this solution also impacts on costs in terms of more transport, reduced order sizes and increased picking activities. In addition, there are concerns over the environmental impact of a growing number of trucks on already congested road networks, skilled-labour shortages, increasing fuel costs, and heightened price-competition in the marketplace. Solution Sets Then Now • Tariff Management • Centralised Distribution Hubs • Full Load deliveries • Warehousing Sale & Lease-Back • Safety Stocks • Consolidation & Shared User Initiatives • More Frequent Deliveries • Vendor-Managed Inventory • Routing efficiencies • Cross-Docking & Factory-Gate collections • Competitive Tendering • Increased use of Technology Source: IGD Research, 2006 Subsequently, in the continued quest for end-to-end international supply chain efficiencies, companies are now employing a catalogue of warehousing and transport solutions sets, in addition to the more traditional methods. 46 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation 2.1 Optimisation Through Warehousing Key Points to Note • There is a growing trend for new, state-of-the art large-scale warehousing facilities, which will sometimes service entire countries from a single geographic location. • There have been many recent reports of companies around the world selling off their warehousing facilities to generate additional cash, and then leasing facilities back from the new owners. • Businesses have an overall aim to reduce inventory, and improve service levels; inventory consolidation and shared-user initiatives are increasingly common particularly for relatively slow-moving ambient product lines. In terms of warehousing, there have been high levels of focus on reducing warehousing space and facilities, inventory, and administrative costs. Solutions include: consolidation, systems investments, distribution centralisation, inventory reduction, and financial tools to reduce fixed capital investment. 2.1.1 Centralised Distribution Hubs The location of warehousing facilities impacts considerably on costs, time, fuel, vehicle routing, inventory levels, and staffing. As such, location will be a major consideration in supply chain business strategy, aiming to maintain both flexibility and customer-focused performance. Despite a growing preference for more regional distribution centres, where return vehicle trips can be made in one day, and more than one location can be serviced; there has equally been a growth in the use of centralised distribution hubs, some of which will serve several countries. In an increasingly-complex business environment, both retailers and suppliers are rationalising their distribution networks and driving stocks through fewer, but often larger, warehouses. Key Focus - Distribution Parks The world's largest provider of larger warehouse facilities - US-based ProLogis has been at the forefront of these trends. The Chanteloup industrial park at Moissy- Cramayel on the outskirts of Paris is a prime example. Due for completion in three years it is estimated to be the size of approximately 350 football pitches, it will house eleven warehouses offering a total of 280,000 square metres of space. One warehouse is already expected to be used by Danone, the food manufacturer, to distribute across France. Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 47
  • 2. Supply Chain Optimisation Managing International Supply Chains Of course, gaining planning permission for such large developments is not always a simple process, particularly when using green-field sites. The environmental credentials of any such development are therefore of high importance, and these could be in terms of newly-planted woodland, solar panels on the roofs, landscaping and even the collection and re-use of rainwater. The challenge of finding appropriate locations for warehouse facilities in the densely- populated urban centres has led companies like ProLogis to provide innovative solutions, and in urban Japan, for example, urban warehouses can be built several storeys high. Case-Study - Mattel, European Distribution The Business Mattel is the world's number one toy manufacturer, with brands such as Barbie, Matchbox, Fisher-Price and Scrabble. Despite a highly seasonal business, where volumes increase 50% in 90 days towards the end-of-year celebrations, the business does vary by country, in terms of: order types and drop sizes, lead-times, returns policies, delivery windows, pallet management and the holiday seasons. In response to this market, Mattel has restructured its logistics network, by reducing the number of distribution centres, defining an outsourcing strategy, whilst maintaining a European-level logistics process. As for the product itself, there are less than 2,000 skus, but these are fashion-driven and so there are not so many slow-moving lines; the products are imported largely from the Far East, which impacts on lead-times; and logistics costs are sensitive to road- transport variables. The Choice The choice of network structure can seem relatively simple: Decentralised distribution Regional distribution Centralised distribution in each key market across the whole of Europe Advantages Quicker lead-times for Gain the best of Greater inventory and fixed bulkier lines, customised to decentralised and costs synergies, greater each market needs, clearer centralised distribution by control and enables accountability, and creating distribution business focus. flexibility in delivery. clusters based on cultural and market similarities. In reality, the options are much more complex: • Will all warehouses carry the entire sku range, both European and Asian production? • Will warehouses have specific functions e.g. centralised parcel deliveries? 48 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation • Will inventory be split based on sales velocity e.g. centralised slow-moving goods warehouses? The final choice will be driven by the nature of the business, including centre of gravity, lead-time requirements, parcel vs. full load ratios, and tolerance to crisis and contingency options (e.g. fire and labour strike). Company culture will also play a part. The Results Between 1997 and 2000, Mattel Toys Europe moved from a decentralised supply chain network to a regional supply chain network, reducing the number of distribution locations from circa 15 to only four sites with some platforms in Eastern Europe. The four key facilities, which service other regions of Europe include: Daventry (UK - Wincanton), Oss (Benelux & Scandinavia - Norbert Dentrassangle), Lyon (France & Spain and Portugal - Norbert Dentrassangle), and Ollegio (Italy - Mattel). It is important to note that the inventories were not merged and are not shared. Stock is committed to one country. In terms of the wider supply chain, where many business processes in the past were all managed at a local level, these moved to more regional/global management, including service procurement, IT support, strategic planning, and the management of the DC's and transport, whilst forecasting and sales administration moved to local management with global and regional guidelines. Benefits of Regionalisation • Control and transparency in cost, service and cash (inventory reductions) • A focus on investment in modern distribution centres with new technology • An ability to attract talent into the organisation • Allows the business to concentrate on its core activities Mattel Learnings • KPI's and consolidated processes are needed before the change • It is important to select the right team of people and business partners, as the change process can be challenging • Speed of implementation is important, as the priorities change • Assumptions will change throughout the project, so 'what if' scenarios are important • Consider the benefits of outsourcing • It is not only about closing and opening distribution centres, but about multi- cultural communication, aligning business processes, creating and organising a pan-European team, and having European-level systems and KPI's • Do not underestimate the impact of seasonal volume increases, which can require temporary warehousing solutions, and can impact on service levels • In order to ensure a cohesive plan, it is important to have a structured approach, where the base-case scenario is validated by operational specialists, and to ensure that people do not renegade on the original objectives of the project Source: Mattel, 2005/IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 49
  • 2. Supply Chain Optimisation Managing International Supply Chains 2.1.2 Warehouse 'Sale and Lease-Back' Schemes Whilst sale and lease-back schemes for retail stores are common place, this has been a growing trend within supply chain.The process involves companies selling their portfolio of property assets, which can represent significant value, particularly in high-cost property markets, and then leasing them back off the holding company. This allows companies to release capital back into the core business to fund significant business improvement and change initiatives, and can impact on overall profitability measures, not least by reducing debt. Key Focus - Sale and Lease-Back Casino Groupe, France Casino Groupe in France has announced plans to sell 13 warehouses, covering a total of 418,000 sq. m. to a real estate business for €201.5m pre-tax. Once the deal is completed during the first-half of 2006, twelve of the warehouses are being leased back by Easydis, Casino's wholly-owned logistics company. It has been announced that the sale will allow a cut in net debt of €188m and have a positive impact on profit. Woolworths, Australia Woolworths has been reported as selling 11 large-scale distribution facilities worth approximately $850m.The aim of this initiative is to minimise costs, and not necessarily maximise the selling price. Woolworths is interested in the attracting the lowest possible rent from the future owner (s), whilst maintaining operational control. Karstadt, Germany Karstadt has announced plans to sell more than €400m worth of real estate, consisting mainly of distribution centres, in addition to the sale of nearly half of its stores. As part of a re-structuring programme designed to rescue one of Europe's largest department-store chains and eliminate the company's debt levels in 2006, Karstadt has been using sale and lease-back initiatives as a key mechanism in combating its difficulties. By the end of 2005, the company hopes to have already reduced its debt to €2.8bn from €4.3bn in September 2005. Source: IGD Research, 2006 2.1.3 Consolidation and Shared-User Initiatives Another increasingly common trend has been the growth in the number of shared-user warehouse schemes, where product from several manufacturers is housed at the same facility. The enthusiasm for this type of collaboration in the primary network is born from a desire to reduce total inventory levels, reduce the number of less-than-full truck loads being delivered into a particular retailer's warehouse (thus improving productivity), whilst improving service levels to stores and gaining better on-shelf availability for the shopper. In this way, through working collaboratively, a number of companies have achieved significant business benefits from consolidating, or pooling, stocks into one shared warehouse. 50 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Case Study - Carrefour, France, 'Pooling' The Business Carrefour is the number one retailer in France and Europe, and is the number two retailer worldwide, with over 11,600 stores in 31 countries across various formats: Hypermarket, Supermarket, Cash & Carry, Discount and Convenience. By moving from a stock management strategy to a flow management strategy, which incorporates both primary supplier networks and secondary store deliveries, Carrefour seeks to create value by maximising shelf availability. In this way, the Consolidation, or Pooling, of products has offered Carrefour the greatest opportunities for increased supply chain efficiencies. Creating value along the total chain, bringing business process improvements, and having a number of methods of implementation, pooling has been implemented by Carrefour in a number of countries, including France, Poland and China (see Chapter 3). Context Two suppliers (Vania and Henkel) are using the same pre-existing warehouse, which is managed by TNT. Vania delivered once every two weeks and Henkel 1.5 times per week, and so deliveries were not full truck loads and there was too much inventory in the supply chain. Aim To reduce supply chain costs to enhance the product price and improve availability for the shopper. Process Deliveries are combined on trucks going into Carrefour regional distribution centres. An agreement on the pallet split by truck for each Regional Distribution Centre (RDC), and any change is communicated and agreed by email between the two suppliers. Pilot Phase Benefits (across two RDC's in April 2004 and 3 more RDC's in July 2004): • Service levels were above 99% and better than the average • Stock levels reduced by 20% • Full truck load rate moved from 79% to 98%, having a positive impact on transport and unloading costs • There was a higher delivery frequency, moving to two deliveries per week. • The speed to shelf improved by three to six days Roll Out (from 2005 onwards) • Deployment to all RDC's and plans to add another supplier into the pooling process © IGD 2006 www.igd.com/supplychain 51
  • 2. Supply Chain Optimisation Managing International Supply Chains Carrefour's Key Learnings on Pooling: 1. Internal organisational collaboration is a pre-requisite for this type of initiative, where both commercial and supply chain teams need to have knowledge of the process and the benefits, and that the buying team is fully on-board. 2. In this way, supplier consolidation initiatives involve all supply chain parties (retailer, supplier and logistics provider). Local resistance from suppliers may require some time in negotiations, and the logistics service provider plays a key role in facilitating the implementation and process management. Although there can be an initial reduction in revenues for the service provider, and an element of win- lose for the supplier, there are longer-term benefits to be gained. 3. For all parties, the importance of the planning and preparation phase of the initiative should not be under-estimated. 4. Consolidation can offer many efficiency gains, including reductions in supply chain inventory, driving down the full supply chain costs for the supplier and retailer, and enhancing shopper satisfaction through improving on-shelf availability. 5. The pooling of suppliers can bring positive results in various markets, from mature markets (France) through to new and emerging markets (Poland and China). It can be somewhat easier to implement in emerging markets, because lower volumes allow for changes in process, and the distribution network is less developed. Pooling can take longer to develop and implement in more mature markets. Source: Carrefour, Oct. 2005/IGD Research, 2006 Case Study- Gruppo PAM and Number 1 Logistics Group, Italy The Businesses Gruppo PAM, an Italian retailer, has over 850 outlets with a turnover of over €3.7bn, and operates across various formats: Hypermarket, Supermarket, Franchising and Discount, including PAM, Supéral, Panorama and iN's Mercato. Number 1 Logistics Group is a leader in the food & grocery logistics market, specialising in shelf-life management, traceability and recall processes, has 30 self- managed sites, and generated a turnover of €277m in 2004. Context Italy is a highly-fragmented retail market, with the top five retailers having only 30% of the market, compared to over 70% in France, Germany and the UK, and over 600 distribution centres across the country. The lower power-base of the retailer contrasts markedly with the vendors, where higher concentration is seen by 50% of retailers using only three buying groups. 52 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation In response to these dynamics and the challenges of less-than-full truck deliveries, logistics firm Number 1 Logistics Group - a spin-off from Barilla - has been at the forefront of a consolidation initiative in Italy through their 'efficient delivery system' called SYNCHRO club. This is not a Vendor-Managed Inventory (VMI) initiative, but is based on consolidated direct deliveries into the retailer distribution centres through a central warehouse managed by Number 1 Logistics Group. Aim To reduce the transport flows, reduce costs, and improve service levels by changing the replenishment method into the retailer DC's, through consolidating suppliers and treating them as one single 'macro' supplier. Process • 4 PAM DC's - Venice, Milan, Florence and Rome, with one delivery per week for the two smallest warehouses, and two deliveries per week for the two largest sites. The hub in Milan holds ten suppliers. • A fast delivery lane with fixed delivery windows, with a pallet exchange system. • An Open-book approach between Number 1 and PAM, with benefit share of transport savings. • An alignment, if possible, of all supplier delivery dates into the retailer DC, but with no change in delivery frequency or required quantities. Emergency deliveries are still allowed. Source: Number 1 Logistics Group, 2005 Benefits • Service-level improvements, with on-time deliveries improving from 93% to 98%. • Inbound traffic from Number 1 into PAM's distribution centres has halved. • Average transport cost saving of 12% (range 5% to 15%). • Stronger relationships between supply chain partners. • Number 1 now rolling out to over 30 retailer DC's. Source: Gruppo PAM/Number 1 Logistics, 2005/IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 53
  • 2. Supply Chain Optimisation Managing International Supply Chains Key Focus - Reckitt Benckiser France, Shared-User Networks Reckitt Benckiser has been carrying out multi-pick distribution in France, through two manufacturers delivering into retailer distribution centres together. Although this initiative is helping drive supply chain efficiencies, overall supply chain costs were still viewed as increasing. There is also the added administrative workload and complexity of multi-pick, and the company reported no clear visibility of improvement in on-shelf availability. Subsequently, Reckitt Benckiser has taken the collaborative approach one step further through a shared-user site initiative, and this has shown that overall supply chain costs can be at least maintained. The company believes that any decision to pool resources requires high-level principle agreement, engagement over several years, and a two- step process, moving from partial volume transfer to full transfer. In order to choose the right partner, the products should be complementary (but not necessarily direct competitors), existing relationships need to be strong, and there needs to be an over-arching desire to be pro-active. Source: Reckitt Benckiser, 2005/IGD Research, 2006 54 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation 2.2 Technology in Supply Chain Key Points to Note • Where products are fast-moving and labour costs are high, companies continue to investigate the productivity benefits of large-scale warehouse automation. The process is complex, and the investment significant, and so businesses must ensure long-term market stability. • Whilst the opportunities that RFID/EPC technology offers the industry are significant, there are still a number of equally important obstacles to widespread implementation, not least the ability to create a solid business case for the large- scale investment. • The sharing of accurate product data between trading partners could offer significant business benefits, including sales and productivity gains. 2.2.1 Automation and Automated Distribution Centres Although automated processes have been used within logistics facilities for several decades, it is only in recent times that large-scale highly-automated distribution centres have become a reality across the industry. The main reasons for choosing this type of hi- tech solution are generally because of high land costs and/or high labour costs, and so there are more examples in Europe (particularly the UK, Germany and Belgium) than in Asia or the Americas, where the costs of both land and labour have tended to be lower. It is true to say that demand for automated facilities is particularly prevalent amongst fast- moving consumer goods (FMCG) manufacturers and retailers. The costs of any large-scale automation project are not to be under-estimated, and could typically reach £30 to £50 million for a single site initiative. This would include: • land acquisition • building construction • the commissioning and installation of the automated equipment Before embarking on an automated facilities strategy, companies need to: • ensure that size and market position justify the expenditure • the solution is flexible enough to respond to changing markets demands • the market opportunities are long-term in a stable environment As such, it is not unreasonable to envisage a 10 to 15 year time horizon. © IGD 2006 www.igd.com/supplychain 55
  • 2. Supply Chain Optimisation Managing International Supply Chains Benefits of Automation Challenges of Automation What to Watch Lower long-term operating costs. High initial capital investment. Software specification and configuration - the best-designed solution will still fail to deliver the desired results if the software is poorly configured. The marginal cost of volume It can be difficult to adapt if Training - despite automation, people are still increases is much less than with significant business changes occur. employed in a whole variety of roles, and these manual systems. people need to understand the systems and processes in detail, and ideally to have used them before the facility 'goes-live'. Improved accuracy in picking and Automation represents a long- Exception Management - systems must be loading. term commitment, from which it is designed to be able to manage the exceptions in a not easy to disengage. user's business model, no matter how small, because any level of manual intervention or reconfiguration is likely to increase costs. Improved productivity and speed There is a requirement for long- of response. term planning and vision, well in advance of implementation. Source: Exel, 2005/IGD Research, 2006 In order to justify this level of fixed asset investment, the company must generate high enough order volumes for automation to really generate the labour cost savings, hence the prevalence in the FMCG sector. One leading service provider has suggested 400,000 pallets a year for a manufacturer, and one million cases a week for a retailer, depending on the business complexity and the order structure. The Process Analysis • Business information, assumptions and projections are analysed and tested to establish an appropriate solution that matches the user's needs. • Through simulation modelling systems, data and order structures are examined to ensure that the volumes can yield significant margin savings through an automated-handling solution. • It is vital that certain criteria are established before any solution is established, including: order structure, lead-times, delivery profiles (week, month and year), contracted service levels and quality, and any growth assumptions. Pre-Requisite • One key element of any eventual automated warehouse solution is the core warehouse management system, which will act as the 'nerve-centre' of every automated process within the facility, and will be integrated with each specialist piece of equipment. • In order to ensure success, testing often occurs before equipment is brought to the site, off-line as a fully-integrated system, and then finally on-site with simulated or actual volumes. Options • In terms of what can actually be automated within the facility, there are a whole host of possibilities, from pallet storage and retrieval, layer picking, and voice-activated picking through to case-sortation systems, automated vehicle loading and off-loading systems, and even advanced pallet movement systems (unmanned vehicles, conveyors or monorails). Source: Exel, July 2005, IGD Research, 2006 56 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Key Focus - Automation in Tesco, UK In 2001, Tesco opened a 380,000m3 facility, spread over almost 9 hectares, to act as a state-of-the-art automated distribution centre for frozen goods. The site was purpose- designed and built by Exel, and serves over 550 Tesco stores, assembling orders for each store by product group e.g. ice-cream. The warehouse receives 800,000 pallets a year of frozen goods from suppliers and some 52 million cases and two million roll- cages are dispatched every year. The Facilities • Real-time order status visibility • Bespoke warehouse management and information systems • Automated replenishment • Paperless 'pick to light' and radio confirmation systems, guiding personnel to the exact pick location • In-cab yard management system • A control centre The Process Inbound Goods are received, system-scanned, placed on a conveyor system, weighed and profiled, and then put away in the high-bay storage area using elevators and cranes. Pick Order instructions are given to pickers in the high-bay using a pick-to-light system, where cases are picked by common batch, and then sent via case conveyors to a sorter unit, which sorts cases by store. Outbound The goods pass via chutes to loading personnel, who load roll-cages onto trucks for each store by merchandise group. There is also a specific area to service the smaller convenience store outlets. Source: Exel, 2005/IGD Research, 2006 Case-Study - Automation in CVS/Pharmacy, USA The Business CVS/Pharmacy is America's number one pharmacy chain, generating over US$36bn in revenue, and dispensing prescriptions in over 5,400 stores in 36 states and the District of Columbia. Over the last few years, CVS has been focussing on re-working their supply chain to create a highly-responsive end-to-end fulfilment process for the drugs part of their business. © IGD 2006 www.igd.com/supplychain 57
  • 2. Supply Chain Optimisation Managing International Supply Chains The Supply Chain With a network of distribution centres across the eastern and southern states of America, including two incorporated sites from acquisitions, CVS planned to simplify the network.This included the closure of their Garland facility in Texas and the transfer of volumes to their Ennis automated warehouse, also in Texas. The current network in 2005 included seven full service depots, and five satellite DC's. CVS makes over 1,100 store deliveries per day with a 98% on-time delivery record across the 103,000 truck loads making 300,000 deliveries a year. 2.5 billion items are, for the most part, individually picked, and 70% of items are also dispatched as singles. Supply Chain Re-design Against a backdrop of a shrinking labour pool, increasing land and building costs, and opportunities to make productivity gains and make inventory work harder, CVS has implemented best-in-class computer-assisted processes. In this way, over 45% of CVS volumes are now managed via Collaborative Planning, Forecasting & Replenishment (CPFR) processes, thus helping to double inventory turns to five per year between 1996 and 2003, and making significant inventory gains, including an average US$34,000 inventory reduction in store. In terms of the warehouse operations, in a push to secure less foot-print, less direct labour, and improved productivity, CVS introduced a fully-automated system into their 37,000m2 facility in Ennis, Texas, which is half the size of a more conventional warehouse and services stores in the south and south-west of the country. 'Goods to Person Automation' Source: CVS/Pharmacy, 2005 With the help of Witron, a leading international solutions provider for automated material handling and logistics systems, who has a particularly strong focus on picking systems for the food and retail sectors, CVS has introduced an automated warehouse system that gives them competitive advantage in the sector. 58 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation The Solution The facility utilises extensive automatic storage and retrieval technology to present items to pickers as needed, and includes de-boxing stations for transferring product from outer boxes into tote boxes, automated receipt conveyors, dynamic order picking with product scanning and weighing, and further conveyors to transfer the full tote boxes for store delivery around the facility. Each delivery is also customised to the store layout. Core elements of the DC technology infrastructure are Witron's Dynamic Picking System for individual piece-picked items and Module Picking System for product picked in full cases. 'Customised Deliveries' Source: CVS/Pharmacy, 2005 Benefits These store-orientated solutions have brought significant benefits for CVS: • A smaller warehouse labour force (1/3 less). • Reduced order lead-times. • The elimination of store backroom sorting and segregation. • A more cost-effective roll-out to other DC's in the network (e.g. Vero Beach, Florida to be completed by late 2006). Source: CVS/Pharmacy, 2005/IGD Research, 2006 2.2.2 RFID/EPC It is fair to say that the interest in Radio-Frequency Identification (RFID) technology and the Electronic Product Code (EPC) continues throughout the industry, as companies recognise the potential of this technology to revolutionise the FMCG sector. Companies who focus too strongly on the technology element are likely to lose ground to the market leaders in the longer term, whilst improving basic operational processes and data accuracy will go some way in allowing companies to keep up with the early adopters. Therefore, general interest in EPC is now no longer centred solely on the technology element, but is moving much more towards implementation and strategic planning. Supply chain executives want to know more about the timing for getting started and how to develop a business plan. © IGD 2006 www.igd.com/supplychain 59
  • 2. Supply Chain Optimisation Managing International Supply Chains This trend has been perhaps encouraged not only by the first global standards being established in 2004 via EPCglobal, which is a world-wide user-driven standards organisation for EPC, but also growth its commercial use. It has been reported that just over 600 million tags were delivered in 2005 (IDTechEx, Dec. 2005), and the Gartner Group has forecasted that worldwide RFID spending is expected to total US$504 million, an increase of 39% from 2004. Gartner equally forecasts worldwide RFID spending to top US$3 billion by 2010, as the experience from the industry innovators helps drive broader adoption. Benefits of EPC Shareholder value, through revenue growth, profit improvement and higher capital efficiency, could all be affected by the potential of EPC, with the most positive gains coming from case and pallet-level tagging in the medium term. 1. The potential for sales up-lifts from improved on-shelf availability is no doubt the primary source of benefit, and companies will need to consider a number of factors when quantifying this improvement: • Typical category out-of-stock (OOS) rates • Percentage lost sales • Percentage OOS situations that EPC could address • Speed of tag implementation 2. Increased productivity in-store and within the warehouse may also be large-scale benefit of EPC, due to improved stock files, better location visibility and greater scanning efficiencies. Activities affected may include: • Cycle counting • Data entry/reconciliation • Picking • Scanning of licence plates • Replenishment from store back-room 3. Other benefits could include demand-driven inventory levels, reduced claims for shortages, lower shrinkage, obsolescence and product diversion figures, improved asset management, and greater transport efficiencies. Challenges There is nevertheless general acceptance that challenges to broader-scale implementation still exist, involving the costs, technology short-comings, standardisation, and clean, accurate data. In terms of cost drivers, these can be split between 'up-front' costs and 'recurring' costs: 1. Up-front Costs • Reader systems (antennas, sensors) • Software (customised development, data management) • Data integration and alignment services (process or system changes) • Infrastructure (label printer servers or EPC data storage) 60 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation 2. Recurring Costs • Tags • Maintenance and support • Incremental DC/manufacturing labour (until automatically tagging for an entire product line) • Incremental inventory costs (holding tagged and non-tagged products) • Corporate overheads (manage EPC infrastructure and support) Many of the problems associated with the adoption of RFID/EPC can be solved through effective business planning. In particular, any organisation must be clear on the business objectives, and then aim to map the technology to these objectives: • For example, P&G want point-of-sale (POS) information in real-time to help drive manufacturing, and are implementing an end-to-end information system linked to its own supplier base, in order to be more responsive and manage supply chain complexity. • Companies like Dell Inc are implementing new systems to supervise their manufacturing system better, seeing their RFID business objective as effective product tracking to reduce inventory and waste. Key Focus - Wal-Mart US, RFID Roll-Out Following the retailer's trial a year ago with 100 preferred suppliers, Wal-Mart has now set-out plans to double the number of RFID-enabled stores to 1,000 by the end of 2006, and is due to go-live with a further 200 suppliers. Wal*Mart is driving RFID roll- out at a case and pallet level, and the introduction of the Gen2 standard for tags will help with wider adoption. Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 61
  • 2. Supply Chain Optimisation Managing International Supply Chains Key Focus - Metro/Nestlé & SATO Germany, RFID During Metro's leading-edge work with RFID, tagged bottled shampoo was discovered as having low read rates. When in close proximity to the shampoo, there was degradation in the electromagnetic field of the RFID dock-door reader. In response, SATO - a barcode labelling, printing and RFID solutions provider - placed an air gap between the chip and the bottle, leading to the creation of the 'Flag Tag'. A standard adhesive label is folded to produce a flap at right angles to the product, and the chip is embedded into one side of the flap. In trials, read rates improved dramatically, and there was no reduction in performance even when the tag was folded flush with the label. Nestlé participated in the Metro's RFID roll-out, and is now automatically labelling pallets of goods with tags embedded in Flag Tags. SATO installed an automatic pallet labelling system in Nestlé's warehouse in Rangdorf, Germany, which went live in early 2005. Sources: C. Heinrich (SAP AG), in 'Logistics & Transport Focus', June 2005/IGD Research, 2006 Logistics & Transport Focus, Summer 2005/IGD Research, 2006 Global Commerce Initiative (GCI) & IBM Business Consulting Services, 2005/IGD Research, 2006 2.2.3 Global Data Synchronisation (GDS) Simply, the GDS network aims to include the uninterrupted flow of standard, compliant product information between manufacturers and retailers, making it easier to do business. Accurate product data is viewed as the base building blocks for other supply chain integration initiatives, including EPC roll-out. Good data is the key to best-in-class international supply chains. How? • Product information is communicated between trading partners in an automated, quick and faultless way. • Changes to the product data are known instantaneously to all partners. 62 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Global Data Synchornisation Vision 1. 2. 3. 4. 5. A manufacturer The data The registry A retailer Trading sends item pool sends holds basic requests a partners data to its basic item item data off all subscription at synchronise home data data to the items including their home data. item pool. registry. its home data The retailer’s information pool. home data pool between their will forward the data pools. request through the registry to the information provider. Source: Sara Lee, 2005/IGD Research, 2006 The Building Blocks of the GDS network • EAN-UCC standards • Certified data pools • Interoperability between the various data pools • The registry to act as "global yellow pages" of manufacturers and the products they sell Benefits of GDS Increased sales • Improved speed-to-market • Improved on-shelf availability for promotions and new product introductions. Reduce costs • Fewer deductions and lower returns Increased productivity • Reducing the time spent by sales and buying teams handling new line data • By customer service on purchase order corrections • By the finance teams on invoice reconciliation. Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 63
  • 2. Supply Chain Optimisation Managing International Supply Chains Frequently-Made Remarks about GDS • "Retailers are not ready" - Many are preparing themselves, and so suppliers should be ready to talk to them about GDS. • "Standards are not ready / complete" - The available set is considered to be workable. • "Not all local attributes are in GDS" - You can always start with what's available. • "We don't want to synchronise price data" - This is currently acceptable, but standards including security are under development. • "We don't have resources" - GDS needs to be a business priority mandated by Senior Executive Management teams, thus helping provide clear direction to local management. • "We have a top line issue and need to focus on other priorities" - This might increase if suppliers are not able to comply with retailer requests, and again enforces a priority decision for local management teams. Source: Sara Lee, 2005/IGD Research, 2006 64 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation 2.3 Optimisation Through Transport Key Points to Note • Factory-gate collections and cross-docking practices are becoming more widespread in the food & grocery sector, as international retailers aim for improved supply chain visibility and control. • Inter-modal distribution offers the logistics sector a means of driving supply chain efficiencies, whilst helping reduce environmental pressures. But there are still many challenges to overcome. • End-to-end transport management, from global sourcing through to store delivery, is just one of the many total supply chain solutions that a growing number of logistics service providers have to offer the industry. Transport inefficiencies and rising costs are the two key challenges facing the road transport sector in Europe in particular. In terms of costs, transport accounts for a significant proportion of total supply chain costs (37%+ according to IGD's UK Retail Logistics 2006 report), and certain factors are playing a key role in challenging transport users: • fuel costs • legislation • road tolls • congestion charging • lack of investment in major road, rail and port networks. In terms of efficiency gains, there are still many opportunities for transport users to reduce the number of trucks delivering half-empty outbound loads and empty return legs. There are various initiatives that both retailers and leading manufacturers are now employing to optimise transport resource and increase efficiencies, including factory- gate pricing, cross-docking, inter-modal activities, and fourth-party logistics transport management. 2.3.1 Factory Gate Pricing As the leading supermarket groups, such as Carrefour, Tesco and Metro strive to gain further visibility of their end-to-end supply chains, the phenomenon of Factory Gate Pricing (FGP) has over the last few years become widespread practice in the food & grocery sector. Retailers are no longer only interested in the product and the pricing strategy, but the whole supply network, and how improvements and efficiencies can be made upstream to improve performance downstream. © IGD 2006 www.igd.com/supplychain 65
  • 2. Supply Chain Optimisation Managing International Supply Chains What Makes up the Total Product Cost? Retailer Secondary Logistics Network - DCs & Secondary Transport Raw material and Supplier supplier inbound Transformation Retailer In-store Availability Costs Inbound Logistics ‘Back - Markdown Logistics Door to Shelf’ - Waste - Primary - Lost sales - Transport - Customer dissatisfaction Goods/Material Flow Information and Cash Flow Source: Tesco The focus for the retailer is to have visibility of inbound supplier transport costs, so that any scale efficiency opportunities can be identified from potentially integrating retailers' primary networks with their secondary fleet movements into stores. Subsequently, the factory-gate initiative is also about supply chain control, which presents both opportunities and challenges for the manufacturing supplier base. Some of the challenges for suppliers involved in factory-fate collections may include: • The collecting vehicle arrives without a booking • The collecting vehicle does not arrive at all • Cleanliness of the vehicle can sometimes be compromised • Vehicle can contain returnable transit units, like cages • Increased supplier costs, due to loss of scale efficiencies for other customers In contrast, some of the benefits of factory-gate collections, especially for the smaller manufacturer, could potentially include lower overall costs, lower risk, and a focus on core competencies through: • Lower capital expenditure on vehicles and systems • Reduced head-count (drivers, administration staff, yard management) • Smaller administrative burden 2.3.2 Cross-Docking Cross-docking, on the other hand, involves the reduction in handling by sending warehouse received goods directly out to stores or another transit point, by-passing warehouse storage and traditional picking. Order quantities can be allocated 'pre-distribution' - where the end-customer is assigned prior to receipt by the retailer - or 'post-distribution' - where the end-customer is assigned by the retailer warehouse. 66 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation In either process, the aim is to move stock straight out onto waiting vehicles. Double- handling and inventory are accepted supply chain costs, and cross-docking works to reduce, if not eliminate, these by improving productivity and speed of transit. Premise: • Enough volume to warrant a dedicated process • Effective information and visibility • Cross-functional communication and co-ordination • Real-demand reactivity • IT system that supports the new process • Constant product flow in correct quantities and quality Case-Study - Metro Group Logistics Germany, FGP and Cross-Docking The Business The Metro Group trades across various formats from the Cash & Carry business (Metro/Makro) through to Food retailing (Real/Extra) and Non-Food retailing (Planet Saturn, Media Markt), as well as the department stores Kaufhof, generating over €50billion turnover. Metro Group has 2,300 stores in 30 countries. Within Germany, Metro manages one million SKU's from 8,000 suppliers, servicing 2.5million customers a day. In terms of logistics, in the past, a typical Cash & Carry store could receive over 150 vehicle deliveries a day, where over 80% could only be one pallet of stock, or on average 3.1 pallets of stock per vehicle. The Initiative In order to reduce this complexity within the supply chain, Metro Group Logistics (MGL) focuses on cross-docking, consolidation and stockless inventory processes, supplemented by factory-gate collections. To support the development of the Metro Group across Europe, MGL aims to connect networks across borders, and has seen rapid expansion over recent years: 1996 1999 2000 2001 2003 2004 2005 2006 Germany Turkey Poland Austria Bulgaria Russia, Slovakia Italy Belgium Hungary Spain Netherlands Ukraine Serbia UK Czech Rep Croatia Greece Bosnia Romania Source: Metro Group, 2005/IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 67
  • 2. Supply Chain Optimisation Managing International Supply Chains Factory Gate Collections Process 1. Metro carried out the initiative in partnership with their third party logistics providers (3PL) with no long term contracts or fixed costs, it enabled greater flexibility in the process. 2. Alignment of the rules: • Standardisation of transport documentation • Priority lanes for MGL/3PL for loading, with fixed collection times • Well-built pallets with clear labelling • All claims are centralised, so MGL manage all the financial transactions • MGL will bear the cost of small damages • Multi-drop store formats are consolidated into one shipment Results Through having visibility of fuel costs and logistics costs separately from the cost of goods, Metro Group has identified the following benefits from taking control of the transport element of their inbound supplier deliveries: • Macro-economic effects worth €150m, of which €70m savings from transport consolidation and €80m savings from reduced waiting times for vehicles. This has generated less traffic, and so less pressure on infrastructure and less of an environmental burden. • 98% on-time delivery, which has allowed for synchronised replenishment • A reduction in damages of 20% • Improved availability of +7% • Reduced total inventory Cross-Docking Process • Combining transitional groupage, direct to store deliveries, and cross-docking via other centres, Metro has a series of cross-dock facilities around Germany: Palletised ambient food (16), Palletised non-food (35), Chilled products (23), Hanging garments (17), Parcels (65). • 4,400 suppliers are involved • 8.3 million shipments per year worth €10bn • Some suppliers with agreed procedures can receive replenishment orders directly from stores • Pre-allocated orders are prepared and picked by suppliers and then cross-docked through the network Results • The average truck fill to Cash & Carry outlets has increased to 30 pallets - full truck loads. 68 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Metro Group's Key Learnings 1. Strong commitment from the internal teams - Sales, Buying and Supply Chain 2. It is important to define the rules and accountabilities, particularly for ordering and goods receiving 3. Define the principles for dealing with the logistics service providers 4. Separate logistics-related negotiations from merchandising negotiations by the commercial team. This can take time, and it took Metro three years to transfer the model outside the German territory 5. It can be a challenge to get suppliers to calculate the transport costs, as these are still often considered to be an integral part of their operations Source: Metro Group Logistics, 2005/ IGD Research, 2006 2.3.3 Intermodality - A European Perspective There is increasing demand for inter-modal services from commercial organisations, encouraged by government policy, general environmental concerns, and congestion on road networks. High visibility of goods movements can be gained from combining different modes of transport - air, rail, sea and road freight capabilities - aiming to make the total supply chain more responsive. Nevertheless, there are equally many challenges facing further growth in this logistics sector. Capacity and infrastructure issues combine to increase costs and congestion on rail links and waterways, with a knock-on effect on quality of service provision. In addition, there is the problem of the inter-operability of the modes. For example, it has been reported that four different train engines are required to take goods from Austria to Sweden, that is to say, one per country crossed. In response to these complexities, some in the logistics sector have been calling for a level of harmonisation at European level for tax systems, subsidies, working regulations and weight limits in this area of operation. Logistics providers are also launching 'gateway' strategies.These aim to combine volumes to increase freight buying power and critical mass, and drive better margins and competitive pricing through greater consolidation. It is argued that centralising document management and financial control for pan-regional movements will also help reduce hidden costs, and so improve decision- making © IGD 2006 www.igd.com/supplychain 69
  • 2. Supply Chain Optimisation Managing International Supply Chains Key Focus - SPaP Bratislava, Inter-modal Hub Management In order to exploit the economic growth in Eastern Europe and entry into the European Union, a Slovak company - SPaP - based at the Port of Bratislava on the Danube, is developing its potential as an inter-modal hub for road, rail and water- transport. With close proximity to both Vienna (Austria) and Budapest (Hungary), the port boasts: • Connections to motorway networks and the Bratislava-Rotterdam shuttle train service • Capability of transferring containers between all three modes of transport, particularly over-sized or over-weight cargoes via a special crane • 100,000m2 of storage, with one quarter being sheltered warehousing, as well as almost 5,000m2 of customs warehousing • A direct connection to a local oil refinery, pumping fuel direct to ships or from ships to rail tank wagons SPaP expects to handle approximately 25,000 containers at the Port of Bratislava in 2005, but the port is capable of meeting much higher demand for both transhipment and container warehousing.The water level of the Danube has been stabilised by dam- building further upstream, allowing improved effectiveness in carrying higher volumes of goods. Further traffic growth appears to be secure due to the following factors: • The Rhine-Main-Danube waterways between the North Sea and the Black Sea is one of ten trans-European transport corridors having priority bidding for EU funding • Romania and Bulgaria are also due to join the European Union in the near-future • The range of goods that can be handled at the port Source: Pierre Topolski, 'Supply Network', June 2005/IGD Research, 2006 70 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Inland Waterways - Linking Global with Local Case-Study - Auchan (France) Using the Canal Network The Business One of the leading users of containerised river transport in France, Auchan moves 60% of its imported non-food products by barge to its warehouses, and views this mode of transport as a key alternative to using the congested road network. Over the last ten years, Auchan has grown river modal participation from just 5% of imported goods in 1995. Since purchasing Docks de France in 1996, Auchan has re-organised its storage and distribution network for non-food lines (such as textiles, DIY, bric-a-brac, hi-tech and household equipment), around three national distribution centres in Lesquin (Lille), Meyzieu (Lyon) and Villabé (South of Paris). The Process With 95% of imports coming from Asia and arriving by container directly into French sea-ports (Marseilles-Fos, Le Havre, Dunkerque or Anvers), each warehouse facility is situated reasonably close to a river port, from where the final journey will be carried out via road haulage. In 2004, Auchan imported 25,000 20ft equivalent containers into Europe (representing 6-7% of non-food turnover), of which 11,800 went into France, and 6,400 of those were transported from the sea-port to the NDC via a river-port by barge. For example, the warehouse at Villabé will receive approximately 20-25 containers from the Port de Gennevilliers every day. Challenges Auchan equally admits, however, that multi-modal transportation can present challenges, and believes there are three basic pre-requisites before venturing into river transport: 1. Consolidation of volumes towards fast-moving warehouse facilities 2. Logistics facilities close to the river network. 3. A distance greater than 150kms of continuous maritime transport Containers can be blocked at sea-port due to industrial action, thus requiring lead- times to be extended to cover all eventualities. Delays at sea-port may require traffic to be moved onto the road network, and Auchan admits that river transport can be less flexible in terms of time (30 hours for Le Havre-Paris), and the need for organisation by shuttle between locations. There will equally be some warehouses that are not close to inland waterways, and so cannot be serviced by river, for example Auchan's Atac supermarket non-food warehouse in Amiens. Although the costs and performance can be on-par with road transport, the use of inland waterways (as with rail), is not viable when travelling less than 150kms. © IGD 2006 www.igd.com/supplychain 71
  • 2. Supply Chain Optimisation Managing International Supply Chains Advantages But when companies have a choice, Auchan believes it is better to favour a more environmentally-friendly and sustainable alternative to road transport. In this way, Auchan has reduced its inbound transport kilometres by 12%. Whilst other major retailers, including Carrefour, Monoprix and Toys R Us are moving in the same direction, containerised river transport in France grew by over 6% in 2004, and is expected to do the same in 2005. In addition to the road transport gains, the main advantage of the river port over the sea-port is that the containers can be stored there for up to 45 days, at a lower cost than sea-port demurrage, and a service provider can also carry out the customs procedures, thus smoothing deliveries into the NDC. Although seeming complicated by the number of interventions, the process works relatively seamlessly for Auchan, who works directly with three main partners - the Port of Lille, and two service providers who manage the container flow between Paris and Le Havre and Marseilles-Fos and Lyon. To ensure that the lead-times are viable and secured, Auchan's lead-logistics providers co-ordinate with all other links in the supply chain. Source: 'L'Usine Nouvelle', June 2005/IGD Research, 2006 Long-Distance Sea-Freight Once a commoditised service, sea freight has been attracting more attention in recent times, particularly in response to increasing world trade since 2000. The market has increased from 68.2 million TEU's (twenty-foot equivalent container units) to 114.4 million in 2004, representing a 68% increase. It is of no surprise to learn that China dominates the world market, and the trans-Pacific sea routes dominate global movements (52% of sea freight, both directions). There have also been surges in sea activity between the major manufacturing locations in Asia, in India and Central and Eastern Europe. The Asia-Europe and trans-Atlantic sea routes represent 15% and 11% of total sea movements respectively. Accompanying these trends, there have also been improvements in both dependability and predictability of sea freight operations. Modern ships are now faster - average speed has increased from 21 knots to 25 knots - thus reducing the time on the water.The sector is working together to increase capacity through larger vessels (8,000 TEU's instead of 5,000 TEU's), and port facilities are extending in terms of size, storage and cranes. Such additional capacity is expected to come on line throughout 2006 and 2007. Source: Exel, 2005/IGD Research, 2006 72 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Key Focus - ASDA UK, Use of Ports ASDA has recently signed a deal to develop a new £20m import centre at Teesport, providing ASDA with an international logistics operation in the north east of England for direct international imports of non-food lines. The deep-sea container facility will not only help ease congestion at more southern UK ports, like Felixstowe and Southampton, but will also save two million road miles a year through shipping 70% of its non-food distribution direct to Teesport. Source: IGD Research, 2006 Short-Sea Shipping - Supply Chains from Eastern Europe Whilst many companies in their search for a cheaper manufacturing base are sourcing products from Asia, some are also turning to their Eastern European neighbours, such as Poland, Slovenia, the Baltic States and even Russia. Companies purchasing transport in these regions have a variety of options, including the more traditional all-truck overland system, but increasingly short-sea solutions are becoming a more considered option. The Process The process usually involves the movement of 45ft, pallet-wide, high-cube containers of finished goods from factories in Eastern Europe through to Benelux and the UK. These containers have the same capacity as a 13.6m trailer, but have the additional benefit of improved security. There appears to be a trend towards this type of transit unit, which overcomes problems of different unit sizes, and will ensure the smooth inter-modal transportation of goods across Europe without the need for disruption, opening and re- packing at each transit point. The short-sea shipping company may be given 10 to 14 days' notice of a defined delivery window into the receiving warehouse, and the service provider will then contact either road hauliers or rail-providers to collect the box from the factory. The goods are then moved to the export port, such as Gdansk or Riga, and shipped on a regular service into Western European ports such as Ipswich and Tees port in the UK, or Rotterdam in the Netherlands and Zeebrugge in Belgium. The advantage of the short-ship movement is that sailing and arrival times can be predicted more accurately and the smaller size of vessel reduces loading and discharging delays. In the UK, the benefit of a northern and southern entry point is the subsequent reduction in over-land driver time, and so the reduced risks of early and late deliveries, both of which present the warehouse with productivity issues. Smaller ports are seen to play a key role in short-sea shipping, due to their acceptance for lower traffic volumes, management of vessel berth, and labour availability. © IGD 2006 www.igd.com/supplychain 73
  • 2. Supply Chain Optimisation Managing International Supply Chains Short-Sea Shipping - Opportunities and Challenges Opportunities Challenges • Cheaper than over-land movement. • Ability to convince sourcing companies of • More secure, as goods are shipped in a the viability of short-sea shipping for time- sealed container. pressured supply chains. • More environmentally-friendly. • Competition from rock-bottom pricing of • Wide political support, especially from the Eastern European haulage companies. European Commission. • Overcoming the prevalence of price as the • Less congestion and traffic bottlenecks. main purchasing objective, despite • Improved quality and service compared to environmental concerns, quality issues, low-cost international truck hauliers. and poor service levels. • Local hauliers are used at each end of the • Customs inconsistencies between member short-sea trip: states, despite already working within a - shortening the time spent on the road harmonised framework. - overcoming delivery window issues • Larger sea-ports can be unwilling to - reducing language barrier concerns handle lower-volume carriers. Source: Kuisiu Linija, 2005/IGD Research, 2006 Future Developments More traffic will be pushed towards short-sea shipping as the driver shortages and road congestion become more acute. Ironically, it is likely that the pull of well-skilled, English- speaking Eastern European drivers into the UK market, where the shortage of skilled drivers is considered to be a significant challenge, will reduce the pool of low-cost drivers left for operators in Eastern Europe, thus pushing up costs and reducing service quality. Technology improvements will also play a leading role in ensuring traceability of the containers. Integrating hauliers and shippers through a web-based system will allow operators to log-on and track goods movements in real-time. Some in the industry believe that containers will be tagged or bar-coded, so they can be entered into an IT system and tracked as a unit. Finally, as is the case in many parts of the supply chain, the key to a successful flow of goods from one region to the next is often based on the people carrying out the work. Having a combination of the right people and an open, trust-worthy business relationship will help overcome the most challenging of supply chain issues, and ensure those tight delivery windows are met, on time, every time. 74 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 2. Supply Chain Optimisation Key Focus - Kursiu Linija Kursiu Linija was created in 1995 to provide logistics services from Russia and the Baltic States through to Western Europe, and is now moving over 125,000 TEU’s annually for major clients, such as Masterfoods, Marks & Spencer and IKEA. The company employs seven fully cellular vessels, owns its own fleet of pallet-wide, high-cube boxes - over 3,000 units in total - including refrigerated containers. Kursiu Linija services a number of ports, including Kaliningrad, Klaipeda, Ostend, and Ipswich and has even opened new offices in Felixstowe as part of their growth plans. Source: IGD Research, 2006 2.3.4 4th Party Logistics Transport Management Using a major third party logistics provider to manage transport orders and outsource the movement of goods to a series of other haulage providers can be viewed as an opportunity to take a more holistic approach to transport management, thus driving further efficiency gains but still having one point-of-contact for issue resolution and reporting. The Process Improved network design and execution from greater visibility of the end-to-end supply chain can cut transport costs quite considerably. Through examining all potential movements across a particular region, loads, drivers and vehicles can be optimised across multiple customers, whilst ensuring service levels are met. The ability to share vehicles and/or combine outward and return trips can considerably reduce the number of part- loads and empty trips. At the heart of such a process is the need for an integrated information system, which is robust, secure and has the ability to execute orders in the most cost-efficient manner, including status tracking, trip scheduling, planning and optimisation, key performance indicators and trip payments. The Benefits • Lowering overall transport costs • Increasing service proficiency, through constant monitoring of carrier performance • Reductions in breakages, losses and missed deliveries • Greater speed and flexibility • Creating a genuine pan-regional platform for transport management © IGD 2006 www.igd.com/supplychain 75
  • 2. Supply Chain Optimisation Managing International Supply Chains Case-Study - Exel and Unilever UK, Foods Freight Management The Process Exel manages a pan-European solution for managed transport from three multi-user control centres in Mechelen (Belgium), Nieuwegein (Netherlands) and Hams Hall (UK), plus some dedicated sites. The operations run 24-hours-a-day, seven days-a-week, and the service is used by more than 20 Exel customers, and interacts with more than 200 transport carriers. In 2001, Unilever was Exel's first customer to pilot the solution, and now Exel controls all international primary transport for the Unilever UK Foods.This solution manages all scheduling, route optimisation and European carrier management across 18 different European countries, and deals with almost 40,000 orders a year. The Benefits • Better fulfilment at retailer distribution centres • Transport cost savings through reductions in mileage and route and load optimisation • Environmental gains in terms of truck movements and emissions • Overall simplification of the transport management processes. Exel aims to work to meet the challenges presented by demand for smaller, more frequent deliveries and shorter lead-times, which can sometimes conflict with optimisation techniques. Service Growth In 2005, Unilever in Brazil has contracted Exel to provide an integrated supply chain solution to include in-plant logistics, warehousing and managed transport, within Brazil and towards Europe for home and personal care products. For example, Lux soap bars will be exported from Brazil to a platform in Europe, where the European managed transport team will then arrange distribution out towards 18 other European countries. The solution will provide Unilever with complete visibility and tracking. Source: Exel, July 2005/IGD Research, 2006 76 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets 3. International Differences and Emerging Markets Summary • IGD’s international survey confirmed that companies encountered different supply chain challenges depending on the market in which they operate. These differences can be grouped under cultural, infrastructural & operational, internal & external business management issues, and legislative differences. • The emerging markets of China, India and Central & Eastern Europe offer a plethora of opportunities for the food and grocery industry, in terms of global sourcing, cheaper production costs, and large populations with high, but relatively untapped consumer demand. • With 12.9% retail growth in 2005 alone, IGD predicts that China will soon become the second largest food retail market in the world by 2020, with India moving into a top five position. With widespread investment from the leading international food & grocery players, further supply chain investment will certainly encourage this trend. • Nevertheless, combining the size of these countries and the remoteness of some of their populations, with a number of legislative restrictions and infrastructural limitations, there are significant challenges for the speed of supply chain transformation. • In terms of global sourcing, companies need to focus on inventory management, effective cross-functional communication, quality and customs control, and strong logistics and financial management. • India currently restricts foreign direct investment from multi-brand retailers, and so it is fair to say that there has not been the same level of investment in developing modern retailing practices and new transport links as has been the case in China. • Leading manufacturers, however, are present in the Indian market, and via the distributor route to market, and the use of field sales forces, are able to reach the most remote areas of the country and increase their brand awareness. • Central & Eastern European countries have increased their profile on the international retail stage, as the major international retailers move into these markets. Retailers are transferring best practice into these markets bringing their supply chains up to speed and in line with their domestic markets. © IGD 2006 www.igd.com/supplychain 77
  • 3. International Differences and Emerging Markets Managing International Supply Chains 3.1 Managing International Differences Within the IGD international survey, in order to understand the similarities and differences between geographic areas and whether there were any truly ‘international’ supply chain issues, IGD asked companies to identify differences in the supply chain challenges faced by different country markets. In response, 72% of companies cited different supply chain challenges depending on the market, which highlights the real diversity in this area of operation for many companies. In order to help differentiate these issues, IGD has grouped them into distinct themes: • Cultural differences • Infrastructural or operational differences • Internal and External business management issues • Legislative differences International Differences in Supply Chain Challenges Theme Challenge Examples Cultural • Different shopper preferences, particularly • Germany prefers lean meat with regards fresh produce • Japan prefers meat with more fat • Different language variants/customisation • Indians prefer to shop in wet markets for fresh produce, rather than modern supermarkets Infrastructure & • Lack of cold chains in some developing • No public cold chain logistics supply in China Operational markets • South American ports • Bottlenecks at ports • Permit issues in Russia and former Soviet • Export and goods movement permit controls Union states, India and China • A lack of truly international logistics companies means that different contractual agreements have to be made for different countries Internal • Demand volatility depending on brands life- cycle • For retailers, international franchise operations are generally managed differently from wholly-owned stores • Critical mass can be an issue in developing markets, leading to service level issues • When exporting, the required quantities are often fixed well in advance, compared to 'home territory' orders which can be very volatile • Availability issues in some developing markets can be solved through using extra lower-cost labour, whereas in more developed markets alternative solutions are required contd.../ 78 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets International Differences in Supply Chain Challenges (continued) Theme Challenge Examples External • Different approaches to bar-coding, • In the UK and northern Europe there tends to packaging, case-sizes, shelf-ready packaging, be more centralised distribution and delivery and pallet requirements into distribution centres, whereas in Italy, • Different trade structures, with different levels Spain and southern Europe, there is a of market concentration, require different tendency for more direct-to-store deliveries outbound logistics solutions and demand • The UK focuses heavily on delivery within a planning fixed hour delivery slot, whereas in France it • Different performance management could be delivery on the day, but with heavy penalties if this is missed • The UK is viewed as one of the most difficult markets to satisfy, due to short lead-times and demand fluctuations Legislation • Different legislative requirements for • Switzerland - vis-à-vis the adoption of the permissible ingredients in food products European Working Time Directive - Transport • Different requirements for ingredient declarations and labelling • Different legislation for driver hours Source: IGD Research, 2006 Undeniably, the emerging markets of China, India and Central & Eastern Europe are experiencing growing international stature and phenomenal economic growth. However, whether through legislative restrictions, infrastructural inadequacies, or simply the market structure, all present the international supply chain with a sometimes distinct set of challenges and opportunities. As a result, these countries have become priority markets for international retailers and manufacturers alike, and will be the focus for the remainder of this chapter. © IGD 2006 www.igd.com/supplychain 79
  • 3. International Differences and Emerging Markets Managing International Supply Chains Case Study Wal-Mart, Assimilating International Operations Market Dynamics Wal-Mart is held up as a world class supply chain operation with highly sophisticated global processes to help its people manage a multitude of products and systems. But for any business of this scale to be successful there is a balance between being global and being local.Taking two highly developed retail models – UK and Canada, there are clear distinctions between the Wal-Mart businesses. Wal-Mart UK Wal-Mart Canada • Heritage in food • Heritage in non-food • Acquired Asda in 1999 • Acquired Woolco in 1994 • Multiformat operation • Single format operation • 282 stores, 40,000 employees • 262 stores, 70,000 employees • Average store 43,000 sq. ft. • Average store 120,000 sq. ft. Source: IGD Research, 2006 Wal-Mart has entered both markets through acquisition and demonstrated strong growth through store openings and increased sales. But the starting points for both businesses has been very different – the UK with a focus of food and Canada with a focus on non-food (alternatively known as general merchandise). Supply Chain Infrastructure The differences between the two businesses are reflected in the supply chain infrastructure needed to support them. Wal-Mart UK Canada No of DCs 21 6 Average distance to store 48km 500km Inventory Management 5% stockless 90% stockless Distribution Function In-house Outsourced Clothing Distribution Separate site Integrated Technology Employed Manual (with some Fully automated automation) Core Focus of Distribution Store friendly deliveries e.g. Simple efficient distribution extensive use of cages e.g. deliver in bulk Source: IGD Research, 2005 Within its Canadian operation there is a high level of consistency between processes to ensure product is delivered in an efficient manner. With the average distance to store over ten times compared to the UK – transport efficiency is a determining factor. The warehouse is a highly automated environment akin to a production environment. In this respect Wal-Mart Canada possess very strong implementers within its business. 80 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets In the UK the supply chain strengths are more technical; with limited amount space the supply chain needs to ensure fast and frequent replenishment in a store friendly manner (enabling the product to be put onto shelf in the quickest way). Centralised orders are also commonplace. For Wal-Mart simplicity and accountability enables execution and that’s what helps to deliver results. Sharing global processes is an important aspect of any modern international business but they need to assimilate the differences between the different countries of operations. This will undoubtedly change how best practice is implemented but ensure it is sustainable for businesses in the future. Conclusions “Change is a compelling argument in the UK but consistency delivers better results in Canada” David Cheesewright, COO, Asda/Wal-Mart UK Source: ASDA, 2005/IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 81
  • 3. International Differences and Emerging Markets Managing International Supply Chains 3.2 China – Retailing and Global Sourcing Key Points to Note • The Chinese economy is booming, competition is on the increase, and retailers are not only sourcing large quantities of product from the country, but are also opening increasing numbers of stores, as the Chinese government continues to reduce restrictions on foreign direct investment. • Opportunities in global sourcing include high local growth rates, driving further investment and stability, and a cheaper, flexible workforce, which can help improve margins. • The challenges of the global sourcing, however, are numerous. Infrastructure, production and quality issues can all affect inventory management, communication channels and the financial and administration burden. 3.2.1 Key Developments China's production capacity for clothing alone is reported to have grown from +8% per year between 1995 and 2002 to a staggering +26% in 2003, when quotas were lifted on imports into the European Union (EU). Combined with India, Mexico, Brazil and Turkey, and with further emerging economies such as Russia and Vietnam also likely to join the World Trade Organisation in the near future, the growth of international trade will continue to accelerate. The traditional markets of Western Europe, the USA and Japan now need these emerging markets to maintain their own growth agendas. In response to such high import growth rates, the EU re-instated quotas on products from China, limiting import growth of ten types of textiles to between 8% and 12.5% annually.This has lead some companies to cut back the quantity of product sourced from China, and to ensure that risks to supply were managed through a more varied sourcing programme. In contrast, many companies are now seeing developing markets as key growth markets in terms of retail sales, with leading retailers and suppliers alike - including Wal-Mart, Carrefour, Metro, Tesco and Procter & Gamble - all driving significant growth agendas. China and India together account for 40% of the world's population, and the global expansion of the consumer goods market will go some way in helping these countries support the growing needs of their own populations. The Chinese Commerce Ministry has recently reported that it estimates Chinese retail sales to have risen 12.9% in 2005, boosted by rising incomes and tax breaks, although household consumption is said to remain a relatively low share of overall growth. China is one of the most diverse and vibrant grocery markets in the world, and competition is now on the increase. IGD predicts that China will become the world's second largest food retail market by 2020 behind the USA. A combination of organic growth and supply chain development will help retailers consolidate their market positions, especially as international retailers hold only a 3-4% share of the total grocery market. 82 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets • Carrefour acquired a 100% stake in its joint-venture in October 2005 and during the year had launched 14 new stores, bringing the total to 65 stores. Another 20 new store openings are planned for 2006. • Tesco already has over 30 hypermarkets in China through its 50% stake in the Hymall chain. Predominantly based in Shanghai, there are plans to extend into the South and into Beijing. Tesco's Chief Executive Officer (Sir Terry Leahy), has already announced that he believes the company to be only 20% into its international expansion plans. • Metro was the first foreign retailer to take advantage of the liberalisation of Chinese investment rules. They operate 29 stores on the mainland and have announced plans for a further 40 stores over the next 3-5 years. Case Study - Wal-Mart, China In contrast to sourcing products from China, Wal-Mart is also a large international retailer trading within China. In addition, Wal-Mart has recently announced plans to expand its presence in China further, particularly in second and third-tier cities, putting more investment into middle and western China, where the economy is less well- developed. Wal-Mart opened its 50th store in China in November 2005, and hoped to increase its portfolio to 55 stores across over 23 cities by the end of 2005. In terms of supply chain and warehousing, IGD research has shown that Wal-Mart is one of the most developed retailers in the country, having regional distribution centres in the coastal cities of Tianjin in the North and Shenzen in the South.These warehouses solely manage non-food products, because food deliveries are made direct to Wal- Mart stores by suppliers. This contrasts with the majority of smaller retailers, who will receive their deliveries through China's significant wholesale-distributor network. There are over 300 wholesalers in China, servicing mainly on a regional basis. Centralised distribution through regional distribution centres is at a relatively low level of development in China, mainly because many retailers only have a small store portfolio and so it is not necessarily economically viable to invest in such expensive fixed assets. Large international retailers who have developed sophisticated global sourcing centres in China are also able to use the same facilities for distribution to their Chinese stores, creating greater supply chain efficiencies. For example, Wal-Mart's global procurement centre is also based in Shenzen, and was responsible for sourcing US$18 billion worth of goods from China in 2004 alone. Larger suppliers are also investing in centralised distribution which will allow them to deliver to the leading retail customers within 24-hours. One aim of the centralised strategy will be to gain control over the supply chain network to ensure: • Improved service levels • Reduced lead-times • Better availability © IGD 2006 www.igd.com/supplychain 83
  • 3. International Differences and Emerging Markets Managing International Supply Chains After all, one of the biggest challenges is short deliveries, which can be due to: • Poor inventory management • Demand exceeding production capacity • Poor technology management • Congestion in back-of-store operations. Wal-Mart therefore encourages its suppliers to use their distribution centres, and even offers backhaul options for those suppliers who are unable to deliver efficiently through its outsourced transport operation. Source: IGD Research, 2006 Case-Study - Carrefour, China Context Distribution of products in China is difficult because of the size of the country and the lack of sophisticated transport services, particularly for co-loading options. This has meant out-of-stocks of 10% on the shelves, and only 60-70% order fulfilment on the contractual delivery date. Source: Carrefour, 2005 Aim To increase the availability of Carrefour-label products through centralising inventory for all private-label suppliers into a number of consolidation centres in Beijing, Shanghai and Guangzhou. 84 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets Process • These centres are all out-sourced and Carrefour fixes a minimum stock level per item. • The inventory belongs to the supplier. • The stores order daily from the consolidation centres, and the supplier invoices each store monthly based on the quantities that have been delivered. Results • 100% on-time delivery to stores • Inbound order-fulfilment increased from an average of 60% to 99%. • Inventory reduced from an average of 55 days to less than 20 days. • Improved promotional day-one availability. • 100% distribution in stores. Source: Carrefour, 2005/IGD Research, 2006 Case Study - Procter & Gamble, China Procter and Gamble has recently uncovered a key trading strategy. Focusing on the world's fastest growing shopper segment - low-income families in developing countries - P&G aims to provide value for money products, such as nappies, that are as affordable as basic food items. Sustainable relationships with large developing markets like China, Brazil and Russia, will be key to long-term growth prospects for large, leading international manufacturers like P&G, but it is equally important that they connect with the lower income bracket household, and not just the wealthy minorities in those same countries. In order to deliver that strategy, the P&G invests approximately one third of its annual research and development (R&D) spending on low-income markets, which equates to over £1billion, and is double what the company was spending just five years ago. The company is also reported to have changed its consumer research methodology, its R&D techniques, and its global production systems to make products cheaply, but profitably. Moving from focus groups to 'within the home' studies, P&G found that there were cultural barriers in some countries like China that were just as relevant as economic considerations when trying to sell a new product concept like disposable nappies, and that certain low-income consumers want different product characteristics. For example, poorer consumers in China were willing to spend more time hand-washing clothes due to local water hardness, and so P&G now produces a detergent without water softener, thus reducing costs but still meeting the consumer's primary needs. © IGD 2006 www.igd.com/supplychain 85
  • 3. International Differences and Emerging Markets Managing International Supply Chains Innovation and manufacturing productivity are viewed by P&G to be just as important a part of delivering to lower-income markets, providing a much greater return on products. Cutting the cost of sourcing nappy manufacturing lines by 30% compared to 2002, P&G has combined its proprietary technology techniques with a network of low- cost suppliers across not only China, but also India, Vietnam and Brazil. This ensures an efficient technology base which feeds a more efficient production base, making P&G more effective across all markets, including 'premium' countries. Source: The Financial Times, 15th November, 2005/IGD Research, 2006 3.2.2 Opportunities in Global Sourcing The main benefits of transferring production to these countries are: Opportunities for Global Sourcing 1. Lower wages 2. A large, flexible and well-educated work force 3. High local growth - New markets expand at a quicker rate than more developed markets (China +8% growth compared to the EU average of +2%). 4. The market for prime materials is already global, and countries have specialised over time so that companies must act global to reach every production zone. For example whilst China has focused on garments, hardware and electrical goods, Thailand has looked at food and plastic products, and India has focused on home textiles, shoes, garments and decoration.This global reach means that wooden furniture, for example, could have the wood imported from Brazil, be crafted in Vietnam, but then sold into the EU. 5. Buying directly from the factory on an 'ex-works' basis could bring a margin bonus of anything from 10-50%, and in times of consistent margin pressures, this is an attractive option for many companies. Source: Auchan 2005/IGD Research, 2006 3.2.3 Challenges for Global Sourcing In contrast, although the costs of transferring production to these countries can be relatively low, the challenges that international sourcing present are real. With more and more goods travelling longer distances, and with shelf-life for some high-tech goods now as little as six weeks, it is no surprise that companies are looking much harder at their supply chains. Although total end-to-end supply chain costs remain a key area of focus, companies are also having to ensure reliability, quality and service levels, as well as ability to react quickly to changing circumstances. It is important to have a clear picture of total supply chain costs before deciding which elements of production to re-locate. 86 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets Challenges of Global Sourcing i. Infrastructure (road, rail and ports) v. Administration and Payment ii. International Transportation vi. Integrated Logistics Services iii. Inventories vii. Production and Quality iv. Communication and Planning viii. Legislation Source: IGD Research, 2006 i. Infrastructure One of the major barriers to further economic and social development is infrastructural limitations, and congestion in trade lanes. Within China, despite a highly developed environment in major industrial centres (Pearl River and Yangtze River deltas), moving product can still be difficult because of the vast size of the country, the varied topography, and the inconsistent transport networks. Whilst there is significant investment in road and sea-ports, rail is still a problem. The Chinese network is not able to provide consistent service for large amounts of commercial rail freight, although again the government has announced plans for improvements. a. Road China’s vehicle fleet remains small compared to other countries in the region: 1.6 vehicles per 100 people, compared to 2.5 in India, 14.3 in Thailand and 65.3 in Japan (Asian Development Bank statistics), due to modern vehicles only arriving since the late 1980’s with the first joint-ventures and technology transfer initiatives. Subsequently, with economic and social development, the demand for vehicles is expected to increase significantly, and in 2002 there were already three times more vehicles on the roads than ten years previous. According to Chinese Government figures, demand for road freight increased by 6.1% a year over the same ten-year period, faster than the growth of China’s total freight market. This growth was encouraged by the deregulation of the Chinese transport industry following accession to the World Trade Organisation. Most freight operators are small- scale, but as with the larger manufacturers, most own their own vehicles, and trucks account for about 35% of the privately-owned vehicle fleet. However, the challenges of rapid growth are being met head-on, with major investment projects to improve transport links and reduce congestion to ensure greater efficiency. Consequently, both roads and harbours are set to expand rapidly. For example, the motorway network is expected to expand to 35,000km by 2008, with a total road network of four million kms by 2050 linking primary and secondary cities and eastern and western provinces. Following deregulation, entry into the inter-provincial haulage sector has been made easier. Tariffs are market-driven and privately-owned operators account for approximately 75% of the industry. However, new road tolls and licence payments according to the size of the load, rather than the size of the truck, are inflating overall transport costs. © IGD 2006 www.igd.com/supplychain 87
  • 3. International Differences and Emerging Markets Managing International Supply Chains Various development agencies are working with China to provide loans for construction, as well as technical consultancy, planning and policy development, particularly in the Central, Western and Northern regions of China, where development has been slow and poverty remains high. So far, the World Bank has provided $6.1 billion and the Asian Development Bank (ADB) $5.3 billion of loans. b. Ports Water transport plays a key role in international sourcing, and most major retailers now rely on it for primary (supplier to retailer) supply chains. For example, UK ports handle 96% of volume and 75% of value of all goods moved into and out of the UK. The exceptions include relatively low levels of air freight and the channel tunnel. The global container fleet capacity is already expected to increase by over a third from 6.6 million at the end of 2004 to 9 million by the end of 2007. In response to such growth predictions, ports in the Far East are at the forefront of capacity development programmes. Shanghai, for example, has been building a new port, which will take Truck Equivalent Unit (TEU) capacity from 4 million in 2000 to 20 million by 2015, whilst Hong Kong is expected to increase from 17 million TEU’s in 2000 to over 25 million. Interestingly, there are 1.5 million new containers being built per year, and two thirds of these are now also being built in China (Source: Auchan, 2005). In time-pressured supply chains, there is a need for greater understanding and awareness between users and suppliers of water transport, who have been viewed by some as being too slow to react to business needs and a little archaic. However, it is right to point out that in terms of investment costs and timescales, there are significant differences between road and water transport.Whereas a new truck may cost $120,000, be delivered in a few months and be in service for seven years, a new container vessel costs upwards of $100 million, takes two years to arrive, but will be operating for twenty years (Source: Chartered Institute of Logistics & Transport (CILT) figures). ii. International Transport By producing in countries such as China, companies become more reliant on various modes of transport to move product around the globe quickly, efficiently and at low cost. Despite pressures on the industry in terms of labour, fuel costs, legislative pressures, and infrastructure constraints, the overall costs of international transport have been falling, and in some circumstances it may well cost just as much to move a truck from Madrid to Brussels and to transfer a 40 foot container from Shanghai to Antwerp. Shipping product half way around the world means that companies also need to ensure optimal shipping loads i.e. that containers are as full as possible, or at least at ‘break-even’ point. This means that importers should consider: the total ordered volumes and phased quantities, the packing, and the packaging type and standards. Within the importing country, it is equally important to minimise the inland transportation where possible, often by choosing the closest port to the final destination point, and within the UK, companies such as the Home Improvement retailer B&Q now import closer to their RDC’s, instead of using the traditional ports in the south of the country. This avoids putting a warehouse actually at the port, which is not always advisable due to the number of secondary journeys that would then need to be undertaken. 88 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets Finally, at a very basic level, with container shipments taking five to six weeks on the water, sourcing companies must consider the implications of increases in transit time, particularly in terms of inventory levels and ability to react to changing circumstances. iii. Inventories The cost of capital, storage and obsolescence are key factors to consider when sourcing globally. Longer lead-times means that inventory levels need to increase to cover sales, whilst accurate forecasting, particularly of seasonal lines, is always a challenge. To counteract insecurity of supply, safety stocks are often increased. As such, high average stock holding of core lines of 8-10 weeks stock cover and more is not uncommon for globally-sourced products. It is also important to have accurate phasing of deliveries, particularly of seasonal lines, and ensure that the receiving warehouse is able to take-in the goods at the right time, as port demurrage and overflow warehousing can be very costly. Companies should aim therefore to employ 'lean' strategies to avoid the build-up of inventory at the increased number of storage points that international sourcing brings to the supply chain. Equally, it is true to say that interest rate levels are historically low in many developed markets, and there are efficient means of managing inventory commitment through various buying terms, collection services, shared-user, and consolidation centres. For example, outsourcing to a third party logistics provider with a vendor-managed inventory program can bring crucial benefits in avoiding inventory-build-up and obsolescence issues. Some companies also adopt a 'postponement' strategy, whereby basic manufacturing processes are carried out in the lower cost country, but then finishing processes are done closer to the main market, allowing for a degree of customisation and reactivity. This is shown in the Zara case-study in Chapter One. iv. Communication and Planning At the heart of any global sourcing strategy is a need for greater communication between partners up and down the supply chain at all parts of the process, and this needs to occur across various time-zones, cultures and languages. Despite often disparate organisational structures, teams from sales, sourcing, logistics, manufacturing and inventory planning must align themselves to the strategy. Poor planning is a key factor in increasing shipment costs, so that experienced importers will ensure that arrangements with freight carriers are made early in the year for any peak seasonal activity. Airfreight can sometimes be an option, but for low-value goods, this could cancel-out any savings made from producing in an emerging economy. New technologies for product lifecycle management, combined with streamlined communication, can ensure that production can make changes in design and demand quickly, thus reducing order cycle times. © IGD 2006 www.igd.com/supplychain 89
  • 3. International Differences and Emerging Markets Managing International Supply Chains v. Administration and payment As the supply chain extends, there is a heightened level of administration involved to ensure that long-distance trading partners and local associates are all kept aware of developments. Global sourcing also requires knowledge and expertise of international buying terms and payment types, which brings associated costs and inherent risks. Shipping documentation has to be accurate, as non-compliance can lead to severe delays in transportation, including the impounding of goods. Key areas of focus for completing documentation correctly will include: declared value of goods; correct commodity codes; and the accurate weight/number of packages. vi. Integrated Logistics Services In terms of logistics operations, local firms still dominate in China with around 80% of the market, many of which are also state-owned. Despite wholly-foreign owned enterprises now being allowed by the authorities, and many companies now working in China without a local partner, many foreign companies still choose a joint-venture option. The joint-venture partner allows the foreign company to gain improved operational knowledge and expertise in a highly complex, under-developed and often bureaucratic market. In order to help manage the longer and more complex supply chain, there is certainly a growing role for third party logistics service providers who can offer a truly end-to-end, integrated service, managing collection at origin, port loading, shipping, discharge and final delivery, including all documentation and queries. For example, in October 2005, Exel had 22 locations across China, assisting companies expanding from coastal cities to the interior, as well as the wider East Asia region including Hong Kong and Taiwan. vii. Production and Quality With most of the large multiple retailers now sourcing from the Indian sub-continent and South-East Asia, there is increased competition for product, price, quality and service level. It has been reported that the Importers and Distributors are fighting back, and being experts in limited product range, some acquire factories in their core businesses to ensure continuity of supply. • Whilst companies can disappear as often as they are created, it is important to be vigilant and to even be wary of over-commitment to a given company. • It would not be uncommon for the customer who promises to pay the most to get the product, despite agreements to deliver to others. • Equally, once the selling price has been agreed, quality has to be constantly checked, particularly prior to shipment. • As factories are often over-loaded with orders, delays are also commonplace, and this can be coupled with power and labour shortages in some regions, for example Southern China. • Since it can be a challenge to find suppliers who can conform to international quality standards, it becomes even more important to find a partner that can eliminate language, geographical and logistical barriers. 90 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets viii. Legislation Customs regulations are the most obvious obstacle for any company importing from an emerging market, both in terms of exit from the producing country and entry into the buying country. In this way, customs regulations are relatively unstable and are often subject to interpretation. • From variable quotas, to anti-dumping taxes, and through to erratic import taxes, it is important to keep on top of developments. • Locally-sourced products can seem a logical option in terms of cost and proximity to production, but value-add taxes can wipe-out any gains. • In the aim of protecting the European shopper, EU customs are also highly active in investigating consumer goods imports, and carrying out security and conformity tests. In addition to customs regulations, it is important to obtain correct operating licences and foster smooth relationships with Chinese government officials. There is also an agreement – the Closer Economic Partnership Agreement (CEPA) - between Hong Kong and China proper, for Hong Kong-registered companies to run wholly-owned operations in China without the need for a state-owned sponsor. Case Study - Auchan Group, International Sourcing Auchan Group's Imports/Exports team has implemented a number of solutions to ensure the smooth flow of mainly non-food, promotional merchandise from the Far East. 1. On-the-ground presence in the production regions To source efficiently, Auchan has immersed itself in the country of production.This has allowed the Group to gain a deeper understanding of the opportunities and constraints of the market, whilst being able to adapt to the culture and undertake direct negotiations with the supplier base. In order to efficiently manage their supply chain, Auchan has chosen to manage locally all the supply chain partners, allowing for direct contact with the factories, the inspection companies and freight forwarders. Such close contact affords Auchan the ability to react quickly and efficiently to unforeseen events. 2. A solid information system Information management is viewed by Auchan as the primary focus of global sourcing because accurate and reliable data is imperative to the efficient management of 4-6 month lead-times.The distances travelled, the different time-zones and languages limit the frequency of direct contact between supply chain partners, and in the case of Auchan, the products are only touched by the manufacturer, the quality inspection team in-situ, and the store at the end of the chain. © IGD 2006 www.igd.com/supplychain 91
  • 3. International Differences and Emerging Markets Managing International Supply Chains Auchan uses an internet-based information system which is accessed by suppliers, service providers, employees and customers, and this ensures that there is no need for significant dedicated resource to manage the flow. 3. Strong quality control and customs management teams As well as the laboratories and inspection companies, Auchan's internal quality team manages the evolutionary nature of the regulatory framework that governs imports/exports. For example, Auchan has cited that an MP3 player with a radio may be subject to a 12% import tax, but if there is no radio it is only 2%. Auchan uses third party inspection companies, to carry-out in-situ inspections in the production regions around the world. Auchan views strong quality management as a key part in ensuring lead-times remain as reliable and as short as possible. Expertise in quality control and inspection guarantees compliant products, from a customs perspective, as well as products that satisfy shopper expectations and needs. Secondly, the customs teams within Auchan manage the arrival of goods into the receiving country, and the associated administrative burden.Tax and duty declarations and payments represent a significant part of the overall costs, and as Customs have the power to block an import/export at any time, it is important to ensure that errors are kept to a minimum. 4. Strong logistics and finance teams Auchan's logistics team manages the forwarding and transport operations, and this activity is two-fold: • Global sourcing requires multiple partners around the world and their remote activities need to be efficiently synchronised. • Optimisation of the transport chain for cost efficiencies, including price and contract negotiations, container loading, and handling processes and procedures. For example, Auchan has quoted that flat-packing t-shirts can allow 100 units to be packed into a carton, thus 33,000 units per container, whereas if the same t-shirt was round packed (for enhanced in-store merchandising), there would only be 24 units per carton, and only 22,000 units per container, at 50% more cost in transportation. The Finance team at Auchan, on the other hand, works to guarantee efficient payment terms, and their expertise is vital due to the variety of currencies, the currency coverage, the various payment terms, and the multiple means of payment, including letters of credit and transfer payments, that are an inherent part of the global sourcing process. Source:Auchan, 2005/IGD Research, 2006 92 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets 3.3 India – Retailing Opportunities Key Points to Note • The scale of the Indian market and the remoteness of much of the population present a real challenge to both manufacturers and retailers alike. • Current Indian legislation restricts multi-brand retailers from investing directly in the market and opening their own stores. Those that are present have entered the market through opening cash & carry outlets. • Due to the ‘unorganised’ nature of the Indian retail market, distributors and wholesalers are key links in the Indian supply chain, with very little centralised distribution. • The quality of the physical infrastructure in India is well below that enjoyed in China, where government investment has been highly managed, but improvements are coming. The scale of the Indian market can be summarised by the fact that there are approximately five million distribution outlets. The country has the second largest population in the world with just over one billion people, 50% of which are under the age of 25. With average Gross Domestic Product (GDP) growth of +6% over the past decade, India's consumer middle-class is expanding rapidly. As a result, India’s retail sector is set to rapidly increase. The challenge for any international manufacturer will be getting their product (and brand) out to the rural areas, in order to tap into the mass market. For the international retailer, the challenges are slightly different, mainly because Foreign Direct Investment (FDI) into the Indian retail scene is currently restricted. The Indian government has however just announced plans to ease the restrictions for single-brand foreign retailers to own up to 51% of businesses in India as long as they only sell their own brands. Currently, modern retailing is therefore not widespread across India. Subsequently, the 'unorganised' nature of the vast majority of the Indian retailing scene (97%), where most customers shop in local wet markets for fresh fruit, vegetables, meat & fish, and neighbourhood stores called 'Kiranas' for their dry goods, means that supply chain management in India is heavily reliant on hundreds of distributors. 3.3.1 Distributors These intermediaries purchase stock from the main branded suppliers, such as Heinz, L'Oréal, Unilever, or Colgate-Palmolive, and then deliver the range of products either direct into the retail outlets, or via the wholesale networks. Even within the limited 'organised' retail sector there are only a few direct deliveries into store by a manufacturer. © IGD 2006 www.igd.com/supplychain 93
  • 3. International Differences and Emerging Markets Managing International Supply Chains Distribution Network in India Sub-Warehouse Retailer Manufacturer Shopper Distributor Wholesaler Retailer Source: IGD Research, 2006 Whether the retail outlet buys from the distributor or the wholesaler will depend on if they can get the full range of products they require from one single source. 3.3.2 Sales Field Force The distributor companies have a number of sales people who call on the retailers once a week.They conduct: the physical distribution of goods, and collect money from retailers for the goods. There are two distinct roles for the sales force: 1. Order-taking - the salesman will take an order from the retailer, which will then usually be delivered the next day 2. Direct sell - the salesman has a delivery vehicle, and sells directly to the retailer from the truck. This is particularly common in smaller towns The type of role will simply depend on the viability of the method, in terms of ranging, volume and even ease of access to the retail premises. It is not uncommon for manufacturers to have their own field sales force. Due to the lack of modern media coverage, direct contact with customers in the more rural areas is essential for building brand and product awareness. The retailer will often receive seven days' credit before they have to pay the distributor for their stock purchase. Retailers and suppliers are not tied to a particular distributor, but can choose these freely. Choosing a Distributor When choosing a distributor, a manufacturer would be looking for the following qualities: • Financial security • Ability to serve the fragmented retail structure • Influence in the region/city, driving new business opportunities Source: IGD Research, 2006 94 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets The need for high delivery frequencies - due to little storage space - means that the local distributors are often essential to the continuous supply of goods. Although there will be some direct delivery accounts to the more developed retail stores, typically, an average retailer could be serviced by 30-40 distributors carrying the manufacturers' brands. This complexity impacts on delivery waiting times, which can be anything between four and six hours! 3.3.3 Legislation The manufacturers sell on a 'cash and carry' basis, where the distributor pays up-front for the stock they take. Suppliers will usually have a Carrying & Forwarding Agent (CFA) in each individual state to manage the sales to distributors, paperwork and the tax implications. Generally, there is a tax applied by the central Indian government when products change ownership and are sold into another State. This means that suppliers will generally move product from their centralised production facilities out to any number of out-lying co-packing/storage facilities, or sub-warehouses (usually one per State), where stock will then be sold to the distributors. Since ownership of the merchandise has remained with the supplier, there is no tax penalty on the physical movement. The only exception to this type of network structure is if the costs of running the out-lying warehouse are greater than the 4% sales tax that would be imposed. Implications Optimisation of warehousing within the Indian supply chain, with a degree of centralised distribution, will only really be viable when the tax burden for moving goods between States is abolished. This will not only allow large-scale manufacturers to consolidate their networks across geographies, but also consolidate demand and supply flows into the retail network. Source: IGD Research, 2006 In addition to 'movement' taxes, there are a number of other financial taxes and laws which add complexity into the system: i. Maximum Retail Price (MRP) - Each product sold in India is required to have its MRP stated on the packaging and it is illegal for the product to be sold above this price. This price is set by the manufacturer and serves two key purposes. Firstly, it ensures that the consumer is not over-charged for the product. Secondly, the price determines the level of tax collected by the government. Retailers can sell below the MRP, although this is difficult because margins are generally very small. ii. Weights & Measures Act (1977) - which stipulates manufacturer pack sizes, so that the consumer can compare, and which product categories can attract tax on top of the MRP. Most products already have tax included in the price. © IGD 2006 www.igd.com/supplychain 95
  • 3. International Differences and Emerging Markets Managing International Supply Chains iii. Ingredients - there are a number of legal requirements for ingredient lists on products. iv. Value-Added Tax (VAT) - this was introduced in April 2005, and is a common rate across the country, but only 20 of the 29 Indian States accepted its implementation. v. Packaging - Manufacturers need to ensure that price promotions are marked on printed packs (cross-out packs), as otherwise they could pay tax on the full sales price. For this reason, promotions are often run nationally, or some suppliers only run multi- buys in banded packs. v. Minimum Wage - This is set by region and by profession by both the national government and the state. It can change every six months. There is high demand for skilled labour, and with many available jobs, people are open to change employment. This means there is pressure on wage costs, although still account for a relatively low proportion of total costs, compared to more developed markets in Europe. 3.3.4 Inventory Challenges Due to the complexities in the Indian physical supply chain, effective inventory management can be a real challenge for the supplier and retailer in servicing the end shopper. Inventory Challenges Description Result • Crowded back-of-store • Low stock visibility • Difficult to check • Availability will generally be poor, • Improper rotation particularly for new product launches. • Damages • Low product/brand visibility. • Low levels of self-service • Customer needs to know what they want. Source: IGD Research, 2006 3.3.5 National Brand Coverage India is undoubtedly a vast country, and whilst the whole country is populated, consumption will be fragmented. Mumbai itself supports a population of over 16 million people. Strong brands are offered across much of India and into the majority of rural locations, but full coverage will depend on the geography, local consumer preferences, and even company heritage in some areas. The wholesale network can be used, at a price, by suppliers to reach more out-lying areas. The south of India has been a traditional entry point for companies, and is helped by a better road network and lower real estate prices.The biggest challenge for suppliers is to generate new products, particularly those adapted to the lower purchasing power of the majority of the Indian customer base, whilst also abiding by the legislative restrictions. 96 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets 3.3.6 Infrastructure Challenges Despite similarities with China in terms of country size, population, the extent of global sourcing activity, and their rapidly developing economies, it can be argued that India is approximately five to ten years behind China in terms of the modern retail environment and supply chain infrastructure. As highlighted in the previous section, infrastructural and investment development in China have been heavily managed and controlled by the Chinese State, making sure that a certain degree of infrastructure was in place before inviting FDI. This has not been the case in India, where space, transport and retail planning and building continues to be rather haphazard. Transportation, road and rail infrastructure, quality of trucks, general congestion makes movement of goods very difficult between cities and regions, bringing high levels of uncertainty into the supply chain. Subsequently, large quantities of food do not reach the market. There is strong demand outside the major city conurbations, and the real challenge now is getting products into the rural interior. The relatively poor infrastructure means it is better to store goods closer to the market, hence another reason for the proliferation of warehouses across states. Modes of Transport • Road transport predominates, despite the inadequacies of the network • There are no domestic cargo airlines, and landing rights are very expensive for aeroplanes • Rail is used for container traffic, and can be supported by a government agency (CONCOR) Source: IGD Research, 2006 3.3.7 Delhi versus Mumbai Despite having legacy infrastructure across the seven islands that have been joined through land reclamation, congested roads and limited space, Mumbai remains the commercial centre of the country. Delhi, in contrast, has more available space due to its circular structure, and has received much government investment due its capital city status. It is also a government centre, and it is reported that 70% of people living in the city are government officials. The city has bigger, wider roads, has a Metro, and is cleaner and less congested than Mumbai. Many companies have moved out of the city centre into the 'greater' Delhi geographic area where development parks have been created. 3.3.8 Supply Chain Improvements It is therefore fair to say that vast improvements have already been made, as India looks increasingly to Europe and USA.The logistics sector is not restricted and so many foreign operators have moved into the Indian market. As with China, this often occurs via joint- ventures, giving time to adapt to the new market and learn how to do business in this complex developing market. © IGD 2006 www.igd.com/supplychain 97
  • 3. International Differences and Emerging Markets Managing International Supply Chains Customs procedures have been modernised, import/export tariffs have been lowered, as well as the introduction of technology, such as EDI. One of the biggest challenges is the cold chain, where there is a tendency to turn off refrigeration, in transport and in-store. Retailers and manufacturers expect international logistics service providers to reduce uncertainty and manage the supply chain safely and efficiently, and some leading companies are willing to pay for that security and quality. For example the use of temperature monitors inside refrigerated vehicles. The Indian government has encouraged private investment in the transport infrastructure. This has taken the form of multi-lane highways, thus reducing traffic congestion and journey times considerably. For example, the 160km journey between Puna and Mumbai has reduced from 4-12 hours to only 2.5 hours. There has been the introduction of road tolls too, which helps bring a level of certainty to the supply chain, and can also help reduce labour costs because deliveries take less time. 3.3.9 The Future Whilst the Indian retail market is still in the early stages of development, there are clear signs that the sector is on the brink of significant change. It is widely anticipated that the retail market will continue to open up to foreign direct investment over the next six to eighteen months which will lead to the entry of international retailers such as Wal-Mart and Tesco. The development of the retail sector is intrinsically linked to the development of the supply chain which currently requires a significant level of investment from both the State and private sector. Sufficient investment is however unlikely to take place until the largest retailers have adequate scale to justify the cost. Those who take the initiative to develop efficient logistics operations will inevitably gain the competitive advantage. As the market develops and the expectations of modern retailers and suppliers increase, an element of consolidation is inevitable nevertheless, IGD anticipates that in the short to medium-term, the network of distributors and wholesalers will continue to dominate the market. Implications 1. Many leading international manufacturers find the Indian market very challenging. Those that dominate the market have been in India for a long time, and have adopted their business processes to the cope with the complexities of this highly fragmented market. 2. Return-on-Investment will not come immediately, and so companies investing, or looking to invest, in India need to be patient, and be prepared to 'sit-out' the current market complexity. 3. Current rules on retail FDI may well change further over the next six to 18 months, but recent changes only apply to single-brand retailers, thus still restricting entry for most large-scale international retailers who sell many brands. 98 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets 3.4 Central & Eastern Europe – Supply Chain Restructuring Key Points to Note • Similarly to China and India, as a result of significant political change, and the subsequent high levels of economic growth, the countries of Central & Eastern Europe have also become attractive places to invest, in terms of both manufacturing production and international retail expansion. • The advantages of countries such as Poland, the Czech Republic and Hungary, are that they benefit from cost-effective labour and a culture of hard work, but without the long transit times for delivery. • There has been growth in logistics movements, inter-modal activity and investment in transport and warehousing infrastructure. • Consolidation in the supplier base is encouraging more collaborative practices, both between suppliers and with retail customers. At a European level, a combination of political and economic changes over recent years has lead to surges in activity in once more remote countries.The growth of the European Union has accelerated the presence of leading consumer goods manufacturers and retailers in countries in Central and Eastern Europe, like Poland and the Czech Republic. Production capacity is also moving eastwards, or is being outsourced to contract manufacturers already established in the region. 3.4.1 Supply Chain Advantages Whilst some of the countries in the wider region are now part of the enlarged European Union, all are believed to benefit from cost-effective (as opposed to cheap) labour, a culture for hard-work, and above all, shorter lead-times for delivery into Western Europe when compared to their Asian competitors. Combined with generally positive government attitudes to foreign investment, (sometimes with attractive subsidies), and continued strong economic growth, Central and Eastern European countries are an attractive emerging market. It is fair to say though that it is not all 'plain-sailing, as shown by Poland's recent opposition to further hypermarket growth, despite foreign supermarket chains creating 160,000 jobs in Poland since the 1990's. © IGD 2006 www.igd.com/supplychain 99
  • 3. International Differences and Emerging Markets Managing International Supply Chains Examples of Central & Eastern European Growth Retailers • As part of their 'asset-swap', Tesco has recently acquired 11 stores from Carrefour in the Czech Republic, as well as plans for taking another four stores in Slovakia. The French retailer is taking over Tesco's six stores in Taiwan. • In contrast, Carrefour currently runs approximately 100 stores in Poland, including 12 hypermarkets bought from Ahold last year. The group has announced plans to double its number of stores over the next five years, particularly in smaller towns. • Auchan has announced plans to open a further five hypermarkets in the Moscow area of Russia, adding to the seven stores it currently operates. • Following its expansion into Slovenia, the German discounter Aldi has decided to move into Poland, with plans to open its first outlets in 2007. Manufacturers • The confectionery firm Leaf UK - makers of 'Chewits' sweets - has announced plans to close their factory of 40 years in the north of the UK, and move production to Eastern Europe, citing the need to invigorate production capacity and cost costs. • Cadbury Schweppes - the world's second biggest chewing gum company with 26% market share - will invest £70m in building a new chewing gum factory in Poland. The site will be operational by 2008. Source: IGD Research, 2006 3.4.2 Supply Chain Trends As more cost-effective manufacturing locations are identified, and modern retailing grows in a larger consumer market, there is increasing demand on the responsiveness of the supply chain. As such, air, sea and road freight throughout Europe continues to grow. In response to the ever-growing trend towards global sourcing and the level of direct imports from Asia, there have been major up-lifts in port activities throughout the region, particularly in Odessa (Ukraine), Constanta (Romania), Trieste (Italy), and into Turkey. There has also been a reported change in the direction of goods movement, from the historical east-west axis to increasing levels of north-south activity, particularly via accession countries: • Polish suppliers have been transporting more goods to Greece than their traditional German markets • Hungary is moving large quantities of products up to Poland and the Baltic States, partially in response to developing fashion and home improvement markets in former Communist countries. 100 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets There are, nevertheless, a number of challenges to overcome, not least of which are the years of under-investment in the transport infrastructures. Again there are regional differences, with countries like Hungary and the Czech Republic in a better position than poorer and larger countries like Poland. Similarly, warehousing facilities can vary considerably in quality, but new investment in all of these areas is rapidly improving the situation. The development of efficient and capital-intensive infrastructures will help ensure competitiveness through improved service-levels and shorter lead-times, which will help off-set higher labour costs. The following three case-studies show how Tesco, Henkel (a leading manufacturer), and Carrefour have improved their supply chains in Central & Eastern Europe, through restructuring their business model, changing the flow of goods through the supply network, and working closely with the local supplier base. Case Study - Tesco, Hungary Tesco, Hungary Source: Tesco, Budaors, Hungary, IGD Research 2005 Market Summary Tesco entered Hungary through the acquisition of ‘Global’ and currently has nearly 70 stores with a sales space of 3.5million sq.ft. Tesco is the clear market leader in Hungary and is the only international retailer that has full national coverage. With a multiformat operation, it has established hypermarket and supermarket operations and recently has extended into smaller urban areas through the development of compact and petrol station formats. ‘Tesco’s largest store in Europe is located in Budaörs, Hungary (outskirts of Budapest) and has a total store area of 16,000 sq. m.’ Delivering a Supply Chain The development of their store network is supported by a growing supply chain which has been steadily moving from suppliers delivering stock directly to store towards a centralised distribution model. © IGD 2006 www.igd.com/supplychain 101
  • 3. International Differences and Emerging Markets Managing International Supply Chains ‘Our objective is to centralise 80% of all product volume by the end of 2006 and operate as a profit centre.’ Through centralised distribution, Tesco can reduce the amount of stock held in the back of store. This enables simpler operations and better in-store processes, leading to improved consistency and availability of the product offer to shoppers. Its current network comprises of the following depots: • Herceghalom, 43,000 sq m, ambient (dry grocery and hardlines) • Budafok, 10,000 sq m, non-food • Gyal, 25,000 sq m, fresh and chilled Across the past five years, Tesco has steadily improved its supply chain in Hungary: • Centralised more non-food volumes (aided by the sortation system in Herceghalom • Closure of an old site and opening of a new purpose built centre • Centralisation of fresh food volumes • Implementation of service level improvement programmes • Extension of existing site to accommodate extra ambient and non-food volumes • Completion of Electronic Data Interchange volumes (EDI) • Bought depot management control in-house • Controlling more product at source e.g. moving from a locally sourced model to a internationally sourced model for produce. • The fresh food DC in Gyal has resulted in 98% of fresh being centralised in 2005 Spotlight on Herceghalom Herceghalom was the first of its kind in Central Europe, having been developed within nine months and opened in June 2002. It has a capacity of 36,000 pallets and 6,500 pick locations. With the addition of a cross dock sorter, Tesco can handle an additional 20,000 product lines. With a capacity of two million cases it has led to 75% of its grocery volume being centralised as well as 50% of the hardline items. It changed from a paper based warehouse operation to a ‘state of the art’ paperless, fully radio frequency controlled warehouse. Making it one of the most advanced depots in Central Europe. Value of Radio Frequency Benefits Offered Challenges to overcome Stock movements recorded as it happens Following less flexible processes (need to (real time) more prescribed for RF) Fast - response time is less than one second Discipline - everything must be scanned Accuracy - reduced number of errors Training - to enable technology to be utilised Efficient - paperless processes now in place Maintenance - for hardware e.g. no picking lists Mobile - can be used all over the warehouse Dependency on system requiring first rate support 102 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets Future Outlook Overall Tesco has made great strides in applying best practice into new markets and Hungary now has some of its most up to date depot networks. In Tesco UK terms, the operation has advanced 15 years in the space of 18 months. Reduced cost per case has been driven through transport efficiencies through better economies of scale. Going forward the two key challenges facing Tesco are finding the right model for international/global sourcing; this will in turn define the supply chain infrastructure needed. Secondly, centralisation of product volumes across a region; Tesco has been successful in implementing centralised distribution within a country such as Hungary – but what about across Central and Eastern Europe? Across 2005/2006, Tesco has embarked on the development of distribution depots across Central and Eastern Europe. • Poland – Opened a fresh food depot in 2005 • Slovakia – Opened two depots in 2005 • Czech Republic – Plan to open two depots in 2006 With ambitious international expansion plans, Central and Eastern Europe is seen as a key element to support this strategy and Tesco will continue to invest in a first class distribution infrastructure. Source: IGD Research and Tesco, 2006 Case-Study - Henkel in Central and Eastern Europe The Business Within Central and Eastern Europe (CEE), Henkel has a headquarters production site in Vienna. As part of a ten-year supply chain restructuring programme, which has included a €448m investment in the region, Henkel CEE now employs over 7,000 people and achieves 85% of its total turnover in Central and Eastern Europe. This transformation has made Henkel CEE the number two detergents player and market leader in adhesives and hair cosmetics in Central and Eastern Europe. The Challenge Following a decision to put production, supply procurement and sales under one single management structure, Henkel CEE has reduced inventory levels by 50% within two months, through an integrated, process-orientated, end-to-end supply chain approach. These immediate benefits acted as a catalyst for wider business support for the rest of the re-structuring project. The ability to re-structure the business in such a radical way was also helped by the small size of Henkel's CEE business, relative to that in Western Europe. © IGD 2006 www.igd.com/supplychain 103
  • 3. International Differences and Emerging Markets Managing International Supply Chains Henkel CEE changed more than 50% of the management structure to ensure the new team supported the radical new plans, and also introduced new systems and new demand planning tools to establish supply chain priorities.The change process is slow, as the business must continue to function, but a responsive service-led supply chain is at the heart of the new approach. With high revenue growth in countries like Russia, where there are three detergent production facilities, Henkel CEE continues to face logistics, sales and marketing challenges due to the size of the country and the deficiencies in infrastructure. Network Restructuring With 19 warehouses and 10 production plants in the Central and Eastern European region, there is now a clear long-term vision to review this network, so that production and warehousing are placed together. In the past, production facilities were often acquired by chance, and the warehouse location was determined by price. Although products and brands can be common across many markets, shopper behaviour can vary. In this way, Henkel CEE aims to move from a country-level organisation to regional clusters, creating supply regions based on shared consumer behaviour. Henkel CEE aimed to open its first cross-national warehouse, supplying four countries from one single location, at the end of 2005. Supplier Collaboration As part of their supply chain re-structuring programme, Henkel CEE relies on a proactive, well-managed supplier-base, where service is said to be more important that price. Key areas of focus include: inventory management; close communication; location and quality. In terms of management of excess supply chain stocks, Henkel CEE wants to use suppliers capable of vendor-managing their relationship.This has not always been possible, especially with some local suppliers who benefit from good location and good prices, but are not in a position to manage all the technology systems, and so Henkel has created a mixed system in the region. Supplier Consolidation Acquisitions of suppliers have also been strong within the new accession countries, thus creating a certain degree of supplier concentration. Whilst Henkel wants to be able to flex its purchasing power by using smaller companies, it does not want supplier dependence, and wants the supplier relationship to be strong, so that negotiations around service can be productive. In this way, Henkel CEE has not actively sought to reduce its supplier base, despite a strong push within the industry.Whilst it is accepted that a more focused supplier-base can bring advantages, it is not a key focus for Henkel, who prefers to focus on technology-based tools that can simplify the processes of dealing with many suppliers. Competitor Collaboration Johann Seif, Vice-President Supply Chain Management Henkel CEE, believes that companies who have sought multinational organisations who can offer global supply have re-shaped the market, leaving only suppliers who can handle the huge volumes involved.The concentration has changed the balance in purchasing power.With this in mind, there is talk of more vertical integration, with Henkel CEE producing materials on their own, or in collaboration with competitors. Although internal integration from plant to the customer to deliver efficiencies is the primary focus, it is accepted that closer collaboration with competitors will be of greater importance in the future. 104 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 3. International Differences and Emerging Markets Supply Chain Visibility & Flexibility In a promotionally-driven market, there is a requirement for total supply chain flexibility, as production cannot work to standard delivery times. Henkel CEE has reduced its production cycle from one month to only two days over the last five years, with twice-weekly planning. Henkel CEE now plans to outsource the making of promotional materials, with a 24-hour supplier response. This would not be possible without complete supply chain visibility, and Henkel CEE aims to give suppliers full access to their production programme. In exchange for this level of integration, Henkel CEE requests invoicing once per month, instead of per truck delivered, putting pressure on Henkel's own supplier-base, but also ensuring quality service. Western Europe Breaking down block structures working within national boundaries will now be the focus for re-working the business in Western Europe, including the location and number of both production and warehouse facilities. With limited detergent sales growth expected in Western Europe over the next year, even more emphasis is placed on improved supply through leaner structures and greater synergies. As processes are simplified and transparency increased, borders will be opened further. Source: Interview in 'Supply Network', June 2005/IGD Research, 2006 Case Study - Carrefour (Poland) Multi Cross Dock The Business There is only one Carrefour warehouse in Poland, receiving many direct deliveries from suppliers and so Carrefour wanted to combine orders to optimise truck fill and reduce inventory at the Carrefour warehouse. The Process • Following 3-4 month negotiations, Carrefour wanted to move from individual direct 1-to-1 picking flows to a 3-to-1 cross-dock flow through a common warehouse. • Both warehouses are managed by the same logistics service provider - FM Logistics - for the three suppliers involved in the project: Danone, Masterfoods and Cadbury. • Orders are picked for cross-dock and then pooled for delivery to Carrefour's distribution centre. • One range of fast-moving products from Masterfoods has remained in pick to ensure full-truck optimisation, whereas other lines are being cross-docked. © IGD 2006 www.igd.com/supplychain 105
  • 3. International Differences and Emerging Markets Managing International Supply Chains Results • Delivery frequency is identical for stores at five times per week. • Truck fill rate has increased from 50% to 85%. • Out-of-Stocks (OOS) have reduced by 50% for two suppliers and remained stable for the third. • Total inventory (RDC and stores) has reduced by 40%. • Total costs have reduced. Source: Carrefour, 2005/IGD Research, 2006 106 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4. Best Practice Supply Chain Management Summary • IGD’s international survey asked companies for details on their performance and best practice methodologies, in order to understand the diversity in measurement tools and the role of external information in bringing internal improvements. • Transferring best practice across departments, markets and geographies is a key method for driving international efficiencies and improving end-to-end capabilities, but this should be done in a simplified and standardised way. • Key supply chain performance measures focus primarily on: availability, forecasting, service levels, order fulfilment, financial indicators, warehousing, transport, and inventory. Order fulfilment is the most common performance measure. • External benchmarking is gained primarily from the retail customer sharing information on cross-supplier performance, and is often based on order fulfilment and availability. In addition, there are a variety of other methods used by companies, including the ECR Scorecard, industry bodies, and external consultancy firms. • Root cause analysis of good performance is most likely to be shared around a business via internal reporting methods and communication processes, including collaborative work between trading partners. Improved use of data, greater internal and external communication, and focus on inventory management and forecast accuracy are all key factors in improving overall performance. • In terms of transferring best practice around the business, there are differences between organisations, from more formalised methods engraved in organisational structure, such as ‘global’management roles, through to more informal methods via multi-discipline project teams. In this way, the key enablers for supply chain best practice are people and processes. • There is a number of standardised continuous improvement techniques used across the food & grocery sector, particularly amongst the supplier base. The production environment lends itself to process re-engineering techniques, total quality management initiatives and lean methodologies. Process management is the most common method employed by the international companies surveyed by IGD. • Finally, IGD’s supply chain survey asked companies to choose a best-in-class company – retailer, supplier and service provider. Amongst others, companies most admired by the Supply Chain Executives included Tesco and Procter & Gamble. © IGD 2006 www.igd.com/supplychain 107
  • 4. Best Practice Supply Chain Management Managing International Supply Chains One of the principal mechanisms for driving international efficiencies and supply chain leverage across markets is to ensure that ‘what works well’ is widely known and shared around the business, across departments and geographies. The efficient and effective transfer of best practice throughout an organisation in an organised and structured way can be a key enabler for companies aiming to drive the large-scale implementation of best-in-class supply chain solutions. 108 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.1 What Unit Measure of Performance Do You Benchmark? Recognising the diversity of markets, customers and organisational structures of many international companies, and the complexity that this can create for the effective management of the complex supply chain, IGD asked the Supply Chain Executives to share the key performance indicators that are used for benchmarking purposes within each of their organisations. The aim of this exercise was to examine the scale and diversity of the methods used across international companies to measure success and ensure the right balance between service and cost. Subsequently, in response to the diversity of responses, IGD has grouped the variety of performance indicators into nine different ‘themes’: availability, forecasting, service levels, order fulfilment, general financial, inventory, transport, warehousing and other. Supply Chain Performance Measurement Matrix Availability Forecasting Service Levels • On-shelf availability (OSA) • Forecast accuracy • Customer service • Items out-of-stock (OOS) • MAPE (Forecast error) • Supplier delivery performance • Stock availability • Conformance to manufacturing plan • Service levels • Supplier/Wholesaler availability by • SKU forecast accuracy SKU • Sales forecast accuracy Order Fulfilment Inventory Warehousing • On-Time In-Full (OTIF) • Inventory management • Pick Accuracy • OTIF (All costs) • Stock-holding • Pick Rates • Case fill rate • Stock turnover ratio/Forward weeks' • Cost per case • Order fill rate cover • Handling costs per m3 • Working capital (Inventory values) • Cost per pallet General Financial Transport Other • Supply chain costs as a % of net • On-time deliveries, late deliveries & • All components of the 'perfect order' sales delivery windows • SKU complexity • Lost Sales • Drop-size • Waste/Write-off • Invoice accuracy • % of direct delivery • Non-quality costs • First-time invoice acceptance • Vehicle utilisation • Lead-time achievement • Low code sales • Load efficiency • Time/Speed to market • Cost savings • Distribution cost per case/m3 • Information efficiency • Cost per unit delivered • Cost by kilometre • Distribution build • Cost vs. volume vs. turn-over • Cost of production of best quality • Profitability vs. cost product (which is different for different regions) Source: IGD Research, 2006 Whilst some companies listed a number of major performance indicators – often across a wide range of supply chain links (availability, financial, order fulfilment and transport, for example), other organisations were more restrained in their response. Although there will no doubt be many performance indicators used across any one business, it is true to say that ‘on-time in-full’ and ‘case fill rate’ were the most commonly cited. These units of measure are specific to order fulfilment, and measure the degree to which a given replenishment order has been completed and delivered, in full to the customer. © IGD 2006 www.igd.com/supplychain 109
  • 4. Best Practice Supply Chain Management Managing International Supply Chains From rather generic units of measure – such as ‘service levels’ or ‘inventory management’, companies also cited very specific targets, such as quality costs, costs per case/unit/m3/kilometre, and delivery timings/windows. The emphasis on transport performance indicators highlights the strict focus within the food & grocery industry on reducing waiting times, increasing vehicle fill, and running the most efficient network. Standardisation and Simplification IGD believes that one of the main challenges for improving supply chain management and driving greater efficiencies is for companies to be able to standardise and simplify their performance measurement both internally and externally. 1. When operating in a variety of countries, and especially when using a number of different service providers, it is essential for any company to be able to report on the same data, and benchmark performance across companies, departments, and markets. 2. It is also important that the key performance indicators are aligned between both the supplier and retailer. If the ultimate aim of the supply chain is to ensure that the end- consumer is able to purchase the product they wish, in the right quantities, at the right price, and at the time of their choice, then it is essential for all parties in the chain to collaborate and work towards the same performance goals. Source: IGD Research, 2006 Whilst accepting that certain commercial targets will differ both internally and externally to an organisation, if there is not transparency of expectation and clear communication of needs, then the supply chain will ultimately fail, or efficiency is much impaired. The first step to improving supply chain scale efficiencies across the international organisation will be to ensure that data is measured in the same way and that it is shared widely across all stakeholders. 110 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.2 External Benchmarks In addition to the internal key performance indicators, IGD asked companies to provide information on the external units of measure that help with performance benchmarking. The role of the retail customer, external management consultancies, and other industry bodies play a key role in this process, but it is fair to say that some organisations do not use any external benchmark in their supply chain. External Benchmarks Customer Industry Body/Expertise Other • Customer OTIF • External consultants x3 • Nothing concrete - based • Customer tables or service • IGD in international experience level reports, comparing • ECR Scorecard • Tendering with peers • ELUPEG forum (inter- • In-market distributors • Retailer KPI's company comparisons) • None • Retailer availability data • Case fill rate (shared by retailers) Source: IGD Research, 2006 The retail customer plays a key role in providing data to manufacturers on their performance. Sometimes this information will be for several suppliers, often in the same category, so that the supplier can benchmark across their competitors. The most common measures, similar to supplier internal measures, are ‘On-time In-full’, ‘case fill rate’, and various availability data. © IGD 2006 www.igd.com/supplychain 111
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.3 Availability Due to increased complexity, the risk of a product not being available on–shelf increases as the product moves down the chain, closer to the end shopper. The challenge of the now infamous ‘last 50 metres’ will mean that often an ‘on-shelf’ availability performance measurement can vary considerably from the ‘in-store’ performance measure. To benchmark total supply chain performance for availability, it is important to make the distinction between warehouse-availability, store-availability, and on-shelf availability. If the product is not making its way to the shelf from the back-of-store, then the whole supply chain is not performing to its best. Depending on the category, the shopper may well switch brands, postpone the purchase, or even change store, in which case both the manufacturer and retailer can lose a sale. 112 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.4 ECR Scorecard In terms of external benchmarking tools, the ECR scorecard was created for collaborative performance management, and is completed separately on-line by both trading partners against an agreed set of key performance measures. There is a vast array of criteria that could be used in a scorecard, and so it is important for companies to select the targets that are most business-critical to the relationship, re- emphasising the point that it is important for both customer and supplier to be aligned in their benchmarking process. ECR Scorecard Process Source: ECR Before approaching a retail customer with a collaborative scorecard, it is advisable for suppliers to become familiar with the technique and score their own business internally first. This ensures familiarity and clarity with internal performance weaknesses, which can then be improved, before being scored externally by the retail customer. How do I implement a collaborative scorecard? • Week1 - Meet between Customer and Supplier to explain the principles • Week3 - Supplier completes scorecard on-line • Week4 - Retailer completes its version on-line • Week5 - Discussion over variances in ratings • Week6 - Meeting to discuss the outcomes and business plan. • Progress is monitored by setting 1,3, & 6 month targets for improvement Please note the above timescales are indicative of the entry level scorecard. For more information, visit www.globalscorecard.net. © IGD 2006 www.igd.com/supplychain 113
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.5 How do you Analyse the Root Cause of Success? As a result of the variety of methods of root cause analysis cited by surveyed companies, IGD has grouped them into three main types. Those based on reporting and communication, those that are more analysis-based, and other types. Root Cause of Success Examples Reporting & Communication • Regular feedback sessions with cross-departmental discussions on performance measurements achieved • Monthly reports on changes (e.g. average number of deliveries vs. 'outers' delivered) • In-store availability (via the retailer) • Service levels, cost control, historic performance trends • Joint work with customers and between the various internal supply chain stakeholders Analysis Tools • 'Pareto Analysis' for all issues, solve the issues, and then start over • Scorecard • Break-down all links in the supply chain, and measure separately (e.g. product availability, picking errors, transport failures) • Visibility of real cost drivers and learning how to control them (Activity-Based Costing - ABC) Other • External consultants Source: IGD Research, 2006 The most common methods for understanding the root causes of success, but also the reasons for failure, are based on communication and reporting of performance. It is vital for companies to share performance data and review what happened. It is only through reviewing the process with all stakeholders that further improvements be made. Review and Share Performance Data 1. Data should be shared internally to avoid the negative effects of 'silo' mentality, where departments ignore the impact they have on other teams. 2. Performance data should be shared externally with the customer to ensure that performance targets and expectation are aligned. Source: IGD Research, 2006 It is true to say, that in any planning process, it is often the 'review' stage that is delayed or forgotten, as businesses focus on the operational demands of the 'here and now', and plan for future activities. 114 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management How do you improve performance? 1. Improved communication 2. Better utilisation of existing data 3. Increased focus and effort 4. Forecast accuracy (increase accountability for forecasts given) 5. Inventory levels (exit strategy for ageing product lines, monitoring of stock levels) Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 115
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.6 How Do You Transfer Improved Performance to Other Parts of the Business? Once best-practice and performance success has been identified, it is important for companies to be able to transfer that knowledge to other parts of the organisation, thus driving more integrated operational capability. IGD’s international survey therefore asked companies about their current methods for performance sharing. Methods of Performance Transfer 52% Inter-company forums/conventions 48% Participation in multi-unit task teams 28% Rotation of personnel between units 26% External conferences and presentations 24% Organised periodic visits to other units 15% Specialised audit teams Other 13% Industry-wide databases of best-practice 9% Newsletters/video-films 4% 0 10 20 30 40 50 60 Share of use Note - companies can choose more than one method Source: IGD Research, 2006 The above chart shows that the most common method for transferring performance information and best practice is through inter-company forums or conventions, where different parts of the business can meet, up-date and exchange knowledge and information. There is also widespread support for the use of multi-functional project teams and the rotation of personnel around the business. 4.6.1 Formal and Informal Methods In addition to the methods listed in the chart, ‘other’ methods of best practice transfer range from formalised roles embedded in organisational design and structure, through to much less formal methods: 116 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management Formal & Informal Methods of Performance Transfer Formal Global Roles Some organisations have global roles, with accountability for developing, spreading and training best practice solutions. These can take the form of country visits, teleconferences, intranet utilisation and best-practice presentations. Some organisations argue that if the business is managed at an international regional level (e.g. Europe), then improvements become visible to all geographies. Reporting & Weekly or monthly reporting methods, and monthly Meetings steering committee meetings, are used to share performance results and best practice solutions. Multi-Functional These can be a very effective way of driving cross- Project Teams functional understanding and communication, and are essential for many project design and implementation initiatives. Collaborative project teams with the retailer customer can also ensure that strategic goals are aligned. Informal Word-of-mouth Word-of-mouth - but with no specific PR exercises. Source: IGD Research, 2006 Although all of these methods will go some way in achieving best-practice transfer, one of the criticisms against these methods is that the sharing of information, and subsequent learning, initially only benefits the colleagues who were fortunate enough to attend the event, meeting or be involved in the project. A key challenge for any organisation is how to disseminate important best-practice on a wider scale. Interestingly, the use of newsletters & videos and inter-departmental visits is relatively low across organisations. It is likely that a good mix of all of these methods will ensure that organisations are reaching as many colleagues as possible, and are equipping their people to improve current performance.The role of people in enabling best practice in the supply chain is discussed in the next section. © IGD 2006 www.igd.com/supplychain 117
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.7 Enablers of Best Practice in Supply Chain In contrast to the methods for transferring best practice and performance, IGD’s survey asked companies to rank the ‘enablers’ of best practice within the organisation in order of importance, choosing from people through to technology. Enablers of Supply Chain Best Practice People Process Training Clear Key Performance Indicators Technology External Business Examples Other 0 1 2 3 4 5 6 7 8 9 10 Ranking (low to high) Note: Companies can choose more than one enabler Source: IGD Research, 2006 4.7.1 People It is perhaps of no surprise that the role of people in the creation, delivery and transfer of best practice is key for most organisations.The preferred methods of transfer highlighted in the previous section support this view, as most are reliant on both colleagues and industry peers coming together to share information, whether through specific job roles, events, job transfer or project teams. Most best-practice techniques are people- orientated. 4.7.2 Process The importance of clear business processes is also viewed as an important enabler of best practice, whilst training, clear performance targets and technology all play a supporting role. In terms of ‘Other’ enablers of supply chain best practice, open communication, alignment of supply chain with the strategic direction of the company, and data visibility with ‘one-touch’ processing are all mentioned. 118 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.8 Continuous Improvement & Re-Engineering Approaches IGD asked companies to comment on their use of more structured, formalised, external continuous improvement and re-engineering techniques. As many respondents to the survey were from manufacturing companies, one would expect a number of production improvement techniques to be used by leading companies. Use of Continuous Improvement Techniques 9% 20% 41% Business Process Re-engineering Total Quality Management (TQM) Lean Methodologies Six Sigma 20% Total Productive Maintenance (TPM) Other 24% 24% Note - companies can choose more than one technique Source: IGD Research, 2006 As a key element of just-in-time methodology, continuous improvement means making many small improvements in business methods, processes and products in a never- ending quest for business excellence, and invariably involves a strong degree of worker involvement. 4.8.1 Business Process Re-engineering (BPR) The most common continuous improvement technique cited in IGD’s international supply chain survey was the use of ‘Business Process Re-engineering’ (BPR) with 41% of companies saying they used it. This holistic, customer-centric technique involves the analysis of business processes and the planning and implementation of improved processes across business functions. Technology can often play a key part in helping the organisation gather information about the current business organisation, provide workflow and process analysis tools, as well as business modelling and simulation techniques. 4.8.2 Total Quality Management (TQM) Many people in any given organisation will spend much of their time, or indeed all of their time, looking for errors, rectifying errors, dealing with customer service complaints, and re-doing things. Errors have a way of multiplying, as they affect different parts of the supply chain. In response to this reality, Total Quality Management (TQM), which is being used by 24% of companies surveyed, aims to improve the effectiveness and competitiveness of a company by looking at the business as a whole. © IGD 2006 www.igd.com/supplychain 119
  • 4. Best Practice Supply Chain Management Managing International Supply Chains TQM is a continuous improvement initiative that requires every activity and person of an organisation to work together to understand how they affect others, and how others affect them. In addition, TQM is a method of removing waste, by helping different departments communicate more effectively. It is clearly ‘customer’ focused and organisations must ensure that the ‘front-line’ staff, like telephone operators, security staff or financial teams, who are often the first point of contact for a customer, are included in any initiative. Quality cannot remain the sole responsibility of the quality, production, or operations teams. (Source: ‘Production and Operations Management’, Muhlemann, Oakland & Lockyer, Prentice Hall, 1992.). 4.8.3 Lean Methodologies Lean Methodologies, also receiving 24% of company votes, is an all encompassing philosophy based on the Toyota production environment. Also taking a holistic approach to business improvement, it looks at culture, structure and systems: • Waste elimination • Total Quality Management (TQM) • Just-in-Time (JIT) • Supplier integration • Automation • Team working & empowerment ‘Other’ approaches to continuous improvement mentioned by surveyed companies included internal training programmes on continuous improvement and strategy development. Equally, it was also recognised that sometimes there was no formal process method used at all: “Whilst supply chain performance majors on operational excellence – above all customer service and minimising product wastage - analytical processes to identify and implement longer-term improvements are not emphasised as much as they could be.” – FMCG Supplier It is true to say that whilst many companies have transformed their entire production environment to become a 'lean organisation', IGD believes the competitive edge is now firmly with a "lean supply chain", bringing synergies with external suppliers and customers, as well as driving continuous internal improvements. 120 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.9 Best-in-Class Companies Whilst it is important for organisations to share information and drive best practice internally, through both formal and informal methods, it is also important for companies to look externally to other companies, and understand what they do differently that supports their success and position within the industry. In this way, IGD asked those companies surveyed to share their thoughts on those retailers, manufacturers and service providers who could be admired and considered as ‘best-in-class’ examples. It is fair to say that best practice can also be gained from companies who are not trading in the same sector, particularly in terms of logistics expertise, as the best performing supply chains are not necessarily those of one’s direct competitors. 4.9.1 Which Retailer Do You Most Admire? Most Admired Retailer 39% 40% 30% 21% % Vote 20% 10% 5% 5% 0% Tesco Wal-Mart (inc. Asda) Aldi/Lidl Ikea Name of Retailer N.B. - The remaining percentage (30%) was made up of a mix of retailers from Carrefour, Dell, Inditex, Louis Vuitton, Marks and Spencer, Mercadona, Sainsbury’s and Waitrose. Source: IGD Research, 2006 Winning Characteristics for the 'Leading' Retailer 1. Growth (Sales & Profitability) 2. Strong customer focus 3. Integrated supply chain 4. Distinct business model 5. Strong collaborative relationships Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 121
  • 4. Best Practice Supply Chain Management Managing International Supply Chains Tesco by far, with 39% of replies, came out top of the list of most-admired retailers. The continued sales and profitability growth, focus on the shopper, and clear strategy, is helping drive the success of the Tesco brand across international markets: Name of Retailer Reason • "Focus and will to win" • "Continuing growth" • "Business strategy - always one step ahead of their competitors" • "Focus on the end customer and engineering the business to deliver most effectively against their needs" • "Single-minded customer focus and continuity of strategy" • "For its application of the lean methodology to distribution" • "Both in service and cost - probably the most logistically sophisticated retailer in the world" Source: IGD Research, 2006 The second most-admired retailer in the survey was the international retailing giant that is Wal*Mart. With 21% of the votes, the global company has critical mass and focuses heavily on the use of technology and processes to increase the efficiency of its operations. Name of Retailer Reason • "Very efficient" • "Learns from mistakes" • "Their collaborative approach - engaging suppliers to want to succeed together" • "Flexibility of the supply chain, and integration of the supplier in the supply chain" • "They have incorporated technology as an aide to everyday business, and they will help (the supplier) to achieve similar goals, by providing the information you need when you need it." • "Very good model for end-to-end supply chain transparency" Source: IGD Research, 2006 A selection of retailers scored similarly, with 5% of the vote each, including the discounters Aldi and Lidl – who were often listed together and the non-food Swedish international retailing giant Ikea. There is a focus on brand clarity and supply chain excellence. 122 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management Name of Retailer Reason • "Clear understanding of their existing customer-base, and have successfully stretched their brand by innovative assortment, international expansion, exploiting the weaknesses of their full- service retail competition, and have good long-term relationships with suppliers" • "Most efficient, professional business model and cross-border implementation" (Lidl) • "A distinct and unique brand in an homogenous market, supported by logistics on a grand and effective scale" • "Complete control of all parts from the trees to the use of pieces of furniture in the home" Source: IGD Research, 2006 There were a number of other individual retailers covering a selection of grocery, general merchandise and technology retailers from around the world, including Target, Mercadona, Inditex and Dell. This grouping also focused on the higher-end of the market, with retailers such as Marks & Spencer, Louis Vuitton, Sainsbury’s and Waitrose. Carrefour was mentioned as having the closest strategic and operational ‘fit’, in terms of market presence and logistics infrastructure. Name of Retailer Reason • "Market commonality and supply chain closeness" • "Completely reinventing the supply chain, enabling individually- bespoke products to be delivered with an incredibly short lead- time" • "With its Zara format it has the shortest lead-times in the fashion industry" • "Profitable, desirable, crystal-clear profile, never on sale" • "For their simplicity" • "For their five mission definition and implementation - customer, employee, supplier, society and capital" • "Really turning things around, and are a pleasure to work with" • "Very strong business continuity planning" • "Profit without pillage" Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 123
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.9.2 Which Manufacturer Do You Most Admire? When choosing a best-in-class manufacturer, the survey showed that success was much less homogenous than with the retailers, and that with the exception of Procter & Gamble, with 30% of the vote, few other suppliers attracted several votes. This apparent lack of recognition for some of the industry’s leading manufacturers could be due to the fact that there are more of them, or compared to relatively few large-scale international retailers; or a reluctance from the respondents (whom manufacturers form the majority) to accept that one’s competitor could be better than one’s own company. Winning Characteristics for the 'Leading' Manufacturers 1. Innovative 2. Effective brand management 3. Speed-to-market 4. Excellent customer management 5. Scale and agility of supply chain Source: IGD Research, 2006 Name of Supplier Reason • "Overall business organisation for customer management, and brand development capabilities" • "Very proactive in many supply chain areas, and clearly value it highly within the organisation" • "17 different countries/languages on the Swiffer pack!" • "Leading edge and scale in every market with very good shareholder value" Source: IGD Research, 2006 The predominance of Procter & Gamble in the poll is perhaps not surprising when one considers the company’s impressive international presence and brand awareness, even in developing markets in China, Russia and South America. That brand development, combined with supply chain scale in every market, means that P&G are viewed as being leading-edge and proactive in driving their business. 124 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management Name of Supplier Reason • "Not the biggest, not the smallest, but agile" • "Maintaining a very competitive supply chain, while broadening their range and catering for B2B contract trade, as well as encompassing B2C direct deliveries" • "The way they manage their international relations with retailers, and their marketing success" • "Masters at managing differentiation and complexity" • "(I) like the business ethics and marketing" • "Always a first-mover in relation to high ethical standards in toys" • "They have turned their market around and are innovative in every way from product through to packaging and marketing" • "Flexibility & Marketing expertise" • "Brilliant identification of an NPD opportunity, superb creation of a brand position suited to the modern trend for extreme sports, youth excitement…enables it to command a brand premium" • "Good international supply chain, and investment in the future through their Supply Chain Academy" Source: IGD Research, 2006 4.9.3 Which Service Provider Do You Most Admire? It is fair to say that there were not a large number of nominations in this category, and no overall preferred provider. One can assume that this may be due to the variety of providers in the market, and that the companies in this sector do not always have best- in-class service and cost-base in every market and every supply chain in which they operate. There are often more local players who are best able to suit the local market needs, and who have stronger relationships with the local customer base. Winning Characteristics for the 'Leading' Service Providers 1. Efficient and cost-effective 2. Innovative 3. Great customer service 4. Tailored solutions 5. Sound operational delivery Source: IGD Research, 2006 © IGD 2006 www.igd.com/supplychain 125
  • 4. Best Practice Supply Chain Management Managing International Supply Chains In terms of logistics providers, the market is still highly fragmented and even the larger players do not always have full international coverage, so that smaller local firms are able to be more competitive. Some international retailers and manufacturers will exploit those differences in service offering by using a variety of logistics firms across different markets. This strategy aims to gain the best total supply chain performance, whilst ensuring that the additional complexity created is not to the detriment of the total benefit. Name of Logistics Reason Provider • "True national shared user" • "A professional approach in a broadly unprofessional sector" • "Great start-up of a new DC in France" • "A very efficient and cost-effective transport network for Central Europe" • "Offering multi-modal distribution and although relatively new to contract haulage have quickly established themselves as category leaders" Source: IGD Research, 2006 126 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.10 Top Supply Chain Projects Although the supply chain issues cited throughout this report are varied in their nature, IGD’s research also indicates many opportunities for improvement in managing international supply chains. Opportunities for Supply Chain Improvements • Operational initiatives within and between organisations • Strategic opportunities in trading markets • Changes to the current legislative environment • Infrastructural investment • Closer working relationships between supply chain partners Source: IGD Research, 2006 In this way, in terms of highlighting current solutions to help improve the working environment for companies trading internationally, IGD’s survey asked respondents for details of their current supply chain initiatives. Focus of Top Supply Chain Initiatives 1. Demand planning and forecasting 2. Cost management 3. Inventory management 4. Customer Service 5. Production, warehousing and distribution 6. Availability 7. Retail Ready Packaging 8. Data issues and Technology Source: IGD Research, 2006 4.10.1 Demand Planning and Forecasting Improvements in demand forecasting and planning are by far at the top of the supply chain agendas for most of the companies surveyed. This result leads IGD to believe that there are significant opportunities for supply chain efficiencies in this area. • Many companies are looking at ways to improve current practices - “improving the resource and commitment to demand planning”, “improving the S&OP process”, “Seasonal forecasting”. • Increasing the degree of collaboration with retail customers through collaborative planning, forecasting and replenishment (CPFR) and even vendor-managed inventory initiatives (VMI) - “pallet size and order size optimisation”, “forecast collaboration”. • Simple internal business alignment projects - “improvement in customer service by the Sales team owning the sales forecast and up-dating it on a real-time basis”. • A greater role for technology solutions providers - “More effective demand management, including the integration of new software”. © IGD 2006 www.igd.com/supplychain 127
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.10.2 Cost Management Cost initiatives are the second most-cited supply chain focus for those companies who participated in IGD’s survey. With constant competitive pressures, demands for lower prices, difficult trading conditions in some markets, and increasing external business costs (e.g. fuel costs, legislative framework), companies are having to continuously re- evaluate their cost base, and ensure that their supply chain is as lean as possible. Some of the techniques listed by companies include: • Cost to serve to determine true customer profitability • Activity Based Costing cost allocation for different product groups • Continuous tendering for cost reductions • Further supply chain integration to maximise efficiencies and cost reduction • Waste reduction 4.10.3 Inventory Management Although considered part of a cost management process, stock management in its own right has also been cited as a key area of focus for the international supply chain. This could be in terms of stock reduction initiatives and lean deployment, a reduction in the amount of work-in-progress (WIP) through better production processes, or improving the way that inventory is managed via an information system. Supply chain optimisation is the aim of the stock management process, so that inventory can be as low as possible, but high customer service levels are maintained. 4.10.4 Customer Service It is fair to say that excellent customer service is fundamental to any successful trading relationship. Whether through creating multi-functional customer teams, aligning global customers into global account management initiatives, or making operational improvements to ensure a faster time-to-market, outstanding customer service is paramount, and yet continues to challenge even the most sophisticated of international companies. 4.10.5 Production, Warehousing and Distribution Operational supply chain improvements also feature within the survey of top supply chain initiatives. While some companies mention a move to global manufacturing capability, others are looking at ways to consolidate the physical network by reducing the number of distribution centres or tendering existing contracts. Transport projects are a key focus for many companies, and include sourcing a single supplier for transport, general cost management, as well as the need to improve the effectiveness of existing contracts, particularly in the area of export administration. An increase in factory-gate collections, twilight deliveries and ‘drop & go’ initiatives for retailers are also mentioned. 128 www.igd.com/supplychain © IGD 2006
  • Managing International Supply Chains 4. Best Practice Supply Chain Management 4.10.6 Availability and Retail Ready Packaging These two areas have been cited by a large number of survey respondents as key areas of focus for the international supply chain teams. IGD believes these topics will continue to dominate discussions in the food and grocery supply chain for the foreseeable future, as companies improve their supply chain visibility and retailers in particular drive forward their in-store replenishment improvement initiatives. In an aim to improve on-shelf availability, many projects will include moves to increase the use of different forms of retail ready packaging. Guidelines and standards in this area will go some way to increasing the speed of adoption, as well as wider adoption by international retailers across many markets. 4.10.7 Data Issues and IT Improvements Technology within the international supply chain focuses on a variety of topics, from the adoption of RFID, through to the implementation of new ERP systems, data alignment projects with retailers, and the improvement in management information, particularly for production planning and forecasting. Investments in new IT tools can be a key part of any supply chain efficiency programme, whether by improving operational effectiveness, or increasing visibility of the chain for improved customer service. For global manufacturers, data alignment can be considered as the foundation, or building block, for many other supply chain initiatives, as good basic data will help ensure that other processes work more efficiently. © IGD 2006 www.igd.com/supplychain 129
  • 4. Best Practice Supply Chain Management Managing International Supply Chains 4.11 In Summary Getting the right stock to the right place, at the right time, and in the right quantity may be an old adage, but it continues to be the basis for all good supply chain practices, and also continues to challenge many companies in the industry, both large and small, retailers and suppliers alike. With the ultimate goal being shopper satisfaction, further collaboration in the industry through better management of the international supply chain will be a powerful tool in delivering higher sales, lower costs, and excellent customer service. Where organisations still have a compartmentalised view of the supply chain, there are still many challenges in driving strategic alignment and real end-to-end capabilities. Collaboration can be limited, and the primary focus of the external trading relationship is simply to get the product to the retail customer. Once in the retailer's possession, what then happens to the product remains, for some at least, the domain of the retailer. Although some companies are generally taking more of a holistic view to supply chain management, both internally and externally to the organisation, and they understand the key role that the manufacturer can play in ensuring their product reaches the shopper, it is true to say that this is not the case for all. Although 'best-in-class' can represent something slightly different for a retailer (collaborative), a supplier (brand management) or a service provider (cost effective), there are also some distinct similarities across the end-to-end supply chain for a winning business formula. The companies that came out on top of the IGD international supply chain poll all show elements of the following key characteristics in their business models: Winning Characteristics 1. Strong customer focus 2. Operational delivery 3. Innovation Source: IGD Research, 2006 Overall, IGD's Managing International Supply Chains report has identified few differences between retailers and manufacturers in terms of their key supply chain projects, which certainly suggests a degree of supply chain alignment.Whilst improved availability is 'top of mind', so is reducing stock levels, delivering less stock more frequently, and shortening the time to market. Highlighted through the vast array of case-studies and examples in this report, the challenges for managing international supply chains can be significant, and indeed the solutions many, but IGD believes that closer industry collaboration will help companies overcome many of the barriers to delivering world-class international supply chains. 130 www.igd.com/supplychain © IGD 2006