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  1. 1. 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
  2. 2. Report Managing International Supply Chains Identifying best practice across borders
  3. 3. © 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.
  4. 4. 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
  5. 5. 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
  6. 6. www.igd.com/supplychain © IGD 2006
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. www.igd.com/supplychain © IGD 2006
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. iv www.igd.com/supplychain © IGD 2006
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. 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
  34. 34. 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
  35. 35. 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
  36. 36. 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

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